SDNY Holds Freight Forwarder Not Strictly Liable for Lanham Act Violations When Counterfeit Goods Are Shipped

Freight forwarders are not strictly liable for violations of the Lanham Act just because they handle the transportation of goods that turn out to be counterfeit, the United States District for the Southern District of New York held in a significant recent ruling.

In Nike Inc. v. B&H Customs Services, Inc. et al, 2021 US Dist. LEXIS 188715 (September 30, 2021), the United States District Court for the Southern District of New York ruled that the Section 1114 and 1125(a) of the Lanham Act did not impose strict liability for a freight forwarder who merely handles cargo that turns out to be counterfeit. Such a party may be liable for contributory infringement, the court said, if it is shown that it has knowledge the goods being shipped were counterfeit. This opinion, written by Judge Jesse L. Furman, represents a notable departure from the analysis of this issue in other jurisdictions.

In Nike v. B&H Customs Services, a freight forwarder and customs broker had been charged with counterfeiting in violation of the Lanham Act when the fifth shipment in a series they had handled turned out to contain counterfeit Nike footwear. Nike brought suit against the broker and the forwarder charging them with counterfeiting and trademark infringement under Section 114 and 1125(a) of the Lanham Act, trafficking in counterfeit goods in violation of Section 526 of the Tariff Act, as well as trademark dilution importation under the Lanham Act and violation of New York common law. The forwarder, Shine Shipping Limited and Shine International transportation (Shenzhen Limited) moved for summary judgment, holding they were not liable for the violations. Nike cross-moved seeking judgement that strict liability attached. In support of its claim of strict liability, Nike pointed to Section 1127 of the Lanham Act defining the term “used in commerce” to include the sale and transportation in commerce of the goods.

The court held that that the “use in commerce language” in Section 1127 was primarily intended to address registration of trademarks rather than the question of infringement. However, the Second Circuit Court of Appeals held that the definition applies to infringement cases as well. However, Judge Furman noted that Sections 1114 and 1115(a) of the Lanham Act require that an infringer’s “use” of a plaintiff’s trademark be in connection with the infringer’s own goods and services. The court concluded that even if transportation by the forwarder constitutes “use”, the Nike trademarks were not used in connection with Shine’s own forwarding business. To hold otherwise, the Court noted, would create extreme destruction in United States supply chains.

The court thus held that the mere transportation by the goods by Shine did not create strict liability for infringement. If the matter went to trial, and Nike could demonstrate that Shine was aware that the goods being transported were counterfeit, it might be held liable for inducing infringement. Proving such intent at trial, however, would be virtually impossible, since freight forwarders generally deal with sealed cargo, and identify the goods being carried only accordance with information provided on bills of lading, invoices and packing lists.

The Court indicated that its approach to this interpretation and application of the term “use in commerce” differs from those used in other Federal district courts, but concluded that no strict liability existed. It entered summary judgment in favor of Shine on all of the other counts.

It remains to be seen if Nike will pursue an appeal, but this case could be an important watershed in the growing trend of trademark owners looking to brokers, forwarders, and other international trade service providers as “deep pockets” in cases where these entities innocently provide services in respect of goods that turn out to be counterfeit.