Friday, April 08, 2011

Does “in commerce” mean “in China”?

Apparently, at least ex parte.

MonaVie, LLC v. Loh, 2011 WL 1233274 (D. Utah)

MonaVie sells nutritional beverages and related products internationally. Its products are sold through a network of independent distributors. Certain of the defendants signed on as independent distributors in Malaysia. Each independent distributor is bound by a contract limiting it from engaging in any premarket activities in countries where MonaVie isn’t opened for business. To do business in an “opened” country, the distributor must submit proof of residence in that country or meet certain other standards. The distributor must not resell to customers or distributors outside its home country. It must not import any product into a market for which that product isn’t approved; the contract specifies that products are labeled and sometimes formulated for specific countries. It must not “secure or attempt to secure approval for our Products or business practices; register or reserve the Company names, trademarks, trade names, or Internet domain names; or establish any kind of business or governmental contact on behalf of the Company.”

Nonetheless, defendants engaged in unauthorized activities in China, not an “opened” country. They met with officials in China’s Ministry of Health, obtained a required sanitary certificate, and sold/gave away products as gifts. (There’s an interesting story here about doing business in China, I imagine!) MonaVie instructed defendants to cease and desist. They did not, stating "we are half way negotiating our way in with the relevant agencies and ministry and we will not withdraw." MonaVie put a hold on defendant Loh’s distributor account; Loh said he’d stop the unauthorized activities; the hold was lifted. The distributor defendants then resigned their distributorships.

Loh then sold unapproved marketing materials promoting MonaVie's products and business opportunity and informed MonaVie of his intent to export as many MonaVie products to China as possible, using existing stocks and bulk purchases from distributors in many other Asian countries. He further stated that, “In the event that we are unable to supply the products for reasons that MonaVie's production capacity does not commensurate with total orders or demands of the China market alternative means of supply may be adopted i.e. generic duplicates/imitations.” (Talk about chutzpah!) He posted images of MonaVie’s products on Facebook, seeking to buy from distributors for sale in China.

MonaVie further explained to the court that it acts carefully in opening new countries because of country-specific regulations, and failure to adhere to those regulations may have severe consequences. MonaVie’s goodwill, quality control, and market position were therefore at risk; it might even be excluded from the Chinese market altogether.

MonaVie sought a TRO based on breach of contract, false advertising, and trademark infringement under the Lanham Act. A TRO requires a showing of immediate and irreparable injury in the absence of ex parte action, and a certification of efforts to give notice/why notice should not be required. MonaVie’s explanation that it was subject to “(1) diminished sales and diluted trademarks, trade names, and goodwill; (2) lost control and quality of its products and business in the specific foreign countries for which they are intended; or (3) exclusion from the market altogether” was sufficient to show irreparable and immediate harm. Moreover, MonaVie detailed efforts made to give defendants notice and why, based on their previous conduct, further notice should not be required.

After that, the standard for a TRO is the same as that for a preliminary injunction: (1) a substantial likelihood of success on the merits; (2) irreparable harm to the movant if the injunction is denied; (3) the threatened injury outweighs the harm that the preliminary injunction may cause the opposing party; and (4) the injunction, if issued, will not adversely affect the public interest. Satisfying (2)-(4) allows some leniency on (1), but if the preliminary injunction would disturb the status quo—as here—plaintiffs have a heightened burden on (1) and (3).

Obviously, on these facts MonaVie had a substantial likelihood of success on the merits of its breach of contract claim.

I’m more concerned by the court’s conclusion that MonaVie showed a substantial likelihood of success on the merits of its Lanham Act claims. The unauthorized activity resulting in trademark infringement/false advertising seems to have occurred in China, and some in Malaysia. I would think a careful analysis of whether the actions occurred “in commerce” under the meaning of the Lanham Act would be required, but the court doesn’t address it at all. While the effect on MonaVie in the US, not to mention the terms of the contract, probably justifies jurisdiction, the Lanham Act isn’t supposed to be extraterritorial, since other countries have other trademark/advertising laws—thus, having rights in a mark in the US doesn’t itself give you rights anywhere else. As I understand Chinese law, defendants might well be precluded from claiming rights to MonaVie in China even if MonaVie lacks trademark use in China because of their particular relationship to MonaVie, but that would seem to be a matter for application of Chinese law.

This is what the court said: “MonaVie has presented evidence that Defendants are importing and selling MonaVie product in China. In so doing, Defendants are holding themselves out as agents of MonaVie and that they are authorized to take such actions. These representations are false.” That activity sure sounds like it’s harm in China, and thus on the first pass I’d want to know whether China considers this trademark infringement/false advertising. (See also next paragraph, listing the provisions of the TRO.)

Anyway, having found likely success on the merits, the rest of the analysis was easy. Defendants were enjoined from “a. obtaining licensing or certification for MonaVie's products and business in China; b. shipping MonaVie's products to China; c. selling and distributing MonaVie's products in China; d. placing MonaVie's products for sale in China; e. repackaging MonaVie's products for sale and distribution in China; f. promoting MonaVie's business opportunity in China; g. conducting any business activities in China, Malaysia, Singapore, and elsewhere using MonaVie's products, trademarks, or trade names; and h. advertising for the purchase and/or sale of MonaVie through any medium, including print, audio, visual, and electronic media, including, but not limited to Facebook, or any other Internet site” (emphasis added).

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