Intellectual Property

China At Your Service

The challenges of serving Chinese companies have surely had a deterrent effect on IP owners hoping to bring suit against those companies for infringement.

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(Photo by Kevin Frayer/Getty Images)

If we needed a reminder of how our world has shrunk, the current coronavirus scare has provided one in spades. While the locus of the concern over spread of the sickness is squarely centered in Wuhan on China’s mainland, the effects are undoubtedly global, with personal ramifications for people around the world, including my little corner — Brooklyn, New York. Put aside the news coverage of cruise ships docking just across the Narrows in Bayonne, New Jersey, with passengers needing medical assistance to disembark. Or the visible presence of Chinese-Americans wearing face masks alongside me on the F train into Manhattan. My immediate family has already been affected, with both my father and brother needing to cancel important business trips to China. It is still unclear whether the flow of goods from China to the United States will be substantially affected, as Chinese factories and businesses hesitate to bring their workers back after the long Chinese New Year holiday period.

The impact of the current China slowdown has also affected our IP clients, as our firm has a number of ongoing client matters with Chinese counterparties. Negotiating with domestic Chinese companies has long been a challenge. The current conditions have made things that much harder, with serious questions about whether those businesses are even open — much less in a position to deal with IP issues arising out of their commercial activity in the United States. While these concerns pale next to the loss of life and the ongoing struggle of those living under quarantine, they help to illustrate the interconnectedness of today’s global economy, as well as China’s central role in serving the US consumer the goods that our economy is built on consuming.

While the gap between the US and China has grown wider due to the coronavirus scare (at least in terms of ongoing commercial activity that is under threat until China returns to normal), an ongoing legal trend in IP disputes has in its own way made that gap seem a bit smaller. Especially for owners of US IP rights, who have long encountered challenges serving domestic Chinese companies in IP disputes filed in the US. In the traditional example, Chinese companies have traditionally been well-positioned to avoid being served with US IP complaints, aided at least in part by the Chinese authorities and their demands for strict compliance with the Hague Convention for international service of process. In fact, a well-worn tactic for smaller and midtier Chinese companies that do business in the US but are concerned about IP lawsuits has been to avoid opening offices in this country, so as to force any prospective plaintiffs to serve under the Hague Convention — thereby almost guaranteeing a six-month to two-year delay in an IP dispute even kicking off.

The challenges of serving Chinese companies have surely had a deterrent effect on IP owners hoping to bring suit against those companies for infringement. Which has led to more litigation against US customers of those Chinese companies. That approach helps solve the service issue, but often presents significant delay as indemnification issues are sorted out. At the same time, the increased direct-to-consumer activity by Chinese companies — particularly online — has put a greater premium on US companies being able to quickly take legal action in an attempt to stop infringement. While the online dispute resolution mechanisms offered by marketplaces like Amazon and Ebay don’t really implicate service issues because the Chinese sellers are easily identified by those platforms, it still remains a challenge for a plaintiff seeking redress in district court to effectuate service against Chinese infringers. Considering that the lone path to damages from those infringers lies in the court process, service remains a key issue of concern.

Thankfully for US IP holders, courts have increasingly been willing to allow for alternative service of process against accused Chinese infringers, despite the putative requirements of the Hague Convention. In just the latest example, Judge Boyko of the Northern District of Ohio authorized service by email — to the alleged infringer’s registered seller email addresses on Amazon, Ebay, and Facebook — on a Chinese company that in the Court’s words had thus far “chosen to ignore all communications from Plaintiff.”

In the case (N.D. OH Case No. 1:19CV1855,) filed by experienced patent plaintiff the Noco Co., the Chinese defendant was accused of selling infringing lithium battery jumpstarters on Amazon, Ebay, and through Facebook Messenger. Motivated to serve, NOCO had done extensive research on the location and contact information of the accused defendant, but was frustrated in every attempt to communicate with the defendant in the hopes of securing a waiver of service. Accordingly, the plaintiff asked the Court for permission to serve one of the Chinese defendants through that defendant’s registered email address on Amazon, Ebay, and Facebook, in the hopes of then getting the contact information of the second defendant as well.

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Acknowledging that service pursuant to the Hague Convention was preferred, the Court nonetheless noted that email service is not prohibited under the Hague Convention — and was thus a viable alternative where the plaintiff had demonstrated diligent and exhaustive attempts to contact the defendant without success. Add this case to a growing body of law recognizing the inherent challenges of serving Chinese companies, where courts also acknowledge the commercial realities of Chinese sales activities in the United States — and are thereby willing to set aside the formalities of the Hague Convention in order to assist US IP owners in getting their IP complaints heard in a more timely manner. Especially where the Chinese defendant is clearly aware of the lawsuit based on direct contact from the plaintiff or through a third-party platform that the defendant is doing business with.

Ultimately, we live in a world where a US consumer can order all manner of gizmos directly from a factory in China and expect to receive that product in short order. Increasingly, courts are less willing to insulate those same sellers from reasonably quick service of process in the context of an IP dispute, just because they are based overseas in a country where service has traditionally been conducted under the Hague Convention. For US IP owners, being able to confront infringers as quickly as possible is a business necessity. Every time a court allows them to bypass service under the Hague Convention, it is a huge help. And another sign of a shrinking world.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

 

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