Third party counterfeiting as proof of knowledge?

QUERY:  Are sales of counterfeit products other than those of the plaintiff valid proof of a defendant’s “knowledge” in a contributory trademark infringement case?

That question typically arises in the flea-market cases (both virtual and brick-and-mortar) where the direct infringers are vendors with a history of “serial counterfeiting” and the plaintiff sues the landlord or online marketplace operator for contributory infringement. The argument is that the defendant knew or should have known he was facilitating infringement of the plaintiff’s mark based on that history. As we discuss in this year’s Supplement, the courts have signaled their willingness, at least at the pleadings stage, to consider such evidence.

But proof of well-known, widespread counterfeiting is precisely the type of evidence found insufficient in the lead case of Tiffany v. eBay (Tiffany)[1]. Tiffany set the modern standard for determining whether a defendant has the requisite knowledge of direct infringement to find contributory liability.[2] (An in-depth discussion of Tiffany appears here and in the Main Volume, Chapter 3) Such “generalized notice of infringement,” the court held in Tiffany, did not satisfy the actual or constructive knowledge element of contributory liability. To hold a defendant liable for contributory trademark infringement, a plaintiff must prove that it knew or had reason to know of specific acts of infringement of the plaintiff’s mark.[3] Generalized knowledge of infringement was, in Tiffany, found insufficient to place an affirmative duty on the defendant to remediate. To hold otherwise would force defendants like eBay to shut down otherwise legitimate business merely because some portion of sales on its website were counterfeit.[4]

Notwithstanding this admonition, several courts have been open to considering evidence that is non-specific, either as to the identity of the direct infringers or as to the actual acts of infringement. For example, In Omega SA v. 375 Canal, LLC (Omega),[5] the court distinguished Tiffany[6] and sustained a contributory liability claim on the defendant’s motion to dismiss, even though the plaintiffs failed to identify the specific direct infringers. In Omega, the defendant landlord’s property was allegedly a known “haven” for the sale of counterfeits,[7] and the plaintiffs alleged that the contributory defendant landlord facilitated trademark counterfeiting by leasing its premises to others who sold counterfeits of their luxury goods.[8] In a similar vein, the court in Mori Lee, LLC v. Sears Holdings Corp. (Mori Lee)[9] allowed a contributory liability claim to go forward based on allegations that the defendant had specific notice of infringement by one of its vendors of other parties’ marks prior to the plaintiff’s claimed infringement. In Mori Lee, the court expressly relied on Tiffany[10] and held that evidence that the defendant operator of an online marketplace knew that one of its vendors was a “serial infringer” before it infringed the plaintiff’s marks was sufficient to raise a genuine issue of fact as to whether such notice sufficiently informed the defendant that the vendor’s listings infringed the plaintiff’s mark.[11] Thus, at the pleadings stage, the court viewed such evidence as enough to sustain the plaintiff’s contributory liability claim against a motion for summary judgment.

And most recently in Luxottica Grp., S.p.A. v. Airport Mini Mall, Ltd. Liab. Co., (Luxottica), the court denied in part a motion to exclude evidence of alleged counterfeit sales of other trademark-branded goods on the defendants’ premises.[12] Notably, there is no mention of, much less any attempt to distinguish, Tiffany in the opinion. The plaintiffs in Luxottica brought contributory liability claims against the owners and operators of property on which allegedly counterfeit sales of the plaintiffs’ luxury goods took place. They sought to include evidence of sales of counterfeits of other luxury brands as well as their own, arguing that such evidence was “inextricably intertwined”[13] as demonstrated in photographs taken at the shopping center that showed counterfeit items of other brands “co-mingled” with their products.[14] Essentially, the plaintiffs argued that “the sale of intermingled counterfeit products [was] the de-facto business model” at the shopping center.[15] Therefore, evidence of the other counterfeit sales was relevant to the contributory defendants’ knowledge and control over the alleged infringing sales of the plaintiffs’ branded goods.

The court agreed, referencing an earlier opinion involving the same plaintiff in which it held that

while Defendants cannot be held liable to [the plaintiffs] for the infringing sale of counterfeit Coach or Louis Vuitton merchandise at the property, the evidence of the widespread counterfeiting problem and Defendants’ knowledge of the same is relevant to the consideration of the Defendants’ knowledge (or blindess)[sic] as well as control of the infringing conduct of its tenants.[16] This Court thus recognizes that evidence that Defendants were aware of a global counterfeiting problem as a whole at the [shopping center] supports a claim for contributory liability under the Lanham Act. [17]

It is hard to reconcile the court’s reasoning in Luxottica with Tiffany: A defendant’s general awareness of a “global counterfeiting problem” is, again, precisely the kind of evidence the Tiffany court deemed insufficient to impose contributory liability.

Whether other courts follow Luxottica and come full circle on limiting the application of Tiffany remains to be seen.[18] Taken together, though, these cases reflect a liberal approach to Tiffany’s requirement that notice of specific instances of infringement is necessary to place an affirmative duty on the defendant to remediate and a trend away from a “rigid”[19] reading of Tiffany.

[1] 600 F.3d 93, 107, 106–09, 94 USPQ2d 1188 (2d Cir. 2010) (defendant’s generalized knowledge of infringement on its online auction site insufficient to support a claim of contributory trademark infringement), affirming in part, reversing in part, and remanding 576 F. Supp. 2d 463, 470, 508–10 (S.D.N.Y. 2008), cert. denied, 131 S. Ct. 647 (2010).

[2] See the discussion in Chapter 3, Section V.A.2 of the Main Volume.

[3] Tiffany, supra at 106–09. See also, Rosetta Stone Ltd. v. Google, Inc. 676 F.3d 144, 163, 102 USPQ2d 1473 (4th Cir. 2012) (“It is not enough to have general knowledge that some percentage of the purchasers of a product or service is using it to engage in infringing activities; rather, the defendant must supply its product or service to ‘identified individuals’ that it knows or has reason to know are engaging in trademark infringement.”) (vacating district court’s summary judgment order in favor of defendant on contributory infringement claim where evidence was sufficient to establish question of fact as to whether defendant continued to supply its services to known infringers), affirming in part, vacating in part, and remanding 730 F. Supp. 2d 531, 97 USPQ2d 1855 (E.D. Va. 2010) and 732 F. Supp. 2d 531, 97 USPQ2d 1824 (E.D. Va. 2010) (Rosetta Stone is discussed in the Main Volume, Chapter 3); Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., No. 07 civ. 6959, 2010 WL 4968072 (S.D.N.Y Dec. 6, 2010) (plaintiff jewelry company failed to allege specific knowledge of infringement against defendant that licensed its intellectual property rights in famous cartoon characters to direct infringer); MetroPCS Wireless, Inc. v. Virgin Mobile USA, L.P., No. 3:08-CV-1658-D, 2009 WL 3075205, at *17 (N.D. Tex. Sept. 25, 2009) (dismissing contributory liability claim where plaintiff failed to allege defendant’s knowledge of particularized instances of its customers’ infringement). Cf. Roger Cleveland Golf v. [Prince], No. 2:09-CV-2119, 2010 WL 5019260 (D.S.C. Dec. 3, 2010), defendant’s renewed motion for judgment as a matter of law denied, No. 2:09-2119, 2012 WL 1106775, at *6–7 (D.S.C. Mar. 30, 2012) (Tiffany’s knowledge with particularity requirement was met by plaintiff golf club manufacturer who presented evidence that defendant Web hosting company knew or had reason to know its services were being used by one of its customers to commit trademark infringement).

[4] For a full discussion, see the Main Volume, p.38.

[5] No. 12 Civ. 6979, 2013 WL 2156043 (S.D.N.Y. May 20, 2013).

[6] In denying the defendant’s motion to dismiss, the Omega court distinguished Tiffany’s requirement that the defendant have had knowledge of specific instances of infringement and failed to stop them. As discussed in detail in Chapter 3 of the Main Volume, the facts in Tiffany called on the court to determine contributory liability in the context of otherwise legitimate sales involving the same mark. In that case, given only generalized notice by the plaintiff, “there was little that [defendant] eBay could do to distinguish between genuine and infringing products.” In Omega, by contrast, the plaintiffs did not allege that the retailer at the property sold both authentic and counterfeit goods or that “there were so many sellers that the names and identities of the [individual alleged infringers] would be essential to identifying the counterfeit goods.” The court therefore concluded that “[n]otice as to the sale of a particular type of good, by an (unnamed) individual, at a specific location is comparable to the ‘listings’ required in Tiffany.” For an in-depth discussion of Omega, including citations for the foregoing quoted material, see the Supplement, Chapter 3.

[7] Omega, 2013 WL 2156043 at *1–2.

[8] Id. at *1.

[9] No. 13cv3656, 2014 WL 4680739, at *3 (S.D.N.Y. Sept. 8, 2014). Note that the court ultimately dismissed the contributory claim on defendant’s motion for summary judgment because the underlying direct infringement claims failed to support it. Mori Lee, LLC v. Sears Holdings Corp., No. 13cv3656, 2015 U.S. Dist. LEXIS 124404 (S.D.N.Y. Sept. 15, 2015).

[10] Specifically, the court found that take-down notices sent by other parties “specifically informed [the defendant] that [the direct infringer’s] listings … were infringing. That [was] sufficient to raise a genuine issue of fact as to whether the notice sufficiently informed [the defendant] that [the direct infringer is engaged in trademark infringement.” Mori Lee, 2014 WL 4680739, at *3, citing Tiffany, 600 F.3d at 107.

[11] Mori Lee, 2014 WL 4680739, at *3.

[12] No. 1:15-cv-1422-AT, 2017 U.S. Dist. LEXIS 35018 *29 -*34 (N.D. Ga. Feb. 10, 2017) (allowing certain police reports from prior raids).

[13] Id. at *30.

[14] Id.

[15] Id.

[16] Id. at *31, citing Luxottica Grp., S.p.A. v. Greenbriar Marketplace II, LLC, 2016 U.S. Dist. LEXIS 142929, 2016 WL 5859023, at *7, n.9 (citing Mini Maid, 967 F.2d at 1522).

[17] Id. at *31. (emphasis added).

[18] For a recent online marketing case in line with Tiffany, see Spy Phone Labs LLC v. Google Inc. where the court held that the operator of an online marketplace had no duty to “preemptively” remove items that infringed the plaintiff’s mark based on only generalized notice of that infringement. No. 15-cv-03756-KAW, 2016 U.S. Dist. LEXIS 143530 *19 -*21 (N.D. Cal. Oct. 14, 2016).

[19] See 1-800 Contacts, Inc. v., Inc., 722 F.3d 1229, 1254 -55 (10th Cir. 2013) (, where the court reasons that “[w]hen modern technology enables one to communicate easily and effectively with an infringer without knowing the infringer’s specific identity, there is no reason for a rigid line requiring knowledge of that identity, so long as the remedy does not interfere with lawful conduct.” For an in-depth discussion of, see Chapter 3, Section V.A.2. of the Main Volume. See also Energizer Brands, LLC v. Procter & Gamble Co., No. 4:16-CV-223, 2016 U.S. Dist. LEXIS 65326, at *12 (E.D. Mo. May 18, 2016) (upholding contributory claim where plaintiff identified direct infringers as “affiliates” of defendant and court deemed identities of those affiliates “information peculiarly within defendant’s possession and control.”).

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