Locution, Locution, Locution: IP Licensors – Service Suppliers or Product Providers?

Posted on August 4, 2015

Consider the following scenario: Company A is a well-known film producer that licenses its intellectual property rights in famous cartoon characters to Company B, a jewelry manufacturer. Company B in turn features those characters in bracelets that infringe Company C’s marks. Company C sues both Company B and Company A, alleging direct and contributory trademark infringement, respectively.

In this situation, how should the court apply contributory liability doctrine to Company A, the licensor defendant? As explained in the website overview, that doctrine prescribes a different standard depending on whether the defendant has supplied a product or a service to the direct infringer. How then should the court view Company A? Has it supplied the direct infringer with an intangible “product” – its intellectual property? Or has it provided it with a “service” – the licensing arrangement? Neither option seems to capture the essence of the licensor-licensee relationship. And yet the difference is not merely a matter of form: In the latter case, Lockheed Martin’s version of the Inwood Labs. test would apply, with its additional requirement that the plaintiff show “direct control and monitoring” of the instrumentality of infringement.[1]

While the courts generally agree that contributory liability doctrine applies in the licensing context,[2] they have wrestled with how, precisely, to characterize the relationship between the licensors and licensees. In the three cases discussed below, the courts considered licensing relationships in the context of contributory liability. In two of the cases, the courts assumed that Lockheed Martin would apply,[3] while the third court reserved judgment pending further developments in the case.[4] Each court had a different view of how to characterize the licensor’s relationship with its licensee.

For example, in Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories Ltd., [5] (Nomination), the court treated the licensing of intellectual property as “an ancillary service or benefit”[6] to the alleged direct infringer. The plaintiff in that case, a manufacturer of luxury jewelry, alleged that the defendants licensed their intellectual property rights in famous cartoon characters to others who used them to manufacture and distribute counterfeits of the plaintiff’s products.[7] Taking the view that the licensor defendants had provided a service to the alleged direct infringers that “increased the desirability of the underlying product,”[8] the court applied Lockheed Martin’s direct control and monitoring test, which the complaint ultimately satisfied,[9] though it was dismissed on other grounds.[10]

In Camowraps LLC v. Quantum Digital Ventures LLC,[11] (Camowraps), by contrast, the court was more circumspect: It reserved judgment on whether Lockheed Martin’s test applied, concluding that the licensor-licensee relationship between the defendants fell into a “gray area.”[12] The plaintiff in Camowraps alleged trademark infringement against both a competing manufacturer and a company that licensed its marks and domain name to that manufacturer. The licensing agreement between the parties gave the licensor an ongoing right to approve the alleged direct infringer’s use of its marks. That arrangement thus raised genuine issues of material fact as to monitoring and control under Lockheed Martin sufficient to sustain the plaintiff’s contributory infringement claims — regardless of whether the product or service version of the Inwood Labs. test applied.[13]

In still another case, Oban US, LLC v. Nautilus, Inc.[14] (Oban), the court refrained altogether from pressing the licensor-licensee relationship into either the “product-” or “service-” provider molds.[15] There the court simply noted that the complaint had not distinguished among claims of “contributory infringement involving a physical product and those in which an alleged contributory infringer provides a service, or as here a license.”[16] In dismissing the claim, the Oban court assumed that Lockheed’s “direct control and monitoring” test would apply to the licensor defendant, just as the Nomination[17] court had done.

The courts’ struggle to press the licensor-licensee relationship into the traditional “product-” or “service-” provider molds––neither of which, after all, really fits––suggests there might be a better answer. When presented with novel issues such as this one, courts often look back to basic common law principles for guidance.[18] In fact, there is such common law precedent regarding licensors of real property. We might therefore ask whether the courts should regard licensors of intellectual property in the same way as they regard licensors of real property.

Indeed, well before the Supreme Court decided Inwood Labs., it had always been the case that landlords and licensors of real property were responsible for the torts of those they permitted on their premises where they were aware of the tortious activity.[19] By way of analogy, in a contributory infringement case involving a licensor of intellectual property, the court could reason that just as a landlord (or licensor of real property) withdraws from exercising its exclusive rights over its real property by renting it out to another party, so too does the IP licensor withdraw from exercising its exclusive rights to use its mark by allowing another party to use them. It is worth noting that in other contexts as well,[20] the landlord-tenant model has long provided courts with a useful frame of reference for analyzing contributory liability outside the traditional “product” paradigm addressed in Inwood Labs.

If the courts view licensors of intellectual property as they do landlords (or licensors of real property) in contributory infringement cases, then the product/service distinction is immaterial. As discussed in detail in Chapter 7 of Secondary Trademark Infringement, landlords that knowingly rent or lease their premises to tenants that in turn use them to infringe others’ trademarks have long been subject to contributory liability. And in such cases the courts have made clear that the plaintiff must demonstrate the landlord defendant’s control over the infringing sales.[21] Thus, according to this view, Lockheed Martin’s “direct control and monitoring” test should apply––as the courts in both Nomination and Oban suggest––regardless of whether licensors are properly characterized as “product” or “service” providers.

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[1] Lockheed Martin Corp. v. Network Soutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999). See also Chapter 6 of Secondary Trademark Infringement.

[2] Camowraps LLC v. Quantum Digital Ventures LLC, 2015 WL 546724 (E.D. La. Feb. 10, 2015); Oban US, LLC v. Nautilus, Inc., 2014 WL 2854539 (D. Conn. Jun. 23, 2014); Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories Ltd., 2009 WL 4857605 (S.D.N.Y. Dec. 14, 2009)(Nomination).

[3] Oban, 2014 WL 2854539 at *5, citing Nomination, 2010 WL 4968072 at *4; Nomination, 2009 WL at *6.

[4] Camowraps, 2015 WL 546724 at *3.

[5] 2009 WL 4857605 (S.D.N.Y. Dec. 14, 2009).

[6] Id. at *5.

[7] Id. at *1.

[8] Id. at *5.

[9] 2010 WL 4968072 at *5.

[10] Id. at * 5-*6.

[11] 2015 WL 546724 (E.D. La. Feb. 10, 2015).

[12] Id. at *3.

[13]Id. The plaintiff’s theory of vicarious liability is discussed in Chapter 11 of Secondary Trademark Infringement.

[14] 2014 WL 2854539 (D. Conn. June 23, 2014).

[15] Id. at *2.

[16] Id.

[17] Id. at *5, citing Nomination, 2010 WL 4968072 at *4.

[18] See, for example, Chapters 7 and 11 of Secondary Trademark Infringement.

[19] See the discussion in the introduction to Chapter 7 of Secondary Trademark Infringement.

[20] See further Chapters 6 and 7 of Secondary Trademark Infringement.

[21] Mere property ownership for example, has been deemed insufficient to establish contributory liability. See the discussion in Chapter 7, Section III.B.2 of Secondary Trademark Infringement.

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