Hot Docs: Alleged Chinese counterfeiter can’t be sued in U.S., says court

June 7, 2012

China US JurisdictionThe Federal District Court of Minnesota just gave reason to avoid conducting business transactions with small Chinese companies in China.

Last week, the court dismissed a lawsuit against Ningbo Hicon International Industry Co., a Chinese company that allegedly sold $139,500 worth of counterfeit “Comobar” espresso machines to Minnesota-based Jacobs Trading, LLC.

The court determined that it lacked personal jurisdiction over Hicon, and the facts supporting this decision offer an important lesson.

Michael Marcotte, an agent of Jacobs’ living in China at the time, contacted Hicon to inquire about what overstock goods Hicon might have available for purchase.

Hicon employee David Hu corresponded with Marcotte, informing him that the company had an overstock of authentic “Comobar” coffeemakers.

Marcotte travelled to the Hicon warehouse to inspect them, and, after which, Marcotte and Hicon entered into negotiations for the sale of the coffeemakers.

During these negotiations, Hicon allegedly made false statements which induced Jacobs to purchase the allegedly counterfeit products.

After the contract was formalized, Hicon arranged to have the coffeemakers shipped to Jacobs’ Minnesota address, and forwarded an invoice to the same location.

According to the court, Hicon doesn’t own any property, have any employees, or have a phone number or mailing address in Minnesota.

Furthermore, it is not registered to conduct business within the state and has never been a resident of Minnesota.

Hot Doc: Jacobs Trading LLC v. Ningbo Hicon Int’l Indus. Co. Ltd.

Source: Thomson Reuters News & Insight – National Litigation

The court mentioned that, according to a website that reviews and compiles U.S. customs data, Hicon made twenty shipments to four Minnesota companies between 2007 and 2011, but the court found this evidence inadmissible.

Thus, as far as the court is concerned, Hicon hasn’t had any contacts with the state of Minnesota aside from its transaction with Jacobs.

Under the existing legal framework on personal jurisdiction (or, at least, a more conservative reading of it), there could be no conclusion other than Minnesota courts lack personal jurisdiction over Hicon.

The district court’s ruling leaves Jacobs, and any other company in a similar situation, without any legal recourse (and the court’s response to the plaintiff pointing out this predicament seems to simply be, “tough luck”).

A problem here arises because the court’s analysis (specifically, the “minimum contacts” analysis) and conclusion are based in a legal understanding of personal jurisdiction that predates today’s much more international character of contracts and commerce.

From the way the minimum contacts analysis looks at Jacobs’ actions in the formation of the contract, one would think that Hicon was a street merchant that Marcotte happened across during one of his strolls through a local Chinese market.

In truth, Hicon boasts that its products “have made it to international supermarkets like Wal-Mart, Auchan, and Home Depot,” and that it “is one of China-based strategic partners of home appliance giants like GE, Electrolux, and Haier America.”

Not exactly the street merchant that the opinion almost makes it out to be.

Hicon is one of many Chinese manufacturers that partners with established name brands.

Chances are, if you own a GE, Electrolux, or Haier refrigerator, freezer, or air conditioner, there is a strong possibility that Hicon made it.

Wouldn’t thousands of their products ending up in Minnesota homes constitute “minimum contacts” so as to establish personal jurisdiction?

Not under the court’s interpretation, since Hicon’s products always go through one or more intermediaries before arriving at a retail store for American consumer purchase.

And this brings me back to my point about the obsolescence of the personal jurisdiction legal analysis employed by the court.

In our new global economy, this legal understanding fails to provide legal protection to Jacobs and the many small businesses like it, which then creates a disincentive for these companies to contract with Chinese companies.

Of course, choosing to not do business with Chinese companies is not a viable option for trading companies such as Jacobs, so the economic burden of Chinese tortious conduct falls on Americans.

Granted, perhaps it’s not the place of a federal district court to reinterpret long-established laws, but seriously, something has to change because this current setup simply isn’t fair.