IP Law Daily Alibaba obtains preliminary injunction prohibiting cryptocurrency company from using its trademark
Tuesday, October 23, 2018

Alibaba obtains preliminary injunction prohibiting cryptocurrency company from using its trademark

By Robert B. Barnett Jr., J.D.

Alibaba Group Holding Limited, the parent company for the Chinese web-services conglomerate, is entitled to a preliminary injunction prohibiting Alibabacoin Foundation and related entities, a group of Dubai- and Belarus-based cryptocurrency companies, from using the ALIBABA Marks anywhere in the U.S. and from making false or misleading statements likely to confuse consumers about the relationship between Alibaba and their cryptocurrency, a New York federal district court has ruled. In justifying issuance of the preliminary injunction, the court ruled that Alibaba had sufficiently established that (1) the court likely has personal jurisdiction over Alibabacoin under the New York long-arm statute, (2) the exercise of personal jurisdiction over Alibabacoin satisfied the U.S. Constitution’s Due Process Clause, and (3) Alibaba is likely to prevail on its claim that Alibabacoin violated the trademark infringement provisions of the Lanham Act (Alibaba Group Holding Ltd. v. Alibabacoin Foundation, October 22, 2018, Oetken, J.).

Background. Although Alibaba was incorporated in the Cayman Islands, it is quintessentially a Chinese company that operates in the fields of online commerce, mobile phones, cloud computing, digital media and entertainment, innovation, and technology. It is considered to be the world’s largest online and mobile commerce company, and its stock trades on the New York Stock Exchange. Alibaba has obtained trademark protection around the world, including in the U.S. Alibabacoin Foundation, on the other hand, and its related group of companies, operating in Dubai and Belarus, develop and market a type of cryptocurrency that they call AlibabaCoin or Alibaba Coin.

On April 2, 2018, Alibaba sued the Alibabacoin companies in New York federal court, alleging that Alibabacoin used Alibaba’s trademarked name and symbols to promote its cryptocurrency in violation of, among other laws, the Lanham Act. Soon thereafter, the court entered a temporary restraining order barring Alibabacoin from making misleading use of the marks. On April 30, however, the court dissolved the TRO and refused to enter a preliminary injunction, finding that Alibaba had failed to establish a reasonable probability that the New York federal court had personal jurisdiction over Alibabacoin. Following additional discovery for jurisdictional purposes, which the court permitted, Alibaba renewed its application for a preliminary injunction.

Having previously determined that it had subject matter jurisdiction, the court’s only two issues for consideration in this application were whether the court had personal jurisdiction over Alibabacoin, which involved an analysis of both the New York long-arm statute and the U.S. Constitution’s Due Process Clause, and the likelihood of success on the merits.

Personal jurisdiction. New York’s long-arm statute (N.Y. C.P.L.R. §302(a)(1)) permits personal jurisdiction over any non-domiciliary that transacts business within state. In New York, a single transaction is sufficient as long as a substantial relationship exists between the transaction and the asserted claim. The original application for a preliminary injunction was denied because Alibaba could not cite a single sale of Alibabacoin in New York. The new evidence, however, remedied that shortcoming. Among the evidence was proof that a New York resident was connected to at least three transactions.

The court rejected Alibabacoin’s argument that the transaction did not occur in New York because the server processing the sale was located in Minsk, Belarus. The point of sale is where the buyer clicks the button, not where the server is located. Alibabacoin also argued that the "substantial relationship" between the transaction and the claim did not exist. Such an argument, the court said, too narrowly construed the nexus requirement. By providing additional evidence that more than a thousand New Yorkers visited the site, Alibaba established a reasonable probability that the transactions were not isolated instances but were instead part of a larger business plan involving the marketing and sale of Alibabacoin to New York consumers. As a result, Alibaba established a reasonable probability that Alibabacoin transacted business in New York within the meaning of the New York long-arm statute.

Turning next to the Constitution’s Due Process Clause, the court concluded that satisfying the state long-arm statute also satisfied the federal constitutional requirements for personal jurisdiction.

Success on the merits. The court then turned to whether Alibaba could establish a likelihood of success on the merits. The complaint asserted seven causes of action, only one of which needs to succeed on the merits to satisfy the requirement. The court, therefore, first examined the first cause of action, which was trademark infringement under the Lanham Act (15 U.S.C. §§1051 et. seq.). The Lanham Act requires a showing that Alibabacoin used Alibaba’s trademark without consent and in a way that was likely to cause confusion. "Ample evidence" existed, the court said, to conclude that Alibabacoin used its online commercial ventures in a way that was likely to cause confusion. In fact, the record showed that confusion had already occurred, with online articles either expressing confusion about the connection or falsely asserting that a connection existed. Alibabacoin’s argument, however, did not contest those facts. Instead, it argued that it had the right to use the Alibaba mark in the cryptocurrency arena because Alibaba had expressly stated that it was not interested in the cryptocurrency space. If a court were to accept this abandonment argument, the court noted in rejecting the argument, all of American trademark law would be rendered ineffectual, as companies moved into unoccupied spaces without regard to how those operations affected the trademark-holder’s own sphere of operation.

The court also rejected Alibabacoin’s final argument, which contended that Alibaba failed to demonstrate actual consumer confusion, pointing to Alibabacoin’s own promotional materials that equivocated on its relationship to Alibaba and disclosed its plans to move into e-commerce, which is Alibaba’s core business. Alibaba, therefore, sufficiently established a likelihood of success on its Lanham Act claim.

The court, therefore, granted Alibaba’s application for a preliminary injunction and (1) enjoined Alibabacoin from using the ALIBABA Marks and (2) enjoined Alibabacoin from making false or misleading statements about the ALIBABA Marks in any of its promotional material.

The case is No. 1:18-cv-02897-JPO.

Attorneys: Lucas Bento (Quinn Emanuel Urquhart & Sullivan) for Alibaba Group Holding Ltd. James Wilson Dabney (Hughes Hubbard & Reed LLP) for Alibabacoin Foundation a/k/a ABBC Foundation, ABBC Block Chain It Solutions LLC, Alibabacoin General Trading FZE and Alibabacoin Foundation LLC.

Companies: Alibaba Group Holding Ltd.; Alibabacoin Foundation a/k/a ABBC Foundation; ABBC Block Chain It Solutions LLC; Alibabacoin General Trading FZE; Alibabacoin Foundation LLC

MainStory: TopStory Blockchain Trademark NewYorkNews

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