Kelly Toys Holdings LLC. v. 19885566 Store

Background

Kelly Toys Holdings LLC sued e-commerce merchants accused of selling counterfeit Squishmallows, along with online platforms including Alibaba and AliExpress. The court had entered a temporary restraining order and later a preliminary injunction. Those orders barred certain third-party service providers, including the Alibaba Defendants, from aiding or assisting violations by the merchant defendants.

In an earlier order, the court granted in part and denied in part Kelly Toys’s motion seeking to require the Alibaba Defendants to comply with the orders or, alternatively, to hold them in contempt. The court directed the Alibaba Defendants to comply with the preliminary injunction and held them in contempt for affirmatively assisting merchant defendants in violating it. The Alibaba Defendants moved for reconsideration of the contempt ruling.

Court’s analysis

A motion for reconsideration asks the court to revisit an earlier ruling when the moving party identifies a matter that could reasonably change the result. The court said that, to establish that the Alibaba Defendants were acting together with or assisting parties bound by the injunction, Kelly Toys had to show that the Alibaba Defendants knowingly aided an injunction violation.

The court concluded that its earlier analysis had not given enough attention to the required proof of knowledge. It relied on two decisions the court had not previously considered. One decision distinguished between a platform’s ordinary, generally applicable infrastructure and conduct showing that the platform consciously and selectively promoted a particular user’s unlawful content. The other explained that a nonparty’s actions must be taken to benefit or assist a party bound by the injunction, which requires knowledge of an ongoing or impending violation.

Here, the court found that the Alibaba Defendants’ conduct, including promotional emails advertising merchant products, was primarily or entirely generated by algorithms. The record did not show that the Alibaba Defendants knew a particular merchant was actively marketing infringing goods or intended to use the platforms’ systems to market them. The record instead showed that the Alibaba Defendants promptly removed infringing listings and other listings from infringing storefronts after being notified.

The court also rejected Kelly Toys’s reliance on an alleged failure to follow Alibaba’s three-strike policy. The record indicated that temporary restraining orders and preliminary injunctions did not generate strikes under that policy, and Kelly Toys had repeatedly declined to use the designated infringement-reporting process. In addition, Kelly Toys did not connect the alleged repeat infringers to the promotional emails and other affirmative conduct on which its contempt request relied.

Ruling

Judge Jesse M. Furman granted the Alibaba Defendants’ motion for reconsideration. The court vacated the portion of its earlier order holding them in contempt and denied Kelly Toys’s motion to hold the Alibaba Defendants in contempt. The court stated that different evidence—such as continued advertising or other support for a merchant known to be posting infringing listings—could potentially satisfy the requirement that a nonparty acted together with or assisted a party violating the injunction, but the court found that evidence lacking here.