True Confusion: China Anti-counterfeiting Strategy of True Religion Puzzles Me

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I think with some brand owners, who are understandably frustrated with counterfeiters, there is a tendency sometimes to put some numbers up on the scoreboard, even if the entire exercise is meaningless. Such was my reaction to this story in the LA Times:

Southern California designer jeans maker True Religion Apparel Inc. has won a $864-million court judgment against online Chinese counterfeiters, but actually getting that money will be a battle.

The Vernon company, whose jeans can go for nearly $500, sued 282 websites originating from China and accused them of lifting company trademarks and peddling fake goods. The websites had names such as TrueReligion4Cheap.com and ForTrueReligionJeans.com.

The defendants were a no-show in court, so the New York federal judge handed down a default judgment this month. The websites were shut down. Each defendant was also ordered to pay $8.15 million and any similar websites they created in the future will also be closed.

The writer of the story was wise enough to include a bit of skepticism way up front. Indeed, this was the excerpt that ran under the headline:

The Vernon company, whose jeans can go for nearly $500, had sued 282 websites originating from China. But collecting the $864-million court judgment will be a battle.

Absolutely.

Let’s review. U.S. brand owner identifies several web sites (some, if not all, are .com domains) that traffic in counterfeit True Religion apparel. Brand owner files suit against these guys, they don’t show up in court, and the plaintiff gets a default judgment. Web sites are shut down, game over.

As the article correctly points out, collecting on that default judgment is a problem. In fact, I would have used stronger language, since enforcing a foreign court judgment in China is not possible. It’s absolutely not going to happen, so any amount that was awarded by the court to True Religion is irrelevant.

And just to be clear, this is not a case of a stupid lawyer blithely suing a Chinese company in a U.S. court “by mistake,” not knowing that enforcement was impossible. From the article, it seems clear that True Religion’s general counsel knew exactly what she was doing, at least in the sense that she understood the limitations of that default judgment.

So what was she trying to accomplish? Keep in mind that there are alternative procedures for dealing with sites whose domain names incorporate others’ trademarks. I guarantee you that True Religion explored this alternative before settling on federal court as the proper venue. I don’t agree with their conclusions, but I’m sure they had that discussion.

Here’s her justification:

[General counsel] Greaves said the judgment serves as a warning to other knockoff artists: “Hey, we can still get to you, we can take you down.”

Wait, what? Now I’m getting confused. If this litigation was designed as a scare tactic, which is a fairly common anti-counterfeiting strategy, what was the message to would-be bad guys out there?

Sorry, but if I’m one of these counterfeiters, or a wannabe waiting in the wings, I’m laughing my ass off. Yes, True Religion succeeded in having these sites shut down. I would suspect, however, that the counterfeiters were well aware of this possibility and have contingency plans for getting up and running through alternative channels quite soon.

But hold on, didn’t the court judgment say that not only these sites would be shut down, but also ” any similar websites they created in the future will also be closed”? Doesn’t that preclude these guys from getting right back into the game? It might, if you can tell me who “these guys” are.

Even general counsel Greaves admits that the identity of the counterfeiters is a problem:

“It’s not unusual to give false names and false addresses when registering these sites,” she said. “They can hide behind the Internet and open up new accounts somewhere else.”

Right. So shutting them down when they set up new sites under completely different names/contact information is going to be a separate set of disputes, I would suspect.

To sum up: sites shut down temporarily, no damages paid, no criminal penalties. Explain to me again what the big victory here is for True Religion and how this could in any way discourage others from joining in the counterfeiting fun? Where’s the intimidation factor?

Look, it’s nice to have a win, and it’s great to publicize it (especially to your Board of Directors!). But when that win is practically useless, it’s hard to justify the expense and effort, particularly when cybersquatting actions are so quick and cheap these days. (I’m assuming there was an alternative action here against the domain names.)

These are the kinds of legal strategies that sound great on paper and make you feel good when the verdict is read. That good feeling lasts about five minutes, and then reality sets in.

4 responses on “True Confusion: China Anti-counterfeiting Strategy of True Religion Puzzles Me

  1. Brian

    Didn’t Gucci do something similiar, but was actually able to freeze Bank of China accounts through a preliminary injunction issued to the New York branch of BoC? Would you call that a success, or just as farcical as the True Religion action?

    Would love to hear your comments on how the two cases differ.

    1. Stan Post author

      If the news on this case included even a tiny hint that there were onshore (U.S.) assets in play, I would of course withdraw my criticism. But that certainly doesn’t appear to be the case here. I don’t even think they know who these infringers really are.

  2. H.Z.

    Gucci case is interesting:
    http://www.gibsondunn.com/publications/pages/NewDecision-TrademarkOwnersCanCompelProductionofCounterfeitersBankRecordsfromChina.aspx

    In theory Gucci got the court to go a long way in its favor. In reality it is still not clear how it can be enforced. Someone has commented that since BoC is not a defendant the injunction (asset freeze) is not binding on it? Presumably it is binding on the real defendants to not dissipate the frozen assets but BoC is not obligated to be the enforcer. And for document production, okay BoC NY is obligated to send a request to some Chinese branches for documents, what if the Chinese branches then respond by saying that they are not allowed to forward information; or worse that they looked and they couldn’t find any relevant documents? I am not saying that BoC should help the counterfeiters but it seems futile to do this without their good faith cooperation.

    1. Stan Post author

      I would like to see something happen on the documents issue. Just curious how that would be resolved. Some uncharted territory here.