NBA Properties Lands Slam Dunk in Intellectual Property Win Heard Around the Globe
NBA Properties, Inc. (“NBAP”), the exclusive licensee of the National Basketball Association (“NBA”) and NBA teams’ distinctive trademarks, along with other major professional sports trademark rightsholder plaintiffs, deftly navigated procedural issues to a Seventh Circuit win on personal jurisdiction in a trademark infringement and counterfeiting action. In an unwavering opinion, the Seventh Circuit affirmed an Illinois district court’s default judgment against HANWJH, a foreign-based online retailer, ruling that it is subject to specific personal jurisdiction in Illinois when purposefully offering and shipping even one product to an investigator in that state. (NBA Properties, Inc. v. HANWJH, 46 F.4th 614 (7th Cir. 2022)). This procedural win – particularly over a foreign-based seller of counterfeit products – is notable for rightsholders that want to guard the basket against knockoff goods on e-commerce platforms and hold sellers responsible for unauthorized use of the holders’ marks.
In December 2020, NBAP brought a trademark infringement and counterfeiting action against a host of overseas online retailers and their seller aliases, including defendant HANWJH, alleging the sale of counterfeit merchandise bearing NBA and NBA team marks. NBAP contended that the intentional use of the marks was designed to mislead consumers into believing that they were buying authentic merchandise. According to the complaint, the various overseas online retailers are interrelated entities and fraudulently register seller aliases by providing misleading and/or incomplete information to e-commerce platforms. Moreover, the complaint alleged that these retailers facilitated sales of counterfeit products by designing their e-commerce stores to appear to be authorized retailers, including “by copying the layouts, terms of service, legal notices and/or contact information found on the websites of [NBAP’s] authorized online retailers.” As part of the pre-suit investigation, an NBAP investigator accessed HANWJH’s online Amazon store and purchased a pair of basketball shorts for delivery in Illinois. HANWJH processed the sale and the product was delivered. Following receipt, the investigator filed an affidavit that HANWJH sold 205 infringing products (41 different basketball shorts in five sizes), available for purchase in Illinois, on its Amazon page.
NBAP called foul and, on December 18, 2020, filed a complaint against HANWJH and other foreign online retailers alleging two Lanham Act (15 U.S.C. § 1051, et seq.) claims, one for trademark infringement and counterfeiting (§ 1114) and one false designation of origin claim (§ 1125(a)), for infringing NBAP’s trademarks by selling counterfeit products in its online stores. The plaintiffs sought an order for money damages and injunctive relief – including a request for an order transferring domain names hawking unlicensed merchandise, disabling stores on e-commerce platforms, and permanently barring infringing activities involving the plaintiffs’ marks.
Defendant HANWJH called time and moved to dismiss the complaint, principally on jurisdictional grounds. HANWJH argued that it did not expressly aim any conduct at Illinois, and its only contact with the forum was related to what it deemed the “sham” transaction initiated unilaterally by NBAP. In making its case, HANWJH argued that: 1) it has no presence in Illinois and the mere operation of its website is not enough to establish commercial activity in the forum; 2) a single transaction through its website is insufficient to establish specific jurisdiction in the Illinois forum; and 3) ruling in favor of NBAP would offend traditional notions of fair play and substantial justice.
The district court was unpersuaded, denying the motion to dismiss in July 2021. In laying out its reasoning, the lower court found that “minimum contacts” with the state can be established when a product is sold through a website that allows customers to ship and receive said product. The court further opined that NBAP’s reasons for purchasing the allegedly infringing products were not relevant to the personal jurisdiction analysis and the traditional notions of fair play and substantial justice were not violated. HANWJH willingly shipped an allegedly infringing product to Illinois and thus purposefully availed itself of the privileges of conducting business in the forum. HANWJH appealed the decision to the Seventh Circuit.
In August 2022, the appellate court affirmed the lower court’s order, finding that the exercise of specific jurisdiction over HANWJH in Illinois was proper. After reviewing the “minimum contacts” principles established by International Shoe and its progeny, and applying them to the facts of the contacts in this case, the court found multiple reasons why HANWJH’s conduct was purposefully directed at Illinois. According to the court, HANWJH established an online store using a third-party retailer, Amazon.com. Through this online store, HANWJH asserted a willingness to ship goods to Illinois. When NBAP placed an order, HANWJH filled the order, and intentionally shipped an infringing product to the NBAP investigator’s designated Illinois address.
HANWJH unsuccessfully argued that NBAP’s agent manufactured jurisdiction by purchasing, through a single transaction, an infringing product. Making short shrift of this, the court reasoned that HANWJH targeted the Illinois market through its own activities and that NBAP’s motivations for purchasing the item were irrelevant. Instead, the court focused on whether HANWJH purposefully directed its conduct at Illinois, not whether NBAP purchased “enough” items. The Seventh Circuit reasoned that NBAP’s claims did not stem from a unilateral act of NBAP, rather HANWJH shipped a product to the forum after inviting orders from customers in Illinois and developing the capacity to fill said orders. Shutting down HANWJH’s fast break, the Seventh Circuit found that HANWJH “cannot now point to its customers in Illinois and tell us, ‘It was all their idea.’”
The Seventh Circuit also stated that “the proper exercise of specific jurisdiction also requires that the defendant’s minimum contacts with the forum state be ‘suit-related.’” Finding this satisfied, the court held that HANWJH met the threshold of relatedness for specific jurisdiction when it displayed listings of allegedly infringing products on Amazon and sold and shipped one product to Illinois. Here, the court found that HANWJH’s listing and sale of a product online were related sufficiently to the harm of likelihood of confusion under the Lanham Act.
After establishing purposeful minimum contacts, the court ran through the factors of fair play and substantial justice. These included: the burden on the defendant, the forum state’s interest in adjudicating the dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of the underlying dispute and the shared interest of the several states in furthering fundamental substantive social policies. In its fourth quarter attempt to salvage its procedural argument, HANWJH emphasized Illinois’ allegedly weak interest in adjudicating this dispute. To this end, HANWJH characterized itself as a foreign party with only one documented sale in Illinois and highlighted that NBAP’s principal places of business were outside Illinois. The court swatted away this full-court heave, noting that it is fair for a seller to defend a suit in a state where it structured its business to “easily serve the state’s costumers” and “continues to gain so much.” The court noted that NBAP, regardless of its principal places of business, had an interest in protecting its trademarks against confusion in Illinois and that HANWJH did not allege an unusual burden in defending the suit in the state.
By offering and shipping a product to Illinois, HANWJH was deemed to have availed itself of the Illinois market. Since it was found to have purposefully directed its actions towards Illinois, and there was no countervailing lack of fair play and substantial justice, the court found HANWJH was subject to specific personal jurisdiction in Illinois. Because of this, the Seventh Circuit affirmed the district court’s judgment and NBAP’s litigation victory. However, right before the buzzer sounded, HANWJH hurled a half-court shot, and on November 14, filed a petition for certiorari with the Supreme Court to review the Seventh Circuit’s decision.