Contributory Liability: Overview

A Short History of Contributory Liability Doctrine[1]

The proliferation of contributory trademark infringement claims is a relatively recent development. But its roots extend over a hundred years, well before the Lanham Act was passed. Following below is a brief overview to help understand how the law evolved from its origins in the early “passing off” cases to its modern application in many diverse contexts.

Before the Internet age, the contributory trademark infringement landscape was populated mainly with the “passing off” cases, of which there are comparatively few.[2] These early, pre-Lanham Act cases involved simple ruses that infringed the marks on old-fashioned products such as medicinal tonics: In one old case, the direct infringers were druggists who “passed off” the defendant’s inferior chocolate-flavored quinine to their customers as that of the plaintiff;[3] an even older one involved similar deception concerning the plaintiff’s bitters.[4] In a more contemporary contributory liability action the defendant allegedly induced bartenders to substitute its less-expensive cola for the plaintiff’s when customers requested a “Rum and Coke.”[5] In each of these cases, the plaintiffs pursued the defendants not because they themselves passed off the products, but because they enabled others to do so. This is the classic paradigm of contributory infringement.

These early passing off cases were precursors to the Supreme Court’s 1982 decision in Inwood Labs., Inc. v. Ives Lab., Inc.,[6] where the Court set the modern standard for contributory trademark infringement. It held: “[I]f a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit.”[7]

The plaintiff in Inwood Labs. stated a cause of action for contributory infringement by alleging that the defendant continued to supply the product – its less expensive generic pills — to pharmacists who they knew were placing it in bottles mislabeled with the plaintiff’s brand name.[8] Inwood Labs. was thus itself another in a long line of passing off cases. And in one form or another,[9] for most of the 20th century, contributory liability cases such as Inwood Labs. involved “passing off” another’s product for that of the plaintiff.

In the 1990s, however, plaintiffs began pursuing parties that had facilitated infringement by supplying a service (writ broadly), rather than a “product” to the direct infringer. First were the two landmark flea market cases (there would be many more[10]), Hard Rock Café Licensing Corp. v. Concession Servs., Inc.[11] and Fonovisa, Inc. v. Cherry Auction, Inc.,[12] where the courts held that the flea market operators could be liable for their vendors’ counterfeit sales. As the court held in Fonovisa, they supplied “the necessary marketplace”[13] for those sales. And while flea market booth space wasn’t a product, as Inwood Labs.’ formula requires, it was more like a product than, say, a purely auxiliary service such as a temporary help service.[14] To support its decision applying Inwood Labs. outside the product context, the Hard Rock Café court relied on “the close comparison between the legal duty owed by a landlord to control illegal activities on his or her premises and by a manufacturer to control illegal use of his or her product.”[15] This analogy to landlord liability sufficed, as far as it went, in the brick-and-mortar flea market setting.[16]

But the flea market precedent embodied in Hard Rock Café and Fonovisa did not apply squarely to the Internet litigation that seemed to crop up as quickly as the Internet itself.[17] The court addressed the gap between the case law and the emerging Internet reality in Lockheed Martin Corp. v. Network Solutions, Inc.,[18] where the plaintiff sought to hold a domain name registrar liable because other parties had used its services to register infringing versions of its marks in domain names. The domain name registrar had not supplied a “product” to the alleged infringers, so the Inwood Labs. standard was not directly applicable. The court instead turned to Hard Rock Café and Fonovisa to arrive at a new test based on “the extent of control exercised by the defendant over the third party’s means of infringement.”[19] Though it declined to extend liability to the domain name registrar, the Lockheed Martin court announced a modified version of the Inwood Labs. standard. It held that “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark permits the expansion of Inwood Lab.‘s “supplies a product” requirement for contributory infringement.”[20] Courts have repeatedly recognized this formulation as the appropriate standard in contributory infringement cases arising outside the “product” context.[21]

Lockheed Martin thus expanded contributory liability doctrine by eliminating a seemingly essential element from the Inwood Labs. formula: the supplied product. A supplied service would do — if the plaintiff could also prove the defendant directly controlled and monitored the means of infringement. Courts now apply the “direct control and monitoring standard” in an expanding body of case law. Contributory liability consequently extends not only to manufacturers and distributors, but to service providers, landlords, and franchisors.[22] And on the Internet, courts have applied Inwood Labs. to online marketplaces, Internet service providers, domain name registrars, and search engine companies.[23] Given its broader standard, it is not surprising that Lockheed Martin opened the door to an Internet era orders-of-magnitude increase in the number of contributory trademark infringement cases.[24]

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[1] This overview is excerpted from Chapter 2 of Secondary Trademark Infringement, by Coleman and Price, Bloomberg BNA (2013).

[2] A WestLaw search using the terms “contributory /p trademark” yielded, out of a total of 609 cases, 443 cases decided between 2000 and 2013 and 107 cases decided between 1987 and 2000.

[3] William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526 (1924).

[4] Hostetter Co. v. Brueggeman-Reinert Distilling Co., 46 F. 188 (E.D. Mo. 1891).

[5] Coca-Cola Co. v. Snow Crest Beverages, Inc., 64 F. Supp. 980, 989, 68 USPQ 437 (D. Mass. 1946). Note that the defendant in Snow Crest was not held liable.

[6] 456 U.S. 844, 853 – 854 (1982).

[7] Id.

 [8] Id. at 855.

[9]See also, e.g., Andrew Jergens Co. v. Bonded Products Corp., 21 F.2d 419, (2d Cir. 1927)(defendant that manufactured, wrapped and delivered soap that infringed plaintiff’s mark could be liable as contributory infringer);Corning Glass Works v. The Jeannette Glass Co., 308 F.Supp.2d 1321, 1326 (S.D.N.Y. 1970)(defendant that manufactured ovenware product confusingly similar to plaintiff’s could be liable as contributory infringer).

[10] See Chapter 7, “Landlords,” of Secondary Trademark Infringement.

[11] 955 F.2d 1143 (7th Cir. 1992) (Hard Rock Café).

[12] 76 F.3d 259 (9th Cir. 1996) (Fonovisa).

[13] See Lockheed Martin, 194 F.3d at 984 (citing Fonovisa, 76 F.3d 259, 265 (9th Cir. 1996))(citing Hard Rock Café, 955 F.2d at 1149).

[14] Lockheed Martin, 194 F.3d at 984 (citing Hard Rock Cafe, 955 F.2d at 1148.)

[15] Id. (citing Hard Rock Café, 955 F.2d at 1149).

[16] It would also provide a useful analogy for online marketplaces, as discussed in Secondary Trademark Infringement, Chapter 9 “Trademark Infringement on the Internet.”

[17] See Secondary Trademark Infringement, Chapter 9 “Trademark Infringement on the Internet.”

[18] 194 F.3d 980 (9th Cir. 1999).

[19] Lockheed Martin, 194 F.3d at 984 (citing Hard Rock Café, 955 F.2d at 1148 – 49).

[20] Id. at 984.

[21] See Secondary Trademark Infringement, Chapter 6 “Introduction: Contributory Infringement in the Service-Provider Context.”

[22]See, e.g., Fonovisa, 76 F.3d at 265 (observing that “[t]he Court in Inwood . . . laid down no limiting principle that would require defendant to be a manufacturer or distributor.”). See also the discussion of the “non-product cases” in Secondary Trademark Infringement, Part III.

[23] See Secondary Trademark Infringement, Chapter 9 “Trademark Infringement on the Internet.”

[24] In the Westlaw search cited in n.2, 166 of the 609 cases were decided prior to Lockheed Martin.

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