Generalized knowledge that trademark infringement has taken place has been held insufficient to sustain a claim of contributory liability. Tiffany v. eBay, 600 F.3d 93, 107, 109 (2d Cir. 2010) affirming in part and remanding in part, 576 F.Supp.2d 463, 470, 508-510 (S.D.N.Y. 2008), cert denied, 131 S.Ct. 647 (2010); MetroPCS Wireless, Inc. v. Virgin Mobile USA, L.P., 2009 WL 3075205, *17 (N.D.Tex.). And see Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2010 WL 4968072 (S.D.N.Y)(“Nomination II”)(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 where allegations included the defendants’ contractual rights to pre-approve the infringer’s product and the defendants’ constructive knowledge of plaintiff’s federal trademark registration); Rosetta Stone Ltd. v. Google Inc., 2010 WL 3063152, *13 – *14 (E.D. Va.)(comparing the search engine company Google to the online sales site eBay, finding it lacked the requisite specific knowledge to impose contributory liability). The courts in these cases have construed Inwood to require plaintiffs to demonstrate the defendants’ specific knowledge with regard to individual or particular acts of infringement.
Thus, in Tiffany v. eBay, generalized knowledge that counterfeit goods might be sold on its website was insufficient to support a claim of contributory trademark infringement against the online marketplace company eBay. 576 F.Supp.2d 463, 470, 508- 510 (S.D.N.Y 2008), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). The Tiffany court stated that the law required “more specific knowledge as to which items [were] infringing and which seller [was] listing those items before requiring eBay to take action.” Tiffany, supra at 470.
In Tiffany, the luxury jeweler, Tiffany, sued eBay, the online marketplace, asserting contributory liability for trademark infringement arising out of the sale of counterfeit Tiffany silver jewelry on its website. Tiffany, supra at 469. Tiffany alleged that hundreds of thousands of counterfeit silver jewelry items had been offered for sale on eBay’s website, and that eBay “facilitated and allowed these items to be sold” there. Id.
Specifically, Tiffany argued that “eBay was on notice that a problem existed” and that it was therefore obligated to “investigate and control the illegal activities” of its sellers. As to the question of which sellers eBay should investigate and control, Tiffany asserted that eBay should “preemptively refus[e] to post any listing offering five or more Tiffany items and … immediately suspend sellers upon learning of Tiffany’s belief that the seller had engaged in potentially infringing activity. Id.
In response, eBay asserted that it was under no such obligation under the circumstances. Instead, the responsibility lay with Tiffany “to monitor the eBay website for counterfeits and to bring counterfeits to eBay’s attention.” Id. at 469. Its generalized knowledge, eBay contended, was insufficient to impose contributory liability; the law demanded “more specific knowledge of individual instances of infringement and infringing sellers before imposing the burden on eBay to remedy the problem.” Id. at 508.
The court agreed, applying the Inwood “know or reason to know” standard. At issue was whether, under Inwood, “eBay continued to provide its website to sellers when eBay knew or had reason to know that those sellers were using the website to traffic in counterfeit Tiffany jewelry.” Tiffany, supra at 470.
In examining the evidence as to eBay’s knowledge, the court found that Tiffany’s actions to protect its trademark had put eBay on “generalized notice that some portion of the Tiffany goods sold on its website might be counterfeit.” Tiffany, supra at 507. These actions included (1) sending demand letters to eBay stating its belief that large quantities of counterfeit Tiffany jewelry items were being sold, and that offerings of five or more pieces of purported Tiffany jewelry were “almost certainly” counterfeit; (2) apprising eBay that it had found, as a result of its own “Buying Program” study, that 73.1% of the Tiffany items purchased during a given time period were counterfeit; and (3) filing thousands of “NOCIs” (notices of claimed infringement) under eBay’s VeRO (Verified Rights Owner) program, a “notice-and-takedown” system discussed below, stating a good faith belief that certain listings were counterfeit or otherwise infringing on Tiffany’s marks. Id. Moreover, the court found that eBay had received “numerous complaints” from buyers complaining that they had purchased fake Tiffany jewelry on its website. Id.
All the foregoing evidence demonstrated only that “eBay had general knowledge of infringement by sellers using its website.” Tiffany, supra at 511. “Such general knowledge,” the court held, did not require eBay to “discontinue supplying its service to all those who might be engaged in counterfeiting.” Id.
The court based its decision both on legal precedent and policy considerations. Citing Inwood, the court noted that the Supreme Court’s language in that case focused on individual infringers, supporting a requirement of specific rather than generalized knowledge. Tiffany, supra at 509-510. It further noted language in Gucci describing the plaintiff’s “high” burden to demonstrate knowledge. Gucci, 135 F.Supp.2d at 420, and in Mini Maid describing the inquiry into knowledge as a “contextual and fact-specific test.” 967 F.2d at1522. Moreover, the uncertainty as to the extent and nature of the direct infringement also militated against ascribing knowledge to eBay, the court found. See Tiffany, supra at 508-509 and cases cited therein.
The presence of authentic Tiffany items for sale on eBay was a key factor in the case, because the Tiffany court was especially concerned, as a policy matter, with reaching a result that would tend to suppress otherwise non-infringing sales. See Tiffany, supra at 509-510. Citing Justice White’s concurring opinion in Inwood, the court stated that “the doctrine of contributory infringement should not be used to require defendants to refuse to provide a product or service to those who merely might infringe the trademark.” Tiffany, supra at 510, citing Inwood. See also 1-800 Contacts v. Lens.com, 755 F.Supp.2d 1151, 1186 (D. Utah 2010) (defendant online contact lens retailer had no obligation to cease licensing its name to all of its affiliates while it took steps to identify the one that generated infringing impression). The presence of authentic Tiffany goods on eBay precluded a finding that generalized knowledge of counterfeiting imputed knowledge to eBay of any specific acts of actual infringement. Tiffany, supra at 510, and cases cited therein. The imposition of contributory liability was therefore unjustified under the “knowledge” prong of Inwood.
On appeal, the Second Circuit agreed with the distinction drawn by the district court between generalized and specific knowledge, and upheld its 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). 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.
Similarly, where a plaintiff wireless telecommunications provider failed to allege or show any evidence of the defendant’s knowledge of particularized instances of direct trademark infringement by its customers, the court granted the defendant’s summary judgment motion and dismissed the plaintiff’s contributory liability claim. MetroPCS Wireless, Inc. v. Virgin Mobile USA, L.P., 2009 WL 3075205 (N.D. Tex. 2009). In doing so, it expressly rejected the “reasonable anticipation” standard for finding knowledge on the part of the defendant. Id. at *17.
The dispute in MetroPCS arose out of MetroPCS’s “reflashing” service, in which it “unlocked” its customers’ cell phones so that they could be used over the wireless network offered by MetroPCS rather than the one sold to them by the original company together with the handset. See MetroPCS, supra, at *1 – *2. The declaratory judgment defendant and competitor, Virgin Mobile, contended that MetroPCS’s practice undermined its business model, targeted at low-income customers, which was to sell its handsets at well below market value and then recover its losses over time with the sale of airtime. Id. Thus, according to the defendant, “[i]f a customer purchase[ed] a Virgin Mobile-branded handset at an artificially low price and then reflashe[d] the handset for service on a competitor’s network, Virgin Mobile suffer[ed] financially.” Id.
Prior to the onset of litigation, Virgin Mobile sent cease and desist letters to MetroPCS demanding that it stop reflashing Virgin-branded handsets. MetroPCS, supra at *2. Metro PCS responded with a lawsuit seeking declaratory judgment that, among other things, it was not infringing on Virgin Mobile’s trademarks. Virgin Mobile asserted a number of counterclaims, including direct and contributory trademark infringement. Id.
Specifically, Virgin Mobile maintained that “when MetroPCS induce[d] customers to switch from Virgin Mobile to MetroPCS and, through the [reflashing] service, to alter their Virgin Mobile-branded handsets for use on the MetroPCS network” it infringed, both directly and contributorily on its trademarks. Id. Virgin Mobile based its counterclaims “on the fact that, after Virgin Mobile-branded handsets [were] reflashed to operate on the MetroPCS network, they still [bore] Virgin Mobile’s trademarks.” Id. Reflashing, Virgin Mobile argued, enabled MetroPCS to “free-ride on Virgin Mobile’s effort and investment in developing, marketing, and distributing its wireless products and services.”Id. It argued further that, as noted above, this practice prevented Virgin Mobile from recovering its losses on the low-priced handsets. Id. It asserted that reflashing could lead to “decreased functionality” or the handsets and could damage them as well. Id.
For its part, MetroPCS maintained that it reflashed handsets only at the request of the handset owner and that it required the customer to, among other things, represent that he did not have an agreement with any other service provider and would not “use the original provider’s trademarks in selling, offering for sale, distributing, or advertising” MetroPCS’s handsets. Id. at *2, n4. MetroPCS consequently responded with a motion for partial summary judgment seeking dismissal of, among other things, the contributory trademark liability claim. Id.
To support its motion, MetroPCS advanced two arguments: first, that Virgin Mobile had neither alleged nor proved any direct acts of infringement by MetroPCS’s customers; and second, that because its customers pledged not to infringe Virgin Mobile’s trademarks, MetroPCS was insulated from liability. MetroPCS, supra at *15. In granting the motion for dismissal, the court addressed both arguments, but ultimately based its decision on straightforward application of Inwood, finding that MetroPCS had neither induced any of its customers to infringe nor had it continued to sell reflashed handsets to customers whom it knew or had reason to know were reselling the handsets. Id. at *17. (As to the first argument regarding direct infringement, see Section II.B.5; the significance of the licensing pledge is discussed in Section II.B.c.i .)
Based on Inwood, the court stated that “to be held liable for contributory trademark infringement, MetroPCS must have either intentionally induced its [reflashing] customers to directly infringe the original wireless provider’s trademark or continued to offer its [reflashing] service to particular customers whom it knew were committing acts of infringement.” MetroPCS, supra at *17, citing Inwood, 456 U.S. at 854-855. (emphasis added). It found, as noted above, that Virgin Mobile had neither alleged nor offered any evidence of intentional inducement. Id. It also failed to allege or present evidence that MetroPCS “continue[d] to reflash handsets for those particular customers whom it kn[ew] [were] reselling their branded handsets.” Id.
At most, the court concluded, Virgin Mobile could show only that MetroPCS continued to offer it reflashing service “to the general public when it ha[d] reason to know that some past [reflashing] customers [had] resold their reflashed handsets.” MetroPCS, supra at *17. Such generalized knowledge, the court held, was insufficient under Inwood, citing that case for the proposition that the “standard is not whether [the] defendant “could reasonably anticipate” possible infringement.” MetroPCS, supra at *17, citing Inwood, supra at 854 n13. Cf. TracFone Wireless, Inc. v. SND Cellular, Inc. 2010 WL 2265152, *2, *4 (S.D.Fla.)(where defendants bought plaintiff wireless service provider’s phones in bulk, resold them “reflashed” and out of their original packaging and with the warranty removed, court upheld plaintiff’s claims for both direct and contributory trademark infringement).
Note in this regard that the “reasonable anticipation” standard is often urged on the court by trademark plaintiffs who argue, based on the Restatement, that a party ought to be found liable for contributory trademark infringement where it “fails to take reasonable precautions against the occurrence of the third person’s infringing conduct in circumstances in which the infringing conduct can be reasonably anticipated.” See Tiffany v. eBay, 576 F.Supp.2d 463, 502 (S.D.N.Y. 2008), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010), citing the Restatement (Third) of Unfair Competition Sec. 27 (1995). The Tiffany court expressly rejected the reasonable anticipation standard as “foreclosed by Inwood itself.” See Id., noting Justice White’s concurring opinion and the majority response. It noted that with the exception of cases in the Third Circuit, the majority of courts considering the question have rejected it as well. See Id. at 503 and cases cited therein.