On October 7 of last week, several news services picked up on the September 29, 2015 order of Judge Richard J. Sullivan in the Southern District of New York in the long running battle of Gucci America, Inc., et al versus Weixing Li et al (No. 10 Civ. 4974).  In his recent decision, Judge Sullivan decided to compel the Bank of China to produce documentation regarding its customers that were selling counterfeit versions of luxury products on-line in 2010 (2015 U.S. Dist. LEXIS 131567).

Earlier decisions in this long-running battle have been discussed on this blog.  This decision responds to the remand by the Second Circuit (the intermediate appellate court) (Gucci Am. v. Bank of China, 768 F.3d 122, 2014 U.S. App. LEXIS 17948 (2d Cir., 2014) ) of the earlier August 23 and May 18, 2011 orders of the court (the “Orders”) which required BOC to comply with a 2010 Subpoena and asset freeze motions and denied BOC’s cross-motion to modify the injunction to exclude assets held by BOC in any of its locations in China.  On November 30, 2011 BOC filed a motion for reconsideration of the Orders based on a letter received from the People’s Bank of China and the China Bank Regulatory Commission regarding application of China’s bank secrecy laws to disclosures of customer information outside of China, the efficacy of China’s commitment to using the Hague Convention for judicial document requests, and the possibility of sanctions being imposed on BOC by reason of compliance with the Orders.

On September 23, 2014, the Second Circuit affirmed the Court’s injunction but vacated the Orders to consider whether the court had specific, personal jurisdiction over BOC and whether exercising such jurisdiction is consistent with principles of comity in light of recent Chinese court decisions involving BOC and some of the defendant/counterfeiters in this action.

Judge Sullivan concluded, based on evidence presented, that the BOC has shown “purposeful availment of New York’s dependable and transparent banking the system… and the predictable jurisdictional and commercial law of New York and the United States”  He based his determination in particular on the fact that BOC provides banking services to individuals in China and the United States, including through use of a correspondent account at a New York bank to conduct secure, efficient and quick wire transfers.    BOC’s conduct in New York was found to be not “random, isolated or fortuitous”, satisfying New York requirements for minimum contacts with the jurisdiction.  In sum, BOC’s subsidiaries in New York did not insulate the parent company from exposure to the courts in New York for conduct undertaken there as there was a sufficient direct jurisdictional nexus to BOC.

With respect to New York’s interests in adjudicating this dispute, Judge Sullivan noted that apart from New York’s manifest interest in providing effective means of redress for its residents, which include several notable luxury good companies that are incorporated in New York and have a principal place of business there, New York also had an interest because “allegedly ill-gotten gains” were routed through New York, and the litigants have a strong interest in compliance with discovery obligations.  Finally, Judge Sullivan noted that New York and the United States “ha[ve] a powerful interest in enforcing the acts of Congress, especially those, such as the Lanham Act, that are design to protect intellectual property rights, and prevent consumer confusion.”  In fact, Judge Sullivan found these Lanham Act interests so important, he repeated them twice in his opinion.

With regard to the discovery requests, Judge Sullivan concluded that “Hague Convention requests in circumstances similar to those presented here are not an available alternative method of securing the information [Gucci] requests.”  The Court thereafter ordered BOC to produce all documents requested in the 2010 and 2011 subpoenas, including all documents and communications regarding defendants on their accounts, and all documents associated with any accounts or deposits held in any defendants’ name, and all documents related to negotiable instruments obtained by defendants.   The court’s approach to use of Hague Convention requests is similar to that of my former student, Minning Yu, who, in her note in the Fordham Law Review “endorse[d] a presumption against the Hague Convention whenever cooperation from the foreign sovereign is unclear… [T]his policy will incentivize sovereign states to be more accommodating with their handling of foreign requests for evidence and any conflicting laws that might hinder such production.”

Sadly, Judge Sullivan’s decision provides additional support for those who believe China is doing little to address global counterfeiting, and that Chinese authorities are unwilling to cooperation on case-specific matters.  Judge Sullivan noted that BOC, in addition to failing to prove that Hague Convention requests are a viable alternative to discovery, failed in its submissions to address “the clear and obvious harm caused by counterfeiters to mark holders” and “the fact that such counterfeiters have deliberately utilized institutions such as [BOC] to thwart Congress and the reach of the Lanham Act.”

With a one-year plus average response time to Hague Convention requests, as well as reservations by China concerning the type of information it will produce, requesting comprehensive time-sensitive information via a Hague Convention request is, of course, not likely to be satisfactory.  This is especially true in China, where first instance civil litigation is typically concluded within six months and has been used by Chinese litigants to get a strategic advantage in transnational litigation.  Of course, US discovery demands can also be excessive and costly and are easily misunderstood by foreign litigants.   However, almost anybody who has used the internet necessarily understands that on-line infringements demand timely enforcement responses.  Moreover lack of cooperation on trademark-related matters undercuts the important policies set forth in China’s revised trademark law (2013) which recognizes that institutions that facilitate infringement can be held liable along with their counterfeiting partners (Art. 57) and that certain types of pre-trial evidence production regarding damages should be made available to plaintiff/victims (Art. 63).

The bottom line: Had BOC or a Chinese court sought to enhance China’s reputation on intellectual property, they might have shown a greater willingness to cooperate on discovery requests, to enable a Hague Convention request to be handled in an expeditious manner with a robust response, or otherwise taken pro-active steps to settle this matter such as by addressing brand owners concerns during the five years that this matter has been pending.  Such efforts could have helped to avoid future liability by BOC under Chinese law, helped address on-line counterfeiting,  support enhanced judicial cooperation between our countries,  and help address the perception that China has institutions that “deliberately thwart” anti-counterfeiting legislation in the United States.  While aggressive discovery tactics are of concern to many overseas litigants, the “thwarting” and delays of this case are also particularly concerning in light of increased efforts at judicial cooperation, including some limited enforcement of Chinese judgements in the United States (see my presentation, referenced below), a forthcoming program of the Federal Circuit Bar Association and other efforts.

How is this case being perceived in China?  I was fortunate to be able to discuss this and other decisions at the recent US-China IP Conference held at Berkeley, in the context of a presentation on “When IP Systems Collide – True Adventures in Foreign-Chinese Judicial Interaction.”   My presentation generated some interest by Chinese scholars and practitioners who may not have been fully aware of the numbers of cases overseas involving Chinese litigants.

I hope we can do better in the future.