How the 9th Circuit Veered Off Course in Petroliam Nasional Berhad (Petronas) v. GoDaddy.com

The Misapplication of Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. (Central Bank)

Posted on September 3, 2014

We’ve had a lot to say — and with good reason — about Petroliam Nasional Berhad (Petronas) v. GoDaddy.com, Inc. (GoDaddy),[1] the Ninth Circuit decision that held there is no cause of action for contributory cybersquatting[2] under the Anti-Cybersquatting Consumer Protection Act (ACPA),[3] which was passed as an amendment to the Lanham Act in 1999. This ruling was no mere “development”; it was a great upheaval in the law. The court’s analysis is at odds with the plain meaning of the statute, its legislative history, and the contributory liability case law construing it. We first reported the decision as a blog post here. A lengthier analysis appeared in the Winter 2014 issue of Bloomberg BNA’s Books Monitor. And the case gets the million-dollar treatment in the upcoming 2014 Supplement to Secondary Trademark Infringement. Each time we looked at the opinion, it became harder to understand it.

In addition to the issues we’ve already addressed is the less obvious but equally problematic dependence by the court on Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A (Central Bank) [4], which involved aiding and abetting liability under the SecuritiesExchange Act of 1934 (the “Exchange Act”).The GoDaddy court relied on that Supreme Court case[5] to help answer an old question that had already been answered, albeit not in the cybersquatting context[5a]: Should courts apply common law principles of secondary liability to the Lanham Act?

Both the Supreme Court and subsequent circuit courts have done so for decades. The Supreme Court resolved the validity of such common law principles under the Lanham Act in 1982 when it set the modern standard for contributory liability in Inwood Labs., Inc. v. Ives Labs., Inc.[6] Inwood Labs.’s two-part test for contributory trademark infringement[7] has been consistently followed by subsequent courts, including the Ninth Circuit.[8] Years later, the question of whether common law principles of agency should apply to the Lanham Act came before the Third Circuit in the landmark case of American Tel. & Tel. Co. Winback & Conserve Program, Inc. (AT &T).[9]There the court acknowledged the validity of vicarious liability (through the paradigm of agency) under the Lanham Act. [10] That case, though not controlling in the 9th Circuit, is nonetheless instructive because the AT &T court considered at length whether the Supreme Court’s ruling in Central Bank should apply to the Lanham Act.

In Central Bank, the Supreme Court had rejected the application of aiding and abetting liability to the Exchange Act. Adhering to the plain meaning of the statute, the Court reasoned that an action cannot be maintained for aiding and abetting securities fraud under the Exchange Act because its text did not provide for one.[11] In AT &T, however, the court declined to extend Central Bank to trademark infringement because it did “not believe that the [Central Bank] Court’s restrictive reading of the Exchange Act impact[ed] on the determination of the scope of liability under the Lanham Act.” [12]

Central Bank had no bearing on the inquiry in AT &T, the Third Circuit reasoned, because the Supreme Court in that case “primarily was concerned with broadening the range of unlawful conduct beyond that specifically proscribed by the [Exchange] Act.”[13] Aiding and abetting, the Supreme Court explained, constituted a separate cause of action beyond the scope of the Act.[14] This is not so however, regarding agency liability, the AT&T court reasoned, for “courts imposing liability on agency theories are not expanding the category of affirmative conduct proscribed by the relevant statute; rather, they are deciding on whose shoulders to place responsibility for conduct indisputably proscribed by the relevant statute.”[15]

But the AT&T court did not stop there. In distinguishing Central Bank, it held:

[B]eyond this, it is quite clear under Central Bank ‘s reasoning, the Supreme Court was concerned with the Exchange Act itself under which the private right of action already had been judicially implied. Accordingly, we think that the Court did not intend to overrule settled constructions of other statutes that relied on common law doctrines to determine the scope of liability. Thus, in contrast to the Court’s restrictive reading of the Exchange Act, the Court has endorsed and applied a theory of secondary liability for trademark infringement that comes very close to aiding and abetting. The Court first enunciated the rule over 70 years ago, prior to the enactment of the Lanham Act, when the Court was concerned with constructing and enforcing a common law of unfair competition. … The theory of “contributory infringement”, as it came to be called, survived into the statutory era.[16]

Thus, Central Bank did not affect the scope of liability under the Lanham Act, for two reasons: One was that agency can be distinguished from and aiding and abetting. More fundamentally, though, the Supreme Court itself had already allowed for vicarious liability under the Lanham Act. It did so in Inwood Labs., where it validated another common law theory – contributory liability – that closely approximated aiding and abetting.[17]

How, then, in light of the settled law, could the GoDaddy court have concluded that there is no cause of action for contributory cybersquatting under the Lanham Act? The answer, in large part, is that the court insisted on viewing cybersquatting as “a new cause of action that is distinct from traditional trademark remedies[sic],”[18] thereby casting the ACPA outside the purview of the Lanham Act. This dubious conceit has no basis in the statute or its legislative history.[19] It then chose the wrong vehicle, Central Bank, in which to drive its analysis. But even if Central Bank did apply, the legislative history[20] shows that Congress regarded cybersquatting as a new means to an old end, one “indisputably proscribed” by the Lanham Act: trademark infringement.

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[1] 737 F.3d 546 (9th Cir. 2013), petition for cert. filed, 2014 WL 1510251 (U.S. Apr. 14, 2014).

[2] As discussed in the Main Volume, Chapter 4, cybersquatting is a form of trademark infringement involving the bad-faith registration of another’s trademark-protected domain name with the intent to profit.

[3] 15 U.S.C. § 1125(d). See also the discussion in the Main Volume, Chapter 4, Section II.A.1.

[4] 511 U.S. 164 (1994). The court’s reliance on Central Bank is also noted in Chapter 4 of the 2014 Supplement to the Main Volume.

[5] GoDaddy, 737 F.3d at 550, 551, and 552.

[5a] As discussed in Chapter 4 of the Main Volume and this earlier post, several district courts have recognized a cause of action for contributory cybersquatting.

[6] 456 U.S. 844, 854 (1982)(Inwood Labs.). See also the discussion of Inwood Labs. in the Main Volume, Chapter 2, Section III.

[7] The Court held:

if a manufacturer or distributor [1] intentionally induces another to infringe a trademark, or if it [2] 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 contributorially responsible for any harm done as a result of the deceit.

Id. at 854 (citing William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 530–31 (1924)).

Note that in the service-provider context, a modified form of the test applies. In those cases, “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark permits the expansion of Inwood Lab.’s “supplies a product” requirement for contributory infringement.” Lockheed Martin Corp. v. Network Solutions Inc. 194 F.3d 980, 984 (9th Cir. 1999).

[8] See, e.g., Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 807, 83 USPQ2d 1144 (9th Cir. 2007); Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 983, 52 USPQ2d 1481 (9th Cir. 1999); Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 64, 24 USPQ2d 1189 (2d Cir. 1992); David Berg & Co. v. Gatto Int’l Trading Co., 884 F.2d 306, 311, 12 USPQ2d 1116 (7th Cir. 1989); Sealy, Inc. v. Easy Living, Inc., 743 F.2d 1378, 1381–82, 224 USPQ 364 (9th Cir. 1984); Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 502 (S.D.N.Y. 2008), affirmed in part and remanded in part, 600 F.3d 93, 105­–06, 94 USPQ2d 1188 (2d Cir.) (assuming without deciding that Inwood Labs. applied in service context), cert. denied, 131 S. Ct. 647 (2010); Monotype Imaging, Inc. v. Bitstream Inc., 376 F. Supp. 2d 877, 889–90, 77 USPQ2d 1424 (N.D. Ill. 2005); Monsanto Co. v. Campuzano, 206 F. Supp. 2d 1271, 1274 (S.D. Fla. 2002); Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180 F. Supp. 2d 678, 687 (D. Md. 2001); Medic Alert Found. U.S., Inc. v. Corel Corp., 43 F. Supp. 2d 933, 940, 51 USPQ2d 1024 (N.D. Ill. 1999); National Basketball Ass’n v. Sports Team Analysis & Tracking Sys., Inc., 939 F. Supp. 1071, 1108, 41 USPQ2d 1549 (S.D.N.Y. 1996); MDT Corp. v. New York Stock Exch., Inc., 858 F. Supp. 1028, 1033, 30 USPQ2d 1849 (C.D. Cal. 1994).

[9] 42 F.3d 1421 (3rd Cir. 1994).

[10] Id. at 1433-34 (liability based on common law agency principles is appropriate under the Lanham Act).

[11] 511 U.S. at 177.

[12] AT&T, 42 F.3d at 1430.

[13] Id.

[14] Id.

[15] Id. at 1430-31.

[16] Id. at 1432. (emphasis added)(citations omitted).

[17] See id. at 1432-33 (discussing Inwood Labs. and its progeny).

[18] 737 F.3d at 550.

[19] See the discussion of the legislative history of the ACPA in both the Main Volume, Ch. 4, Section II.A.1 and in Chapter 4 of the 2014 Supplement. As mentioned above, the ACPA passed as an amendment to the Lanham Act in 1999.

[20] Id.

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Former Flea Market Owner Subject to Contributory Liability Claim

Posted on March 10, 2014

Coach v. Sapatis (D.N.H. Jan. 31, 2014)

Much of modern contributory liability doctrine is founded on the flea market cases, where the courts first extended Inwood’s test for contributory trademark infringement outside the “supplies a product” context to flea market owners and operators whose vendors sold counterfeits of the plaintiff’s products. These cases historically distinguish two types of flea market landlords: those who own the flea market itself, leasing booth space to individual vendors, and those who merely own the property on which the flea market is located. Courts have declined to extend liability to the latter category of defendants because they do not exercise direct control over the infringing sales. Flea market owners who are also “operators,” by contrast, are subject to contributory claims because they can terminate their relationship with their vendors upon notice of infringing activity.

In Coach v. Sapatis, (D.N.H. Jan. 31, 2014), however, the defendant property owner was also the former owner of the flea market he had sold to his daughter and, under the allegations, remained actively involved in its ongoing operation after the sale. There the court denied his motion for summary judgment on the contributory trademark infringement claim because his activities went beyond mere ownership of the land on which the flea market was located. As the court made clear, “the defendant’s degree of control over the infringer—rather than his or her nominative status as owner, lessor, or lessee—is the determinative factor.”

The court in Coach v. Sapatis thus clarifies that the rule mentioned above—that mere ownership of the land on which the flea market is located will not trigger contributory liability—is not absolute. This is an important reminder not only in the flea market context, but in other areas, such as corporate ownership liability, where similar principles apply.

 

For in-depth treatment of the topics in this post, see Chapters 3 and 7 of Secondary Trademark Infringement, by Coleman and Price, published by Bloomberg/BNA.

 

 

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Ninth Circuit Holds There is No Cause of Action for Contributory Cybersquatting

Posted on December 12, 2013

Petroliam Nasional Berhad v. GoDaddy.com  (9th Cir. Dec. 4, 2013)

As our book speeds its way to the printer, the Ninth Circuit has made sure we will have a lot to discuss on this blog and in the upcoming supplement to Secondary Trademark Infringement.  Last week it held there is no cause of action for contributory cybersquatting under the ACPA, exercising the nuclear option on a body of case law that says such claims are valid when they involve fact patterns this sweeping decision ignores.

It was an unexpected development in an unlikely case  that involved a tenuous claim of cybersquatting, much less secondary liability for it: Petroliam Nasional Berhad v. GoDaddy.com, where the plaintiff brought a contributory cybersquatting claim against the registrar GoDaddy for registering domain names containing its mark to others who used them to divert traffic to a pornographic Web site. The district court correctly dismissed the claim on a motion for summary judgment because the defendant had acted only in its capacity as a mere registrar whose domain name forwarding service would not subject it to contributory liability under the ACPA.  More to the point, the plaintiff failed to establish direct cybersquatting by the third-party registrants. As with traditional trademark infringement, there can be no contributory cybersquatting without direct cybersquatting, so the district court disposed of the claim without reaching the question of whether the Act allowed for it.

Courts in other cases had already recognized a cause of action for contributory cybersquatting.  But the defendants in those cases, as one court put it, did not “simply register a domain name and then go about [their] business.” They were complicit actors in complex cybersquatting schemes – not mere registrars like GoDaddy.  Acting as both registrars and registrants, the defendants in Verizon Cal. v. Above.com and Transamerica v. Moniker Online implicated themselves in the business of the direct cybersquatters, similar to corporate officer defendants who have been held contributorially liable by virtue of their familiarity with and participation in their companies’ infringing activities.

In fact, not all contributory cybersquatting defendants have even been registrars. In Microsoft v. Shah, the court allowed a contributory cybersquatting claim against a group of individuals and companies who sold their customers a cybersquatting “method” for profiting from the plaintiff’s marks. There the contributory claim was based on a theory of inducement.

Viewed against this backdrop of jurisprudence distinguishing mere registrars from complicit actors, the Ninth Circuit’s decision is hard to understand. The court simply declined to address the issues raised in cases like Verizon Cal. when it affirmed the district court’s grant of summary judgment in favor of GoDaddy.  Instead it said this:

Extending liability to registrars or other third parties who are not cybersquatters, but whose actions may have the effect of aiding such cybersquatting, would expand the range of conduct prohibited by the statute from a bad faith intent to cybersquat on a trademark to the mere maintenance of a domain name by a registrar, with or without a bad faith intent to profit.

2013 WL 6246460 at *3 (emphasis added).

None of the foregoing cases has even remotely suggested that secondary liability would extend to such “rote” activity as the “mere maintenance of a domain name.” In the much more relevant contexts where contributory liability presumably would lie, the courts have made clear that a cause of action for contributory cybersquatting would reach precisely the defendants whose conduct the Act was meant to prohibit  — those who are complicit actors in cybersquatting schemes.

For in-depth discussion of the topics in this post, including contributory cybersquatting, see Chapters 1, 3, 4, and 9 in Secondary Trademark Infringement, by Coleman and Price, to be published by Bloomberg BNA this month.

 

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Buy Bloomberg BNA’s Secondary Trademark Infringement by Jane Coleman and Griffith B. Price, Jr.

Secondary Trademark Infringement BookSecondary Trademark Infringement is the first and only comprehensive work on the law of secondary liability for trademark infringement—an area that is quickly becoming an important topic of interest among both practicing attorneys and scholars. The treatise is ground-breaking in its analytical power. Meticulously organized and accessible, it is an ideal reference work for legal and business professionals who use, or whose stakeholders use, trademarks on the internet, who seek guidance with respect to this growing area of potential legal risk.

Secondary Trademark Infringement covers important topics, such as:

  • Infringement liability of businesses that offer internet facilities to third parties using trademarks or trademark-protected goods in commerce, including retailers, auctioneers and distributors
  • Company exposure to liability for the online activities of their hosting customers or advertisers
  • Legal issues arising from web-hosting and other Internet infrastructure or connectivity
  • Exposure reduction measures for companies and institutions that do not use or facilitate trademark use directly, but are part of a commercial chain of activity and present a tempting “deep pocket” or accessible litigation target for claims based on activities of others in the chain

Secondary Trademark Infringement features extensive and detailed case law analysis and commentary and practice notes that discuss a wide variety of subjects of practical interest and importance to attorneys and business executives alike. These include notes on substantive and procedural issues in secondary trademark infringement litigation (from both the trademark owner’s and the accused infringer’s point of view), recovery of damages and injunctive relief and guidelines for trademark protection and enforcement as well as risk management for internet service providers and other service providers. Secondary Trademark Infringement also addresses developing areas of law in online commerce and social networking.

 

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Reviews

“This first monograph focusing specifically on secondary trademark infringement bids fair to become a definitive desk reference on a topic of growing importance. Notwithstanding the limitation suggested by its title, the book expansively considers secondary infringement and liability for dilution/tarnishment and cybersquatting as well, and addresses its topic in not only classic trademark disputes but also a variety of special situations, including franchising, web hosting, credit card services, and several others. Beginning with policy, doctrine, and the basic elements of a claim, the book is logically and meticulously well-organized and easy to read and use as a reference. Enhanced by an engaging and user-friendly writing style, and a straightforward approach to its subject, the book offers analysis of the applicable case law as well as practice notes. It’s an instant necessity for the desktop or bookshelf of any serious trademark practitioner.”

Robert C. Cumbow, Attorney, Graham & Dunn PC

Secondary Trademark Infringement is a comprehensive and up-to-date guide to the law of secondary liability for trademark infringement. To my knowledge, it provides the only complete review and analysis of all the relevant cases, legal theories and emerging issues relating to someone other than the direct infringer being accused of infringing another’s trademark. And unlike many other treatises, it includes a full complement of excellent Practice Notes written by a seasoned IP litigator. Topics covered include (i) the elements of contributory trademark infringement, (ii) secondary trademark infringement on the Internet, (iii) a comparison of secondary trademark and secondary copyright infringement, and (iv) a review of other “subspecies” of secondary trademark infringement and their respective legal standards. For anyone seeking practical insight on how to litigate secondary liability cases, or answers to questions on the topic in general, Secondary Trademark Infringement is an essential reference work that belongs on every trademark attorney’s bookshelf. It is a well written, well organized, straightforward guide that delivers on its promise of providing a full overview and examination of this dynamic area of the law.”

—Oliver Herzfeld, SVP and Chief Legal Officer, Beanstalk, a leading global brand licensing agency and part of the Diversified Agency Services division of Omnicom Group

 

 

 


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