Originally posted 2014-03-03 21:38:44.

By Sindy Wenjin Ding | amdlawgroup.com

flea marketWith buying power resting at the tips of our fingers, tech savvy and not so tech savvy fashion addicts are able to pursue the internet for all of their fashion fixes. Direct purchasing from the intellectual property owners becomes not so direct in this fast-changing digital era. We read ads, we walk to distributor markets, we click links and give information.  The bridging medium has created such thick clouds that it keeps the consumers from seeing the real source of the products. The difficulties continue in stopping counterfeiters on the medium platforms, such as Internet and brick-and-mortars. Courts face challenges on the issue of secondary liability for trademark infringement on 3rd parties involved in some manner in the sale, advertising, payment, shipment or other activities relating to the goods.

The Supreme Court explained in Inwood Laboratories that “if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributory responsible for any harm done as a result of the deceit.” Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 855 (1982). As one major kind of secondary liability, contributory infringements is based on tort law principles of enterprise liability and imputed intent, and it is established when: (1) the defendant knows of the infringement; and (2) the defendant materially contributes to or induces the infringement.

From the perspective of enforcement, secondary liability is a useful theory to argue, believe it or not, the direct infringers can be very difficult to catch in the real world. Direct infringers that sell counterfeit or other infringing products on the Internet can easily avoid liability.[1] In case law, as we see, some brands already pioneered pursuing secondary liabilities on the distributors or infringing products carriers.

Coach Inc.’s Settlement Revived the Secondary Liability Argument on Brick-And-Mortar

The most recent settlement made by Coach with the owner of a well-known flea market[2] in Florida that was selling fake Coach goods, was considered as a big victory on holding the property owner accountable.  While Coach’s win is not only about the anti-counterfeiting achievement or the money, per se; it also helped set a precedent that secondary liability could be applied to brick-and-mortar, and the enforcement of the actual marketplace, rather than the internet could be more rigorous and doable based on this theory.  According to WWD, Coach’s settlement revived the implications of secondary liability, which declined in popularity after Tiffany lost its case against eBay[3].

Tiffany v. eBay case Learning of the infringements knows or has reason to know

Recapping the case Tiffany (NJ) Inc. v. eBay Inc., jewelry seller Tiffany brought action against online auction site proprietor eBay through which counterfeit seller-branded merchandise was sold, alleging trademark infringement, false advertisement, or trademark dilution. The core issue addressed in the Second Circuit was to answer the question whether or not the proprietor’s generalized knowledge of infringement of seller’s trademark on its website raises liability of contributory trademark infringement. Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010) In other words, the questions was whether or not eBay was liable for facilitating the infringing conduct of counterfeiting vendors. The court gave a negative answer and clarified its standpoint in interpreting the inwood standard.

The core of Inwood standard to confirm secondary liability is to confirm whether or not a manufacturer or distributor continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement. The court ultimately rejected to claim contributory liability on eBay because even though eBay got over 200 Notice of Infringement forms from Tiffany, it isn’t automatically sufficient to satisfy the “knows or has reason to know” requirement. Tiffany would have to show that eBay knew or had reason to know of specific instances of actual infringement beyond those that it addressed upon learning of them. Court further claimed that willful blindness would have satisfied the inwood standard. “Contributory liability may arise where a defendant is made aware that there was infringement on its site but ignored that fact.” Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 146 (2d Cir. 2010) 

Rosetta Stone v. Google case — Finding Contributory Infringement by a Trier of Fact 

Just a year after the Tiffany case, a case involving the similar issues of direct infringement and contributory liability happened between Rosetta Stone Ltd. and Google. Rosetta Stone brought action to Google for trademark infringement, secondary trademark infringement liability and trademark dilution, based on facts that Google allows 3rd parties and sponsors to use Rosetta Stone’s trademark into their own ad texts (links) which lead consumers to purchase fake Rosetta Stone’s products. Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144 (4th Cir. 2012)

Particularly on the issue of contributory infringement of Google, the District Court’s conclusion was based largely on Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 146 (2d Cir. 2010). Rosetta Stone provided significant evidence to reflect Google’s purported allowance of known infringers and counterfeiters to bid, which included a spreadsheet with approximately 200 allegedly fraudulent sponsored links sent to Google. The court recognized that the evidence is relevant to Google’s contributory infringement, but indicated it was “unpersuaded” and insufficient to satisfy Inwood’s “knows or has reason to know” requirement. It basically equaled the spreadsheet notice sent by Rosetta Stone to the notice of infringement forms sent by Tiffany in Tiffany’s case.

Hence the district court holds that Rosetta Stone has not met the burden of showing that summary judgment is proper as to its contributory trademark infringement claim. The Fourth Circuit picked up this evidence from another perspective, the procedure posture. The Tiffany case involved an appeal of judgment, rather than a summary judgment on question of facts.  Therefore, the Circuit concluded that the evidence recited by the District Court is sufficient to establish a question of fact as to whether Google continued to supply its services to known infringers. Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 165 (4th Cir. 2012)   In fact, the Court of Appeal recognized the existence of a reasonable trier of fact. However, it doesn’t change its rationale towards the nature of these evidences, such as the spreadsheet with fraudulent sponsor links, or notice of infringement letters; those that seem like a proper, sufficient legal approach to report any online infringing actions to another party over the Internet platforms.

Compare the Rationales Behind the Secondary Liability Arguments On Two Different Mediums: Brick-And-Mortar Vs. Internet Platforms

Interestingly, it seems like a common theory, secondary liability as a contributory infringer under Lanham Act, could be interpreted and applied differently on the trademark infringement carried by an Internet platform or an actual marketplace. The differences of the rationales result from the different nature of the two mediums, and what could and could not happen to that kind of medium.

Contrasting the case of a flea-market landlord, the court noted that while the landlord of a flea market might reasonably be expected to monitor the merchandise sold on his premises, an Internet domain name registrar “cannot reasonably be expected to monitor the Internet”. [4] An actual marketplace, either a flea market or a distributor store, allows the operator to easily follow up what’s going on with the store. If there are infringing products sold in the store, and the intellectual property owner located the store and sent a notice mail to the store it would be easier to track what the store owner/landlord actually did about the complaint, or if he acts willfully blind to the alleged trademark infringement. Any actions, like a raid or a seizure movement directed by the police would help the court confirm whether or not the landlord had actual knowledge of the alleged contributory trademark infringement. Hence, the trademark holder will have more affirmative and acceptable evidence on the “know or has reason to know” requirement under Inwood standard.

Compared with the infringement action on the brick-and-mortar medium, the situation is more unreliable with the Internet. It’s understandable that the courts do not strictly follow the common law standards for secondary liability. And the standards have changed as the courts have grappled with applying the standards to new technologies and new business methods in the digital era. Websites, as a carrier of potential infringing products, are hard to monitor, and easy to hide information from the real world at the same time. After any notices or letters being issued to a certain website, the challenge turns to be making sure that there is a willful blind action with actual knowledge about it, because only evidences that serve as informing messages have been considered as “insufficient” and “unpersuasive” to meet Inwood standard.

All in all, it gives the Intellectual Property practitioners a great signal that the secondary liability theory could be applied successfully on trademark infringement on brick-and-mortar, as well as on the Internet. It’s also good to watch that the courts are adapting themselves to the new technology and media, in order to address secondary liability in new contexts. In this sense, more brands could bring actions against the 3rd party trademark infringers, a seller, reseller, distributor or a manufacturer, whether it be on the Internet or the street, to better safeguard their intellectual property rights.

Sources:

[1] Secondary liability for trademark and copyright infringement, Michael J. McCue Lewis and Roca LLP

[2] Flea market: a market, indoors or out of doors, where new or used items are sold from individual locations, with each location being operated independently from the other locations. Matthews Municipal Ordinances MUNIORD § 39:150

[3] WWD, Coach gets $5.5M in fakes case settlement, Rosemary Feitelberg, Jan 21, 2014 see http://www.wwd.com/business-news/legal/coach-gets-55m-in-fakes-case-settlement-7381866?src=search_links

[4] Liability as vicarious or contributory infringer under Lanham Act—modern cases, American Law Reports ALR Federal The ALR databases are made current by the weekly addition of relevant new cases.152 A.L.R. Fed. 573 (Originally published in 1999) Deborah F. Buckman, J.D.

 

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