Chinese banks in Nike counterfeit lawsuit evade $150m penalties

Six Chinese banks accused of failing to freeze the assets of hundreds of counterfeiters of Nike products have been deemed not liable for a $150m penalty, in a closely watched contempt case in the US.

The 2nd US Circuit Court of Appeals has backed an earlier ruling in a New York district court, which rejected an attempt by Next Investments LLC to impose the damages on the banks, claiming they violated a court-ordered asset freeze of around $69m by allowing money amassed by counterfeiters of Nike and Converse shoes to be transferred out of the US.

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. Nike sold the rights to go after the damages award to Next, which went after the banks instead.

Next failed to enforce the freeze against the banks for nearly six years before asking the court in to hold the banks in contempt, according to the appeal judgment, which says the delay is "difficult to explain."

Introducing OpSec® Network Intelligence: Connect the dots to identify and take down large networks of brand infringements

Traditional brand protection solutions only find what’s directly above the surface. Below the surface are large and complex systems of highly sophisticated bad-actor networks. These criminal networks connect online spaces to offline criminal activity. As a brand owner, missing these connections could increase the risk of threats to your customers and your brand. Contact the experts at OpSec today to see what your brand protection program is missing.

"Nike was sufficiently suspicious of ongoing violations that it served all six…banks with the [temporary restraining order] within twelve days of its issuance," it goes on. "But instead of acting on their suspicions and taking any steps to compel the banks' compliance, plaintiffs allowed six years to pass while at least $150m in 14 alleged damages accumulated."

Next also failed to prove that the banks did not carry out sufficient efforts to comply with the injunctions imposed in the original 2017 lawsuit.

It claimed that two banks (BOCOM and ABC) withheld requested documents showing transactions associated with several merchant accounts used in the counterfeiting scheme, but was unable to provide sufficient proof that the documents existed ad were in each bank's possession.

The panel of judges also upheld the earlier ruling that US branches of foreign banks are separate legal entities to their parents, protecting them from liability, saying there was a "fair ground of doubt" on whether restraints apply extraterritorially.