Kelly Toys Holdings LLC. v. 19885566 Store

Background

Kelly Toys Holdings, LLC brought the case against approximately ninety online merchants accused of selling counterfeit Squishmallows through platforms including Alibaba and AliExpress. The court first issued a temporary restraining order and later a preliminary injunction. Those orders prohibited the defendants from selling or marketing counterfeit Squishmallows and directed third-party service providers, including Alibaba, not to assist violations or dispose of assets and records. They also directed those providers to shut down the defendants’ user accounts and merchant storefronts.

After receiving notice of the orders, Alibaba removed at least some infringing listings and froze defendants’ assets, but did not fully shut down their storefronts. Kelly Toys later identified more than twenty defendants who had relisted counterfeit products on Alibaba and received promotional emails from Alibaba advertising a counterfeit Squishmallow. Kelly Toys moved for an order requiring compliance or, alternatively, a contempt finding.

The court’s analysis

The court rejected Alibaba’s argument that the injunctions were invalid because they referred to Alibaba.com and AliExpress.com rather than a specific corporate entity. The court said any error was a mislabeling that did not prejudice Alibaba because Alibaba had actual notice and the orders clearly identified the platforms and conduct involved. The court also concluded that it had personal jurisdiction over the operators of the platforms because their interactive websites enabled sales and shipments to New York, and the claims arose from those contacts.

The court next found that Alibaba was acting in “active concert or participation” with the enjoined merchants. This legal standard can bind a nonparty that knowingly assists a party’s violation of an injunction. The court relied on Alibaba’s sponsored advertisements, promotional emails, premium services, and continued support for merchants that relisted counterfeit products after the preliminary injunction. Alibaba’s asserted lack of intent did not change the analysis because the relevant question was whether its conduct actually assisted the violations.

The court then considered whether the full storefront-shutdown requirement was overbroad. It ruled that the court could restrict Alibaba’s conduct only insofar as Alibaba was assisting the named defendants’ violations. Because the preliminary injunction did not prohibit the defendants from operating their accounts or storefronts generally, the court lacked authority to require Alibaba to shut down those storefronts. Alibaba therefore could not be held in contempt for refusing to comply with that provision.

The court nevertheless found that contempt was warranted for Alibaba’s assistance with other violations. It concluded that Kelly Toys had shown that Alibaba knew about the injunction, helped defendants relist counterfeit products, and promoted those products through emails and sponsored advertisements. Alibaba’s partial compliance did not establish that it had made a diligent effort to comply.

Disposition

The court’s conclusion was that Kelly Toys’s motion was GRANTED in part and DENIED in part. Alibaba was directed to comply with the injunction except for the storefront-shutdown requirement. Section 1(c) of the preliminary injunction, which imposed that requirement, was stricken. The court also ordered Alibaba to reimburse Kelly Toys for all fees and costs related to the motion. Kelly Toys was directed to submit an accounting supported by billing records within two weeks, and Alibaba could respond within three weeks. The court directed Kelly Toys to provide a separate update about negotiations with the non-Alibaba defendants and warned its counsel about using broad, standard injunction language in future cases.