Nike Brings Freight Forwarder Into Trademark Fight With Brokers

Nike's new trademark suit against a freight forwarder raises new questions about liability of service providers for counterfeiting violations, industry lawyers said. While the dispute began as one of a string of trademark cases against customs brokers, Nike expanded the lawsuit in August to directly allege counterfeiting by City Ocean. The forwarder has since moved to dismiss the case, and some lawyers agree that Nike’s arguments are threadbare at the moment. But the lawyer who first brought City Ocean into the case as a third party defendant says the forwarder, and CBP as well, should have noticed the allegedly counterfeit shipments were not as advertised.

Forwarder Brought Into Lawsuit After Customs Broker Defendant Goes Under

The genesis of the case against City Ocean was Nike’s July 2011 filing of a trademark infringement suit against customs broker Eastern Ports in in New Jersey U.S. District Court. According to Nike’s complaint, Eastern Ports had acted as broker on two shipments of counterfeit Nike shoes seized by CBP in 2009, comprising a total of 20,320 pairs of sneakers worth $688,586. The entry documentation said the shipments were of ceramic tile, and the importer of record and ultimate consignee was a “Saint-Gobain Ceramics and Plastics” based in Massachusetts. Saint-Gobain was also listed on the power of attorney. But the real Saint-Gobain, a French company that is over three centuries old, denied having ever given Eastern Ports power of attorney.

As it has in past cases against customs brokers, Nike argued Eastern Ports failed to exercise reasonable care, in part because it didn’t do enough to validate the power of attorney. The complaint said Eastern Ports relied on information from “Bill Donahue,” who provided a telephone number unrelated to Saint-Gobain that was instead a prepaid phone number from Lancaster, Ohio. He also gave Eastern Ports the generic email address sgceramics@hotmail.com, said Nike. By filing the entries despite these red flags, Eastern Ports assisted trademark infringement against Nike, the shoe company argued.

Eastern Ports placed the blame squarely on the shipping companies that moved the counterfeit shoes. The broker said it had no way of knowing what was in the shipment. But carrier China Shipping Container Lines and freight forwarder City Ocean actually handled the containers, and should have noticed a weight discrepancy between the listed ceramic tile and the actual counterfeit shoes. CBP could have caught the fraud too by carefully examining the weight given on the ocean manifest. Each party down the chain was guilty of negligence, Eastern Ports argued, so any damages awarded to Nike should be paid by the shippers and CBP.

As the case wore on, Nike delved more deeply into the circumstances surrounding the shipments of counterfeit shoes. Eventually, freight forwarder City Ocean revealed that it was the party that hired Eastern Ports to act as broker on the shipment. In the meantime, Eastern Ports had gone out of business. Nike sought to hold City Ocean responsible.

On Aug. 13, Nike amended its complaint to make a direct allegation of trademark infringement against City Ocean. “In addition to causing and/or arranging for the transportation of the Saint-Gobain shipments from China to the United States, City Ocean also hired and paid Eastern Ports,” Nike said in its amended complaint. “Eastern Ports had no contact with any person at Saint-Gobain or anyone who represented that they had any connection to Saint-Gobain or the entries. Instead, Eastern Ports relied solely and unreasonably on information provided to them by City Ocean,” including the reference to “Bill Donahue.”

City Ocean moved to dismiss Nike’s new allegations Aug. 28. “As NVOCCs, City Ocean had no direct contact with the goods; its role was strictly clerical,” it said. Arranging for shipment of goods does not make someone liable for counterfeiting, City Ocean said. It also requested the court dismiss Eastern Ports’ claim, considering that the company has gone out of business.

“My client is just a freight forwarder who had no knowledge about the alleged counterfeit product,” said Heng Wang of Wang Gao, who represents City Ocean in the case. The legal basis behind Wang’s motion to dismiss was Nike’s failure to state a claim, because they needed to say City Ocean was involved in the counterfeiting, he said. “But our client did not mark any goods, or use any of these marks in commerce, so we think the case should be dismissed.” Nike did not return a request for comment.

Nike Lawsuits Seek to Turn Service Providers Into ‘Junior Cops,’ Says Lawyer

The case is one of a wave of lawsuits brought by trademark holders against customs brokers. Coach won an $8 million judgment against customs broker Celco in April (see 13041520, 13042619, and 13081512), but most have settled. In the wake of the Celco judgment, Nike filed four more cases against customs brokers in a three-day span June 3-5 in New Jersey U.S. District Court. At least one of the cases is already close to a settlement. A common feature of the settlements is stringent court-ordered requirements on validation of future powers of attorney.

“The danger with all of these cases is that they’re trying to set a precedent in terms of what people are supposed to do in vetting their customers,” said Susan Kohn Ross of Mitchel Silberberg. “And if that sort of requirement ought to be established, if it’s going to be, by the agency that licenses the brokers and the agency that licenses the forwarders, and neither of them is dealing with the issue.”

A common thread in the Nike and Coach cases is that the brokers missed red flags that should have raised the specter of identity theft. Nike and Coach both argue those red flags include the use of generic non-company email addresses and cellphone numbers. Those are common business procedures, yet Nike argues they "should on their face be suspect,” said Kohn Ross. For example, small businesses that don’t have a website may use a Yahoo or Gmail email address, and lots of people that travel a lot use cellphones as their primary points of contact.

Nike is trying to create a system where service providers like brokers and forwarders are responsible for fighting counterfeiting, Kohn Ross said. But the effort is misguided, because service providers don’t see the shipment. “It’s all based on documents, and everybody in the chain takes the documents to be correct,” she said. Nike is saying that isn’t good enough. “So they want to turn the entire process of trading in goods up on its ear because they can’t control their supply chain,” said Kohn Ross. “And so the difficulty with all of this is, because these companies are totally unable to control their supply chain, they’re turning all of these service providers into junior cops, and that’s not their role.”

The scary thing about these trademark lawsuits for the trade industry is that they are third-party claims, said Christoph Wahner of Countryman & McDaniel. “While a customs broker can limit its liability under NCBFAA terms to 50 bucks an entry to its customer, it has no contractual relationship with Nike,” he said. “And all the sudden its facing claims for conceivably unlimited amounts of damages.”

Trademark Suit Against Forwarder on Shakier Legal Ground

Bringing this type of trademark suit against a freight forwarder is a fairly new argument for Nike. The lawyers interviewed by International Trade Today for this report could name at most one other trademark case against a forwarder. In Nike v. Cathy Chiu Lam CHB, filed in 2010 in the Eastern District of New York, freight forwarder U-Freight was included as a defendant in a customs broker counterfeiting case. But Nike quickly agreed to dismiss U-Freight from the case, and a U-Freight employee settled with Nike in 2012, so the issue of whether freight forwarders can be held liable for counterfeiting was never tried before a judge or jury.

Michael McDaniel, a maritime lawyer with Countryman & McDaniel, thinks it may be a tough sell. Although Nike could still make convincing arguments in its response to City Ocean’s motion to dismiss, “Nike’s effort here may prove to be a barefoot run on a very rocky track,” he said. Customs broker liability “has been well articulated in cases where a failure of reasonable care has seen customs brokers allegedly fail to properly identify their clients by ignoring red flags,” said McDaniel. The reasonable care standard from brokers is set forth in the law, he said. “This is a far cry from the operations of an ocean forwarder or NVOCC who act at arm’s length in arranging transportation,” McDaniel said. While the forwarder has the right to inspect cargo, courts have long held that they’re not required to, he said.

“Based upon the record thus far, Nike blindly seeks to impose duties on the ocean forwarding industry which flatly do not exist,” said McDaniel. “Without specific facts establishing knowledge of some wrong doing on the part of City Ocean, this effort will, and well should fail. The Nike spirit of ‘Just Do It’ does not always mean you should.”

Customs Broker’s Lawyer Wants More CBP Attention to Container Weight

Before Nike directly alleged counterfeiting in August, Eastern Ports brought City Ocean into the case as a third-party defendant in 2011. In its complaint, the customs broker alleged that City Ocean and CSCL should have realized their container was much lighter than it should have been if it were a shipment of ceramic tile. And Eastern Ports also brought CBP on as a third-party defendant. In theory at least, CBP should be looking at the details of a shipment before it leaves the port of export, said Carl Soller of McBreen & Kopko, who represented Eastern Ports before the company ceased operations. The appearance of a weight discrepancy should immediately alert CBP to a problem, he said. “The containers are required to be weighed, and the differential with regards to the descriptions clearly would ring bells if anybody who has any knowledge of the transactions, which Customs and the carrier certainly have, would question it."

Container weight discrepancies can be difficult to catch, said McDaniel. Shippers are notorious for declaring the wrong weight of their containers, he said. This can be intentional or unintentional, and can happen for a variety of reasons. “So the fact that there’s a weight variance on a particular shipment tells me absolutely nothing,” McDaniel said. And while certain ports weigh cargo as it comes into the container yard, others don’t record the weight. So whether any weight discrepancy can possibly be caught depends on whether the port of export or import is weighing the cargo, and whether somebody along the supply chain will even notice, McDaniel said.

Nonetheless, CBP needs to do a better job, said Soller. Just because a weight discrepancy on a shipment may not be a violation doesn’t mean the container weights shouldn’t be checked at all. “That’s like saying that you shouldn’t have dogs sniffing the imports because 90 percent of the positive dog responses turn out to be false positives,” he said. And far more is at stake than commercial issues like counterfeiting, said Soller. More diligence against misrepresentation of container weights could stop a shipment that “could interfere with the security of our country.”

Email ITTNews@warren-news.com for a copy of Nike's complaint or City Ocean's motion to dismiss.