It is well settled that “[a]n action for contributory liability is not limited to a manufacturer, but may also extend to licensors, franchisers, or to similarly situated third parties.” Proctor & Gamble Co. v. Haugen, 317 F.3d 1121, 1128-1129 (10th Cir. 2003), citing AT & T v. Winback and Conserve Program, Inc., 42 F.3d 1421, 1432 (3d Cir. 1994). See also, e.g. L & L Wings, Inc. v. Marco-Destin, Inc., 676 F.Supp.2d 179, 191-192 (S.D.N.Y. 2009) (applying Inwood to impose contributory liability on landlord and management consultant). In the years following Inwood, cases began to arise in which a defendant contributed in some way to trademark infringement, but not by supplying any particular product to the direct infringer. Thus, the standard application of the Inwood test in which the court determines whether the defendant has either “intentionally induce[d] a third party to infringe the plaintiff’s mark or supplied a product to a third party with actual or constructive knowledge that the product is being used to infringe the [plaintiff’s] mark,” was inapposite. See Lockheed Martin Corp. v. Network Solutions Inc., 194 F.3d 980, 983 (9th Cir. 1999) citing Inwood Lab., Inc. v. Ives Lab., 456 U.S. 844, 853-854, 102 S.Ct. 2182, 72 L.Ed. 606 (1982).
In these situations, i.e. where the plaintiff has not alleged intentional inducement and yet cannot point to a specific “product,” a modified version of the Inwood standard has evolved, in which the court considers the extent of control the defendant has over the infringing activity. Specifically, “[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[oratories]’ ‘supplies a product’ requirement for contributory infringement.” Lockheed supra at 984 (citations omitted). Accord, Kuklachev v. Gelfman, 2009 WL 804095 (E.D.N.Y. 2009)(quoting Lockheed Martin but dismissing contributory liability claim against defendant employees who provided services to infringing show)(slip opinion); Tiffany v. eBay, 576 F.Supp.2d 463, 505 (S.D.N.Y. 2008)(quoting Lockheed Martin; dismissing contributory liability claim against online marketplace), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010); See also Louis Vuitton Malletier, S.A, v. Akanoc Solutions, 591 F.Supp.2d 1098, 1111 (N.D.Cal. 2008)(quoting Lockheed Martin , defendants’ motion for JMOL denied, 2010 WL 5598337 (N.D. Cal.).
Note that the Second Circuit has yet to definitively decide the question of whether Inwood applies in the non-product context. In Tiffany v. eBay, the court refrained from deciding the question because eBay there dropped its argument that it should not be subject to Inwood. 600 F.3d at 105-106. 600 F.3d 93, 105-106 (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). Cases following Tiffany have continued to apply Inwood in the “non-product” context. See, e.g., GMA v. BOP, 2011 WL 446196 (S.D.N.Y) (applying Inwood to a company that supplied showroom services to the fashion industry); Sellify v. Amazon, 2010 WL 4455830 (S.D.N.Y.)(applying Inwood to the online sales company Amazon); and Gucci America, Inc. v. Frontline Processing Corp., 2010 WL 2541367 (S.D.N.Y.)(applying Inwood to credit card processing companies) .
In one case, the plaintiffs argued unsuccessfully that the defendants – who had licensed their intellectual property rights in fictitious characters to others who used them to make counterfeit jewelry — had supplied an intangible “product” rather than a “service.” Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2009 WL 4857605 at *5 (S.D.N.Y) (“Nomination I”). The court disagreed, reading Inwood narrowly to require the “product” to be the actual infringing product, and applied the “direct control and monitoring” test to the “service” of supplying the intellectual property rights. Id. Though the plaintiffs’ assertions that the defendants “monitored and pre-approved” the infringing products were ultimately sufficient to allege direct control and monitoring, the court dismissed the contributory liability claim for failure to allege knowledge. Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2010 WL 4968072 (S.D.N.Y)(“Nomination II”), on review following dismissal with leave to amend in Nomination I, supra.
The plaintiffs were affiliates of an Italian jewelry manufacturer, “Nomination.” Nomination made “composable” or modular jewelry, including necklaces, bracelets, and earrings, the individual links of which could be selected by the purchaser to create a customized piece sold under the Nomination trademark. Nomination I, supra at *1. Nomination alleged contributory trademark infringement against a group of defendants in the media and entertainment industry, “the Licensor defendants” who were licensing their intellectual property rights in fictitious characters such as SpongeBob Square Pants, Betty Boop, and Popeye, to a second group of alleged direct infringers, “the Supplier defendants.” They in turn were manufacturing and distributing counterfeit jewelry links depicting these characters and bearing Nomination’s trademark. Id.
Nomination alleged that the Licensor defendants “knew or should have known at the time they entered into license agreements with the Supplier defendants, that they were contributing to” the direct infringement of Nomination’s trademark by those defendants. Nomination I, supra at *2. It alleged further that it had put “many” of the Licensors on notice that one of the Supplier defendants was using their intellectual property to infringe Nomination’s trademark, but that the infringement continued. Id. Nomination consequently sued both the Supplier and Licensor defendants, alleging, inter alia, direct and contributory trademark infringement, respectively.
Nomination’s contributory liability claim was based on the second prong of Inwood – supplying a product – which the company contended should not be limited to “physical, tangible products.” Nomination I, supra at *4, *5. The Licensor defendants argued that the plaintiffs had neither stated a contributory liability claim under Inwood nor pleaded facts sufficient to allege knowledge there under, and moved under Rule 12(b)(6) to dismiss the contributory liability claim. The court agreed, finding the plaintiffs had misapplied Inwood. It viewed the defendants’ licensing of intellectual property rights as providing a service rather than a product, and applied the “direct control and monitoring” analysis pursuant to Lockheed, supra. Nomination, supra at *5.
The Nomination I court read Inwood narrowly to require the licensor defendants to supply the actual infringing product. While the court acknowledged that Inwood should not be restricted to “physical, tangible products,” it rejected the plaintiff’s reliance on the “products vs. services” distinction as the basis for their contributory liability claim. Conflating the second prong of the Inwood test with the Lockheed “direct control and monitoring” formula, and incorporating language from Hard Rock Café, the Nomination I court inquired whether the defendant “manufactured or distributed the “instrumentality used by a third party to infringe the plaintiff’s mark or instead [did] not actually manufacture or distribute the good that is ultimately palmed off as made by someone else.” Nomination I, supra at *5, citing Lockheed Martin, 194 F.3d at 984 and Hard Rock Café, 955 F.2d at 1148 (emphasis added by the court).
However, the Supreme Court’s language in Inwood is broadly worded. The second prong of its two-part test extends contributory liability to one who “continues to supply its product to one whom it knows or it has reason to know is engaging in trademark infringement.” Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854 (1982); and see discussion in IIA. Indeed, no other court following Inwood — including ones cited by the Nomination II court — has limited the application of the Inwood standard to defendants supplying the actual infringing product. See e.g. Lockheed Martin v. Network Solutions, 194 F.3d 980, 983 (9th Cir. 1999) (“Contributory infringement occurs when the defendant … supplies a product to a third party with actual or constructive knowledge that the product is being used to infringe the service mark.“)(emphasis added); Hard Rock Café v. Concession Service, 955 F.2d 1143,1148 (quoting Inwood); Fare Deals Ltd. v. World Choice Travel.Com, 180 F.Supp.2d 678, 687 (D.Md. 2001)(“Contributory infringement occurs … when the defendant supplies a product to a third party, knowing that third party is using the product to infringe the mark.”)(emphasis added). But see Perfect 10, Inc. v.Visa Intern. Serv. Ass’n, 494 F.3d 788, 807(9th Cir. 2007)(in dicta paraphrasing the language in Inwood, the court stated that contributory liability applied where the defendant “continued to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied; the court applied the “direct control and monitoring” test and declined to extend contributory liability)(emphasis added). Furthermore, the language quoted by the Nomination I court from Hard Rock Café regarding the application of Inwood to “people who do not actually manufacture or distribute the good that is ultimately palmed off as made by someone else” is arguably dicta. For a contributory liability case involving a product other than the actual infringing product see A &M Records v. Abdallah, 948 F.Supp.1449 (C.D.Cal. 1996)(defendant supplied blank audiotapes and duplicating equipment to others who ran audiocassette counterfeiting businesses utilizing the tapes and equipment).
The Nomination I court’s comparison of this case to Fare Deals is also hard to follow, because while the defendants in both cases had licensing arrangements with the direct infringer, the similarity ends there: In Nomination I (and II), the licensing was the means by which the defendant supplied the direct infringer with its intellectual property, an intangible product, which in turn became a component of the infringing product. In Fare Deals, by contrast, the licensing was part of the agreement under which the defendant posted advertisements on the infringing website. As the Nomination II court itself noted, the defendant’s role in Fare Deals was “incidental.” See Nomination II at *5, discussed infra.
The Nomination I court nonetheless concluded that the “product” that was infringed, i.e., the counterfeit jewelry links, was analogous to the infringing website in Fare Deals Ltd. v. World Choice Travel.com, Inc., 180 F.Supp.2d 678 (D.Md. 2001), discussed fully in Section II.D.2.(b), infra. In Fare Deals, the plaintiff travel service company discovered that its name had been taken by a competing business as the domain name for its website. It sued the website owners and their advertisers whose links appeared on the site, alleging, inter alia, contributory trademark infringement. The Fare Deals court dismissed the claim, because under the allegations, the defendant “merely licensed it own mark to the alleged direct infringer.” Nomination I, supra at *6, citing Fare Deals, supra. Similarly, the court in Nomination reasoned, “the Licensor Defendant did not distribute or manufacture the “product,” [i.e. the jewelry links] but merely leased their own mark to the Supplier Defendants.” Nomination I, supra. It would seem, though, notwithstanding that both cases involve licensing of intellectual property, that the defendants in Nomination I are fundamentally distinguishable from the defendants in Fare Deals: The intellectual property rights to the cartoon characters were an integral, albeit intangible, component of the infringing jewelry while the advertisements on the websites were not integral to that site itself. See Fare Deals, supra at 689 -690, discussing the non-essential nature of the defendant’s advertising to the operation of the infringing website.
Still, convinced that the defendants had supplied a service rather than a product, the Nomination I court applied Lockheed to determine whether the licensor defendants engaged in “direct control and monitoring of the [bracelet links] used by the [Supplier Defendants] to infringe the plaintiff’s mark.” Nomination I, supra at *6, citing Lockheed Martin at 984. Here the court found the complaint deficient, because the plaintiffs alleged only that the licensor defendants “carefully control and monitor the licensing of their respective intellectual property [rights].” Nomination I, supra at*6. Their actions regarding their own marks, the court reasoned, did not “entail that they also monitor and control the manufacture and distribution” of the infringing products. Id. Although the plaintiff did allege further that the licensor defendants were involved in the “development, promotion, and sale” of the infringing jewelry, such allegations were too conclusory to survive the motion to dismiss. See Id. The court therefore dismissed the plaintiffs’ contributory liability claim with leave to amend, and required the plaintiffs to allege facts constituting direct control and monitoring of the infringing product, i.e. the counterfeit jewelry. See Nomination I at *5 -*6.
Responding to the court’s directives, Nomination augmented its contributory liability allegations to reflect the extent of the defendants’ alleged participation in the production of the counterfeit jewelry. Nomination II at *4 – *5. Specifically, it alleged that the Licensor Defendants “entered into contracts [with the Supplier defendants] reflecting a concern that their intellectual property not be used on infringing products and providing for ongoing monitoring of such products. Id. at *4. It alleged further that the Licensor Defendants exercised their rights of pre-approval and monitoring. Id. It appended these agreements to the complaint to show that they provided for the licensor defendants “to receive production samples and purport to require advance approval of the final product.” Id. Approval forms were also annexed to the complaint to indicate that the Licensor Defendants in fact “reviewed and approved final product designs.” Id.
These amended allegations were sufficient to show direct control and monitoring to sustain a claim of contributory liability against the Licensor Defendants, the court found in Nomination II. Maintaining its view that provision of an intellectual property license is a “service,” it noted, as a preliminary matter, that the Second Circuit has yet to definitively decide that Inwood governs in the service context. See Nomination II at *3 citing Tiffany v. eBay, 600 F.3d 93 (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), where the court applied Inwood without making the determination because the defendant did not contest it. In reaching its decision the court distinguished the Licensor defendants from the advertisers in Fare Deals, noting that the Licensor defendants’ conduct was “more than merely incidental to the alleged infringement.” Id.
The Nomination II court also compared the Licensor defendants to the credit card companies in Gucci America, Inc. v. Frontline Processing Corp., 2010 WL 2541367 (S.D.N.Y.) discussed at II.D.3, noting that it was the “combination” of the defendants’ intellectual property rights and the infringing links that “allowed the infringement to succeed.” Nomination II at *5. Significantly, it noted that “the infringing links were not marketed simply as a “Nomination Link” but rather as for example a “Dora the Explorer Nomination link or “SpongeBob Squarepants Nomination link.” Id. The “prominent role” played by the Licensor defendants’ intellectual property,” coupled with the allegations that the defendants “monitored and pre-approved the infringing products,” were sufficient to allege contributory liability. Id. The court, however, ultimately found that the plaintiff had still failed to adequately plead knowledge, and dismissed the plaintiff’s contributory liability claim. Id. at *6 and see II.B.3.(a)
Note that the requirements that a defendant (1) “monitor and control” the instrumentality of the alleged infringement and (2) that the defendant have actual or constructive knowledge of the alleged infringement, are closely related. One court has implied that they overlap. See Government Employees Insurance Co. v. Google, Inc., 330 F.Supp.2d 700, 705 (E.D. Va. 2004), discussed infra, where the court found that the claim by the plaintiff that the Internet marketing company Overture monitored and controlled third-party advertisements was sufficient to plead the actual or constructive knowledge required to allege contributory infringement.
There is no particular precedent for combining the two requirements, however. On this point, one court has explicitly required that each be proved independently of one and other. See Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180 F.Supp.2d 678, 691 (D. Md. 2001), discussed infra, where the court found that “[e]ven if the facts suggested … that [the defendant] might be contributorily liable because it “supplied a product” to the infringers or directly controlled and monitored the means of infringement, [the defendant could not] demonstrate the requisite knowledge of the infringing activity to find it liable under Inwood Laboratories.” The court in Fare Deals expressly required that the plaintiff “prove both that [the defendant] directly controlled and monitored the activities of the [plaintiff’s] site and that [the defendant] had actual knowledge of the infringement.” Fare Deals, supra at 697, citing Inwood. (Emphasis added). Notwithstanding the court’s language in the GEICO case, supra, it would seem that the court still must make two separate inquiries in a “non-product” contributory liability case: one as to whether a defendant “monitors and controls” the instrumentality of infringement and the second, as to whether a defendant has actual or constructive knowledge of that infringement. For other cases in which the two elements are analyzed separately, see Gucci America, Inc. v. Frontline Processing Corp., 2010 WL 2541367 *13 -*16 (S.D.N.Y); and Tiffany v. eBay, 576 F.Supp.2d 463, 506-507, 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).
This section will discuss both the evolution of the “monitoring and control” test and its application in various contexts. The first cases to extend Inwood involved actions against flea market owners. See Fonovisa, Inc. v. Cherry Auction, Inc. 76 F.3d 259 (9th Cir. 1996); Hard Rock Café Licensing Corp. v. Concession Serv., Inc. 955 F.2d 1143, 1149 (7th Cir. 1992), discussed infra. In these cases the court viewed the defendants as a type of landlord subject to contributory liability by way of common law tort principles. Thereafter the Ninth Circuit examined a claim of contributory liability against an Internet domain name registrar in Lockheed Martin Corp. v. Network Solutions, Inc., supra. Drawing on the court’s discussions in Hard Rock Café and Fonovisa, the court declined to extend contributory liability in this case. In reaching its decision, however, it articulated the foregoing “monitoring and control” standard that has been re-applied in many other cases of contributory liability on the Internet. See, e.g. Tiffany v. eBay, 576 F.Supp.2d 463, 506 (S.D.N.Y. 2008) (adopting Lockheed Martin analysis to apply Inwood to eBay, the online auction site), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). These cases, as well as those arising in other contexts, are discussed below.