A recent decision from the United States District Court for the Southern District of Ohio held that Coach and its Illinois-based counsel could not be sued for collateral harm caused in a trademark dispute that played out in a federal case in Illinois. See Order, Brenda Buschle v. Coach, Inc. et al., Civil Action No. 1:16-cv-00471-MRB (S.D. Ohio Mar. 28, 2017). In doing so, the court held that it lacked personal jurisdiction over both Coach and its counsel even though Coach mistakenly seized a website of an Ohio business it wrongly believed was selling counterfeit goods from China.
In April 2016, plaintiff Brenda Buschle sued Coach and its counsel, alleging that it wrongfully seized her online discount retail store and informed consumers (wrongly) that she sold counterfeit Coach bags. In April 2015, in the U.S. District Court for the Northern District of Illinois, Coach sued Buschle and more than 500 other defendants for trademark infringement resulting from their selling of counterfeit Coach bags. Shortly thereafter, Coach obtained a temporary restraining order to enjoin further sales from what it believed were unlawful websites operated from China. It shut down Buschle’s website for approximately 36 hours. Coach posted a message on Buschle’s website informing consumers that the website had been shut down pursuant to a federal court order. The message directed consumers to purchase authentic products from the Coach.com website and seek a refund of purchases through payment providers.
Buschle’s counsel then informed Coach’s counsel that her website was legitimate. Coach immediately unfroze her website and dismissed Buschle from its lawsuit. However, according to Buschle’s complaint, the damage had already been done. Buschle alleged that her business slumped nearly 50 percent and that customers demanded refunds for what they believed may be fraudulent products. Buschle sued Coach and its counsel for wrongful seizure under Lanham Act Section 1116(d)(11), conversion, defamation and defamation per se, violation of state law unfair/deceptive trade practices, false and misleading statements under Lanham Act Section 1125(a)(1)(B), tortious interference with business relationships, and unfair competition and malicious prosecution.
Both Coach and its counsel moved to dismiss Buschle’s suit pursuant to Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction and 12(b)(6) for failure to state a claim. They argued that the court lacked both general and specific personal jurisdiction over them. Buschle in turn objected to the argument that the court lacked jurisdiction over either Coach or its counsel and requested discovery on Coach’s business ties to Ohio. Buschle argued that Ohio’s long-arm statute permitted the court to exercise personal jurisdiction over both defendants on the basis that they caused Buschle injury within Ohio, and that since the defendants made her a Rule 68 offer of judgment, they thereby waived their personal jurisdiction argument by consenting to the personal jurisdiction of the court. Buschle also argued that Coach maintained a regular business presence in Ohio through its numerous retail outlets and use of Ohio federal courts to litigate trademark infringement matters.
The court dismissed the action for lack of personal jurisdiction before reaching the merits of the parties’ extensive Rule 12(b)(6) arguments. The court first held that the Rule 68 offer of judgment had no bearing on consent to jurisdiction since it was just a settlement tool that offered no reasonable expectation that a party would defend a suit on the merits. The court also held that the Ohio long-arm statute was still required to comport with the Federal Due Process Clause and that maintaining a website accessible to those in Ohio alone would not justify general jurisdiction.
Specific jurisdiction did not exist either. The court turned to U.S. Court of Appeals for the Sixth Circuit case law holding that whether a court can assert specific personal jurisdiction over a website owner depends on how interactive the website is. Coach’s seizure and subsequent operation of Buschle’s website was merely passive, since all it did was post information related to the Illinois action. That alone would not support specific jurisdiction in Ohio. Next, the court turned to what connections related to Buschle’s defamation claims existed with Ohio under the effects test established by Calder v. Jones, 465 U.S. 783, 104 S. Ct. 1482 (1984). It determined that Buschle failed to allege facts showing that any effect from the defendants’ actions had caused harm in Ohio. Buschle’s business did not have a physical presence in Ohio and her business reputation was not centered in Ohio since her store operated nationwide. There was no evidence that the computers hosting her website were in Ohio or that Ohio residents had even used the website to buy bags. In turn, the statements posted by Coach and its counsel were not directed toward Ohio residents in particular. Even if the defendants should have foreseen that the Illinois action would have a potential effect in Ohio, that alone could not establish personal jurisdiction in the face of the lack of evidence that Coach and its counsel expressly aimed their allegedly tortious acts toward Ohio.
Although a victory for the defendants, this matter underscores the importance of conducting a thorough investigation before deciding to commence any proceeding related to the sale of counterfeit goods, no matter what the context may be. Although the defendants ultimately prevailed, the entire conflict could have been avoided through a proper pre-filing investigation. Businesses should not subject themselves to this level of unnecessary and potentially expensive risk, which can easily be mitigated through due diligence.