2nd Circuit Finds Chinese Banks Not in Contempt for Failing to Enforce Counterfeit-Related Sanctions

The U.S. Court of Appeals for the 2nd Circuit upheld a district court decision finding that a group of Chinese banks are not in contempt for failing to enforce a series of orders barring transferring, withdrawing or disposing of funds into the accounts of entities guilty of trademark infringement in an Aug. 30 order. Until the contempt motion, the plaintiff, investment firm Next Investments, never sought to enforce the orders against the banks in question, precluding them from now succeeding, in part, on a contempt motion, the appellate court held.

In 2013, shoe giant Nike and its subsidiary, Converse, accused hundreds of Chinese counterfeiting networks of trademark infringement in the U.S. District Court for the Southern District of New York. The companies succeeded, earning a total of seven orders from the district court. Each order prevented the counterfeiting networks and "all persons acting in concern or in participation with any of them ... from transferring, withdrawing or disposing of any money or other assets into or out of [Defendants' accounts] regardless of whether such money or assets are held in the U.S. or abroad."

Next Investments, Nike's successor-in-interest, then sought to hold six nonparty Chinese banks in contempt for failure to enforce these sanctions and provide certain documents in discovery. The district court denied the motion, leading to the appeal in front of the 2nd Circuit.

The appellate court found that the district court did not abuse its discretion in nixing the motion for contempt for four reasons: "(1) until the contempt motion, Nike and Next never sought to enforce the asset restraints against the Banks; (2) there is a fair ground of doubt as to whether, in light of New York’s separate entity rule and principles of international comity, the orders could reach assets held at foreign bank branches; (3) there is a fair ground of doubt as to whether the Banks’ activities amounted to 'active concert or participation' in Defendants’ violation of the asset restraints that could be enjoined under Federal Rule of Civil Procedure 65(d); and (4) Next failed to provide clear and convincing proof of a discovery violation."