The case of the day is Tiffany (NJ) LLC v. Qi (S.D.N.Y. 2011). Tiffany & Co., the jewelers, brought a trademark infringement action against Qi Andrew, Gu Gong, Sliver Deng, and Kent Deng, who, they allege, were selling Tiffany knockoffs on the Internet. According to Tiffany, the defendants accepted payments in US dollars and used PayPal to process transactions. The profits, says Tiffany, were transferred to accounts at the Bank of China, the Industrial and Commercial Bank of China, and China Merchants Bank. Tiffany obtained a preliminary injunction which, among other things, ordered that banks
that engage in the transfer of real or personal property, who receive actual notice of this order by personal service or otherwise, shall provide to Plaintiffs all records in their possession, custody, or control, concerning the assets and financial transactions of Defendants or any other entities acting in concert or participation with Defendants ….
Tiffany served the New York branches of the Bank of China and the Industrial and Commercial Bank of China with a copy of the preliminary injunction and with subpoenas duces tecum. (As an aside, I think that Tiffany overreaches when it asserts that the Banks, which are not parties, are bound by the injunction. Their obligation to produce documents, if they have one, stems from the subpoenas. There is no question but that the court was well within its discretion to order expedited third-party discovery, as it did. But that simply means, or should mean, that the plaintiff can immediately commence discovery before the procedural stage when discovery would ordinarily be permitted in a federal civil action. Under Rule 65(d)(2), a preliminary injunction can bind only the parties, their officers, agents, servants, employees, and attorneys, and other persons in “active concert or participation” with them. The rule gets at the idea of privity, and I question whether the banks were in privity with the alleged wrongdoers such that they should be held to be within the scope of the injunction. However, this point was ultimately unimportant, as the court decided the case as an ordinary discovery dispute, not as an issue of contempt of the court’s order).
The banks performed an initial electronic search, which did not lead to responsive documents, and it offered to help Tiffany put together a request under the Hague Evidence Convention, an offer which Tiffany declined. The banks then served formal objections to the subpoena. The banks asserted that the documents sought were located in China and were therefore not within the possession, custody, or control of the US branches that had received the subpoena and that production of the documents was barred by Chinese law. Apparently, Tiffany did not dispute the bank’s characterization of Chinese law. Given the conflict of laws, the judge undertook a comity analysis, following the five-part analysis set out in the Restatement (Third) of the Foreign Relations Law of the United States § 442(1)(c). This analysis looks to: (1) the importance of the documents to the litigation; (2) the specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of retrieving the information; and (5) the extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the request would undermine important interests of the state where the information is located. The real battle was over the availability of alternative means, namely the Hague Evidence Convention, and over the permissibility of the production under Chinese law.
Tiffany argued that resort to the Hague Convention would be futile. It noted the State Department’s prior guidance on judicial assistance in China, which noted that requests had “not been particularly successful in the past.” But the banks noted that that language had since been removed from the State Department website, without explanation, and it pointed to statistics showing that China had executed about 50% of requests under the past five years. The court credited the bank’s position on this issue, notwithstanding an earlier SDNY decision that had reached the contrary conclusion. The court noted China’s Article 23 reservation, but it reasoned that because many other states had also made Article 23 reservations, the reservation didn’t show that “China would refuse to execute a request for the documents plaintiffs seek.” (I don’t understand the logic of this point).
The court also found that given the Chinese bank secrecy laws, China’s interest in preserving bank customer’s privacy outweighed the US’s interest in enforcement of the trademark laws, at least until Tiffany had exhausted the Hague Convention mechanism.
It will be interesting to see whether the State Department’s changed guidance on China is reflective of a real change in China’s compliance with the Convention. Time will tell!