'Baby Shark' counterfeit case tanks, judge rejects email service to Chinese defendants

5 minute read

Employees work, with characters of SmartStudy displayed in the background, at the company's office. REUTERS/Heo Ran

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(Reuters) - A federal judge in Manhattan has just made it a lot harder for intellectual property owners to shut down Chinese counterfeiters.

U.S. District Judge Gregory Woods of Manhattan ruled on Thursday in Smart Study Co., Ltd v. Acuteye-US that plaintiffs cannot serve Chinese defendants via email, even though the cumbersome protocols of the Hague Convention for international service of process “could present obstacles to bringing copyright and trademark enforcement actions against defendants who operate online storefronts” in China, the judge wrote.

However laudable the goal of protecting IP, Woods said, courts cannot disregard the Hague Convention, Chinese law and the rules of civil procedure simply “to make service more efficient” for plaintiffs.

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The judge denied a motion for default judgment against more than 50 Chinese companies that allegedly sold counterfeit “Baby Shark” merchandise on Amazon. (In case you are somehow unaware of the global Baby Shark phenomenon, it’s a hypnotic ditty that has captivated millions of preschoolers -- and irritated millions of parents -- since it debuted on YouTube in 2016. Listen at your own risk.) Plaintiffs' lawyers from Epstein Drangel asserted in their July 2021 complaint for Smart Study, a South Korean entertainment company, that Baby Shark knockoffs are tarnishing its trademarks and copyrights.

Woods’ decision seems likely to upend the status quo for trademark plaintiffs litigating against Chinese defendants in New York federal court. As the judge explained, Manhattan courts have for years allowed email service on Chinese companies, relying principally on the reasoning in 2015’s Sulzer Mixpac AG v. Medenstar Industries Co Ltd.

In that case, U.S. District Judge Jed Rakoff concluded that the Hague Convention does not specifically bar service by email, so even though China does not accept the convention’s provision allowing defendants to be served through ordinary mail, email process is permissible.

Woods himself authorized email service for the Baby Shark defendants last year when he granted Smart Study’s motion for a temporary restraining order, citing the federal civil procedure rule that permits courts to order service on foreign parties “by other means not prohibited by international agreement.” At the time, the judge has since said, he was relying only on Epstein Drangel’s briefs, which did not disclose that trial courts outside of Manhattan have balked at email service for Chinese defendants.

Woods became aware of those rulings, he said in Thursday's decision, when two Baby Shark defendants filed briefs protesting the closure of their Amazon storefronts.

In addition to denying Smart Study's counterfeiting accusations, they argued that under the U.S. Supreme Court’s 2017 decision in Water Splash, Inc v. Menon – which was issued two years after Rakoff’s ruling in the Sulzer case -- the Hague Convention restricts service on foreign defendants to the processes specified in the convention. Email is not mentioned in the Hague Convention, the Baby Shark defendants said, so it’s impermissible under Water Splash. Moreover, the defendants argued, Chinese law does not allow email service by private parties.

Epstein Drangel dismissed those two protesting defendants from Smart Study’s case, but the judge remained concerned about the service-by-email issue, especially in light of a recent wave of IP suits Epstein Drangel has filed for plaintiffs with claims against Chinese defendants. (Woods said in Thursday’s ruling that the firm has filed more than 40 requests for email service on Chinese defendants in 2022 alone.)

In an order in March, the judge invited an amicus brief from law professor Benjamin Liebman of Columbia Law School on Chinese law governing service by foreign corporations. Liebman and his counsel from Pillsbury Winthrop Shaw Pittman advised the judge in a June 7 brief that Chinese law does not permit any kind of direct service on Chinese entities by private parties engaged in foreign litigation. Only Chinese authorities can serve process, they said, so even though China has authorized email service in some circumstances, that service can only be executed by Chinese courts, not by litigants.

Epstein Drangel brought in Hong Kong lawyer Richard Wagner of Allen & Overy to respond. Wagner opined on June 24 that Chinese law does not require foreign litigants to stick to the Hague Convention and allows international parties to be served via email, even without their consent.

In Thursday’s ruling, Woods sided with Liebman and Pillsbury, concluding that Wagner’s arguments were not on point because Epstein Drangel “did not and is not seeking to serve the defendants under the auspices of a [Chinese] court.”

The judge said his earlier authorization of email service for the Baby Shark defendants was a mistake. U.S. rules of civil procedure, he said, do not allow service by a process that is prohibited in an international agreement. China has rejected the postal service mail provisions of the Hague Convention, and, even more broadly, has precluded foreign plaintiffs from effecting service without the consent of Chinese authorities. Therefore, Woods concluded, direct email service for Chinese defendants is precluded by the Hague Convention.

Epstein Drangel lawyers Jason Drangel, Ashly Sands and Danielle Futterman did not respond to my query on the Baby Shark ruling and its potential impact on suits against Chinese defendants.

As Woods pointed out several times in his opinion, lots of alleged Chinese counterfeiters don’t show up to argue that they’ve been improperly served or that New York courts don’t have jurisdiction over them. That’s probably why judges have continued to rely on the reasoning from that 2015 Sulzer decision, even though, in Woods’ view, the Supreme Court’s Water Splash ruling undermines Sulzer.

I imagine it will take a bit of time for courts to digest Woods’ nuanced decision. But if it holds up, the ruling puts a shark-sized hole in plaintiffs’ ability to sue Chinese knock-off peddlers.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.