Trademark Law | Expert Legal Commentary

November 2, 2010

Chloé v. Queen Bee: Exercising Personal Jurisdiction for Infringement in Internet Transactions

Chloé v. Queen Bee of Beverly Hills, LLC

By Olivier A. Taillieu and Jeffrey J. Zuber of Zuber & Taillieu

Chloé v. Queen Bee: Exercising Personal Jurisdiction for Infringement in Internet Transactions

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The Second Circuit recently “updated its jurisprudence” on personal jurisdiction “in the age of internet commerce,” using a long-arm statute to exercise personal jurisdiction over a foreign defendant accused of selling counterfeit goods over the Internet. In Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158 (2nd Cir. 2010), the U.S. Court of Appeals for the Second Circuit confirmed that trademark owners may not need to file infringement actions against counterfeiters in the counterfeiter’s home jurisdiction if the “totality” of the counterfeiter’s contacts with the forum state meet the minimum contacts test.

BACKGROUND

Chloé markets women’s clothing and handbags bearing its CHLOÉ trademark. Queen Bee, an Alabama LLC with show rooms in Beverly Hills, CA and Huntsville, AL, sold counterfeit Chloé bags on its website. Chloe’s counsel had one of its paralegals purchase a Chloé bag on the website and had it delivered to her in New York.

Chloé subsequently filed suit against Queen Bee and two of its principals in Chloé ‘s home forum of New York, alleging that Queen Bee’s sales of counterfeit Chloé bags constituted trademark infringement and violated New York General Business Law section 349. Along with the single allegedly infringing sale, Queen had sold 117 non-infringing products to consumers in New York through its website, in 52 transactions.

Queen Bee principal Simone Ubaldelli, a California resident, moved to dismiss the complaint for lack of personal jurisdiction. The District Court granted Ubaldelli’s motion, finding that Queen Bee’s sales of 117 non-infringing products to New York consumers were not sufficiently related to Chloé’s claims of infringement to satisfy New York’s long-arm statute or due process under the Constitution.

Second Circuit: Minimum Contacts Test is Met

The Second Circuit Court of Appeals reversed, finding that the district court had “too narrowly construe[d] the nexus requirement” for personal jurisdiction. Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 167 (2nd Cir. 2010). The Court held that “the single act of an out-of-state defendant employee shipping an item into New York, combined with his employer’s extensive business activity involving New York, gives rise to personal jurisdiction over the employee.” Id. at 165.

The Court first considered the single sale of the counterfeit bag to the paralegal, and determined that Ubaldelli was responsible for the shipment of that bag. Id. at 165. The district court had determined that this sale could not constitute infringement because the paralegal could not have been confused about the source of goods that she knew were not genuine. The Second Circuit acknowledged the split among district courts about whether the fact of a “manufactured” sale by an investigator cannot support an infringement claim and thus should be ignored for jurisdictional purposes. Id. at 165, n.3. The Court made clear its opinion that whether the buyer was an investigator or a regular consumer is irrelevant to whether the defendant purposefully availed itself of the privilege of doing business in the plaintiff’s forum and thus could be subject to personal jurisdiction. Id. The Court declined to rule on the question of whether sale to an investigator can constitute infringement.

While the Court went so far as to say that defendant’s single act of shipping a counterfeit bag into New York might alone be sufficient to justify the exercise of personal jurisdiction, it did not need to reach that decision because of the employer’s extensive other business activity in the state. Id. at 165.

That necessarily brought the Court’s attention to Queen Bee’s other business activity in the state – its Internet sales of non-Chloé products to consumers in New York. The district court had discounted these sales as purposeful availment only for “some business activity,” but not for “the purpose of selling Chloé handbags.” See discussion, Id. at 167.

The Second Circuit determined that the district court had “too narrowly” construed “the nexus requirement which merely requires the cause of action to relate to defendant’s minimum contacts with the forum.” Id. Here, although there was not a direct connection between those non-Chloé sales and the counterfeit handbag sale, the non-Chloé sales were enough to indicate “a larger business plan purposefully directed at New York,” as evidenced by its website offering the Chloé bags to New York consumers. Id. These activities and this business plan could be imputed to Ubaldelli because of his role as principal of the company. Id. at 169.

In all, the Court found that there were sufficient minimum contacts to satisfy Due Process, and that exercising jurisdiction over Ubaldelli under the long-arm statute “comports with ‘traditional notions of fair play and substantial justice.’” Id. at 173 (citation omitted). “Viewed in their totality, these contacts sufficiently demonstrate Ubaldelli’s purposeful availment of the benefits of transacting business in New York.” Id. at 170-171.

CONCLUSION

The Chloé case makes it much easier for trademark owners to hail counterfeiters into court – instead of hunting down the counterfeiters in their home forum, trademark owners will often be able to file suit in their own backyard. Moreover, brand owners do not have to worry that their use of investigators to assist with trademark enforcement efforts will impact their jurisdictional claims.

But the impact of Chloé does not just apply to counterfeit goods. Chloé provides grounds to assert personal jurisdiction over any seller that sells allegedly infringing products, even if not counterfeits, into a jurisdiction where the seller conducts other business activity.