B. The Elements of Contributory Liability under Inwood: 3. The Requirement of Actual or Constructive Knowledge: (b) Constructive Knowledge
The question under Inwood of whether a plaintiff’s proactive measures give a defendant “reason to know,” i.e. constructive knowledge, of infringement, generally has been treated by the courts in the context of willful blindness, discussed in detail infra. In Tiffany, supra, however, the court was meticulous to examine separately whether Tiffany’s generalized assertions of infringement, by way of demand letters and the like, were sufficient to impute knowledge to eBay. Citing its reasoning regarding the “knowledge” prong of Inwood discussed above, Tiffany, supra at 513, the court held that such generalized assertions were similarly insufficient to impute knowledge or a “reason to know” of counterfeiting to eBay as well.
Central to Tiffany’s argument was the “five-or-more” rule set forth in its demand letters to eBay, the “operative framework through which [according to Tiffany] eBay should have known that a listing was counterfeit.” Tiffany supra, at 512. Specifically, Tiffany argued that it had sent eBay demand letters “asserting that counterfeiting was rampant on eBay’s website and that any listing of five or more Tiffany items was presumptively counterfeit.” Tiffany, supra at 511. It argued further that these letters should not be dismissed as too general “because they provided detailed notice to eBay of the problem and included the fact that there [were] no authorized third-party vendors for Tiffany merchandise.” Once again, the court rejected Tiffany’s arguments, noting precedent that “mere assertions and demand letters are insufficient to impute knowledge as to instances not specifically identified in such notices, particularly where the activity at issue is not always infringing.” Tiffany, supra at 511 and see cases cited therein.
It found the “five-or-more” rule especially problematic, because the record showed that Tiffany itself dismissed its effectiveness and had been vague about how to define it and inconsistent in enforcing it. See Tiffany, supra at 511. Moreover, the court noted, among other findings, that lots of five or more pieces of authentic new Tiffany silvery jewelry had been available on eBay. There was thus little support in the record for the claim that the “five-or-more” rule presumptively demonstrated the presence of infringing items. Id. at 512. Under these circumstances, the court refused to “impute knowledge or a reason to know of counterfeiting based on Tiffany’s demand letters and its proposed five-or-more rule.” Id.
Here again, the court cautioned against using contributory liability law to suppress a legitimate secondary market. “eBay was under no obligation,” the court concluded,
to credit the potentially self-serving assertions of a trademark owner, particularly when those assertions … were unfounded, and when the trademark owner’s demands, if met, clearly would have eliminated even legitimate sales on eBay. The doctrine of contributory liability cannot be used as a sword to cut off resale of authentic Tiffany items.
Tiffany, supra at 512, citing Polymer Tech. Corp., 975F.2d at 61-62.
In addition to the demand letters, Tiffany had presented eBay with the results of its own survey of Tiffany items listed on eBay’s website (known as the “Buying Programs”), revealing that “73% of the sterling silver Tiffany merchandise on eBay was counterfeit, and that only 5% was genuine.” Tiffany, supra at 482. It argued that these results “provided eBay with knowledge of any and all instances of counterfeiting” on its website. Tiffany, supra at 512.
The court found problems with the Buying Programs for many reasons, not the least of which was that Tiffany failed to provide eBay with its results until after it filed its complaint. Tiffany, supra at 512. Before the litigation began, Tiffany had only told eBay about its Buying Programs results in a general way, and the court therefore concluded that eBay only had general notice that some counterfeit Tiffany goods were being sold on its website. Id. Even if Tiffany had presented its findings to eBay at an earlier date, though, the court rejected their probative value as to the “five-or-more” rule, described above.
More fundamentally, the Buying Programs were rejected by the court as “methodologically flawed and of questionable value in any event.” Tiffany, supra at 512. To make matters worse for Tiffany, the one thing the court did recognize about the Buying Programs was that they revealed that some quantity of the jewelry sold on eBay was in fact genuine. The court ultimately concluded that the Buying Programs, beset with flaws, did not provide eBay with the requisite knowledge under Inwood, nor did they justify requiring eBay to ban all listings of five or more pieces as presumptively counterfeit. Id. at 513. There was simply no basis, pursuant to the Buying Programs, to require eBay to ban all Tiffany listings, especially because Tiffany had failed to demonstrate that eBay ever failed to remove a specific listing reported to it, as discussed below. Id.
Finally, Tiffany pointed to over a thousand NOCIs (notices of claimed infringement) it had filed, coupled with over a hundred emails sent to eBay from buyers during a six-week period complaining that they had purchased fake Tiffany jewelry. Tiffany, supra at 513. It argued that these, together with NOCI’s from other rights owners, gave eBay both actual knowledge of specific infringing listings and “general knowledge that a counterfeiting problem existed on its website.” Id. Once again, the court was unpersuaded. “[E]vidence of general knowledge of infringement on its website was insufficient to impute knowledge to eBay of specific infringing items.” Id. As to the specific notices of infringing items, it concluded that eBay had responded appropriately. Id.
On appeal, the Second Circuit upheld the district court’s ruling that eBay could not be held liable for contributory infringement regarding either the terminated or non-terminated listings on eBay. Tiffany v. eBay, 600 F.3d 93, 107-109 (2d Cir. 2010), affirming in part and remanding in part, 576 F.Supp.2d 463 (S.D.N.Y. 2008), cert denied, 131 S.Ct. 647 (2010). In doing so, it focused on the distinction drawn by the district court between generalized and specific knowledge of infringement. See Tiffany, supra at 507. Tiffany argued that the distinction was uncalled for, and that only relevant inquiry was “whether all of the knowledge, when taken together puts [eBay] on notice that there is a substantial problem of trademark infringement.” Tiffany, 600 F.3d at 107.
Tiffany’s reading of Inwood was too broad, the court held. Id. It Although Inwood leaves the “knows or has reason to know” prong of the contributory liability test ill-defined, the court reasoned that the Supreme Court’s choice of words, conferring contributory liability on a defendant who “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement” supported the district court’s interpretation. Id. at 108, citing Inwood, 456 U.S. at 854 (emphasis added).
For want of other Supreme Court guidance, the Second Circuit looked to the Betamax case, Sony Corp. of American v. Universal City Studios, Inc., the sole Supreme Court case discussing the Inwood test. 464 U.S. 417, 104 S.Ct. 774,78 L.Ed.2d 574 (1984). The Betamax case involved claims of contributory copyright infringement brought by Universal Studios and Walt Disney Productions against Sony, the manufacturer of home video recorders. The plaintiffs claimed that consumers were using Sony’s recorders to tape television shows to which they held the copyrights, and that such use was therefore copyright infringement. Tiffany, supra at 108 (citations omitted). Sony, they argued, should be held contributorily liable for its role in the alleged infringement. See Id. The Sony Court rejected their claim, observing that had Inwood applied, it’s “”narrow standard” would have required knowledge by Sony of “identified individuals” engaging in infringing conduct.” Id.
Acknowledging that the Supreme Court’s language regarding the “knows or has reason to know” prong of the contributory liability test set forth in Inwood was dicta, the Second Circuit concluded that it nevertheless supported the district court’s interpretation of the law. Tiffany, supra at 108-109. Applying Sony, the court agreed that Tiffany “failed to demonstrate that eBay was supplying its service to individuals who it knew or had reason to know were selling counterfeit goods.” Id. at 109. (Emphasis added.) Thus, ‘[f]or contributory trademark infringement liability to lie, a service provider must have more than a general knowledge or reason to know that is service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.” Id. at 107
The mere existence of a registered trademark is not a basis for alleging constructive notice for purposes of contributory liability, the court held in GMA Accessories, Inc. v. BOP, LLC, 2011 WL 446196 *4 (S.D.N.Y)(“GMA”). See also Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2010 WL 4968072 *5 (S.D.N.Y)(“Nomination II”)(plaintiffs’ allegations of knowledge based on federal trademark registration were insufficient to sustain contributory liability claim). GMA arose out of a dispute between GMA, the owner of a trademark for clothing accessories, and a clothing designer and manufacturer that was infringing on GMA’s mark. In addition to the direct infringer, GMA sued Electric Wonderland, a company that provided showroom services to the fashion industry. Its services included displaying manufacturers’ clothing and fashion accessories to wholesale purchasers and brokering sales between the two, in exchange for which it earned a commission. GMA Accessories, Inc. v. BOP, supra at *1. Electric Wonderland acted as an intermediary between the direct infringer and wholesale purchasers, providing its showroom services and earning commissions on sales. Both parties moved for summary judgment. Although the court rejected GMA’s constructive notice argument, it ultimately sustained the contributory liability claim, finding a dispute of material fact as to whether the defendant received actual notice of the potential direct infringement. See discussion at II.B.3(a).
In reaching its decision, the GMA court focused on the parties’ dispute over whether and when the defendant knew or had reason to know that the direct infringer, to whom Electric Wonderland was offering its services, was engaging in trademark infringement. GMA Accessories, Inc. v. BOP, supra at *4. Electric Wonderland maintained that by the time it learned of “GMA’s alleged trademark rights,” it had “ceased representation” of the direct infringer, and that approximately four months later it “ceased all sales and related activities” for the direct infringer’s products. Id. GMA contended that the defendant had constructive notice roughly eight years earlier, based on its federal trademark registration.
The court flatly rejected GMA’s constructive notice argument, referencing the Second Circuit’s language in Tiffany v. eBay, 600 F.3d 93, 107 (2d Cir. 2010) affirming in part and remanding in part, 576 F.Supp.2d 463 (S.D.N.Y. 2008), cert denied, 131 S.Ct. 647 (2010). In Tiffany, the court held that a service provider’s “general knowledge of infringement was not sufficient to impose contributory liability, where the particular infringers were not identified.” GMA Accessories, Inc. v. BOP, supra at *4, citing Tiffany, supra. While the facts in GMA were distinguishable, the Tiffany court’s language indicated a “narrow test requiring a significant degree of knowledge.” GMA Accessories, Inc. v. BOP, supra at *4. And see discussion at II.B.3(b). The court noted further that another court in the same district had rejected federal trademark registration as a basis for alleging knowledge in Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2010 WL 4968072 *5 (S.D.N.Y). Absent an allegation of willful blindness to sustain its claim under the “reason to know” prong of Inwood, the court concluded that GMA’s argument that the defendant had constructive knowledge based on its federal trademark registration did not sustain a contributory liability claim based on constructive notice. GMA Accessories, Inc. v. BOP, supra at *4.