IP Law Daily, TRADEMARK—S.D.N.Y.: Email service found adequate in counterfeit toy lawsuit, (Aug 30, 2022)

By George Basharis, J.D.

Service on foreign defendants by email satisfied constitutional due process and was neither prohibited by the Hague Convention nor any international agreement.

Electronic service of a trademark counterfeiting and infringement lawsuit filed by a California seller of popular plush toys against a foreign online merchant was reasonably calculated to reach the defendant and therefore satisfied constitutional due process, a federal court in New York has determined. Rejecting the foreign defendant’s motion to dismiss the action for deficient service, the court found that the toy company’s extensive efforts to locate a physical address for the foreign merchant were reasonably diligent and service by electronic means was not prohibited by either the Hague Convention or any other international agreement (Kelly Toys Holdings, LLC v. Top Department Store, August 26, 2022, Engelmayer, P.).

Kelly Toys Holdings, LLC manufactures and distributes the popular Squishmallows plush toys. Kelly Toys sells its plush toys through physical and online retailers throughout the United States and worldwide. The company, which owns trademarks for the “Squishmallows” marks, has sold 73 million plush products worldwide since 2017 and has generated significant consumer awareness and goodwill.

Counterfeits. Kelly Toys discovered that China-based Top Department Store (TDS) manufactures and sells products that are either identical with or confusingly similar to Squishmallow plush toys. The counterfeit products are sold exclusively online through several websites operated by TDS. Consequently, Kelly Toys sued TDS for trademark counterfeiting, trademark infringement, false designation, and unfair competition under the Lanham Act. Kelly Toys then asked the court to enter a temporary restraining order against TDS, although Kelly Toys was unable to locate a physical address for TDS.

Kelly Toys detailed extensive efforts to locate TDS. For example, Kelly Toys searched and found California, New Jersey, and New York physical addresses listed on TDS’s websites or on shipping labels and then investigated the addresses by sending investigators to the locations. The investigators determined that the addresses were either not associated with TDS or were bogus. Kelly Toys then discovered through a search using “WhoIs” that TDS was in China. Kelly Toys then engaged local counsel in China to try to locate a physical address for TDS for service of process. That effort too was unsuccessful. Consequently, Kelly Toys asked and received permission from the court to serve TDS via known email addresses.

Appearance. TDS responded to the lawsuit by making an appearance and seeking to vacate a previous entry of default by the court clerk. TDS also contacted Kelly Toys to discuss potential settlement. Despite making an appearance and discussing a settlement, TDS moved to dismiss the lawsuit for lack of proper service. TDS insisted that the addresses listed on its “Contact Us” webpages were accurate, and Kelly Toys could have located the company’s physical address by doing a simple Google search. TDS also argued that service by electronic means was deficient because the Hague Convention applied and required service at TDS’s physical address in China.

Adequate service. Rejecting TDS’s arguments, the court agreed with Kelly Toys that neither the Hague Convention nor any other international agreement prohibited service by email. Moreover, the court determined that electronic service was proper because Kelly Toys was unable to locate TDS despite reasonably diligent efforts. The court noted that although the United States and China are signatories to the Hague Convention, the treaty does not apply if the address of the person to be served cannot be ascertained despite reasonable diligence. The court then detailed the extensive efforts made by Kelly Toys to find a physical location for TDS. It found Kelly Toys’ efforts to locate TDS were reasonably diligent and found TDS’s unsubstantiated arguments unworthy of credit. Having determined that Kelly Toys was not bound by the Hague Convention and that service of process at a physical location was not otherwise required by any other international agreement, the court considered whether electronic service satisfied constitutional due process.

Electronic service satisfies due process if it is reasonably calculated to reach the defendant, the court said. Kelly Toys established that the email addresses it used to serve TDS were likely to reach TDS. As an online retailer, TDS routinely corresponded with its customers via email. Moreover, TDS undisputedly received actual notice: the company engaged in settlement discussions with Kelly Toys soon after the lawsuit was served electronically, and thereafter appeared in the case and began to defend it. Under the circumstances, Kelly Toys’ means of alternative service complied “comfortably” with constitutional due process, the court found.

The Case is No. 1:22-cv-00558-PAE.

Attorneys: Ashly Erin Sands (Epstein Drangel LLP) for Kelly Toys Holdings, LLC. Adam Edward Urbanczyk (AU LLC) for Top Department Store d/b/a www.Squishmallowsus.com d/b/a www.Squishmallows-US.com.

Companies: Kelly Toys Holdings, LLC; Top Department Store d/b/a www.Squishmallowsus.com d/b/a www.Squishmallows-US.com

Cases: Trademark NewYorkNews