Spin Master, Ltd. v. Aomore-US

Background

Spin Master, Ltd. alleged that Leqiong, Monkki, Onecemore, Chenghai Lucky Boy Toys Co., Ltd., Yucmed Store, Aomore-US, and Ropwol infringed five patents covering wall-climbing toy vehicles. The opinion describes the defendants as China-based companies that manufactured or sold toys online in the United States. Spin Master sought a preliminary injunction, attachment of assets, sanctions, default judgment against Aomore-US and Ropwol, and permission to amend its complaint. The defendants who appeared sought dismissal and asked the court to vacate its earlier order allowing alternative service.

Service of Process

The court held that Spin Master had not shown that the defendants’ physical addresses were unknown for purposes of the Hague Convention. The court explained that an address is not “known” only when the plaintiff has used reasonable diligence to find a physical address and failed. Spin Master relied on a third-party consulting law firm’s assessment that the addresses listed on Amazon appeared inaccurate, but the record did not explain what steps the consultant took to verify that assessment. Spin Master’s counsel also stated that counsel was not aware of those steps.

Because Spin Master had not established that the addresses were unknown, the Hague Convention applied. The court concluded that email service on Yucmed Store, Aomore-US, and Ropwol was not permitted for these Chinese defendants. It also concluded that service on the other represented defendants through U.S.-based counsel was improper. The court reasoned that service under Federal Rule of Civil Procedure 4(f) must occur abroad, and service completed abroad must comply with the Hague Convention. The defendants’ actual notice of the lawsuit and participation in the case did not cure the defective service.

The court therefore granted the motion to vacate the alternative-service order and quashed service on all defendants. It did not dismiss the case for improper service. Instead, it allowed Spin Master to perfect service and ordered Spin Master to begin proper service within 30 days. Spin Master could alternatively renew its request for alternative service by showing reasonable diligence in determining the defendants’ addresses and that the addresses remained unknown.

Jurisdiction and Motions to Dismiss

The defendants’ motions under Rule 12(b)(2), which challenges personal jurisdiction, were denied. The court found that Spin Master had adequately alleged that the defendants conducted business in New York by offering, selling, shipping, manufacturing, testing, or importing the accused products. It concluded that the patent claims arose from those New York-related transactions and that the allegations supported personal jurisdiction under New York’s long-arm statute and the Constitution.

The motions under Rules 12(b)(4) and 12(b)(5), which concern defective process and defective service, were not used to dismiss the case. Although the court found service improper, it concluded that dismissal was unnecessary because Spin Master had a reasonable prospect of serving the defendants properly and the defendants had not shown prejudice that would justify ending the case.

Under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim, the court granted the defendants’ motions in part and denied them in part. The direct-infringement claims survived because Spin Master alleged that the defendants sold or offered to sell identified accused products and that Chenghai manufactured, tested, distributed, or imported them. The court dismissed the indirect-infringement claims because Spin Master did not adequately allege that the defendants specifically intended to encourage infringement by others and knew that the encouraged conduct constituted infringement.

The court also dismissed Spin Master’s claims for damages based on infringement occurring before the lawsuit was filed. Spin Master did not adequately allege compliance with the patent-marking requirement or facts showing that the defendants received actual notice of infringement before the lawsuit. The court distinguished knowledge of the patents from notice of alleged infringement.

Amendment

The court granted Spin Master leave to amend its complaint. Spin Master represented that it could add facts addressing specific intent for indirect infringement and the patent-marking and notice issues. The court found no shown undue delay, bad faith, repeated failure to cure defects, undue prejudice, or other reason to deny amendment. Spin Master was ordered to file the amended complaint within 30 days.

Preliminary Injunction, Attachment, and Default Judgment

Because service was defective, the court denied Spin Master’s motion for a preliminary injunction, motion for attachment against the unrepresented defendants, and motion for default judgment against the unrepresented defendants, each without prejudice to renewal. The court stated that these denials were based on the service problem, not on a conclusion that Spin Master had failed to make a strong showing on the requested relief.

Sanctions

The court found that attorneys from Tarter Krinsky & Drogin LLP had negligently or recklessly acted as attorneys for Aomore-US, Ropwol, and, at the relevant time, Yucmed Store, even though those defendants had not engaged the firm. During that period, the attorneys filed papers, communicated with opposing counsel, appeared in court, made arguments, sought discovery and more time to answer, and issued subpoenas on behalf of an unrepresented defendant.

The court declined to award Spin Master the excess fees it requested because it had not shown that the attorneys’ conduct caused those fees. The court nevertheless imposed a nominal sanction under its inherent authority to manage the case and protect the court’s processes. The motion for sanctions was granted in part, and the attorneys were ordered to pay $500 to the Clerk of Court within 14 days.

Disposition

The court granted the motion to vacate the alternative-service order; quashed service; denied the preliminary-injunction motion without prejudice to renewal; granted the motions to dismiss in part and denied them in part; granted Spin Master’s motion to amend; denied the attachment motion without prejudice to renewal; denied the default-judgment motion without prejudice to renewal; and granted the sanctions motion in part. The case was not dismissed, and Spin Master was permitted to pursue proper service and file an amended complaint.