Don’t Blame Paypal for Account Freeze
In U.S. trademark violation cases, the online merchant payment processor Paypal is often ordered by the U.S. court to freeze the accounts of online merchants. The account freeze takes place without prior notice to the Paypal account owner. Both Paypal and the Plaintiffs’ attorneys will contact the account owner to inform them of the lawsuit against them in the U.S. and will advise them to obtain U.S. legal counsel. Many account owners mistakenly blame Paypal for the account freeze. In fact, Paypal, banks and other online payment processing companies are completely innocent. Paypal is simply required to follow the order of the U.S. court and is powerless to either resist the order or to advocate on behalf of the account owners. Those who insist on blaming Paypal for their account freeze or who seek remuneration from Paypal waste valuable time and energy that should be devoted to defending the trademark violation lawsuit that is the cause of the account freeze. Don’t blame Paypal. Defend your case.
Trademark violation cases against foreign online retailers are unique in that personal service and delivery of the lawsuit are not required. The Plaintiffs request and are granted special permission to serve the Defendants by email or by posting a notice on the domain that has been seized. The rationale behind use of this extraordinary procedure will be explored in a separate blog post. When Paypal receives an order from a federal district court, Paypal must comply. Paypal does not receive any part of the frozen funds. In fact, Paypal incurs the cost of implementing the Court’s order, suffers loss of business revenue due to the account freeze and also becomes the target of their customer’s anger.
First, let us consider the ability of Paypal to resist the court order. Federal district courts are U.S. national courts with the ability to enforce their orders. If Paypal failed to comply with any order, the company could be held in contempt. This means that a U.S. court could fine Paypal or, if resistance continued and in extreme cases, arrest and hold responsible company officers in jail until the Court’s order is implemented. An attempt by the U.S. subsidiary of Bank of China to defy a similar order is illustrative of the futility of resistance. In November, 2015, Bank of China was held in contempt by a U.S. district judge in New York due to its refusal to turn over account records on the grounds that, as a state owned Chinese bank, following the order of the U.S. court would require it to violate Chinese privacy laws. The District Court fined Bank of China $50,000 per day while the bank appealed the decision to a higher court. By January, 2016, Bank of China turned over the requested records, acceding to the Court’s order.
Second, while Paypal does not have the legal ability to resist the Court order, there are also other powerful legal and business reasons that require Paypal to comply. Consider that eBay and Paypal are now themselves defendants in a lawsuit alleging that the companies knowingly provide a platform for and facilitate the sale of counterfeit goods. The lawsuit is Wimo Labs, LLC, v. eBay, Inc, et al., Case number 8:15-cv-01330, in U.S. District Court, Central District of California. The Plaintiffs argue that eBay and Paypal do not sincerely enforce their policy against the sale of counterfeit goods. The Plaintiffs allege that eBay and Paypal simply allow counterfeiters to utilize their platforms so that they can profit without consideration for the damage done to the businesses of legitimate retailers and trademark owners. The refusal or failure of Paypal to comply with the order of a U.S. district court order against an alleged counterfeiter would certainly be used as evidence against eBay and Paypal in this and future lawsuits.
The third and final reason that Paypal must comply with the order of the U.S. court is that legitimate online merchants and customers overwhelmingly support efforts to end online counterfeiting. Merchants that have worked on eBay for years and established substantial businesses often find that new stores appear which are exact duplicates of their own, complete with precisely copied captions on photos of merchandise. The only difference is that prices are substantially lower and the goods offered for sale are fakes. Likewise, consumers who purchase counterfeit goods often blame eBay and Paypal for the fraud that was perpetrated upon them. Whenever a consumer is sold counterfeit goods via these platforms, it is apparent that anti-counterfeiting efforts have failed. Any appearance of collusion with online counterfeiters, proven or otherwise, would greatly harm eBay and Paypal’s business among both buyers and sellers who utilize their services.
Trademark litigation is stressful and bewildering for most defendants. This is especially true for online merchants who operate outside the U.S. These defendants are usually not familiar with U.S. law or how to respond to a lawsuit. It is natural to blame the one organization that they know, the online payment processor Paypal. It is also wasteful and incorrect. Paypal lacks the legal ability to defy the U.S. government nor should it. As Patrick Foo, PayPal’s head of cross border business in China, explained in a February, 2015 PYMNTS.com article, Paypal simply follows the order of the U.S. court as every bank and third party payment processor is required to do. This policy is not only consistent with U.S. law but with the wishes of the vast majority of eBay and Paypal customers. Defendants who wish to protect their interests and recover frozen funds cannot do so through Paypal alone. They must defend the lawsuit that has been filed against them.
A myth has been established on the internet that those who have had their Paypal account funds frozen can sue Paypal and recover their funds. This is completely false. I will address this fully in a separate blog post. For now, I urge anyone who is told or reads that a lawsuit against Paypal is a viable means of recovery to ask or attempt to discover on their own whether such a lawsuit has ever been successfully prosecuted in any country. The answer is a resounding NO! U.S. trademark violation cases have now been litigated in this way for many years. If a lawsuit against Paypal was a viable means of recovery, would it not have already happened at least once? Any defendant who chooses not to defend their interests in the lawsuit that has been filed against them based on this hope will forever lose all of the frozen funds and may suffer other serious legal and financial consequences.
If you are a defendant in a U.S. trademark violation lawsuit, don’t blame Paypal. Contact The Law Office of L. Ford Banister, II immediately for a case review and U.S. legal representation. Delays in responding to a U.S. lawsuit may result in loss of rights and/or greater costs of defense. Click here for answers to Frequently Asked Questions about U.S. trademark violation defense.
如果你是一个美国商标侵权诉讼的被告，请联系L. Ford Banister II律师事务所进行案件回顾和法律咨询代表。延迟回应美国诉讼可能会导致失去权利和/或更多的辩护费用。点击这里了解关于美国商标侵权辩护的常见问题。