On February 10, 2020, the Seventh Circuit federal appeals court ruled that an Illinois-based seller of dietary supplements could maintain a federal Lanham Act and Illinois state law claims against a California-based competitor that had only an online presence, and no physical presence in Illinois. (Curry v. Revolution Laboratories, LLC, 949 F,3d 385 (7^th Cir. 2020))

Facts

The plaintiff began selling and advertising his products in 2002, and began selling the product at issue (“Diesel Test”) in 2005. In December of 2016, defendants began selling “Diesel Test Red Series,” with similar red and white packaging. Soon thereafter, the plaintiff began receiving emails from consumers seeking free trials of the defendants’ product as well as complaints and refund requests from dissatisfied customers.

In seven months of online sales, the defendants received more than $1.6 million in gross sales and 767 sales were to Illinois residents (1.8% of gross revenues). On November 15, the defendants filed a trademark application with the U.S. Patent and Trademark Office (“PTO”); and on December 16 the plaintiff filed a trademark application, with a first-use date of 2005. The PTO suspended both applications, citing likelihood of consumer confusion.

The plaintiff filed a lawsuit (pro se) in Illinois federal court. Defendants moved to dismiss the lawsuit for lack of personal jurisdiction. The trial court agreed, and the plaintiff appealed.

The appeal

The Seventh Circuit began by applying a three-part test for specific jurisdiction:

First, the defendant’s contacts with the forum state must show that it “purposefully availed [itself] of the privilege of conducting business in the forum state or purposefully directed [its] activities at the state. Second, the plaintiff’s alleged injury must have arisen out of the defendant’s forum-related activities. And finally, any exercise of personal jurisdiction must comport with traditional notions of fair play and substantial justice.

Lexington Ins. Co. v. Hotai Ins. Co., Ltd., 938 F.3d 874, 878 (7th Cir. 2019) (alterations in original).

The appellate court declined to create a special jurisdictional test for Internet-based cases.

The court held that the defendants formed sufficient minimum contacts with Illinois. The defendants’ interactive website required the consumer to select a “ship-to” address, and Illinois was among the choices. The company would also send a thank-you e-mail confirming the order and shipping address. The court found that the defendants’ actions were “purposeful.”

With respect to the second factor, the court held that the plaintiff had met his burden at this stage of the case by showing direct sales by the defendants in Illinois of the product at issue. Those product sales allegedly caused customer confusion and deprived him of the value of the trademark in the states where the product was sold—including Illinois.

As for the “traditional notions of fair play and substantial justice,” the court found that the defendant had not made a “compelling case that the presence of some other considerations would render jurisdiction unreasonable.” (Burger King Corp. v Rudzewicz, 471 US. 462, 477 (1985))

The court found that defendant “streamlined its marketing so that it can easily serve the state’s consumers—and it has done so by selling the allegedly confusing product in substantial quantities.” The court added that Illinois has a strong interest in providing a forum for its residents to seek redress for harms suffered within the state by an out-of-state actors.

Therefore, the court reversed, and remanded the case back to the trial court.

Remand

On remand, the district court found specific jurisdiction over the selling company’s president and CEO, based on the same evidence that the Seventh Circuit found persuasive. (2020 WL 1330363 (N.D. Ill. Mar. 23, 2020)) Because the two individuals were owners or had a direct financial stake in the company, Illinois’ “fiduciary shield” doctrine did not apply. The company that managed the selling company, however, was dismissed for lack of personal jurisdiction. Here, the plaintiff could not pierce the corporate veil: the company was not a sham and he did not show that the two companies were not separate entities with separate “personalities.”

Takeaways

Note that several standard features of e-commerce were sufficient to find specific jurisdiction: The ability of the consumer to select their state of residence at the point-of-purchase, as well as the defendant’s affirmative confirmation of the order, including the address. Any company that operates an interactive website like the one in Curry and directly ships products should be prepared to defend a trademark lawsuit in any state to which it ships.