D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (d) Internet Service Providers
Courts have suggested that internet service providers (ISPs) may, in appropriate circumstances, bear contributory liability for trademark infringement by the websites or other end users they service. See Lockheed Martin Corp. v. Network Solutions, Inc., 985 F.Supp. 949, 962 (C.D. Cal. 1997) (dicta), aff’d, 194 F.3d 980 (9th Cir. 1999); Gucci America, Inc. v. Hall & Associates, 135 F.Supp.2d. 409, 416 (S.D.N.Y. 2001) (citing Lockheed, supra). ISPs offer a range of services, and their liability will turn on the extent of their involvement with infringing customers. See, e.g. Symantec Corp. v. Logical Plus, Inc., 2009 WL 3416178, *7 – *8 (N.D.Cal.) (rejecting plaintiff’s motion for summary judgment on its contributory liability claim where plaintiff failed to allege or prove the defendant had any role in the direct infringer’s sale of its counterfeit software beyond providing it with an email account); Louis Vuitton Malletier, S.A. v. Akanoc Solutions, 591 F.Supp.2d 1098, 1112 (N.D. Cal. 2008)(distinguishing facts in Lockheed and likening defendant ISPs to the flea market operators in Fonovisa), defendants’ motion for JMOL denied, 2010 WL 5598337 (N.D. Cal.). See also Perfect 10, Inc., v. Cybernet Ventures, Inc., 213 F.Supp.2d 1146, 1188 (C.D. Cal. 2002), a copyright and trademark infringement suit brought by an adult magazine seeking a preliminary injunction against an internet age verification service. In that case, regarding the contributory trademark infringement claims, the court applied the “non-product” contributory liability analysis articulated in Lockheed, supra, 194 F.3d 980, 984 (9th Cir. 1999), but found that the plaintiff failed to establish the defendant’s knowledge of the trademark infringement.
Where the defendants operated server equipment that hosted infringing websites, the court upheld a jury verdict finding the web hosting company and its owner liable for contributory trademark infringement and awarding the plaintiff statutory damages. Louis Vuitton Malletier v. Akanoc, 2010 WL 5598337 (N.D. Cal.), denying the defendants’ motion for a new trial. Akanoc arose out of the sales of counterfeits of plaintiff Louis Vuitton’s luxury goods on websites serviced by the defendants. Louis Vuitton was able to trace those websites to the defendants. After several rounds of letters and take-down notices, Louis Vuitton finally filed suit against the company that owned the servers (“Managed Solutions”), the company that operated them (“Akanoc”), and the individual who was the general manager and sole owner of both corporate defendants. It alleged both contributory and vicarious trademark infringement liability against the defendants for their role in providing services to the infringing websites.
The defendants had earlier moved to dismiss both claims and the court granted the motion with regard to the vicarious liability claim but refused on the contributory liability claim. (The vicarious liability claims are discussed in Sec. III, infra.) The defendants argued, among other things, that under Lockheed Martin, they were not required to “monitor the internet.” Louis Vuitton Malletier, S.A. v. Akanoc Solutions, 591 F.Supp.2d 1098, 1112, citing Lockheed, 194 F.3d at 985.
The court rejected their argument, because the services they provided involved them more closely with their customers’ activities than those provided by the internet service provider (“ISP”) in Lockheed Martin. That ISP “merely provided a “rote translation service,” by which the defendant translated domain names into IP addresses.” Akanoc, supra at 1112, citing Lockheed Martin. In Akanoc, however, the ISPs “physically host[ed] websites on their servers and route[d] internet traffic to and from those websites.” Id. This service, the court held, was “the Internet equivalent of leasing real estate[,]” just as the flea market owners had provided in Fonovisa. (Fonovisa is discussed in detail in Section II.D.1(b).) Taken together with the defendants’ ability to remove infringing websites, the defendants’ activities “entail[ed] a level of involvement and control that [went] beyond “rote translation.”” Akanoc, supra at 1112, citing Lockheed Martin. The court therefore sustained the contributory liability claim against them.
At trial, the jury returned a verdict finding, among other things, that each defendant was liable for contributory trademark infringement of 13 of the plaintiff’s marks. (The jury award of $10.5 million per defendant is discussed in detail at Section IV.A.) The defendants thereafter both moved for a renewed judgment as a matter of law (“JMOL”) as to contributory trademark infringement and filed a motion for a new trial. Louis Vuitton Malletier v. Akanoc, 2010 WL 5598337 *1 (N.D. Cal.)(The plaintiff’s motion for injunctive relief is discussed below in Section IV.B.) In support of their motion, the defendants argued that the evidence was insufficient to show both that the defendants knew of the direct infringement and that they were in a position to control and monitor the directly infringing activity. Id. at *10.
Ruling on the motion as to the operator defendants, Akanoc and its owner, the court applied Inwood and Lockheed to support the jury’s verdict finding contributory trademark infringement. Louis Vuitton Malletier v. Akanoc, supra at *10. It referenced the “many letter notices to [the d]efendants identifying specific websites that were selling counterfeit goods” to support the jury’s finding of knowledge. Id. at *5 and *10. It upheld the “willful blindness” finding as well, as supported by “the large number of infringement notices [the defendants] received.” Id. at *10 n17. As to the direct monitoring and control elements under Lockheed, the court pointed to the “numerous tools [the defendants had] at their disposal for monitoring their servers and terminating abusive users.” Id. at *10. All told, this evidence, coupled with the evidence of direct infringement, was sufficient to uphold the jury’s verdict. Id.
In contrast, mere ownership of the server equipment was deemed insufficient to support a claim of contributory trademark liability, the court held, distinguishing Management Solutions, the company that owned the server equipment, from Akanoc and its manager, who operated it. Louis Vuitton Malletier v. Akanoc, supra. Drawing on its analysis of the contributory copyright infringement claims where it held that liability did not extend to an owner who was not an operator, the court granted the defendant’s JMOL motion as to Management Solutions, whose role was limited to ownership. See Id. at *5 and *10.
A web hosting company that was shown to have been closely involved in creating and supporting its customer’s business model was found liable by a jury for secondary trademark infringement arising out of the sales of counterfeit golf equipment on that customer’s website. Roger Cleveland Golf Co., Inc. v. Price (sic), 2010 WL 5019260 (D. S.Carolina); Jury Verdict Form. The outcome in Roger Cleveland Golf was noteworthy because the jury found liability notwithstanding that the plaintiff had not sent any kind of notice, such as a cease and desist letter to the web hosting company prior to the lawsuit.
The plaintiff in Roger Cleveland Golf manufactured and distributed CLEVELAND brand golf clubs. It discovered that an online business run by the defendants was selling counterfeit versions of its golf clubs. The plaintiff subsequently sued both the website operators and their web hosting company, “Bright Builders,” alleging direct and either contributory or vicarious infringement, respectively. Roger Cleveland Golf, supra at *1 and *2. Bright Builders moved for summary judgment, arguing that it should be dismissed as a defendant.
While Bright Builders maintained – in a procedurally deficient motion that was criticized by the court – that its role was limited to being a “web hosting entity” and that it was unaware of the nature of the website owners’ business, the plaintiff countered with evidence that they were deeply involved in the counterfeiting enterprise, working hand-in-hand with the operators. Roger Cleveland Golf, supra at *3. Specifically, the plaintiff showed how Bright Builders created and developed the infringing websites, providing “coaching and mentoring” services to help develop the business. Id. They demonstrated further that an advisor from the web hosting company had very detailed one-on-one discussions with the business owners about how to go about selling the golf clubs. Id.
Moreover, the plaintiff argued that Bright Builders knew or should have known based on their involvement with the owners that the websites were meant to sell counterfeit golf equipment. Roger Cleveland Golf, supra at *3. One of the domain names used by the business was “copycatclubs.com,” which the plaintiff argued should have put Bright Builders on notice that their customers were selling counterfeits. So, too, should the content of their online store’s website, which described itself as “your one stop shop for the best COPIED and ORIGINAL golf equipment on the internet.” Id. The court agreed and denied the defendant’s motion for summary judgment. Id. at *4.
In its verdict following a two-day trial, the jury found the defendant Bright Builders liable for secondary trademark infringement under the Lanham Act and violation of the South Carolina Unfair Trade Practices Act. It awarded statutory damages to the plaintiff pursuant to both Acts, in the amount of $770,750 as against Bright Builders, but only $28,250 as against the website owners. The jury award is discussed in further detail at IV.A.1.
In Gucci America, Inc. v. Hall & Associates, 135 F.Supp.2d. 409, 416 (S.D.N.Y. 2001), the plaintiff “Gucci,” which owned the trademark and trade name GUCCI, apparently discovered that one of the defendants, “Hall,” was advertising on its website jewelry that bore and infringed upon the Gucci trademark. Hall’s website was hosted by the defendant internet service provider, Mindspring. Gucci subsequently notified Mindspring by way of two e-mails that Hall was infringing its trademark. The alleged infringement persisted, and Gucci sued Mindspring for direct and contributory trademark infringement. Gucci, supra at 410-411.
Mindspring moved to dismiss for failure to state a claim, arguing that the Communications Decency Act of 1996 (CDA), 47 U.S.C. § 230, immunized it from contributory liability, and that the First Amendment barred Gucci’s claim. Id. at 411. The court rejected these two arguments and denied Mindspring’s motion to dismiss. Although it explicitly refrained from reaching the merits of Gucci’s contributory liability claims, see Gucci, supra at 412, n.7 and at 420, n22, the court’s analysis and rejection of Mindspring’s arguments shed some light on the parameters of such a claim against an ISP.
First of all, the court ruled that the CDA did not immunize ISP’s from trademark infringement claims arising out of information posted on their customers’ websites. See Gucci, supra at 412-417. Mindspring had relied upon §230(c)(1) of the CDA, which provides: “No provider or user or an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 U.S.C. §230(c) (1). That Mindspring, in its capacity as an ISP, was an “interactive computer service” under the statute, was undisputed by the parties. Gucci argued however, that §230(e)(2) was controlling. That section states: “nothing in this section shall be construed to limit or expand any law pertaining to intellectual property.” 47 U.S.C. §230(e)(2). The court agreed, finding that the plain language of that section precluded Mindspring’s claim of immunity. See Gucci, supra at 413. Specifically, it found, citing Inwood, that existing intellectual property law included the doctrine of contributory infringement, implying, without passing on the merits of the claim, that that doctrine was applicable to Mindspring. See id. Immunizing Mindspring from Gucci’s trademark infringement claims, the court reasoned, would “limit” the laws pertaining to intellectual property in contravention of §230(c)(2). Id. While the court reached this conclusion based upon the plain meaning of the statute alone, it nevertheless further addressed (and rejected) Mindspring’s arguments based on case law and legislative history.
In particular, the court addressed the dicta of the district court in Lockheed, supra, which each party argued had weighed in its favor. See Gucci, supra at 416, citing Lockheed, supra. In Lockheed, the district court reasoned:
[Network Solutions, Inc.’s] role in the Internet is distinguishable from that of an Internet service provider whose computers provide the actual storage and communications for infringing material, and who therefore might be more accurately compared to the flea market vendors in [Fonovisa Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996)] and [Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143 (7th Cir. 1992) ].
Gucci, supra at 416, citing Lockheed Martin, 985 F.Supp. at 962. (Emphasis added). The Gucci court concluded from this that “Lockheed Martin does not foreclose the possibility that ISPs may be liable for contributory trademark infringement[.]” Id. Arguably, the dicta in Lockheed goes further than the court’s tentative conclusion, insofar as likening ISPs to flea market owners would dictate that they actually could be held liable in appropriate circumstances.
Secondly, as to Mindspring’s free speech arguments, the court held that Gucci’s claims were not barred by the First Amendment because they challenged allegedly infringing commercial speech used to identify the source of a product, as opposed to being part of a communicative message. See Gucci, supra at 417-418. The court further found that the liability limitation of the “innocent infringer defense” contained in §32(2) of the Lanham Act, coupled with the requirement, as to contributory infringement, that the plaintiff demonstrate “knowledge” on the part of the defendant, undermined Mindspring’s First Amendment argument that to let Gucci’s claims go forward would subject the ISP to strict liability for trademark infringement, thereby creating a “trademark plaintiff’s veto.” See id. at 420. Finally, the court rejected the notion, advanced by Mindspring, that existing First Amendment legal analysis ought to be modified in the Internet context so as to limit the enforcement of trademark rights. See id. at 420-421.