US court mulls Chinese bank liability in Nike fakes lawsuit

A US appeals court is hearing testimony this week in a legal dispute brought against international banks over the proceeds from sale of counterfeit Nike goods.

The case stems from Nike's victory in a 2017 lawsuit in New York, in which it was awarded $1.8bn in damages against sellers of counterfeit products who failed to defend their activities in person – a common occurrence trademark infringement case involving overseas sellers selling fakes anonymously via online platforms.

As the defendants couldn’t be readily identified, Nike sold the rights to go after the damages award to  Next Investments LLC, which decided to target six Chinese banks – all of which were parents of US-based units that handled the proceeds from the counterfeit sales.

The banks are accused of failing to comply with the court order to freeze assets held by hundreds of counterfeiters that infringed Nike trademarks.

At the heart of the case is whether the banks can continue to rely on a clause under New York law that says local branches of foreign banks should be considered as separate legal entities, allowing them to evade liability even if they are dealing in illicit revenues.

Next's legal team is arguing that the banks should pay out $150m in damages for violating a court-ordered asset freeze of around $69m by transferring money made from counterfeit product sales so it was out of US legal jurisdiction.

Those arguments were rejected by a district court judge last year, so Next elevated its complaint to the Second Circuit appeals court meeting this week.

Next's counsel insists the Chinese banks – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, and Industrial and Commercial Bank of China – should come under the court's jurisdiction because they received transactions through accounts they set up in New York.

They are also saying that reversing the district court ruling would make it easier for brand owners to block movement of illicit proceeds out of the US.

Legal counsel for the banks said the lower court ruling on the separate legal entity rule should stand, and that simply providing banking services to the counterfeiters does not put them in "active participation" with them.

The case is Nike Inc v. Wu, 2nd US Circuit Court of Appeals, No. 20-602.

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