Blockchain Legal Resource

On Monday, October 22, 2018, Judge J. Paul Oetken of the Southern District of New York granted Alibaba Group Holding Limited’s (“Alibaba”) motion for preliminary injunction in a trademark action against several foreign-based promoters and developers of a new cryptocurrency called “AlibabaCoin.” In doing so, the court considered several novel issues around personal jurisdiction and blockchain.

Alibaba is the parent corporation of a multinational web-services conglomerate that includes Alibaba, AliExpress and Taobao, among other entities.

AlibabaCoin is a cryptocurrency released earlier this year that has been marketed as “the future of payment security” and as using blockchain and facial recognition technologies. AlibabaCoin had its initial coin offering in March this year.

Shortly after AlibabaCoin’s initial coin offering on April 2, Alibaba filed suit in the Southern District and obtained a temporary restraining order barring the named defendants from making misleading use of Alibaba’s protected marks in the United States. After an initial hearing, however, the court dissolved the order for lack of evidence of minimum contacts necessary for the court to assert personal jurisdiction over the Dubai- and Belarus-based defendants. Alibaba obtained permission from the court to take jurisdictional discovery.

During discovery, the defendants produced a list of email addresses associated with AlibabaCoin investors. One of those email addresses belonged to an individual who, according to Judge Oetken, “overwhelmingly appears to be a New York resident.” The individual in question was connected to three transactions with AlibabaCoin.

On a renewed motion for preliminary injunction, Judge Oetken held that Alibaba had shown sufficient evidence of such minimum contacts. Notably, the court held that one individual and three transactions suffice to invoke personal jurisdiction under New York’s long-arm statute “so long as the transaction was purposeful and there is a substantial relationship between the transaction and the claim asserted.” Further evidence revealed that over one thousand New Yorkers had visited the defendants’ website by mid-June 2018, which the court held established “a reasonable probability that the transactions at issue here are not isolated instances, ‘but rather a part of a larger business plan’ that involves the purposeful marketing and sale of AlibabaCoin to, among others, New York consumers.”

Defendants argued that the sales did not occur in the United States because, as a blockchain transaction, they “consist of ledger entries made in Minsk, Belarus, following observation of changes in ‘blockchain’ data outside the United States.” Judge Oetken did not find this argument persuasive, likening a blockchain transaction to using a debit card to make an online purchase from an out-of-state vendor: “[I]t would strain common usage to say that the transaction occurs at the potentially remote location of the servers that process the buyer’s banking activities and not at the location where the buyer clicks the button that commits her to the terms of the sale.”

Ultimately, the AlibabaCoin defendants may further challenge jurisdiction. Judge Oetken’s ruling on the motion was that Alibaba “has demonstrated a reasonable probability that a New York state court could lawfully exercise personal jurisdiction over Defendants in connection with this suit.” As of today, however, the injunction stands, and the AlibabaCoin Foundation’s website is publicly unavailable.

The court’s ruling was not unexpected – website operators have long been held subject to jurisdiction in New York for transacting business with New York residents. Nevertheless, this ruling may serve as a warning to foreign actors that transactions on the blockchain are still transactions when it comes to jurisdiction.