A Helpful Decision on Serving Defendants in China

We have covered extensively on TLB the challenge of serving defendants located in China in accordance with Federal Rule of Civil Procedure 4 and U.S. treaty obligations under the Hague Service Convention. In a recent decision, the District of Massachusetts (Judge F. Dennis Saylor IV) provided a thoughtful analysis of these issues—citing along the way one of Bill’s TLB posts, as well as our co-authored article in Judicature. This post describes what the court got right—and what options the plaintiff may still have to move its case forward. It ends with some musings on the practical difficulties of service in transnational intellectual property disputes and the competing interests at stake.

The Case

In Whoop, Inc. v. Shenzhen Lexqi Electronic Technology Co., U.S. corporation Whoop accused Chinese corporation Shenzhen Lexqi of manufacturing counterfeit Whoop products that Whoop found on Amazon being marketed for sale in the United States. Whoop sent a cease-and-desist letter to Shenzhen Lexqi and quickly received a reply from a California-based attorney who said she represented the Chinese company “in regards to intellectual property claims” and who, in a subsequent letter, denied that any of Shenzhen Lexqi’s products infringed Whoop’s intellectual property rights.

A month later, Whoop sued Shenzhen Lexqi in the District of Massachusetts and sought a preliminary injunction restraining the Chinese corporation and its affiliates from offering, promoting, or selling the allegedly infringing products. It then attempted to serve process on three U.S. companies that Shenzhen Lexqi had listed as agents for service of process when it had applied to the FCC for permission to market radio frequency devices in the United States. The process servers were unable to serve any of these companies, which did not seem to be operating as real businesses. But a courier was able to hand-deliver process on the California attorney’s law firm, and it sent a copy of the documents to the attorney by email. Whoop then filed a motion before the district court seeking an order under Federal Rule of Civil Procedure 4(f)(3) approving this service on the defendant’s attorney as an alternative method of service.

What the Court Got Right

The district court started from the observation that both the Convention and Rule 4 are the “law of the land.” Significantly, the court recognized that the Convention is both mandatory and exclusive: when it applies, it provides the full catalog of available methods of service. “Because the Convention does not list service on counsel as an appropriate method for service,” Judge Saylor reasoned, “service on counsel is implicitly prohibited where the Convention applies.” It thus cannot be approved under Rule 4(f)(3), which allows the court to order alternative methods of service so long as those methods are “not prohibited by international agreement.”

The district court also clearly and correctly distinguished between the two parts of Rule 4(h), which authorizes service on corporations, partnerships, and associations (like Shenzhen Lexqi). Rule 4(h)(2) authorizes service on a business “at a place not within any judicial district of the United States” by incorporating Rule 4(f) (which is similarly limited to service on individuals “at a place not within any judicial district of the United States”). Rule 4(h)(1), in contrast, authorizes service on a business “in a judicial district of the United States.” Rule 4(h)(1) in turn provides two options: Rule 4(h)(1)(A) incorporates Rule 4(e)(1), which provides that an individual “may be served in a judicial district of the United States by . . . following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made.” Rule 4(h)(1)(B) alternatively provides that a business defendant may be served within a judicial district of the United States “by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process.”

The distinction between Rule 4(h)(1) (incorporating Rule 4(e)) and Rule 4(h)(2) (incorporating Rule 4(f)) turns on whether the defendant is served within the United States or outside the United States. This distinction matters because the flexibility provided by Rule 4(f)(3) is only available when the defendant is served outside the United States. As the district court in Whoop correctly noted, it may be possible to serve foreign defendants within the United States, which would then avoid application of the Convention because the Convention only applies “where there is occasion to transmit a judicial or extrajudicial document for service abroad.” But such service—because it takes place within the United States—falls outside the scope of Rule 4(f), and thus also Rule 4(f)(3)’s option for alternative methods of service.

In clearly mapping this distinction, the district court in Whoop acknowledged that the difference between Rule 4(e) and Rule 4(f) has caused some confusion in the district courts, which have sometimes invoked Rule 4(f)(3) to approve ad hoc substituted service on foreign defendants’ U.S. attorneys or other representatives within the United States. As Judge Saylor correctly explained, Rule 4(f)(3) is only available when service is to be made outside the United States.

The court also seemed on solid footing in concluding that the companies listed as agents for service of process on the defendant’s FCC applications were not appointed to receive service of process in all cases, including those (like this one) that are unrelated to the FCC approval process. Thus, those companies were not “authorized by appointment or by law to receive service of process” under Rule 4(h)(1)(B). That leaves Rule 4(h)(1)(A)’s cross-reference to Rule 4(e)(1): substituted service within the United States may be permissible, but only to the extent authorized by state law.

The court thus teed up the correct question: whether either Massachusetts (where the district court sits) or California (where the defendant’s counsel is located) permits service on counsel and deems such service to be complete without a requirement that the agent transmit documents to the defendant. Although the court denied the plaintiff’s motion for alternative service under Rule 4(f)(3), it did not take a position on this question of state law.

On the Relationship Between Rule 4(f)(1) and 4(f)(3)

Before distinguishing between Rule 4(h)(1) and Rule 4(h)(2)—and, by extension, Rule 4(e) and Rule 4(f))—the court discussed the relationship between Rule 4(f)(1) and Rule 4(f)(3). Must a plaintiff attempt service under Rule 4(f)(1), which authorizes service “by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the [Convention],” before it seeks approval for alternative methods of service under Rule 4(f)(3)?

Based on an influential Ninth Circuit decision, Rio Properties, Inc. v. Rio International Interlink, many courts have assumed the answer is “no” because Rule 4(f) does not indicate a hierarchy among its three subdivisions. Judge Saylor, however, adopted a more nuanced approach. Because the approval of alternative methods under Rule 4(f)(3) appears to be committed to the district court’s discretion, some courts have required the plaintiff to make a showing that judicial intervention is needed. Such a showing in turn would logically involve at least a good faith effort to serve the defendant using a method of service already authorized by Rule 4.

I have long been troubled by Rio Properties’ blithe assertion that there is no implied hierarchy among the three options under Rule 4(f), particularly because in Rio Properties, the Convention did not apply such that Rule 4(f)(1) wasn’t even an option. I appreciated Judge Saylor’s thoughtful identification of the source of my unease: that Rule 4(f)(3)’s call for ad hoc judicial intervention seems like a last resort sort of scenario.

Nonetheless, there is a highly technical debate over the use of the term “authorized” in Rule 4(f)(1) that might affect this analysis in a different case. There is arguably a distinction between the means of service “authorized” under the Convention and those merely “permitted” by it. The Convention affirmatively authorizes service via the Central Authorities that all contracting states must establish. The Convention also allows for service through other methods, including via consular agents (under Article 8) or through “postal channels” (under Article 10(a)), as long as the receiving state does not object. Because a state can object to these methods of service, the Convention does not technically “authorize” them, but only “permits” them. China has objected to all other methods “permitted” by the Convention, so this distinction does not matter if the defendant is located in China. But if the defendant is located in a country like Canada or the United Kingdom that have not similarly objected to these alternative methods of service, there is an argument that Rule 4(f)(1) only covers service through the Central Authority and that permission must be sought under Rule 4(f)(3) to serve through an Article 8 or Article 10 method. In that case, Judge Saylor’s reasoning would require an attempt to serve via a country’s Central Authority before seeking the court’s permission to serve via a more efficient method under the Convention to which the receiving state has not objected.

All that said, I think this line of argument reads too much into the use of the term “authorized” in Rule 4(f)(1). The operative language of Rule 4(f)(1) is that service may be “by any internationally agreed means of service”; “agreement” encompasses both those methods “authorized” by the Convention and those it merely “permits.” Indeed, I think Judge Saylor’s reasoning for why Rule 4(f)(3) should not be available as a matter of first resort lends credence to this broader and more sensible interpretation of Rule 4(f)(1).

It is also worth noting that Judge Saylor criticized the plaintiff for seeking approval under Rule 4(f)(3) only after serving process on the defendant’s attorney. On his reading of Rule 4(f)(3), the court order must be obtained before serving the defendant via the alternative method. Not all courts may similarly reject ex post approval of alternative methods of service, but it is best practice to seek approval in advance.

Next Steps for the Plaintiff

Just because the district court rejected Whoop’s request for alternative service under Rule 4(f)(3) does not mean that Whoop is out of options.

First, Whoop might want to submit the complaint to China’s Central Authority for service under the Convention’s primary channel while continuing to pursue other options. The Central Authority may be able to complete service more quickly than Whoop expects. Relatedly, Whoop should investigate whether the defendant’s physical address in China is correct; if it is not, then the Convention does not apply, and Whoop has much greater flexibility under Rule 4(f)(3) to request an alternative method of service on Shenzhen Lexqi directly.

Second, Whoop can investigate whether either California or Massachusetts would allow substituted service on a defendant’s counsel as a matter of state law. Bill Dodge and Mehrunnisa Chaudry’s recent survey of state law on this question suggests that California courts would likely not permit such substituted service, but that Massachusetts law may permit it (though they found no examples of Massachusetts courts in fact doing so).

Third, Whoop should be allowed to seek a preliminary injunction before service has been perfected. Article 15 of the Convention that “the judge may order, in case of urgency, any provisional or protective measures” without completing service in compliance with the Convention. And under the federal rules, the nonmovant must have notice before a preliminary injunction issues, but formal service need not be accomplished first.

The Bigger Picture

The facts of Whoop reflect a recurrent problem with online sales of counterfeit goods. On the one hand, there is a risk that making it too easy for plaintiffs to seek injunctions and default judgments against online merchants operating in other countries will result in mass curtailment of property rights without due process. (I have previously summarized recent scholarship exploring these concerns.) On the other hand, it is important that U.S. rights-holders have the means to stop blatant infringement of those rights within the U.S. consumer market. It does seem like Whoop has been making a real and targeted effort to enforce its rights. While Judge Saylor is absolutely correct that the Convention and Rule 4 are the “law of the land” and thus limit options available to district courts in these scenarios, we should nevertheless be working to develop pragmatic options for plaintiffs.

One long-term effort should be to encourage increased efficiency in service through Central Authorities, something that the Hague Conference on Private International Law has been working to foster and report. A minor quibble I had with the opinion in Whoop is the court’s assertion that service through China’s central authority is “cumbersome, expensive, and slow” based on one scholarly article written ten years ago. In 2019, China moved to an electronic system for managing requests made to its Central Authority, and it claims that in recent years those requests have been completed within three to six months. Perhaps that is self-serving optimism on China’s part, or perhaps current trade tensions with China will erode some of that cooperation (in the same report, China indicated that by far the largest number of requests for service come from the United States). But I am wary of courts making factual assertions based on old and second-hand information, particularly since such assertions can become (problematically, in my opinion) factual precedents.

There are other efforts that might help plaintiffs like Whoop as well, including careful amendments to Rule 4 and working with the Hague Conference on Private International Law to advance practical reforms, like expanding the interpretation of “postal channels” to include email. In the meantime, plaintiffs like Whoop should use any and all options available under the Convention and Rule 4, including substituted service when state law permits it and the securing of provisional measures before formal service is completed.