(c) Willful Blindness, (iii) Knowledge Followed by Remedial Measures, 3. Knowledge, B. The Elements of Contributory Liability Under Inwood, II. Contributory Trademark Infringement Comments Open

B. The Elements of Contributory Liability under Inwood: 3. The Requirement of Actual or Constructive Knowledge: (c) Willful Blindness — (iii) Knowledge Followed by Remedial Measures

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Where a defendant, upon being notified of potential infringement, corrects the alleged infringement, the court will take such action into account in its general analysis of the element of knowledge under Inwood. Although the courts have not, in these cases, necessarily applied the “willful blindness” test, they are nevertheless discussed here because they tend to be treated as part of the courts’ knowledge inquiry and do bear on the question of whether a defendant acted with disregard to such notification. But see, however Tiffany v. eBay, discussed below, where the court discusses remedial measures in the context of willful blindness. 576 F.Supp.2d 463, 513-515 (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). It bears noting that remedial measures arguably should also be considered by the courts with regard to whether a defendant has “induced” infringement under the first prong of Inwood, supra.

Thus, in a number of instances, remedial measures taken by contributory infringement defendants upon learning of potential direct infringement have precluded a finding of liability by the courts. See, e.g., Procter & Gamble Co. v. Haugen, 317 F.3d 1121, 1129-1130 (10th Cir. 2003); Medic Alert Found. U.S., Inc. v. Corel Corp., 43 F.Supp.2d 933, 940 (N.D. Ill. 1999).  See also Am. Tel. and Tel. Co. v. Winback and Conserve Program, Inc. 42 F.23d 1421, 1433 n.14 (3rd Cir. 1994)(agreeing with district court’s conclusion that plaintiff could not have proceeded under contributory liability theory where defendant, upon having objectionable acts of its sales representatives brought to its attention, “took appropriate steps to reprimand and discipline the sales representative.”)(citation omitted); Sealy Inc. v. Easy Living, Inc., 743 F.Supp. 1378, 1382 (9th Cir. 1984) (noting that “[a] manufacturer may escape liability if it takes effective measures to prevent infringing uses by its distributors.”), discussed in detail supra. And see 1-800 Contacts v. Lens.com, 755 F.Supp.2d 1151, 1187 (D. Utah 2010)(rejecting the contributory liability claim where evidence was insufficient to show that defendant failed to take appropriate action to stop its affiliate from publishing infringing advertisements and email exchanges with affiliate network demonstrated defendant was trying to resolve the problem and defendant had no contact information for the affiliate); The National Basketball Association and NBA Properties, Inc. v. Sports Team Analysis and Tracking Systems, Inc., 939 F.Supp.1071, 1108-1109 (S.D.N.Y. 1996)(rejecting contributory liability claim based on retailer’s catalog erroneous claim that defendant manufacturer’s  product was “officially licensed” by NBA, finding that defendant had notified the retailer within ten days of its discovery and had further followed up with numerous phone calls until error was corrected in the next catalogue).

In Procter & Gamble, the plaintiff was Procter & Gamble Company (“P & G”), the manufacturer of household products. It sued its competitor, Amway Corporation, as well as a group of distributors of Amway’s products, bringing various Lanham Act and state tort law claims, based on allegations that the distributors had disseminated a voicemail message identifying P & G products as being somehow connected with the Church of Satan and as having “Satanic” qualities. Procter & Gamble, 317 F.3d at 1123, 1124. The district court dismissed or granted summary judgment on all of P & G’s claims, and P & G appealed to the Tenth Circuit. On review, the Tenth Circuit reversed in part and remanded in part. Procter & Gamble, 222 F.3d 1262 (10th Cir. 2000). On remand, the district court granted summary judgment to Amway, rejecting all of P & G’s claims, including its assertion of contributory trademark infringement, which it had apparently raised for the first time without using the actual term in its previous pleadings. See Procter & Gamble, 317 F.3d at 1129. And see Video Professor, Inc. v. Amazon.com, Inc., 2010 WL 882646, *3 (D.Colo.)(denying plaintiff’s request to extend discovery relevant to a contributory liability claim where plaintiff had failed to include the claim in its complaint, citing Haugen as precedent for not reading such a claim into “broad allegations of a complaint for trademark infringement.”).The district court concluded that P & G had waived the claim, but that it would nevertheless examine it on the merits. Even upon doing so, however, it found that regarding the element of knowledge, Amway could not be held liable for contributory infringement. P & G again appealed to the Tenth Circuit, which affirmed the district court. Id.

The Tenth Circuit, acknowledging that its previous mandate to the district court might somehow be construed as resuscitating P & G’s contributory liability claim along with its other Lanham Act claims, agreed in the interest of thoroughness to revisit the merits of P& G’s contributory liability claim against Amway. See Procter & Gamble, 317 F.3d at 1129. Citing Inwood, it identified the two elements of contributory liability at issue in this case as (1) whether Amway had supplied a product to its distributors; and (2) whether it did so with knowledge of the direct infringement, which it assumed for purposes of its review had taken place. See id. at 1128-1129, and 1129 n.5. The first element was not at all in dispute. Id. at 1129. As to the second element, the court found that the district court correctly rejected the claim, having found that not only did Amway not know about the Satanic messages, but, “upon learning [of them] Amway suggested that [one of the Distributor Defendants] issue a retraction, which he did.” Id. at 1130, citing the district court order.

Similarly, remedial measures taken by a software company that had incorporated potentially infringing images into its “clipart” program weighed against a finding of contributory liability in Medic Alert Found. U.S., Inc. v. Corel Corp., 43 F.Supp.2d 933, 940 (N.D. Ill. 1999). In that case, the facts of which are discussed in detail supra, the plaintiff, Medic Alert Foundation, (“Medic Alert”) had notified the defendant software company, Corel, of the alleged infringement of its trademark some years prior to trial. Medic Alert, 43 F.Supp.2d at 935. Corel thereupon immediately contacted the company from which it had licensed the allegedly infringing images to see whether licensing permission could be attained from Medic Alert. Id. When this effort failed, Corel identified the offending image and, shortly thereafter, “remastered” its software product to delete the image in question. As described by the court,  remastering “is a process by which changes are made to an existing version of a software product between inventory runs.” Id. Thus, as of a certain date, all of the Corel software that ever contained the image in dispute either was no longer being shipped or had been remastered to exclude the image. Id. Nonetheless, because Corel did not track the information, it could not guarantee that its entire inventory had been cleared of the allegedly infringing software, and in fact evidence was brought forth of a consumer having thereafter obtained such software. See id.

As noted above, among the claims brought by Medic Alert against Corel was a contributory liability claim in connection with the activities of one of its customers, which, in apparent violation of its end-user agreement, altered one of the images in question to read “Health Alert” and then used it on its mail solicitations for vitamins. See Medic Alert, 43 F.Supp.2d at 935.  Medic Alert argued, inter alia, that notwithstanding the foregoing remedial measures taken by the defendant, by failing to recall its software and thereby continuing to sell its existing inventory containing the disputed images, Corel committed contributory trademark infringement. Corel moved for summary judgment, arguing inter alia, that it had no knowledge of any infringement prior to its contact with Medic Alert and that once it learned that Medic Alert challenged the image, it had taken steps to eliminate the image from its software. Id. at 940.

The court agreed, finding the evidence insufficient as a matter of law to support a finding of contributory liability. Medic Alert, supra at 940.  In reaching its decision, the court acknowledged not only the effect of the end-user agreement, discussed above, but also the fact that by the time the alleged infringement by the customer came to Medic Alert’s attention, Corel had already taken remedial measures to remove the images in question. Notably, the court rejected out of hand the argument that Corel should be held liable for all existing software whose distribution into the market place pre-dated its remedial measures. See id.

Remedial measures taken both before and after the beginning of litigation insulated the defendant from the plaintiff’s claim of willful blindness in Tiffany v. eBay, 576 F.Supp.2d 463, 513-515 (S.D.N.Y. 2008), affirmed in part and remanded in part, Tiffany v. eBay, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). In that case, Tiffany, the luxury jeweler, 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.

It was undisputed that eBay was generally aware of infringing activity on its website and in fact had put in place a number of anti-fraud measures in response. Tiffany, supra at 514, and see infra at “online marketplaces” for a detailed discussion of these measures. Nevertheless, Tiffany argued that eBay should have been even more proactive in rooting out infringing sellers, bringing evidence of various other measures it could have taken but did not. Id. at 514. eBay’s failure to take these additional steps, Tiffany argued, constituted willful blindness. Id.

The court acknowledged that there were other potential avenues of inquiry eBay did not pursue, but none of these mattered because, as discussed below, absent any specific knowledge of infringement, it had no affirmative obligation to do so. Tiffany, supra at 515. Willful blindness, the court continued, ““requires more than mere negligence or mistake” and does not lie unless the defendant knew of a high probability of illegal conduct and purposefully contrived to avoid learning of it, for example, by failing to inquire further out of fear of the result of the inquiry.” Tiffany supra at 515, citing Nike, Inc. v. Varitety Wholesalers, Inc., 274 F.Supp.2d 1352, 1369-70 (S.D.Ga.2003).

The anti-fraud measures put in place by eBay expressly negated any such finding, the court held. Tiffany, supra at 515. Specifically,

it cannot be said that eBay purposely contrived to avoid learning of counterfeiting on its website, or that eBay failed to investigate once it learned of such counterfeiting. To the contrary, in the face of such general awareness, eBay took significant steps to prevent counterfeiting by developing the VeRO Program, which seeks to remove individually infringing listings. Moreover, … when eBay became aware, through its VeRO Program, of Tiffany’s good faith belief that a listing was infringing, it investigated and removed that listing from its website.

Id. In view of all these measures, the court found that Tiffany had failed to prove that eBay “deliberately ignored counterfeiting activity of which it was aware,” precluding a finding of willful blindness on its part. Id.

On appeal, the Second Circuit upheld with the district court’s findings and conclusions as to eBay’s actual knowledge and willful blindness. Specifically, it reiterated that when made aware of offending listings through NOCI’s and buyer complaints, eBay removed those listings and suspended repeat offenders from its website. 600 F.3d at 109. Thus, “eBay was not willfully blind … [because it] did not ignore the information it was given about counterfeit sales on its website.” 600 F.3d at 110. (citations omitted). The Second Circuit decision is discussed in more detail in Sections II.B.3. (a)  and II.B. 3. (c).

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(c) Willful Blindness, (iv) No Affirmative Duty, 3. Knowledge, B. The Elements of Contributory Liability Under Inwood, II. Contributory Trademark Infringement Comments Open

B. The Elements of Contributory Liability under Inwood: 3. The Requirement of Actual or Constructive Knowledge: (c) Willful Blindness — (iv) No Affirmative Duty

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The knowledge and willful blindness considerations discussed supra have been expressly distinguished by the courts from an affirmative duty to “seek out and prevent” or “take precautions against” trademark violations by another party, which is not required by the doctrine of contributory liability. See Hard Rock Café Licensing Corp. v. Concession Services, Inc. 955 F.2d 1143, 1149 (7th Cir. 1992); Monsanto Co. v. Campuzano, 206 F.Supp.2d 1271, 1275 (S.D. Fla. 2002); MDT Corp. v. New York Stock Exchange, 858 F.Supp.1028, 1034 (C.D. Cal. 1994).  And see, Tiffany v. eBay, 576 F.Supp.2d 463, 515 (S.D.N.Y. 2008)(citing Hard Rock Café),affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010); SB Designs v. Reebok Int’l. Ltd. 338 F.Supp.2d 904, 912 (N.D. Ill. 2004)(same); Ford Motor Co. v. GreatDomains.com Inc. 177 F.Supp.2d 635, 646 (E.D. Mich. 2001)(same). In Hard Rock Cafe, which is discussed in more detail infra, the court distinguished “willful blindness” from negligence.

Hard Rock Café involved a dispute between the owner of the HARD ROCK trademark and CSI, the owner and operator of a flea market, one of whose vendors had sold counterfeit Hard Rock Café t-shirts. Hard Rock alleged that CSI bore contributory liability for the counterfeit sales, and the district court agreed, finding CSI to be willfully blind. Hard Rock Café, supra at 1149. On review, the Seventh Circuit acknowledged that “willful blindness is equivalent to actual knowledge, for purposes of the Lanham Act,” but found that the district court had defined willful blindness incorrectly. Specifically, the court’s review of the district court’s memorandum opinion revealed its focus on the defendant’s failure to take “reasonable steps to detect or prevent the sale of Hard Rock Café counterfeit T-shirts on its premise[s]” Hard Rock Café, supra at 1148. This finding, the Seventh Circuit objected, suggested “mere negligence,” as opposed to willful blindness. Id.

The Seventh Circuit ruled that the district court had applied the incorrect standard to the issue of the defendant’s knowledge. Hard Rock, supra at 1149. It reiterated that “to be willfully blind, a person must suspect wrongdoing and deliberately fail to investigate.” Id. While the “reason to know” part of the standard for contributory liability required CSI “to understand what a reasonably prudent person would understand,” it did not impose any duty to seek out and prevent violations. The court concluded that the district court, having focused on such a duty, had found CSI to be negligent, not willfully blind, and therefore remanded for further findings on the question of willful blindness. Id.

In this vein, it has been held that a “supplier’s duty does not go so far as to require him to refuse to sell to dealers who merely might pass off its goods.” Monsanto Co. v. Campuzano, 206 F.Supp.2d 1271, 1276 (S.D. Fla. 2002), citing Inwood, supra at 861 (White, J., concurring). Further, “the mere sale of a genuine trademarked product without the trademark owner’s consent does not violate the Lanham Act[.]” Id. at 1274, citing Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587, 593 (5th Cir. 1993); NEC Electronics v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir. 1987). In this regard, it has been found that circumstantial evidence regarding a distributor’s activities that amounted to mere speculation was insufficient to raise a fact question as to that party’s knowledge or willful blindness. Monsanto, supra at 1279.

In Monsanto, the defendant, Campuzano, owned a company, F. Garcia, which purchased and sold institutionally packaged Equal sweetener to another company, Trio International. Monsanto, 206 F.Supp.2d 1271, 1273-1274. It was undisputed that Trio International engaged in a scheme to repackage the Equal product that had been packaged for the institutional food service market and sell it for distribution on the retail market. Id. at 1274. The scheme involved the creation of counterfeit Equal retail boxes that infringed the plaintiffs’ trademarks and copyrights. Monsanto, the manufacturer of the artificial sweetener, and Merisant Company, the owner of the trademarks, sued Campuzano and his company, alleging inter alia, contributory trademark infringement liability for his customer’s counterfeit scheme. The defendants moved for summary judgment against Merisant to dismiss the claim, which the court granted, on the ground that the evidence was insufficient to raise a question of fact regarding whether Campuzano knew of or was willfully blind to the counterfeiting operation. Id. at 1279.

The only material fact at issue in Monsanto was whether the defendants knew or should have known about their customer’s counterfeiting scheme. Monsanto, supra at 1274. However, Merisant failed to bring any direct evidence of the defendants’ knowledge or willful blindness, the court found. Id. at 1274. Rather, it posited a number of circumstantial facts, viz.: that  (1) the defendants sold “massive” quantities of the Equal product to the direct infringers; (2) the defendants were the only suppliers for the direct infringers, who were their largest account; (3) the defendants never asked the direct infringers about the nature of their business; (4) Campuzano made undisclosed pay-offs to his supplier of the Equal product that he sold to the direct infringers; (5) Campuzano was aware of another unrelated, illegal repackaging scheme that took place in another state; (6) Campuzano advised his trucking company not to disclose the identity and location of the direct infringer; and various other allegations, including the fact that the defendant and the direct infringer knew each other personally. Id. at 1274-1275. None of the foregoing facts, the court found, even taken together, raised enough circumstantial evidence of knowledge or willful blindness on the part of the defendant. Id. at 1275.

Relying on the Seventh Circuit in Hard Rock Café, supra, the court stated that “the doctrine of contributory liability does not impose an affirmative duty on a manufacturer or distributor to seek out and prevent violations or take precautions against the sale of counterfeit product.” Monsanto, supra at 1275. Rather, to be “willfully blind” for purposes of the Lanham Act, “a person must suspect wrongdoing and deliberately fail to investigate.” There was nothing in the record, taken in the light most favorable to Merisant, that would permit a reasonable trier of fact to find that the defendants should have suspected wrongdoing yet deliberately failed to investigate. Id.

Notably, the court found that the allegations regarding the “massive” quantities of Equal product sold by the defendants to the direct infringers constituted sheer speculation on the part of Merisant. Id. at 1276-1277. Compare Monsanto, supra, with Rolex Watch USA, Inc. v. Meece, 158 F.3d 816 (5th Cir. 1998), supra, where the fact that the defendant evidently had not sold large quantities of non-genuine watch parts to jewelers weighed against a finding of contributory liability,. Nor did the pay-offs or “brokerage fees” paid by the defendant to his supplier constitute evidence that Campuzano knew of the repackaging scheme. Id. at 1277. The facts that the defendant was the only supplier of Equal to the direct infringers, and that the direct infringers were its largest account, were similarly insufficient to raise a fact issue. Id. at 1277-1278.

Furthermore, evidence that the defendant knew that “at some time unknown individuals engaged in an unrelated repackaging scheme in another state” was not evidence that the defendant knew or should have known that its customers were involved in a similar scheme. Otherwise, the court impliedly reasoned, “[e]veryone who ever sold or purchased Equal product [who] may have been aware of the [other] scheme” would be subject to contributory liability. Monsanto, supra at 1278. Regarding Campuzano’s instruction to his trucking company not to disclose the location to which the Equal was being delivered, the court found that this was known to be a practice “intended to protect middleman like Mr. Campuzano from being cut out.” Id. at 1278. The court similarly rejected all other evidence put forth by Merisant as “speculation” and thus concluded that there was insufficient evidence to let the contributory infringement claims go forward. Id. at 1278-1279.

It has similarly been held that the contributory infringement doctrine established by Inwood “does not extend so far as to require non-infringing users to police the mark for a trade name owner.” MDT Corp. v. New York Stock Exchange, 858 F.Supp. 1028, 1034 (C.D. Cal. 1994).  See also Tiffany v. eBay, 576 F.Supp.2d 463, 515 (S.D.N.Y. 2008)(without specific knowledge or reason to know, plaintiff was under “no affirmative duty  to ferret out potential infringement”), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010), discussed below.

MDT Corp. involved a dispute between the senior owner of the trademark MDT, MDT Corporation, and the New York Stock Exchange (“NYSE”), over the latter’s use of the trademark as a trade symbol for another company, Medtronic. MDT Corp. sued the NYSE for contributory trademark infringement regarding the use of the trade symbol, and the junior user, Medtronic, intervened. MDT Corp. moved for summary judgment enjoining further use of the trading symbol and for dismissal of Medtronic’s complaint. The court found that MDT Corp. had failed to state a claim of contributory infringement. MDT Corp., supra at 1033-1034.

At the outset, the court noted a number of undisputed facts underlying its conclusions. Namely, it observed that although MDT Corp. was the senior user of the MDT mark in the medical products field, Medtronic was the senior user of the MDT mark with in the context of the publicly traded securities market.  MDT Corp., supra at 1032, 1034. It was further undisputed that Medtronic and the NYSE used the MDT trading symbol only to identify Medtronics securities. Id. Even more to the point, MDT Corp. conceded that in so doing, the NYSE and Medtronic had not directly infringed its trade name.  Id. In fact, the only theory of liability advanced by MDT Corp. was contributory infringement, based on the parties’ failure to police potentially infringing third party use of the MDT trading symbol. Id. Moreover, the court found that MDT Corp. waited at least 12 years to challenge the NYSE and Medronic’s use of the MDT trading symbol.

Although any one of the foregoing factors would have been dispositive in reaching its decision, the court specifically noted that MDT appeared to have interpreted Inwood to “impose an affirmative duty on innocent third party users of  a mark to police the mark for its owner.” Id. at 1034.  The court found no such duty exists.   Id.  Even if it did, the court reasoned further, MDT Corp., having delayed almost 12 years, had acquiesced in the parties’ use of its trade name, and its claim failed under the theory of laches. More fundamentally, it would seem, is the fact that MDT Corp. conceded there was no direct infringement of its trade name, and therefore no predicate claim upon which indirect liability could be based. For a discussion of cases in which contributory infringement claims are dismissed on this basis see discussion infra.

Note further that a licensor of a mark does not ordinarily have a duty to prevent a licensee’s misuse of another party’s mark. Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180 F.Supp.2d 678, 689 (D. Md. 2001), citing Mini Maid Servs. Co. v. Maid Brigade Sys., Inc. 967 F.2d 1516, 1520 (11th Cir. 1992)(“[To hold otherwise] would impose responsibility upon a [licensor] not for failing to maintain the integrity of its own trademark, but for failing to prevent another entity’s violation of the law.”).  Franchisor liability is discussed in further detail at infra.

Without specific knowledge or reason to know of infringing activity, there was no affirmative duty on the part of the defendant “to ferret out potential infringement,” the court held in Tiffany v. eBay. 576 F.Supp.2d 463, 515 (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). In Tiffany, Tiffany, the luxury jeweler, 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. It was undisputed that eBay was generally aware of infringing activity on its website and in fact had put in place a number of anti-fraud measures in response. Tiffany, supra at 514, and see infra for a detailed discussion of these measures.

Tiffany argued nevertheless that the anti-fraud measures taken by eBay were inadequate and that eBay’s failure to do more to prevent the sale of counterfeit goods on its website constituted willful blindness. Tiffany, 576 F.Supp.2d 463, 515 (S.D.N.Y. 2008). At trial, Tiffany brought expert testimony to demonstrate a number of measures eBay could have taken to do so. Tiffany, supra at 491-493, 514. For example, eBay should have conducted its own internal investigation of activity on its website to prevent further infringing activity, Tiffany asserted. Tiffany, supra at 514. Indeed, the court acknowledged that there were a number of steps eBay could have taken but did not, such as keeping track of the number of sellers suspended for expected infringement, or researching and evaluating the number of “Tiffany” listings removed from its website. Id at 514-515.

Notwithstanding the availability of these measures, the court was unpersuaded. eBay’s failure to take these steps was “immaterial” to the question of willful blindness,  it held, “because without specific knowledge or reason to know, eBay [was] under no affirmative duty” to proactively seek out infringement on its website. Id. Willful blindness, the court continued ““requires more than mere negligence or mistake” and does not lie unless the defendant knew of a high probability of illegal conduct and purposefully contrived to avoid learning of it, for example, by failing to inquire further out of fear of the result of the inquiry.” Tiffany supra at 515, citing Nike, Inc. v. Varitety Wholesalers, Inc., 274 F.Supp.2d 1352, 1369-70 (S.D.Ga.2003). The court therefore rejected the willful blindness claim, because Tiffany failed to prove that eBay had anything more than generalized knowledge of infringement on its website. Tiffany, supra at 515.

To hold otherwise, the court reasoned, would mean an expansion of the Inwood “reason to know” standard into an “affirmative duty to take precautions against potential counterfeiters, even when eBay had no specific knowledge of the individual counterfeiters.” Tiffany, supra at 515.  Citing Hard Rock Café, supra at 1149, the court reiterated that “[t]he law explicitly precludes such an expansion of the “reason to know standard.” Tiffany, supra at 515 and see cases cited therein.

The district court’s requirement of specific knowledge of infringement was upheld on appeal to the Second Circuit.  Tiffany v. eBay, 600 F.3d 93, 106 -109 (2d Cir. 2010), affirming in part and remanding in part, 576 F.Supp.2d 463 (S.D.N.Y. 2008), cert denied, 131 S.Ct. 647 (2010). The Second Circuit’s decision is discussed in detail in Sections II.B.3. (a)  and II.B. 3. (c)

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4. Continuing to Supply, B. The Elements of Contributory Liability Under Inwood, II. Contributory Trademark Infringement Comments Open

B. The Elements of Contributory Liability under Inwood: 4. Continuing to Supply

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Under Inwood, a plaintiff must prove that the defendant continued to supply its product to an infringer once it had knowledge of the infringement.  Tiffany v. eBay, 576 F.Supp.2d 463, 516 (S.D.N.Y 2008)(citing Inwood), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). See also Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2010 WL 4968072 at *6 (S.D.N.Y)(“Nomination II”)(plaintiffs failed to allege that licensor defendants continued to supply their services after receiving plaintiffs’ notice where license agreements were dated before notice was received). Remedial measures taken by defendants in the face of such knowledge are thus also the focus of the inquiry into whether a defendant has continued to supply its product or service.

Specifically, courts will not impose contributory liability on a defendant who, having the requisite knowledge, takes “appropriate steps” to cut off the supply of its product or service to the infringer. Tiffany v. eBay, 576 F.Supp.2d 463, 516 (S.D.N.Y 2008), cert denied, 131 S.Ct. 647 (2010), citing cases. See Sellify v. Amazon, 2010 WL 4455830 (S.D.N.Y.)(online sales company did not “continue to supply” its services where it promptly initiated enforcement action against and eventually cut off its contractual ties with its associate after it knew the associate had infringed plaintiff’s trademark). Thus, in Tiffany v. eBay, remedial measures taken by the defendant online marketplace eBay precluded a finding that it had “continue[d] to supply” its service to known infringers, notwithstanding its refusal to automatically and permanently suspend the suspect sellers upon receiving a notice from the trademark holder asserting its belief that their goods were counterfeit. Id. at 470.

At issue in Tiffany was whether eBay’s practices under its “notice-and-takedown” system, known as the Verified Rights Owner (“VeRO”) Program, constituted “appropriate steps” to cut off the supply of its service to those infringers against whom Tiffany had filed notices of claimed infringement (“NOCIs”). See Tiffany, supra at516-518.  The VeRO program afforded rights owners the ability to police their own trademarks on eBay’s website. See Id. at 478. Upon identifying a suspected infringing listing, the owners could file an NOCI, attesting to their “good-faith belief that the item infringed on a copyright or trademark.” Id. After receiving and reviewing the notice for accuracy, eBay promptly removed the challenged listing. Id.  at 478, 516. In addition, eBay also “warned sellers and buyers, cancelled all fees associated with the listing, and directed buyers not to consummate the sale of the listed item.” Id. at 516. Tiffany argued that eBay’s practices under the VeRO program were insufficient on several counts, but the court disagreed on each one.

Tiffany contended that eBay “continued to serve individual infringers by failing to take adequate steps in response to the filings of NOCIs by Tiffany.” Tiffany, supra at 516.  The court rejected this argument outright, because, as noted above, it was undisputed that eBay “never refused to remove a listing” after an NOCI was filed. Id.

Tiffany argued further that there were instances where eBay allowed repeat offenders to sell counterfeit goods even after an NOCI had been filed. Tiffany, supra at 516.  It asserted that eBay’s “refusal to automatically and permanently suspend sellers upon the filing of a NOCI constitute[d] per se contributory trademark infringement under Inwood. Id. at 516-517. The court acknowledged that in fact “eBay, as a rule, declined to automatically or permanently suspend a seller on the filings of a first, or even a second, NOCI.” Id.  at 517.  It nevertheless rejected Tiffany’s argument, finding eBay’s policy appropriate under the circumstances. Id.

In reaching its conclusion, the court distinguished the NOCI from actual proof of counterfeiting. Tiffany, supra at 517. (S.D.N.Y 2008). An NOCI, the court stated, “is not a determination of counterfeiting, but instead, is a good-faith assertion on the part of a rights holder that an item is counterfeit or otherwise infringing.” Id. Without actual knowledge of counterfeiting, Tiffany could not demonstrate that eBay should have permanently suspended a seller. Citing the consequences of an eBay suspension as well as evidence regarding “repeat offenders,” see Id., the court therefore concluded that eBay’s existing policy on suspending sellers was appropriate. Id.

Tiffany finally argued that “eBay’s efforts to remedy trademark infringement on its website through the VeRO Program were legally insufficient [,]” citing difficulties with reporting on an item before it became available to the public and the sheer multitude of listings to be reviewed. Tiffany, supra at 517. Once again, the court was unsympathetic, finding nothing in the evidence to demonstrate that the VeRO program was “unreasonably burdensome.” Id.

Moreover, in the court’s view, Tiffany’s contributory liability rationale amounted to a cost-avoider argument, resting “on the notion that because eBay was able to screen out potentially counterfeit Tiffany listings more cheaply, quickly, and effectively than Tiffany, the burden to police the Tiffany trademark should have shifted to eBay.” Tiffany, supra at 518.  The evidence did not support eBay and in fact the court faulted Tiffany for having failed to adequately police its trademark, finding its participation in the VeRO program [had] been “sporadic and relatively meager.” Id.

More fundamentally, though, the court held that contributory liability did not depend on which party was in a better position to stop trademark infringement on eBay. See Tiffany, supra at 518.  Rather, the court reiterated settled law that “rights holders bear the principal responsibility to police their trademarks.” Id. Ultimately, the court held that Tiffany “failed to prove that eBay continued to supply its service to those whom it knew or had reason to know were engaging in infringement,” finding it had taken the requisite “appropriate steps” to “cease making its website available in those instances where Tiffany brought objectionable conduct to its attention.” It therefore rejected Tiffany’s contributory liability claim under the “continues to supply” test of Inwood.

The district court’s ruling rejecting Tiffany’s contributory liability claim was upheld on appeal. Tiffany v. eBay, 600 F.3d 93, 106 -110 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). The Second Circuit’s decision is discussed in detail in Sections II.B.3. (a)  and II.B. 3. (c)

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5. The Requirement to Demonstrate Direct Trademark Infringement., B. The Elements of Contributory Liability Under Inwood, II. Contributory Trademark Infringement Comments Open

B. The Elements of Contributory Liability under Inwood: 5. The Requirement to Demonstrate Direct Trademark Infringement

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Contributory trademark infringement, by definition, is a derivative action. A claim for contributory infringement therefore requires proof of direct infringement by a third party. See Georgia Pacific Consumer Products, LP, v. Von Drehle Corp., 2010 WL 3155646, *8 (4th Cir.)(defendant cannot be liable for contributory trademark infringement without corresponding direct trademark infringement), citing Inwood, 456 U.S. at 853-854; Louis Vuitton Malletier  v. Akanoc, 2010 WL 5598337 *7 (N.D. Cal.)(“Contributory trademark infringement requires that there be an underlying direct trademark infringement by a third party.”) , citing Perfect 10 v. Visa Int’l Serv. Assoc., 494 F.3d 788, 795, 807 (9th Cir. 2007); RGS Labs Int’l, Inc.v. The Sherwin-Williams Co., 2010 WL 317778, *3 (S.D.Fla.)(“a contributory infringement claim requires, at a minimum, both an allegation of a direct infringement by a third party and an allegation of an intentional or knowing contribution to that infringement by the defendant”), citing Optimum Techs. Inc, v. Henkel Consumer Adhesives, Inc. 496 F.3d 1231.1245 (11th Cir. 2007); Monotype Imaging, Inc. v. Bitstream Inc., 376 F.Supp.2d 877 , 2005 WL 1653604, *8 (N.D. Ill. 2005)(rejecting contributory liability claim where plaintiff failed to prove direct infringement); MDT Corp. v. New York Stock Exchange, 858 F.Supp. 1028, 1034 (C.D. Cal. 1994)(dismissing contributory infringement action for failure to state a claim where plaintiff conceded that no direct infringement had taken place). See also Hudson Associates Consulting, Inc. v. Weidner, 2010 WL 1946414, *14 (D.Kan.) and KMMentor, LLC v. Knowledge Mgt. Professional Society, Inc, 2010 WL 1946339, *16, n112 (D.Kan.)(related cases in which court reasoned there cannot be contributory trademark infringement without an underlying protectable trademark); and Triple-I Corp. v. Hudson Associates, Inc., 2010 WL 1979418, *15 (related case in which court granted defendant’s motion for summary judgment on contributory liability claim where plaintiffs asserted defendant supplied product to non-infringing party); Playboy Enterprises, Inc. v. Terri Welles, Inc. 78 F.Supp.2d 1066, 1099 (S.D. Cal. 1999) (where it was determined that model did not infringe trademarks in her website, claim could not be made against former and present webmasters who created or modified that website). And see John T. Cross, “Contributory Infringement and Related Theories of Secondary Liability for Trademark Infringement,” 80 Iowa L.Rev. 101, 101 n.4 (1994) (noting that courts both before and after Inwood have consistently dealt with contributory infringement as a form of secondary liability).

It is not necessary, however, for a plaintiff to bring both direct and indirect claims; rather it must demonstrate that the direct infringement did in fact occur. Thus, in the early phases of litigation, the courts have refrained from rejecting contributory liability claims based solely on the plaintiff’s failure to allege direct infringement. See, e.g., Google Inc. v. American Blind & Wallpaper Factory, Inc., 2005 WL 83298, *7 (N.D. Cal. 2005)(denying motion to dismiss, finding that plaintiff’s failure to allege that search engine company’s advertisers had directly violated trademark laws was not fatal to contributory liability claims against search engine company); Government Employees Insurance Co. v. Google, 330 F.Supp.2d 700, 704-705 (E.D. Va. 2004)(denying motion to dismiss, finding that plaintiff’s allegations that third party advertisers made “use in commerce” of the plaintiff’s trademarks by using the marks as source identifiers in the advertising links posted on the defendant search engine’s results page  were sufficient to state a claim for contributory trademark infringement); Nat’l. Fed. of the Blind, Inc. v. Loompanics Enterprises, Inc. 936 F.Supp. 1232, 1243-1246 (D. Md. 1996)(denying defendant’s motion to dismiss contributory liability claim notwithstanding that plaintiff had not yet presented any evidence of direct infringement).

In this regard, the courts have been willing, early in a case, to examine the merits of a contributory liability claim while simply assuming the direct infringement has taken place for purposes of their analysis. See, e.g., Georgia Pacific, supra at *7 (court assumed for purposes of analyzing contributory liability claim that the “stuffing” of plaintiff’s branded paper towel dispensers with the defendant’s generic and inferior paper toweling by end-user customers would constitute direct trademark infringement under the Lanham Act); Procter & Gamble Co., 317 F.3d 1121, 1129 n.5 (10th Cir. 2003)(court assumed action of defendants in disseminating Satanic message about manufacturer constituted infringing activity under the Lanham Act); MetroPCS Wireless, Inc. v. Virgin Mobile USA, L.P., 2009 WL 3075205, *15 (N.D.Tex.)(where court granted  defendant’s summary judgment motion on another basis,  it assumed for the sake of its contributory liability discussion that a reasonable jury could find direct infringement); SB Designs v. Reebok Int’l, Ltd., 338 F.Supp.2d 904, 912 (N.D. Ill. 2004)(court assumed infringement only for purposes of deciding contributory liability claim). But see, conversely, Video Professor, Inc. v. Amazon.com, Inc., 2010 WL 882646, *3 (D.Colo.)(denying plaintiff’s request to extend discovery relevant to a contributory liability claim where plaintiff had failed to include the claim in its complaint, citing Haugen as precedent for not reading such a claim into “broad allegations of a complaint for trademark infringement.”).

Notwithstanding the courts’ forbearance early on in a case, there does have to be at least a colorable claim of direct infringement on which to predicate the contributory liability claim. A tenuous underlying direct infringement claim will certainly undermine the success of a contributory liability claim, as was the case in Sony Computer Entertainment America, Inc. v. GameMasters, 87 F.Supp.2d 976, 986 (N.D. Cal. 1999), discussed supra. In that case the court denied the plaintiff’s motion for a preliminary injunction because the plaintiff had brought “scant evidence and allegations” that only stated that the defendants supplied a product that could have been used by consumers to engage in trademark infringement. And see, Lockheed Martin Corp. v. Network Solutions, Inc. 985 F.Supp.949, 964-965 (C.D. Cal. 1997)(“Contributory infringement doctrine has always treated uncertainty of infringement as relevant to the question of an alleged contributory infringer’s knowledge[]”), aff’d , 194 F.3d 980 (9th Cir. 1999).

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C. Secondary Trademark Infringement and Secondary Copyright Infringement Pleaded Together., II. Contributory Trademark Infringement 1 comment

C. Secondary Trademark Infringement and Secondary Copyright Infringement Pleaded Together

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Many cases involve the infringement of both copyright and trademark rights, both directly and indirectly. See e.g. Hard Rock Café Licensing Corp. v. Concession Services Inc., 955 F.2d 1143  (7th Cir. 1992);  Too, Inc. v. Kohl’s Department Stores, Inc. 213 F.R.D. 138  (S.D.N.Y. 2003); Microsoft Corp. v. Black Cat Computer Wholesale, Inc., 269 F.Supp.2d 118 (W.D.N.Y. 2002); Microsoft Corp. v. Grey Computer, 910 F.Supp. 1077 (D. Md. 1995). The standards for pleading both types of claims are similar, and the courts therefore will often incorporate the plaintiff’s arguments and their own analysis regarding both claims in one discussion. See, e.g. Sony Computer Entertainment America Inc., v. Gamemasters, 87 F.Supp.2d 976, 985-986 (N.D. Cal. 1999)(combining both discussions); Microsoft Corp. v. Grey Computer, supra at 1085 n.5, 1090-1091 (D. Md. 1995)(noting that it would not repeat plaintiff’s copyright arguments in its trademark infringement analysis). And see Academy of Motion Picture Arts and Sciences v. Network Solutions, Inc., 989 F.Supp. 1276, 1279-1280 (C.D. Cal. 1997) (applying the Betamax secondary copyright infringement standard to a claim for secondary trademark infringement).

Note, however, that notwithstanding their similarities, the Supreme Court has expressly distinguished the two areas of law, holding that secondary liability for trademark infringement must be drawn more narrowly than secondary liability for copyright infringement. Sony Corp. of America v. Universal Studios, Inc., 464 U.S. 417, 439 n.19, 104 S.Ct. 774, 787 (1984). See also Perfect 10, Inc. v. Visa Int’l Service Ass’n., 494 F.3d  788, 806 (9th Cir. 2007); Fonovisa, Inc. v. Cherry Auction, Inc. 76 F.3d 259, 265 (9th Cir. 1996); Am. Tel. & Tel. Co. v. & Conserve Program, Inc., 42 F.3d 1421, 1441 (3rd Cir. 1994); Hard Rock Café Licensing v. Concession Services, 955 F.2d 1143, 1150 (7th Cir. 1992);  Bangkok Broadcasting v. IPTV, 742 F.Supp.2d 1101, 1118 (C.D.Cal. 2010); Symantec Corp. v. CD Micro, Inc., 286 F.Supp.2d 1265, 1275 (D. Ore. 2003); Microsoft Corp. v. V3 Solutions, Inc. 2003 WL 22038593, *13 (N.D. Ill. 2003). And see Tiffany v. eBay, 576 F.Supp.2d 463, 510, n.37 (S.D.N.Y. 2008), affirmed in part and remanded in part, 600 F.3d 93, 108 – 109 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010)(applying the Sony Court’s interpretation of Inwood).

A failure to distinguish the two standards led to a dismissal with leave to amend in one case, see Perfect 10, Inc. v. Visa Int’l Service Ass’n, 2004 WL 1773349, *6 (N.D. Cal. 2004) (dismissing plaintiff’s contributory and vicarious trademark infringement claims with leave to amend where plaintiff mistakenly pleaded copyright infringement standards)(unpublished opinion). See also Johnson v. Jones, 885 F.Supp. 1008, 1015-1016 (E.D. Mich. 1995) (dismissing claim where plaintiff alleged contributory copyright infringement but argued violation under the Lanham Act). And see, regarding vicarious liability, Am. Tel. & Tel.  Co. v. Winback and Conserve Program, Inc., supra at 1441 (rejecting plaintiff’s vicarious liability argument based on copyright laws); Banff Ltd. v. Limited, Inc., 869 F.Supp. 1103, 1111 (S.D.N.Y. 1994)(refraining from consideration of vicarious trademark infringement liability where a fortiori, plaintiff failed to meet even stricter standard for vicarious copyright infringement).

Note further that, as to cases in which both contributory copyright and trademark infringement are pleaded together, it has been held that if a defendant infringes upon both a plaintiff’s copyright and its trademark, the plaintiff can recover both statutory damages under the Copyright Act and actual damages under the Lanham Act. See A & M Records v. Abdallah, 948  F.Supp. 1449, 1459 (C.D. Cal. 1996), citing Nintendo of America v. Dragon Pacific Int’l 40 F.3d 1007, 1011 (9th Cir. 1994); Microsoft Corp. v. Grey Computer, 910 F.Supp. 1077, 1091 (D. Md. 1995).

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