A federal district court in the Northern District of Illinois has refused a request by certain defendants accused of trademark counterfeiting to release funds frozen in PayPal accounts and to increase the amount of a bond posted by the plaintiff in the case. The case highlights an uptick in challenges to financial asset restraints by defendants and nonparties in trademark counterfeiting cases and the discretion courts have in setting an appropriate bond to protect defendants in such cases.
Brand owner Monster Energy Co. (“Monster”) sued hundreds of defendants, alleging that the defendants were offering counterfeit goods for sale on internet stores. A TRO later converted to an injunction required nonparty PayPal, Inc. to locate all accounts and funds connected to the defendants, defendants’ online marketplace accounts or websites, and to restrain and enjoin any such accounts or funds based in China or Hong Kong from transferring or disposing of any money or other assets until further ordered by the court. Id. at par. 8. Accounts were frozen/seized under the ex parte (without prior notice) seizure provisions of the Lanham Act.
Two defendants (“L and M”) moved to dismiss the complaint for lack of personal jurisdiction, sought to release the frozen funds and require Monster to post a bond higher than $10,000. The court denied all of the requested relief.
As to personal jurisdiction, the court found that the “defendants’ offers to sell counterfeit [goods] on their Internet stores constitute[d] tortious activity committed in Illinois sufficient to establish” specific personal jurisdiction. The court noted that L and M: (i) offered to sell products to individuals with Illinois shipping addresses; (ii) provided PayPal account information to individuals with Illinois shipping addresses to facilitate purchases; and (iii) affirmatively selected a shipping template to ship counterfeit products to United States and Illinois residents, thereby electing to do business with residents of all 50 states, including Illinois.
The court determined that given the court’s jurisdiction over the defendants, the funds in the defendants’ Paypal accounts were properly frozen. The court refused to modify the injunction to limit the seizure to amounts traceable to the alleged infringement. The court explained that to exempt assets from a freeze, defendants were required to present proof that particular assets were not the proceeds of counterfeiting activities, which they failed to do.
The court also denied L and M’s request to enlarge the $10,000 bond. The court noted that “[t]he purpose of an injunction bond is to compensate the defendant, in the event he prevails on the merits, for the harm that an injunction entered before the final decision caused him.” L and M argued that the bond should be at least $5,000 per defendant, which given the number of named defendants would result in an amount much higher than $10,000. But, the court rejected this argument, stating that the burden of establishing the bond amount “rests with the party to be restrained, who is in the best position to determine the harm it will suffer from a wrongful restraint.” In the court’s view, L and M did not provide evidence demonstrating the financial damage they would suffer from the injunction while the case was pending. However, the court did not address in its opinion whether the bond was adequate under 15 U.S.C. § 1116(d)(4), which bars a court from granting a seizure order unless the applicant provides security adequate to pay such damages that any person may be entitled to recover as a result of a wrongful seizure.
To support its refusal to enlarge the bond, moreover, the court relied upon a number of opinions including a Wisconsin breach of contract case brought against two defendants. But, none of these decisions involved a large scale ex parte seizure involving five hundred defendants. In the future, we may see a judicial opinion squarely addressing whether calculation of the bond amount (in connection with either a TRO or an injunction) in a hundred plus-defendant trademark counterfeiting case should take into account both (i) the number of defendants and (ii) the total amount seized from all defendants.