By way of an expansive collection of limited-edition and gender-neutral jumpsuits, track jackets, tunics, sports bra, biker shorts, and sneakers, among other things, Beyoncé made her highly-anticipated debut with adidas in January. The new collection marks the first time that the Grammy winner has held full control of her Ivy Park line, which she launched in 2016 as a joint venture with Topshop owner Sir Philip Green; she has since bought of Green. It also marks an opportunity for adidas to boost sales in the critical North American market.  

Thanks to the color palette of the Beyoncé x adidas wares, the collection quickly drew comparisons – from social media users – to another brand, albeit not a fashion one. “When Beyoncé’s collection came out, we saw lots of people organically say it kind of looked like [ours],” Popeyes’ Chief Marketing Officer Fernando Machado told the Wall Street Journal this week. As it turns out, the maroon and orange hues of the Ivy Park athletic pants, biker shorts, hoodies, etc. made the collection a dead ringer, for some, for the uniforms that employees at the fast food chain wear.  

The comparisons were not lost on a seemingly very savvy Popeyes. The New Orleans-founded, Miami-based chain’s marketing team – and Miami-based advertising agency GUT, which Popeyes enlisted last year “during the craze over its new chicken sandwich,” according to the WSJ – stepped in with what the Los Angeles Times has called “a genius effort to leverage the buzz.” That effort? A new collection of uniforms inspired by the Beyoncé and adidas wares. Popeyes even released a lookbook to coincide with the collection – coined “That Look From Popeyes” – which mirrored the one that the music mega-star and the brand known for its three-stripes recently rolled out.  

The internet went wild; the Popeyes collection, which was made available to the public, sold out in a day with all proceeds from sales of the clothing going to charity, the chain says; and the media had a field day about the whole thing, of course. 

image: Popeyes

With the dust settling from the initial PR blitz and as Popeyes scrambles to restock its collection, questions have arisen about the viral marketing stunt and about the Ivy Park collection, alike. The Los Angeles Times’ Adam Tschorn, for instance, recently pondered, “Did the Ivy Park design team intentionally take inspiration from or pay homage to the chicken joint?,” while menswear site Complex, asked, “Can Beyoncé or Adidas Sue Popeyes Over Its Ivy Park-Inspired Collection?” (Easy answer: No!). 

What might be the more interesting angle, however, is one that centers on the power of branding and the role that color plays in that endeavor. After all, the use of two colors – a striking orange hue paired with a deep maroon – alone, was enough to get a sizable pool of consumers (in the U.S., at least) to think of a single source … Popeyes, when the Ivy Park collection made its debut. That is not something to be taken lightly. After all, consumers actively linking something like a color to a single source is precisely what gives rise to the ability of that source (i.e., company or brand) to claim rights in it. 

To date, Popeyes has not filed trademark applications for registration for its maroon and orange combo (not that it needs to, as in the U.S., trademark rights are generally amassed by using the mark and not simply filing an application for one). But just because Popeyes has not embarked on a quest to gain formal rights in its colors by way of a trademark registration does not mean that others have not done so for their respective brands.

In fact, the crusade for colors is increasingly well-chartered territory. Christian Louboutin, for instance, first made headlines in 2012 in connection with the lawsuit that it filed against Yves Saint Laurent for allegedly infringing its trademark rights in the use of a specific color red on shoe soles. That lawsuit prompted headlines and interesting (and difficult) questions about the role of color – and the potential monopolization of color – in creative industries like fashion. 

Tiffany & Co. famously maintains exclusive rights in its “robin’s egg blue” for use on an array of goods and services, ranging from fragrance products, tableware, and leather goods to product packaging and retail services … and of course, jewelry. The color, itself, Tiffany’s rights in it, and the goodwill associated with it in the minds of consumers is a sizable part of what prompted the LVMH acquisition, Reuters recently revealed. “LVMH’s billionaire boss Bernard Arnault, a renowned dealmaker … was [focused on] getting control of Tiffany’s most valuable assets: all the

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elements that came with the Tiffany brand, notably its robin’s egg blue boxes,” the publication reported in November. 

Still yet, Hermes has rights in its orange of choice, Cadbury had its specific shade of purple, UPS has a Pantone shade of “Pullman” brown, T-Mobile has its magenta, and the list goes on.  

These companies’ trademark rights in specific shades for use on specific classesof goods and/or services in specific geographic regions (trademark rights are not blanket global assets and vary by jurisdiction) is contingent upon their ability to show – by way of a handful of factors, such as unsolicited media attention, advertising expenditures, sales success, market surveys, etc. – that their use of the color has acquired distinctiveness. In other words: consumers have reason to link that specific use of a specific color to a single source, and actually do associate the color with a single source. 

As for the claiming of rights in two colors used in conjunction, that is not unheard of either. In a non-fashion example, John Deere maintains an array of registrations for its use of the colors yellow and green on agricultural equipment, which at least one dating back to 1988. As recently as 2017, the tractor-making giant filed a trademark infringement suit against another agriculture-centric company for using the colors on its products, and in siding with John Deere on its infringement and dilution claims, the court – a federal court in Kentucky – also inherently upheld the validity of Deere’s dual color trademarks. 

As for whether Popeyes plans to take legal action over Ivy Park’s use of “its” colors, it seems unlikely; the company seems perfectly happy to engage in a bit of viral back-and-forth with Beyoncé and adidas, a move that not only speaks to its marketing prowess but that highlights the power of its visual identity as a brand, something that the consumer comparisons and media attention in connection with the Ivy Park collection  seems to only bolster even further. 

Ultimately, the rising reliance by companies on color as an integral part of their brand makes sense, as in much the same way as a brand name or logo acts as an immediate indicator of the source of a product or service for consumers, color can play an important source-identifying function, as was made perfectly clear on social media when users began linking Ivy Park’s maroon and orange color scheme to Popeyes. With all of this in mind, it should come as little surprise that just as many brands have been able to bank on the recognizability and appeal of their more traditional trademarks, no shortage are looking to color for the very same benefits.

What happens when a consumer products giant with a stable of established and trusted but not-exactly-buzzy brands meets a burgeoning shaving start-up – a “younger, nimbler competitor born of the internet and predicated on reaching consumers in new ways,” as the New York Times put it? The former sets out to buy the latter for $1.37 billion dollars in furtherance of a trend of big guys buying newer, smaller, often direct-to-consumer guys. That is the story of Edgewell Personal Care and Harry’s – or part of it, at least.  

The two companies made headlines this spring when it was revealed that Edgewell Personal Care – which owns a stable of household names from Playtex and Skintimate to shaving brands Schick Edge and Wilkinson Sword – would acquire Harry’s, the 7-year old, New York-headquartered shaving company founded by Andy Katz-Mayfield and Jeff Raider, and its sister brand Flamingo. Harry’s made its name by selling razors, shave gels, face washes and lotions on a purely subscription basis – until it signed on to stock its products in Target stores across the country and Walmart after that – to male consumers by way of its namesake brand. Thereafter, it launched Flamingo, a line of razors and waxes for female consumers. 

Shelton, Connecticut-based Edgewell, on the other hand, got its start in 2015 when battery behemoth Energizer spun off its household products brands – including 248-year old British-born sharing company Wilkinson Sword, sunscreen company Banana Boat, and Wet Ones, the hand sanitizer company – into a separate entity. 

“We’ve had an interesting product portfolio, Rod Little, Edgewell’s chief executive, told the Times in May 2019, “but we’ve lacked a way to communicate with the consumer.” That is where Harry’s – complete with its Highsnobiety collaboration and J. Crew tie-ups –  and Flamingo come in. 

The parties began discussions in March 2019 and by early May, the deal was struck. In a joint release dated May 9, Edgewell and Harry’s boasted that their merger would “create a complementary portfolio of global brands built for the modern consumer and powered by world-class omni-channel capabilities.” Bloomberg cited analysts and product strategy execs, who looked favorably upon the combination of “the brand affinity of Harry’s” and the sheer “scale” of Edgewell’s operations. Meanwhile, Wells Fargo analyst Bonnie Herzog wrote in a note that “strategically the deal makes sense.”  

“For the next six months, there were few concerns at either company,” according to Axios, with the $1.37 billion deal approved by both companies’ boards in May 2019 and expected to close by March 31, 2020. As part of the deal, the two Harry’s founders join the executive team of Edgewell as co-presidents of the company’s U.S. operations. 

As the closing date inched closer, though, problems began to arise in the form of market regulators, and this week, the Federal Trade Commission (“FTC”) took action. The federal government entity – which is tasked with “enforcing antitrust laws” and “challenging anticompetitive mergers and business practices that could harm consumers by resulting in higher prices, lower quality, fewer choices, or reduced rates of innovation,” among other things – filed an administrative complaint, asserting that it has “reason to believe that Edgewell Personal Care Company and Harry’s, Inc. have executed a merger agreement in violation of [various sections] of the FTC Act,” as well as the Clayton Antitrust Act. 

According to the FTC’s February 3 complaint, “Harry’s successful 2016 leap from online, direct-to-consumer sales into brick-and-mortar retail stores interrupted over a decade of routine price increases by a once-stable duopoly” between Edgewell and the larger Procter & Gamble. As the FTC cites in its complaint, “Purchasers of razors were, as Harry’s founders put it, tired of ‘overpaying for overdesigned razors,’” and the startup “saw an opening: a market ripe for disruption and an untapped platform—the Internet—on which to disrupt.” 

“This interruption,” according to the FTC, “has led to lower prices and new product offerings for razor consumers.” And just as Harry’s and other new companies likes Dollar Shave Club were able to disrupt the consistency at which “P&G and Edgewell raised their prices ever higher,” a merger between Harry’s and Edgewell “would neutralize one of the most successful challenger brands ever built,” thereby, “eliminating head-to-head competition between Harry’s and Edgewell, and removing the independent competitor that disrupted Edgewell and P&G’s longstanding and stable duopoly.” 

In a statement following the filing of the FTC’s administrative complaint, Daniel Francis, the Deputy Director of the FTC’s Bureau of Competition, said, “The Harry’s and Flamingo brands represent a significant and growing competitive threat to the two firms [Edgewell and P&G] that have dominated the wet shaving market for decades. Edgewell’s effort to short-circuit competition by buying up its newer rival promises serious harm to consumers.” 

The agency revealed this week that its vote to issue the administrative complaint was 5-0, as was its vote to authorize FTC staff to file a complaint with the U.S. District Court for the District of Columbia seeking a temporary restraining order and a preliminary injunction in order to “maintain the status quo pending an administrative trial on the merits.” The administrative trial is scheduled to begin on June 30, 2020. 

As for the response from potential merger and mergee, Edgewell CEO Rod Little said, “We continue to believe the combination of our companies would bring together complementary capabilities for the benefit of all stakeholders, including customers.” Harry’s founders and co-CEOs Jeff Raider and Andy Katz-Mayfield, revealed, “We are disappointed that the FTC is attempting to block our combination with Edgewell and are evaluating the best path forward. We believe strongly that the combined company will deliver exceptional brands and products at a great value and are determined to bring those benefits to consumers.” 

Little said that the companies “will review the FTC’s decision and respond in due course,” and they are expected to fight back against the FTC’s pending merger block, one that Modern Retail says “caught many in the consumer startup world off guard, considering that Unilever acquired Dollar Shave Club for $1 billion more than three years ago, while Procter & Gamble announced in January that it intended to acquire women’s subscription shaving startup Billie.”  

Meanwhile, Axios says that the agency’s action suggests that it is either “missing the boat on direct-to-consumer” … or it is “actually its way of testing the limits of omnichannel retail, maybe as a precursor to future actions against giants like Amazon. But no matter the backstory, this one will come down to the numbers — particularly pricing — and each side thinks it has the data to prove its case.” 

Over the weekend of October 26, 2019, rumors began to swirl with intensity that a multi-billion deal was quietly coming into fruition between LVMH Moët Hennessy Louis Vuitton and Tiffany & Co. Within days, it would become clear that there was merit to the chatter, with Tiffany & Co. revealing that it had, in fact, “received an unsolicited, non-binding proposal from LVMH to acquire Tiffany for $120 per share in cash.” However, the New York-headquartered jewelry company was said to have swiftly  “rebuffed” the $14.5 billion offer.  

Within weeks, more of the closely-guarded story had unfolded. Despite the board for the 182-year old Tiffany & Co. reportedly rejecting LVMH’s initial offer as “too low to become the basis for negotiations,” the parties – which used codenames in connection with their behind-the-scenes dealings to prevent leaks (Tiffany used “Tea” and LVMH went by “Latte,” according to Reuters, in a nod to famed film “Breakfast at Tiffany’s”) – did not part ways. In fact, despite the pushback, LVMH “remained engaged,” Reuters reported in November, and began “considering a new offer” for Tiffany in furtherance of its quest to bolster the smallest division under its sweeping ownership umbrella: jewelry. 

By late November, the two giants had sealed their deal. In a statement released on November 25, LVMH declared that it, “the world’s leading luxury group,” and Tiffany & Co., “the global luxury jeweler … have entered into a definitive agreement whereby LVMH will acquire Tiffany for $135 per share in cash, in a transaction with an equity value of approximately $16.2 billion.” 

It would be the largest deal in the fashion/luxury space; topping the $13 billion bid that LVMH paid to bring the long-affiliated Christian Dior brand under its ownership umbrella in 2017.  

The two luxury players had come to terms, but the deal, itself, was not quite done (and still is not). That would require the approval of Tiffany’s shareholders, for one thing, something that was accomplished by way of a “special meeting of Tiffany & Co. stockholders” on Tuesday. In a statement, LVMH asserted that the publicly-traded jewelry company’s shareholders have “voted overwhelmingly to approve the previously announced merger agreement.”  

The vote in favor of the parties’ “merger agreement” (and the terms associated with it) – which Tiffany & Co. said in a release in December was “recommended to stockholders” by the jewelry stalwart’s board of directors – was “largely expected,” according to investing insight publication Motley Fool. But the seemingly smooth merger-in the-making is not without at least some pushback. Underway in the background of the nearly-culminated acquisition is a pending challenge. 

According to a complaint that was rather quietly filed with a federal court in Delaware last month, Tiffany & Co. stockholder John Thompson has accused the jewelry company and its board of directors of submitting a proxy statement to the U.S. Securities and Exchange Commission (“SEC”) on December 18 that is “false and misleading” as a result of its failure to include “material information with respect to the proposed transaction.”

In the lawsuit that Thompson filed on behalf of himself and other “similarly situated” individuals (i.e., the “hundreds, if not thousands” of other public holders of the outstanding 119,943,050 shares of Tiffany common stock”), he accuses Tiffany and its board members of violating sections of the Securities Exchange Act of 1934, a federal law that governs the trading of securities in the U.S., by “disseminated [a] false and misleading Proxy Statement.” 

“By virtue of their positions within the company, the individual defendants were aware of [the] information [required to be included in the Proxy Statement] and their duty to disclose this information,” and yet, failed to meet those requirements, Thompson argues by “omitting material information regarding [Tiffany’s] financial projections,” and “the analyses performed by the Company’s financial advisors in connection with the Proposed Transaction, Centerview Partners and Goldman Sachs,” among other things.

More than that, Thompson claims that Tiffany and its board did not set out “the circumstances under which the ‘additional discretionary fee of up to approximately $16 million’ is payable to Goldman, and whether the individual defendants intend to pay Goldman this fee.” This is crucial, he argues, as“full disclosure of investment banker compensation and all potential conflicts is required due to the central role played by investment banks in the evaluation, exploration, selection, and implementation of strategic alternatives.”

As a result of the foregoing, Thompson – who does not specify how many shares he holds in the company in his complaint – claims that he and the potential class of fellow plaintiffs “are threatened with irreparable harm” unless the court “preliminarily and permanently enjoins the defendants and all persons acting in concert with them from proceeding with, consummating, or closing” the LVMH merger. He has also asked the court to require Tiffany to “disseminate a Proxy Statement that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading.” 

In a release late last month, Wilmington, Delaware-based law firm Rigrodsky & Long, P.A., which is representing Thompson, stated that at the heart of the lawsuit is “an attempt to secure shareholder support for the proposed transaction,” which Tiffany allegedly facilitated by issuing “materially incomplete disclosures in its proxy statement.” 

Despite the pending litigation, Motley Fool’s James Brumley states that the acquisition “is still expected to close in the middle of 2020, subject to the receipt of regulatory approvals and satisfaction or waiver of other customary closing conditions.” 

A rep for Tiffany & Co. did not respond to a request for comment.  

UPDATED (February 13, 2020): Counsel for Thompson filed a notice of voluntary dismissal on February 12 (potentially as a result of a settlement between the parties), and on February 13, the court formally closed the case.

*The case is John Thompson v. Tiffany & Co., et al, 1:20-cv-00009 (D.Del.)  

In 2019, Gucci and Prada made headlines when they each announced that they would launch ambitious diversity initiatives. After being on the receiving end of accusations of racism the previous year in connection with a $550 monkey figurine it sold in stores across the globe, Prada revealed that it would establish a “Diversity and Inclusion Advisory Council,” an effort co-chaired by writer, director, and producer Ava DuVernay and artist-slash-activist Theaster Gates. 

Gucci faced its own charges of racism when it put a nearly $900 blackface-esque sweater on its runway in February 2019. The Milan-based brand responded to the incident by cutting way back on advertising in the U.S. market (where the controversy was the strongest) and vowing to engage in a round of new hires, including 5 new designers who will work in its Rome design studio, and a global director for diversity and inclusion, who will fall under the Gucci America umbrella in New York. Still yet, Christian Dior did its own damage control on the heels of its controversial Native American-themed Sauvage campaign, pulling the ad and issuing a statement saying, “The House of Dior has long been committed to promoting diversity and has no tolerance for discrimination in any form.”

Now, months later, the New York Times reports that those companies’ efforts to address issues of diversity stem at least in part from a run-in with the New York City Commission on Human Rights (“Commission”).

A local government entity, the Commission is tasked with enforcing New York City’s Human Rights Law (“NYC HRL”), which makes it illegal to engage in discriminatory actions on the basis of race, age, gender, and national origin, among an array of other protected traits. Characterized as “one of the most powerful anti-discrimination laws in the country, far stronger than either federal law  or most state counterparts,” the more than 50-year old legislation goes further and quite sweepingly prohibits not only discrimination in housing and hiring, but outlaws “prejudice, intolerance, bigotry, and discrimination, bias-related violence or harassment and disorder … [that] threatens the rights and proper privileges of its inhabitants.”  

With the provisions of the NYC HRL in hand, the Commission has routinely taken on alleged instances of discrimination in housing and employment. The NYC HRL has also provided the basis for the Commission to file more than a dozen sexual harassment complaints against city officials in recent years, and has led the agency to investigate The Wing, a millennial-friendly private social club and communal workspace, for potentially running afoul of the law with its female-members-only policy. (A rep for the Commission declined to cite any specific potential violations of the NYC HRL that it was investigating in connection with The Wing as of Match 2018).

That same agency is now using the tenets of the NYC HRL to look at how other types of businesses – i.e., places of public accommodation – are conducting themselves, in order to ensure that they are not engaging in discriminatory practices, and Prada, the Milan-based fashion brand with a New York headquarters and three of its own brick-and-mortar stores in Manhattan, is the Commission’s first target. 

As it turns out, until very recently, the Commission was investigating Prada in connection with the design and sale of an offensive figurine – the $550 monkey with “a strong resemblance to racist caricatures,” as Bloomberg put it at the time – that set the internet ablaze with fury in late 2018. According to the Times, in light of the brand’s sale of the keychains and considering the intense consumer backlash that followed, the Commission initiated an investigation in December 2018. 

image: Prada

Over a year later, Prada has entered into a far-reaching and “highly unusual” settlement with the Commission, which has the authority to enter into settlements that come in the form of monetary fines and damages for those aggrieved by violations of the NYC HRL, and that include “additional remedies including rehiring, policy change, training, and modifications for accessibility.”

According to the Times, Prada’s settlement “requires [it] to provide sensitivity training, including ‘racial equity training,’ for all New York employees within 120 days of signing the agreement, as well as for executives in Milan” – including Prada creative director Miuccia Prada and her husband-slash-fellow co-CEO Patrizio Bertelli, among others – “since the Commission argued that decisions made in Italy have repercussions in New York.”  

The terms of the inherently novel agreement – which stems from Prada’s display of the “racist iconography [that] manifests as discrimination on the basis of race, suggesting that Black people are unwelcome,” according to the Commission – also dictate that Prada must “appoint a diversity and inclusion officer … with candidates approved by the [Commission],” and must continue to operate its existing “Diversity and Inclusion Advisory Council” for at least six more years and report to the Commission on a bi-annual basis to review its “progress in achieving the agreement’s goals.”

image via Commission

In short: Prada – which has denied any discrimination in connection with the sale of the figurines – is legally bound to the Commission as a result of its sale of the discriminatory product in its stores in New York City. While Dior refused to comment, Gucci “declined to comment on the status of its discussions with the Commission, though it did not deny the conversations were taking place,” according to the Times. 

The Commission’s action against Prada – and potentially Gucci and Dior soon, as well – is certainly striking. Part of novelty at play is due to the fact that while most major fashion brands (even European ones that have sufficient ties to New York to establish jurisdiction) are employers and providers of public accommodations in New York, and thus, are clearly governed by this law, regulating discriminatory products, as opposed to discriminatory actions, is something that this law has not proven willing to do … until now. This new development is arguably even more noteworthy given that the products at play are those of the fashion industry, which is typically given leeway due to the creative aspect of its offerings.

It does not appear that Prada is taking issue with the charges that the Commission has thrust upon on it (maybe it will take defensive action in a more public capacity if it is ever found to be in violation of its new, legally-binding settlement with the Commission). Nonetheless, it is difficult not to suspect that if challenged, the Commission’s response to Prada’s sale of offensive products, would prove to be murky due to potential First Amendment concerns, among other things. 

As William Kovacic, a former commissioner for the Federal Trade Commission and a professor at the George Washington University Law School, told the Times, one of the issues at play here is “free speech,” and thus, the First Amendment, the Constitutional provision that prevents the government – including local governments – from making laws that abridge the freedom of speech.

It would not be the first time that the Commission has faced a First Amendment challenge, or the first time that objectionable products have come under the microscope of the courts; in 2015, for instance, the Supreme Court held that the state of Texas could legally reject a proposal for license plates featuring a Confederate battle flag, albeit that decision hinged on the fact that, according to the Justices, the specialty license plate designs constituted government speech. 

Since then, the Supreme Court has taken on the issue of offensive trademarks, determining that the U.S. Patent and Trademark Office cannot bar such marks from registration, citing First Amendment grounds. As Harvard Law’s Jeannie Suk wrote for the New Yorker in 2017, “The ruling [in the case over Erik Brunetti’s “FUCT” trademark] makes all manner of racist, sexist, or otherwise insulting terms eligible for federal registration by someone who wishes to use them to identify the goods or services they are selling.”

Suk noted that “denying registration of some trademarks because they are offensive, is , as Justice Kennedy said in the decision of the case, ‘the essence of viewpoint discrimination,’” which is particularly at odds with the principle of free speech.

In a statement on Tuesday, the Commission asserted, “Today’s settlement announcement seeks to remedy the harm Prada caused by establishing unprecedented restorative justice measures at the company to combat anti-Black racism and ensure lasting change.”

J. Phillip Thompson, Deputy Mayor for Strategic Policy Initiatives, echoed this, saying, “The de Blasio Administration is committed to protecting the rights of all New Yorkers to live free of racial bias and discrimination. To see a symbol of Jim Crow-era oppression sold as a luxury bauble is a critical reminder that there is still work to be done.”

Up next? Gucci and Dior apparently, which have been “negotiating” with the Commission, according to the Times, over their own potential legal missteps in connection with allegedly discriminatory products and advertising.

At any given time, consumers can score cheap replicas of Nike’s hottest selling running shoes and can easily get their hands on convincing rip-offs of its otherwise hard-to-get Off-White collaboration sneakers thanks to thousands of websites and individual marketplace sellers. In an effort to stomp out some of the counterfeits that saturate the market, and protect its wildly valuable and “widely-recognized” intellectual property rights and the reputation that comes along with them, Nike filed a trademark infringement and counterfeiting lawsuit in a New York federal court in November 2013.  

In what initially appeared to be little more than one more action in the long line of lawsuits that brands routinely initiate against online counterfeit sellers, counsel for Nike named more than 600 different defendants – most of which were identified exclusively by web domain – in its 64-page complaint, accusing them of selling Nike and Nike-owned Converse branded sneakers, with some of the defendants allegedly going so far as to “claim to sell ‘guaranteed authentic’ Nike products that [were], in reality,” little more than counterfeits. 

As it turns out, the case filed by the Beaverton, Oregon-based sportswear giant – which reported $39.1 billion in annual revenue for its 2019 fiscal year – would prove to be more striking than the run-of-the-mill counterfeiting case that it initially appeared to be. 

After none of the 600-plus China-based counterfeiters named in Nike’s complaint responded or showed up in court to defend themselves, a New York federal court sided with Nike, issuing a default judgment. In a standard outcome in these types of counterfeiting cases, the court held that the defendants had “willfully infringed various valuable, federally protected [Nike and Converse] trademarks in connection with the sale, offering for sale, and distribution of products similar to those offered by Nike and Converse,” and were on the hook for “over $1.8 billion” in damages as a result.

The problem? Since none of the defendants had responded to the lawsuit and generally, were only identified by domain name (think: www.cheapnikeairmax-mart.com, www.authentic-jordans.us, and www.airmaxofficialshop.co.uk, among others) and/or email address, in order to actually hold the defendants accountable, Nike would have to identify, and even then, it would be difficult – if not impossible – for Nike to recover any meaningful portion of that nearly $2 billion sum from a pool of more than 600 counterfeit sellers.

In light of that reality, in early 2017, Nike sold off the judgment to Next Investments, an arm of financial services firm Tenor Capital, which, according to Bloomberg Law “likely did not pay much [for it] based on how difficult it would be to collect such a large figure from small retailers in China.”   

With the newly-acquired ability to try to recover that $1.8 billion-plus judgment, Next did not look to the individual counterfeit-selling defendants, and instead, decided to follow the trail of the defendants’ money from the PayPal accounts associated with their various websites and target the Chinese banks that acted as intermediaries between the consumers who had purchased fakes from the individual defendants and the defendants, themselves. After all, in an attempt to avoid court-ordered seizures of ill-gotten funds processed by PayPal, counterfeiters have taken to swiftly transferring the funds out of their PayPal accounts and into their individual bank accounts en masse. 

As it turns out, despite the court issuing orders in Nike’s favor that served to prevent the defendants and certain third parties “from transferring, withdrawing or disposing of any money of the defendants, or otherwise paying or transferring money or other assets into or out of any accounts held by, associated with, or utilized by the defendants, regardless of whether such money [is] held in the U.S. or abroad,” as Judge C.J. McMahon of the U.S. District Court of the Southern District of New York stated in January, Nike “never sought to enforce the orders against the financial institutions that might have access to or control over the [defendants’] assets.” 

So, Next did just that, and set its sights on Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, and Industrial and Commercial Bank of China, none of which were named as defendants in the case, but all of which “maintain accounts associated with the [defendant counterfeit sellers].” 

When given notice – by way of their New York branches – of the restraining orders relating to the defendants’ accounts and requests for a temporary asset freeze, the banks refused to act on the basis of jurisdictional issues. This prompted Next to seek a finding from the court that the banks were acting in contempt “of the asset restraints, as well as the court’s discovery orders [for information about the defendants’ bank accounts].” 

More than that, Next sought an order from the court that the banks be required to pay over $150 million in damages, a sum “equivalent to [a portion of] the statutory damages available under the Lanham Act for the [defendants’] infringement of Nike’s trademarks … plus the value of the funds that the [defendants] transferred out of their accounts since the [court issued the restraining order] due to the banks’ ‘complete disregard for the asset freeze provisions.’”

The banks rejected Next’s quest for contempt damages, arguing that, among other things, the asset restraint that was served upon them by way of their New York outposts has “no effect on [their] foreign branches” because “New York’s ‘separate entity’ rule do[es] not require a bank to restrain a [defendant’s] assets held in foreign branches.”

In a decision last month, more than 5 years after Nike first filed suit, Judge McMahon agreed, holding that Next “fails to establish that any of the asset restraints were or are enforceable against the banks’ Chinese branches,” and noting that “no judge of this court ever concluded that the asset restraints were binding on the banks.” 

“Yet now,” the judge stated in her January 17 decision, Next “claims that the banks have been violating this court’s orders since 2013, and are responsible for statutory damages arising from every act of infringement by the [defendants] since,” an argument that she characterizes as “inside-out.” With that in mind and given that she called any requirement of “instantaneous compliance” on the part of the Chinese banks “a draconian standard to apply to nonparties,” Judge McMahon denied Next’s contempt motion, thereby, cutting the link between Next and any of the defendants’ money, while also marking a significant win for the banks. 

In a comment provided to Law360 on the heels of the court’s decision last month, Quinn Emanuel Urquhart & Sullivan LLP’s Carey Ramos, who represented five of the six banks, stated: “This was a landmark decision that will have implications not just for trademark cases but more broadly for the international banking system and the importance of New York as an international banking center.”

The court’s decision does not close the book entirely for Next. Judge McMahon stated that Next “may still attempt collect from the judgment debtors in the Chinese court system, or other courts with jurisdiction over them (if there are any).” In closing, she also aptly noted that Next “is hardly the first judgment holder to encounter difficulty when attempting to collect from a foreign debtor.” In reality, “It happens all the time, and to parties with considerably fewer resources.”

The case at hand follows from two Second Circuit trademark infringement/counterfeiting cases involving Gucci and Tiffany & Co., respectively, which saw Chinese banks challenge the enforceability of discovery orders and prejudgment asset freezes overseas.

*The case is Nike, Inc. et al. v. Wu, 1:13-cv-08012 (SDNY).