B. Standards for Vicarious Liability: 1. Application of Joint Tortfeasor Liability
Through the application of joint tortfeasor liability doctrine, vicarious liability for trademark infringement has been described as appropriate when a defendant and the infringer “have an apparent or actual partnership, have authority to bind one another in transactions with third parties, or exercise joint ownership or control over the infringing product.” Hard Rock Café Licensing Corp. v. Concession Services, Inc. 955 F.2d 1143, 1150 (7th Cir. 1992), citing David Berg & Co. v. Gatto Int’l Trading Co., 884 F2d 306, 311 (7th Cir. 1989). See also Perfect 10, Inc. v. Visa Int’l Service Ass’n, 494 F.3d 788, 807-808 (9th Cir. 2007); Rosetta Stone Ltd. v. Google Inc., 2010 WL 3063152, *15 (E.D. Va.); Gucci America, Inc. v. Frontline Processing Corp., 2010 WL 2541367 at *11 (S.D.N.Y.); Louis Vuitton Malletier, S.A. v. Akanoc Solutions, 591 F.Supp.2d 1098, 1113 (N.D.Cal. 2008), defendants’ motion for JMOL denied, 2010 WL 5598337 (N.D. Cal.); Government Employees Insurance Co. v. Google, Inc., 330 F.Supp.2d 700, 705 (E.D. Va. 2004); SB Designs v. Reebok Int’l, Ltd., 338 F.Supp. 904, 909 (N.D. Ill. 2004); Fonovisa, Inc. v. Cherry Auction, Inc. 847 F.Supp. 1492, 1499 (E.D. Cal. 1994), reversed and remanded on other grounds, 76 F.3d 259 (9th Cir. 1996). Banff, 869 F.Supp. at 1111. And see RGS Labs Int’l, Inc.v. The Sherwin-Williams Co., 2010 WL 317778, *3 (S.D.Fla.)(denying defendant’s motion to dismiss vicarious liability claim where plaintiff alleged that defendant was sole member of infringing company, which had “some control” over the infringing product and company website);Too Marker Products, Inc. v. Shinhan Art Materials, Inc., 2010 WL 786041 *6 (D. Or.)(reciting the test for vicarious liability but dismissing the claim for failure to plead sufficient facts to support it).
In David Berg, supra, the plaintiff was a processed meat manufacturer (“Berg”) who sued a distributor (“Gatto”) and its partner for trademark infringement arising from allegedly infringing sales of Berg’s meat products by a third party, Lake Erie Food Sales, Inc. (“Lake Erie”). The products at issue had been damaged in a warehouse accident, and, though deemed fit for sale by the U.S. Department of Agriculture, were not up to Berg’s quality standards. Seeking to salvage the situation, Berg sold the damaged goods to a meat distributor pursuant to an agreement that they would be sold outside the United States and that no future sales or advertising would use Berg’s name. Berg, supra at 307-308. Thereafter the defendants purchased the products from the distributor and ultimately sold them to Lake Erie. Berg, supra at 308. Lake Erie then sold an unspecified amount of the goods within the United States, some of which were packed in cartons bearing the Berg label. Id.
To support its claim against Gatto, Berg advanced the theory that Gatto and Lake Erie had formed a partnership. See Berg, supra at 309, and see discusson supra regarding Berg’s contributory liability argument. The district court found as a matter of law, however, that Berg failed to bring any evidence that would elevate the consignor/consignee or vendor/vendee relationship of Gatto and Lake Erie to the level or a partnership. Id.
On appeal, the Seventh Circuit acknowledged that “[b]ecause unfair competition and trademark infringement are tortious, the doctrine of joint tortfeasors does apply.” Id. at 311. Nevertheless, it would not overrule the district court’s findings of fact, namely, “that there was no evidence that Gatto and Lake Erie had any type of partnership agreement, that they held themselves out to the public or operated as a partnership, that either had authority to bind the other in any transaction with any third party, or that they exercised joint ownership of, or control over, the meat products after they were sold to Lake Erie.” Id.
The Seventh Circuit reiterated the standard it applied in David Berg, supra, in Hard Rock Café Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143 (7th Cir. 1992), discussed in detail supra. In that case, the owner of the “Hard Rock” trademark sued the owner and operator of a number of flea markets, alleging contributory and vicarious trademark infringement liability for the sale of counterfeit “Hard Rock” t-shirts by the defendant’s vendors. The court rejected the owner’s vicarious liability argument.
Invoking its earlier discussion of joint tortfeasor liability as giving rise to vicarious liability, the Seventh Circuit held that that theory of liability required it to find that “the defendant and the infringer have an apparent or actual partnership, have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product.” Hard Rock Café, supra at 1150, citing David Berg, supra at 311. Hard Rock had failed to argue that the relationship between the flea market owner and its vendor fit the joint tortfeasor model, and the court therefore rejected its vicarious liability claim. Id.
The same outcome resulted in Fonovisa, Inc. v. Cherry Auction, Inc. 847 F.Supp. 1492, 1499 (E.D. Cal. 1994), reversed and remanded on other grounds, 76 F.3d 259 (9th Cir. 1996). In that case, the court likewise declined to extend vicarious liability to a “swap meet” and its operators for the sale of counterfeit music recordings by their vendors because the plaintiffs simply failed to allege any facts whatsoever supporting a finding of liability. See Fonovisa, supra (citing the Seventh Circuit in David Berg, supra, and finding that none of the plaintiff’s allegations even “remotely” suggested that the swap meet and its vendors shared the type of relationships described therein that would justify imposing vicarious liability). Fonovisa is discussed in further detail supra in the context of contributory liability. And see, SB Designs, supra at 909-910, also discussed in detail supra, where the plaintiffs similarly failed to allege a partnership, agency or some other relevant relationship between the defendant and the alleged infringers. In that case the court held that the mere existence of a “relationship of some kind” between the defendant shoe manufacturer Reebok and an athlete’s promotional company responsible for an allegedly infringing website would not render Reebok vicariously liable for the company’s alleged infringement, notwithstanding that Reebok had an endorsement agreement with the athlete. Id.
Credit card companies successfully defended against a claim of vicarious liability for trademark infringement in Perfect 10, Inc. v. Visa Int’l Service Ass’n, 494 F.3d 788, 807-808 (9th Cir. 2007). In that case, the plaintiff’s business provided adult entertainment services, including a magazine and website featuring nude models. Perfect 10, supra at 792. The plaintiff owned copyrights and trademarks associated with the images as well as the trademarked term PERFECT 10. A group of websites, not parties to the litigation, allegedly published material that violated Perfect 10’s copyrights and trademarks. The plaintiff sent letters to Visa and Mastercard, the credit card companies that serviced the websites, informing them of the alleged infringement and demanding that they terminate their services to the websites. The companies refused, and Perfect 10 consequently sued them for, among other claims, vicarious liability for both copyright and trademark infringement. Perfect 10, supra at 807.
The plaintiffs in Perfect 10 argued that the defendant credit card companies and the third-party websites were in a “symbiotic financial partnership” in which the infringing websites abided by the rules set up by the credit card companies and the credit card companies shared in the profits therefrom, “transaction by transaction.” Perfect 10, 494 F.3d 788, 808. The court was unpersuaded. Relying on its reasoning for rejecting the plaintiff’s vicarious copyright infringement liability, it refused to impose vicarious liability for trademark infringement as well. Id. See also Rosetta Stone Ltd. v. Google Inc., 2010 WL 3063152, *15 (E.D. Va.), where the court rejected the plaintiff’s reliance on Perfect 10 in asserting vicarious liability for trademark infringement against the search engine company Google, because Perfect 10 involved a plaintiff’s allegations of copyright infringement.
Citing the test set forth in Hard Rock Café, supra, the court summarily concluded that the relationship between the credit card companies did not establish the “joint ownership or control” necessary to establish vicarious liability. Perfect 10, supra at 808. Notwithstanding its earlier characterizations indicating the pivotal role of the credit card companies in enabling the sales on the infringing websites, see Perfect 10, supra at 803-804, here the court inexplicably concluded that the credit card companies “process payments to these websites and collect their usual processing fees, nothing more.” Id. It similarly described the contractual arrangement between the credit card companies and the infringing websites as “merely a means of settling the resulting debits and credits among the websites and the relevant consumers.” Id. It therefore rejected any vicarious liability on the part of the credit card companies. Id. Compare the court’s discussion at 804, acknowledging that the credit card companies “can … take away the means the websites currently use to sell [the infringing materials].” And see the dissent, in which Judge Kozinski recognizes that the “[w]ebsites cannot operate without the use of credit cards … while defendants make huge profits by processing these illegal transactions.” Perfect 10, supra at 823. The plaintiff’s contributory liability claims were also rejected and are discussed above in SectionII.D.3.
Similarly, in Gucci America, Inc. v. Frontline Processing Corp., the court found the allegations insufficient to support a vicarious liability claim brought by the luxury goods company, Gucci, against companies that had established credit card services for a website that sold counterfeit Gucci products. 2010 WL 2541367 at *11 (S.D.N.Y.). While Gucci had alleged that the companies exercised sufficient control over the infringing sales to support a claim of contributory liability, as discussed in detail in Section II.D.3, the amount of control alleged did not rise to the level of a joint partnership, neither actual nor apparent. Id.
The relationship between ISPs and their infringing customer websites was deemed not “so close as to be an actual or apparent partnership” subjecting it to vicarious liability in Louis Vuitton Malletier, S.A. v. Akanoc Solutions, 591 F.Supp.2d 1098, 1113 (N.D.Cal. 2008), defendants’ motion for JMOL denied, 2010 WL 5598337 (N.D. Cal.). The court therefore granted the defendant ISPs’ motion to dismiss the vicarious liability claim arising out of that infringement, absent any evidence demonstrating a relationship to the contrary. Id. The contributory liability claims against the ISPs are discussed in more detail above.
Compare the foregoing cases with Government Employees Insurance Co., v. Google, Inc., (“GEICO”), supra at 705, where the plaintiff insurance company alleged that the defendant search engine compan, Google, and its advertisers jointly controlled the appearance and substance of allegedly infringing advertisements on the defendant’s search results page, and the use of the plaintiff’s trademarks therein. Such allegations were sufficient to state a claim of vicarious trademark infringement liability, the court held, acknowledging that vicarious liability can occur if the defendant and the infringer “exercise joint ownership and control over the infringing product.” Id, citing Hard Rock Café, supra at 1150.
In another case against the search engine company Google, however, the court declined to extend vicarious liability, rejecting the plaintiff’s reliance on GEICO, supra, because the court there did not reach the merits of the claim. Rosetta Stone Ltd. v. Google Inc., 2010 WL 3063152, *15 (E.D. Va.). In Rosetta Stone, discussed in detail in Section II.D.2(c), the plaintiff language-learning company Rosetta Stone sued Google for, inter alia, both contributory and vicarious infringement in connection with the sale of its marks as keywords to third parties, including counterfeit websites, for use in both their Sponsored Links and advertisement text. See Rosetta Stone, supra at *13-*16.
Citing Perfect 10, supra, the court in Rosetta Stone stated that “absent an agency relationship, vicarious liability can only be imposed if the defendant and infringer “exercise joint ownership or control over the infringing product.””Id. at *15, quoting Perfect 10, supra at 807 (citation to Hard Rock Café omitted.) It denied Rosetta Stone’s claim for vicarious trademark infringement because “Google [had] no control over third party advertisers’ Sponsored Links or their use of the Rosetta Stone Marks in the advertisement text.” Rosetta Stone, supra at *15.
In addition to GEICO, Rosetta Stone relied on Perfect 10, supra, for its argument that Google should be vicariously liable because it had “a legal right to stop the infringing conduct and the ability to do so, but fail[ed] to act.” Id. The court, however, distinguished Perfect 10 because it dealt with allegations of copyright infringement, and held that “the mere fact that Google has a financial relationship with the alleged infringers [did] not demonstrate Google’s control of the Sponsored Links appearing on its website. Id.
The court furthermore noted that Google was not in the business of selling goods, but rather in the business of providing advertising space. Rosetta Stone, supra. It compared Google to “the building owners in New York’s Times Square who sell space for billboards.” Id. Just as those owners offered prime, high-visibility advertising space, the court reasoned, so did Google’s search engine offer its customers “a great opportunity to display their advertisements.” Id. The court found that Rosetta Stone had failed to show that Google “direct[ed] or influence[ed] advertisers to bid on the Rosetta Stone Marks” and that consequently it had “not shown that Google control[ed] the appearance and content of the Sponsored Links and the use of the Rosetta Stone Marks in those Links.” It therefore declined to impose vicarious liability on Google.
Note however, that in reaching its decision on the vicarious liability claim, the court in Rosetta Stone appeared to limit its language to infringement arising out of “the Sponsored Links or [advertisers’] use of the Rosetta Stone Marks in the advertisement text.” Id. As noted in Section II.D. 2 (c), the plaintiffs had also raised and the court extensively discussed, contributory liability arising out of Google’s actions regarding counterfeit websites using Rosetta Stone’s marks. In its vicarious liability discussion, however, the court did not address Google’s control over infringing websites, but rather of the advertisements themselves, creating a discrepancy between the two outcomes and doubt, as well, as to the precedential value of the opinion. Compare Rosetta Stone, supra at *13 with Rosetta Stone, supra *15.