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Nike Won $1.8 Billion in Damages Against Counterfeiters Who Failed to Pay Up

Seven years after Nike set out to protect its intellectual property from an onslaught of foreign counterfeiters, the lawsuit has left the sportswear maker with little recourse, despite a nearly $2 billion judgement in its favor.

In 2013, Nike filed a lawsuit to protect its trademarks from dilution and infringement by more than 600 counterfeiters based in China, most of hid behind murky domain names and email addresses.

The defendants were alleged to have sold counterfeits sneakers bearing the brand trademarks for Nike and Converse (which Nike owns), through various web-based counterfeit operations. The case moved forward in the U.S. District Court of the Southern District of New York, but none of the counterfeiters named showed up to the proceedings and Judge Colleen McMahon awarded Nike a default judgment totaling more than $1.8 billion in damages.

Nike’s legal team faced the task of identifying each defendant and extracting payment individually. Acknowledging the difficulty of claiming the settlement by traditional means, Nike sold the judgment in 2017 to Next Investments, according to Bloomberg Law, for just a fraction of its worth.

Next Investments then targeted the banking institutions that worked as liaisons for the counterfeiters that moved their money through the banks and away from the PayPal accounts attached to their online storefronts. The banks, including the Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank and the Industrial and Commercial Bank of China, had allowed the defendants to transfer their money against a court order, according to Next Investments.

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Without court approval, this assertion proved meaningless.

Considering Nike didn’t name any of the banks in its original lawsuit and failed to enforce the order initially, Judge McMahon found that Next Investments had no recourse against the institutions, calling compliance efforts “unreasonably expensive, inefficient, and cumbersome” and refusing to hold the banks in contempt.

“The Contempt Motion is denied because it seeks to hold the Banks liable for violating orders that never bound them,” Judge McMahon wrote in a Jan. 17 judgment.

Carey Ramos, a partner with Quinn Emanuel and a defense attorney on the case, described the result as 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,” according to Law360.

As such, the court’s role in acquiring damages of this kind, be it for counterfeiting, IP fraud or a number of other offenses, will likely be limited going forward.

“The writ of the Sheriff of New York County does not run to China,” Judge McMahon wrote. “[Next Investments] is hardly the first judgment holder to encounter difficulty when attempting to collect from a foreign debtor. It happens all the time, and to parties with considerably fewer resources.”

“[Next Investments] may still attempt to collect from the judgment debtors in the Chinese court system, or other courts with jurisdiction over them (if there are any),“ she added.