(b) Internet Websites, 2. Internet Activity, D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test., II. Contributory Trademark Infringement Comments Open

D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (b) Internet Websites

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The Lockheed formula has been applied to subsequent contributory liability claims arising out of various other Internet activities. Thus, to hold a defendant liable for contributory infringement on an Internet website, a plaintiff must prove both that it directly controlled and monitored the activities of the infringing website, and that the defendant had actual or constructive knowledge of the infringement. Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180 F.Supp.2d 678 (D.Md. 2001).

Note that a plaintiff alleging contributory liability in connection with the sale of counterfeit goods on a website need not show that a defendant has “the ability to literally shut down the website” the court held in Gucci America, Inc. v. Frontline Processing Corp., 2010 WL 2541367, *16 (S.D.N.Y.).  In that case the court  held that if the website were “functionally dependent” on the defendant credit card processing  companies’ services, that allegation “would be sufficient to demonstrate the control needed for liability.” Id. Gucci is discussed in greater detail in Sections II.B.1. and II.D.3.

By contrast, advertisers who merely posted banner ads and links to their sites on an allegedly infringing website could not be held contributorily liable for such infringement, the court held in Fare Deals, supra. In Fare Deals, the plaintiff corporation, “Fare Deals,” operated a business providing travel services, primarily by arranging transportation reservations and tours for its customers. It had used the FARE DEALS mark in connection with its business and applied for registration of the service mark “Fare Deals Ltd.” several years prior to filing its lawsuit, though registration did not issue until approximately one month thereafter.  When it began to develop a website to promote its business, it discovered that the domain name <faredeals.com> had already been registered to another party to sell on-line travel services. Fare Deals, supra at 680.  The plaintiffs subsequently discovered links from the <faredeals.com> website to the defendants “Hotwire” and Hotel Reservations Network, Inc. (“HRN”). By clicking on a Hotwire banner ad posted on the site and linked to Hotwire’s web site, customers could make airline reservations and purchase airline tickets from Hotwire. Similarly, a link to HRN posted on the site allowed customers to go to its website to book hotel reservations.

Fare Deals alleged that the owners of the <faredeals.com> website and its advertisers, HRN and Hotwire, had agreed to divide up proceeds of sales made at the HRN and Hotwire websites. It sued both the website owners and the two advertisers, alleging, inter alia, contributory trademark infringement by the two advertisers. Both HRN and Hotwire moved to dismiss, arguing that Fare Deals had failed to state a valid claim for contributory liability. Id. at 681, 687-691, 696-697.

The court agreed, relying upon the principles for Inwood’s application outside the manufacturer-distributor context articulated in the Lockheed Martin-Fonovisa-Hard Rock Café line of cases. It acknowledged at the outset that “[c]ontributory infringement occurs in either of two circumstances: when the defendant intentionally induces a third party to infringe the plaintiff’s mark, or when the defendant supplies a product to a third party, knowing that third party is using the product to infringe the mark.” Fare Deals, supra at 687-688, citing Inwood Labs., Inc., 456 U.S. at 854, 102 S.Ct. 2182. Since Fare Deals claimed only the latter basis for contributory infringement, it was required to prove that HRN and Hotwire supplied a product to the <faredeals.com> website owners with actual or constructive knowledge that its product was being used to infringe the “Fare Deals” mark. See Fare Deals, supra at 687-688 and 697. The “product” paradigm in Inwood, however, was inapposite in Fare Deals, as no actual product was involved. The court therefore turned to the line of cases applying Inwood outside of the “product” context.

Specifically, the court relied upon the Ninth Circuit’s formula articulated in Lockheed Martin, supra in the which court concluded 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[oratories]’ ‘supplies a product’ requirement for contributory infringement.” Lockheed, supra at 984, cited in Fare Deals, supra at 689.

The Fare Deals court found that HRN was like the domain name registrar, NSI, in Lockheed Martin. Namely, it “neither provided a product to the owners or operators of the <faredeals.com>web site nor directly controlled and monitored the site in a manner sufficient to justify expansion of the “supplies a product” requirement to include HRN’s activity.” Fare Deals, supra at 689. Moreover, it had no authority to control the operations of the <faredeals.com> web site. Id. The fact that it had licensed its own mark to the alleged direct infringer did not place on HRN a duty to prevent the infringer’s use of its mark. Id, citing Mini Maid Serv. Co. v. Maid Brigade Sys., Inc. 967 F.2d 1516, 1520 (11th Cir. 1992), discussed infra.  See also, Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2009 WL 4857605, *6 (S.D.N.Y)(analogizing contributory liability claim against licensor to claim against the advertisers in Fare Deals ).

Moreover, unlike the flea-market owners in Hard Rock Café and Fonovisa, HRN was not critical to the viability of the allegedly infringing web site, the court concluded. It had not actively support the allegedly infringing business, having neither steered customers toward the website nor promoted it in any way. See id. at 689.  Whereas the flea-market operators had provided the “very medium” through which the infringing vendors conducted their businesses[,]” even if HRN severed its link to the site, the alleged infringement could continue. Id. at 690.

The Fare Deals plaintiff also failed to demonstrate that HRN had the requisite knowledge to impose contributory liability under the Inwood standard, failing to show it had any kind of notice prior to receiving the plaintiff’s demand letter. Fare Deals, supra at 690. Notwithstanding that the letter may have imposed an obligation on the part of HRN to investigate the site, the court found that the letter did not obligate HRN to terminate the link to the site. It concluded that the conduct of HRN following the receipt of the demand letter could not as a matter of law be deemed willful blindness. The court therefore granted HRN’s motion to dismiss. Willful blindness is discussed in detail, supra.

For similar reasons, as to the second advertiser, the Fare Deals court found that Hotwire could not be found contributorily liable for the alleged trademark infringement on the <faredeals.com> site. Again turning to the principles in the Lockheed Martin-Hard Rock Cafe-Fonovisa line of cases, the court found that Hotwire “simply did not control and monitor the [site] to such an extent as to impose upon it any contributory liability.” Id. at 696-697. As to whether Hotwire had the requisite actual or constructive knowledge, again the only type of notice Hotwire had was two letters from the plaintiff. The first was a letter accusing Hotwire of having registered the <faredeals.com> domain name. The second, dated one week later, was a demand letter. As was the case for HRN, the court found that while the demand letter may have imposed a duty to investigate on Hotwire, it did not obligate Hotwire to sever its link to the web site. (See supra for a full discussion of willful blindness.) It therefore granted Hotwire’s motion for summary judgment. Id. at 697.

Similarly, mere association with an allegedly infringing website, without more, has been found to be insufficient to impose contributory liability on a non-infringing third party. There must be evidence that the third party controlled and monitored the contents of the website to justify an extension of the contributory liability doctrine beyond the manufacturer-distributor context set forth in Inwood. See SB Designs v. Reebok Int’l., Ltd., 338 F.Supp.2d  904 at 913 (N.D. Ill. 2004), citing  Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999), for the suggestion that contributory liability theory could be applied to the Internet if there were evidence of monitoring and control.

In SB Designs, supra, the plaintiff “SB Designs” owned the CROSSOVER KING registered trademark for basketball apparel. The trademark consisted of the image of a male basketball player performing a “crossover” dribble with a moving ball image and the trade name “CROSSOVER KING” underscoring the logo. SB Designs, supra at 906. In the years prior to filing their complaint, SB Designs contacted the defendant Reebok, the manufacturer of athletic shoes, on a number of occasions to pitch the CROSSOVER KING concept. Reebok had an endorsement agreement with the professional basketball player Allen Iverson, and SB designs had hoped that Reebok would use the CROSSOVER KING concept in conjunction with its Allen Iverson apparel. SB Designs, supra at 906.   Although Reebok executives initially had a number of meetings and correspondence with the plaintiff, they ultimately declined interest and broke off contact. SB Designs, supra at 906-907.

Subsequently, the plaintiffs claimed to have seen a number of Reebok television commercials as well as various third-party Internet websites that infringed on their CROSSOVER KING trademark. They therefore sued Reebok for both direct and secondary trademark infringement under the Lanham Act, claiming inter alia, contributory liability for the alleged infringement on the third-party websites. Vicarious liability is discussed in detail infra.

The plaintiffs’ contributory liability claim largely focused on the website of Crossover Promotions, Iverson’s promotional company. Specifically, they claimed that Reebok sponsored the website and that “Crossover Promotions [was] actively attempting to position and promote Iverson as the so-called ‘Crossover King.’” Id. at 907.  In addition, they stated a general claim that there were “other websites contain[ing] material that infringed the CROSSOVER KING marks.” Id. at 908.  Reebok responded with a motion to dismiss, which the court ultimately converted to a summary judgment motion and granted.

Most of the plaintiffs’ claims against the Crossover Promotions website were not related to infringing products allegedly supplied by Reebok. SB Designs, supra at 912-913. Rather, they claimed that the website displayed Crossover Promotions’ allegedly infringing mark. They further claimed that Reebok sponsored the Celebrity Summer Classic tournament, which was advertised on the Crossover Promotions website with the same mark. They pointed out that Reebok’s “RBK” logo appeared on the website, indicating its sponsorship. Id. Reebok conceded that it sponsored the event and that in addition, it supplied shoes and apparel for the tournament. The plaintiffs, however, adduced no evidence that these Reebok products infringed their trademark. Since Reebok was not alleged to have supplied any infringing products, at issue was whether the court should extend the Inwood Laboratories standard beyond the manufacturer-distributor context as the Seventh Circuit had done in Hard Rock Café, 955 F.2d 1143 (7th Cir. 1992).

The court refused to do so, noting that the Seventh Circuit’s expansion of the “product” requirement for contributory infringement was much more limited than the plaintiffs would have it. Specifically, the court rejected the plaintiff’s argument that “a non-infringing supplier is contributorily liable if the product it supplies is associated in some way with an infringing product that the supplier did not supply.” Id. It also rejected their assertion that “the sponsors of an event who supply products for the event, without more, are contributorily liable for infringement committed by the event’s promoters or organizers.” Id.

Furthermore, the court noted that the Seventh Circuit’s expansion of contributory liability “was premised on a defendant’s direct control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark.” Id, citing Hard Rock Café, 955 F.2d at 1149 and Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999).  Reebok, however, maintained that it exercised no control over Crossover Promotions’ conduct or materials, which the plaintiffs could not disprove. The court therefore granted summary judgment. SB Designs, supra at 913.

As to the remaining third-party websites, the court also granted Reebok’s summary judgment motion, for even more fundamental reasons. The plaintiffs simply failed to explain how those websites infringed their mark, referring only to fan messages and postings or the mere sale on one of the websites of Reebok apparel. See id. at 913-914. Moreover, they had presented no evidence that Reebok had even sponsored or was in any way associated with any of the websites. Nor had they shown that Reebok supplied any products sold or displayed on any of the websites. Their arguments for contributory liability therefore similarly could not survive summary judgment. Id. at 914.

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(c) Search Engine Companies, 2. Internet Activity, D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test., II. Contributory Trademark Infringement Comments Open

D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (c) Search Engine Companies

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When courts consider search engine company liability for trademark infringement, whether direct or indirect, they typically focus on the sale of “trademarked” keywords, or search terms, to third parties for use in advertising and directing internet traffic to websites that compete with the trademark owner. See e.g., Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009) (search engine company’s use of plaintiff’s mark constituted a use in commerce), vacating and remanding, 456 F.Supp.2d 393 (N.D.N.Y 2006); and see, Google Inc. v. American Blind & Wallpaper Factory Inc., 2005 WL 832398 (N.D. Cal. 2005); Government Employees Ins. Co. v Google, Inc., 330 F.Supp.2d 700, 704-705 (E.D. Va. 2004) (“GEICO”), discussed below. If such use were itself infringing, contributory liability would arise out of the search engine company’s role in selling the infringing keywords to third parties.

Contributory liability under Inwood may also extend to a search engine company, it has been argued, if the company knowingly continued to supply its services to an infringing third party. Rosetta Stone Ltd. v. Google Inc., 2010 WL 3063152, *13 – *14 (E.D. Va.).This was the basis for liability urged unsuccessfully by the luxury jewelry company Tiffany in its suit against the online sale site eBay. See 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). The Rosetta Stone court drew extensive comparisons between the two cases in reaching its decision. (Tiffany is discussed in detail in Section II.B.3.(a))

In Rosetta Stone, where the plaintiff language-learning company argued both theories of liability against the search engine Google, the court declined to find contributory liability under either approach, ruling in favor of Google on a motion for summary judgment on the claim. Rosetta Stone, supra at *14 (E.D. Va.). In doing so, however, the court limited its ruling to “advertisers selling counterfeit Rosetta Stone products,” leaving the precedential value of the opinion unclear. Id. at *13.

The dispute in Rosetta Stone arose out of Google’s “AdWords Propram,” an “auction-style advertising program that displays advertisements to users of Google’s search engine in the form of Sponsored Links.” Rosetta Stone, supra at *3.  With the AdWords Program, advertisers can use Google to cause a Sponsored Link to their website to appear whenever a user searches on Google for certain keywords. Prospective advertisers can select keywords they choose themselves or from a list provided by Google. Id. Lists of keywords provided by Google are “filtered” by Google to remove “trademarked” terms for which Google has received a complaint. Id.

At the time of the litigation, Google’s AdWords policy expressly allowed a given keyword to be used both as a trigger to a Sponsored Link advertisement and as part of the advertisement itself. Rosetta Stone, supra at *4. More fundamentally, Google’s policy permitted not only the brand owner and its authorized licensees, but also other advertisers to include another’s trademark-protected term in their advertisement text under certain, non-infringing conditions. See Id. To address fraud and counterfeiting associated with its AdWords Program, Google had created a “Trust and Safety Team.” Rosetta Stone, supra at *4. The Trust and Safety Team responded to “notices of counterfeit advertisements on Google’s website and [took] down any advertisements confirmed to violate its AdWords Program.” Id.

Notwithstanding Google’s internal policing, Rosetta Stone asserted that some advertisers were able to beat the system and create Sponsored Links that “deceive[d] and misdirect[ted] Google’s users to websites that [sold] counterfeit Rosetta Stone products or suggest[ed] to consumers a connection to Rosetta Stone that [did] not exist.” Id. It therefore sued Google, alleging, in addition to direct infringement, both contributory and vicarious trademark infringement. (The vicarious liability discussion appears in Section III.)

In support of the contributory liability claim, Rosetta Stone argued the two theories of infringement outlined above, tracking the two-prong test under Inwood. (See Section II.B. for a full discussion of the Inwood test.) Thus, as to intentional inducement, Rosetta Stone contended that Google’s practice of including brand names as suggested keywords “directly induce[d] advertisers to infringe on Rosetta Stone’s marks.” Rosetta Stone, supra at *13.

Secondly, Rosetta Stone argued that “by allowing counterfeiters to open AdWords accounts and bid on Rosetta Stone Marks, despite receiving notice of their counterfeit status, Google [was] supplying a service to those it [knew] or ha[d] reason to know [were] engaging in trademark infringement.” Rosetta Stone, supra. To demonstrate Google’s knowledge of ongoing infringement, Rosetta Stone pointed to an admission by Google in its Registration Statement filed with the Securities and Exchange Commission acknowledging that as a result of its policy allowing the purchase of trademark-protected keywords, it could be subject to more trademark infringement lawsuits. Id. at *4 and *13. It pointed furthermore to “approximately 200 instances of Sponsored Links advertising counterfeit Rosetta Stone products[,]” and asserted that even after being notified about the counterfeit websites involved, “Google continued to allow Sponsored Links for other websites by these same advertisers to use the Rosetta Stone Marks as keyword triggers and in the text of their Sponsored Link advertisements.” Id. at *13.

The court rejected both of Rosetta Stone’s arguments. Applying Inwood, it reiterated that

 

[t]o prevail on a contributory trademark infringement claim, a plaintiff must show that the defendant “intentionally induces another to infringe a trademark, or [] continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement…”

Rosetta Stone, supra, citing Inwood Labs., Inc.v. Ives Labs., Inc., 456 U.S. 844, 854 (1982). It recognized further the application of the Inwood test beyond manufacturers and distributors, to service providers who “exercise sufficient control over the infringing product.” Id., citing Tiffany v. eBay, 600 F.3d 93, 104 (2d Cir. 2010) and Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999).

As to intentional inducement, the court disagreed with Rosetta Stone’s stance on Google’s program regarding keywords, reasoning that “the mere existence of a tool that assists advertisers in optimizing their advertisements does not, in itself, indicate intent to induce infringement.” Rosetta Stone, supra at *14. Because Google’s policy could be attributed to “good business practice” rather than intent to induce infringement, the court declined to extend contributory liability based on this theory, concluding that “[a] desire for economic gain alone does not translate into contributory trademark infringement.” Id. Note that the court did not elucidate at this point whether it referred to the infringement arising out of the use of the trademark-protected keywords, or that associated with websites selling counterfeit Rosetta Stone products. See Id.

The court drew heavily on the Second Circuit’s reasoning in Tiffany v. eBay to reject Rosetta Stone’s second argument, finding that it failed to show that Google knew or had reason to know that it was supplying its services to parties engaging in trademark infringement. Rosetta Stone, supra at *14, citing 600 F.3d 93, at 107-109 (2d Cir. 2010), affirming in part and remanding in part, 576 F.Supp.2d 463 (S.D.N.Y. 2008), discussed in detail in Section II.B.3.(a). In Tiffany, “eBay’s generalized knowledge of infringement” on its website was insufficient to impose contributory liability on eBay. Id. Compared to eBay, the court reasoned, Google had been presented with even fewer notices of infringement. It therefore declined to find the “specific” knowledge required by the court in Tiffany. Id. Additionally, the court noted with approval Google’s own internal policing procedures regarding advertisements for counterfeit goods, acknowledging that “Google [had] worked closely with law enforcement and brand owners to combat counterfeiting because it [knew] that those advertisements [could] create a bad experience for  web users, who Google ultimately reli[ed] on for its business.” Id. Comparing the two cases further, the court observed that like eBay, Google was in no position to determine which websites were selling counterfeit Rosetta Stone products. Rosetta Stone thus failed to convince the court to extend contributory liability based on the “continues to supply” argument under Inwood. Id.

In finding that Rosetta Stone had not met its burden of showing that summary judgment was proper as to the contributory trademark infringement claim, the court’s language left unclear what its conclusions were regarding Google’s liability for the sale of trademark-protected keywords to competitors who were not necessarily counterfeiters. See Rosetta Stone, supra at *13 -*14. Specifically, it found that “no reasonable trier of fact could find that Google intentionally induce[d] or knowingly continue[d] to permit third party advertisers selling counterfeit Rosetta Stone products to use the Rosetta Stone Marks in their Sponsored Link titles and advertisement text.” Id. at *13. If indeed the court intended to limit its holding to direct trademark infringement arising out of counterfeit websites, then it is not obvious how or whether its decision would apply to the scenarios presented in the cases of GEICO and American Blind, infra. In these two earlier cases, the courts left open the possibility that search engine operators who use third parties’ trademarks might, in appropriate circumstances, bear contributory liability for trademark infringement arising out of those advertisements. Google Inc. v. American Blind & Wallpaper Factory Inc., 2005 WL 832398 (N.D. Cal. 2005); Government Employees Ins. Co. v Google, Inc., 330 F.Supp.2d 700, 704-705 (E.D. Va. 2004) .

GEICO, supra, was a case of first impression in which the insurance company GEICO sued Google and Overture (an Internet marketing company) for using GEICO’s trademarks to sell advertising.  GEICO alleged, inter alia, that the defendants were contributorily liable for the paid advertisements which contained GEICO’s marks in their text and were generated by customers who selected those terms when conducting a search.  The defendants moved to dismiss the case for failure to state a claim, but the court refused, permitting the case to go forward on the issue of contributory liability.

Specifically, GEICO claimed that the defendants’ contributory liability arose “when the advertisers themselves [made] use of the GEICO marks by incorporating them into the advertisements, which [were] likely to deceive customers into believing that the advertisers provide[d] accurate information about GEICO.” GEICO, supra 704. It further alleged that the defendants exercised significant control over the content of those advertisements. Id.  The court found that these allegations were sufficient to support a claim of contributory infringement. See id.

Furthermore, regarding Overture, GEICO had alleged that that company “encourage[d] advertisers to bid on trademarked words, and monitor[ed] and control[led] the allegedly infringing third-party advertisements.” GEICO, supra at 705. Apparently referring to its internal trademark policing policy, Overture argued that “its monitoring [was] intended to prevent, not encourage, trademark infringement.” Id. This argument, the court noted, raised a disputed fact that could not appropriately be resolved by a motion to dismiss. Id.  Moreover, and of potentially critical importance, the claim by GEICO that Overture monitored and controlled the third-party advertisements was sufficient to plead the actual or constructive knowledge required to allege contributory infringement. Id. (citations omitted). For a discussion of whether the “knowledge” requirement ought to be subsumed properly by the “monitoring and control” requirement, as the court appears to suggest here, see discussion at supra.

In a similar case, Google Inc. v. American Blind & Wallpaper Factory Inc., 2005 WL 832398 (N.D. Cal. 2005), Google sought a declaratory judgment from the court that its “AdWords” advertising program, described above, did not infringe on the defendant’s trademarks. The defendant, American Blind, made a motion to dismiss, which was denied. It then answered and responded with counterclaims for both direct and indirect infringement of its trademarks against not only Google, but also against various other companies that operate web sites that included an Internet search engine. Those companies, including “Ask Jeeves,” Earthlink, AOL, Netscape and Compuserve, paid Google to access its Web-searching platform, thus yielding similar results to those displayed by Google. See Google, supra at *3. The defendants then moved to dismiss American Blind’s counterclaims.

American Blind’s counterclaims for contributory trademark infringement centered on Google’s “Adwords” program. Through this program, American Blind contended, Google had sold to American Blind’s competitors, “keywords” that included in some form the American Blind trademarks, including AMERICAN BLIND, AMERICAN BLINDS, and AMERICANBLINDS.COM, which sales had proceeded over its objection. Id. at *2. American Blind specifically fingered Google’s “Adwords Keyword Suggestions” feature, through which Google actively encouraged its competitors to purchase as keywords not only the American Blind trademarks but also “every conceivable” variation thereon. See id. Thus “an advertiser who is considering purchasing the keyword “American Blind” is encouraged also to purchase the keywords “American blinds,” “American blinds and wallpaper,” and “american blinds and wallpaper factory,” among others.” Id. It noted that Google even had a name for this practice, in its case, “the American Blind optimization campaign” Id. It further contended that although Google had the capacity to block the purchase of its marks, it had, pursuant to a major shift in its trademark policy, made a conscious decision “not to disable Sponsored Links when advertisers have purchased keyword triggers that are trademarked terms.”  Id.

Based on the above practices, American Blind alleged that Google had induced its competitors to purchase the American Blind marks as keywords and had refused to block its competitors’ advertisements resulting from searches for those marks, notwithstanding their knowledge that such advertisements infringed on the marks. See id. at *7, n.27. It bears noting, in this regard, that American Blinds apparently argued for a direct application of Inwood, i.e., inducement, as opposed to an application of Inwood in the non-product context. Google argued, in response, that American Blind had failed to allege the requisite “use” of its marks, in this case by the defendant’s advertisers themselves. See id. at *7. Specifically, Google contended that “because their advertisers are alleged to use the American Blind Marks only as a trigger for the display of their advertisements and not as an identification of the source of  their products, they [did] not engage in trademark ‘use’ of the American Blind Marks[.]” Such a failure to allege a direct infringement of its trademark rights, Google argued, defeated its contributory liability claim. Id.

The court disagreed, rejecting Google’s motion to dismiss and allowing the contributory trademark infringement claim to go forward. Drawing on its earlier analysis regarding American Blind’s claims of direct trademark infringement, see id. at *4 – *7, the court was not convinced, given the unsettled nature of the law,  that the purchase of trademarks as keywords did not constitute trademark “use” by Google’s advertisers. Id. at *7.  Compare Google v. American Blind with 1-800 Contacts v. Lens.com, 755 F.Supp.2d 1151, 1174 (D. Utah 2010), where the court held that “the mere purchase of a trademark as a keyword cannot alone result in consumer confusion” and therefore was non-infringing. Citing the liberal legal standard regarding motions to dismiss, which are viewed by the courts with disfavor, see Id. at 3, the court concluded that American Blind had made sufficient allegations regarding both direct and contributory liability that it did not appear “beyond doubt” that American Blind could prove no set of facts in support of its claims that would entitle it to relief. Id. at *7.  For further discussion regarding the extent to which a plaintiff must demonstrate direct trademark infringement in order to bring an action for contributory trademark infringement, see discussion at II.B.5.

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(d) Internet Service Providers, 2. Internet Activity, D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test., II. Contributory Trademark Infringement Comments Open

D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (d) Internet Service Providers

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Courts have suggested that internet service providers (ISPs) may, in appropriate circumstances, bear contributory liability for trademark infringement by the websites or other end users they service.  See Lockheed Martin Corp. v. Network Solutions, Inc., 985 F.Supp. 949, 962 (C.D. Cal. 1997) (dicta), aff’d, 194 F.3d 980 (9th Cir. 1999); Gucci America, Inc. v. Hall & Associates, 135 F.Supp.2d. 409, 416 (S.D.N.Y. 2001) (citing Lockheed, supra).  ISPs offer a range of services, and their liability will turn on the extent of their involvement with infringing customers.  See, e.g. Symantec Corp. v. Logical Plus, Inc., 2009 WL 3416178, *7 – *8  (N.D.Cal.) (rejecting plaintiff’s motion for summary judgment on its contributory liability claim where plaintiff failed to allege or prove the defendant had any role in the direct infringer’s sale of its counterfeit software beyond providing it with an email account); Louis Vuitton Malletier, S.A. v. Akanoc Solutions, 591 F.Supp.2d 1098, 1112 (N.D. Cal. 2008)(distinguishing facts in Lockheed and likening defendant ISPs to the flea market operators in Fonovisa), defendants’ motion for JMOL denied, 2010 WL 5598337 (N.D. Cal.). See also Perfect 10, Inc., v. Cybernet Ventures, Inc., 213 F.Supp.2d 1146, 1188 (C.D. Cal. 2002), a copyright and trademark infringement suit brought by an adult magazine seeking a preliminary injunction against an internet age verification service. In that case, regarding the contributory trademark infringement claims, the court applied the “non-product” contributory liability analysis articulated in Lockheed, supra, 194 F.3d 980, 984 (9th Cir. 1999), but found that the plaintiff failed to establish the defendant’s knowledge of the trademark infringement.

Where the defendants operated server equipment that hosted infringing websites, the court upheld a jury verdict finding the web hosting company and its owner liable for contributory trademark infringement and awarding the plaintiff statutory damages. Louis Vuitton Malletier v. Akanoc, 2010 WL 5598337 (N.D. Cal.), denying the defendants’ motion for a new trial. Akanoc arose out of the sales of counterfeits of plaintiff Louis Vuitton’s luxury goods on websites serviced by the defendants. Louis Vuitton was able to trace those websites to the defendants. After several rounds of letters and take-down notices, Louis Vuitton finally filed suit against the company that owned the servers (“Managed Solutions”), the company that operated them (“Akanoc”), and the individual who was the general manager and sole owner of both corporate defendants. It alleged both contributory and vicarious trademark infringement liability against the defendants for their role in providing services to the infringing websites.

The defendants had earlier moved to dismiss both claims and the court granted the motion with regard to the vicarious liability claim but refused on the contributory liability claim. (The vicarious liability claims are discussed in Sec. III, infra.) The defendants argued, among other things, that under Lockheed Martin, they were not required to “monitor the internet.” Louis Vuitton Malletier, S.A. v. Akanoc Solutions, 591 F.Supp.2d 1098, 1112, citing Lockheed, 194 F.3d at 985.

The court rejected their argument, because the services they provided involved them more closely with their customers’ activities than those provided by the internet service provider (“ISP”) in Lockheed Martin. That ISP “merely provided a “rote translation service,” by which the defendant translated domain names into IP addresses.” Akanoc, supra at 1112, citing Lockheed Martin. In Akanoc, however, the ISPs “physically host[ed] websites on their servers and route[d] internet traffic to and from those websites.” Id. This service, the court held, was “the Internet equivalent of leasing real estate[,]” just as the flea market owners had provided in Fonovisa. (Fonovisa is discussed in detail in Section II.D.1(b).) Taken together with the defendants’ ability to remove infringing websites, the defendants’ activities “entail[ed] a level of involvement and control that [went] beyond “rote translation.”” Akanoc, supra at 1112, citing Lockheed Martin. The court therefore sustained the contributory liability claim against them.

At trial, the jury returned a verdict finding, among other things, that each defendant was liable for contributory trademark infringement of 13 of the plaintiff’s marks. (The jury award of $10.5 million per defendant is discussed in detail at Section IV.A.) The defendants thereafter both moved for a renewed judgment as a matter of law (“JMOL”) as to contributory trademark infringement and filed a motion for a new trial. Louis Vuitton Malletier v. Akanoc, 2010 WL 5598337 *1 (N.D. Cal.)(The plaintiff’s motion for injunctive relief is discussed below in Section IV.B.) In support of their motion, the defendants argued that the evidence was insufficient to show both that the defendants knew of the direct infringement and that they were in a position to control and monitor the directly infringing activity. Id. at *10.

Ruling on the motion as to the operator defendants, Akanoc and its owner, the court applied Inwood and Lockheed to support the jury’s verdict finding contributory trademark infringement. Louis Vuitton Malletier v. Akanoc, supra at *10. It referenced the “many letter notices to [the d]efendants identifying specific websites that were selling counterfeit goods” to support the jury’s finding of knowledge. Id. at *5 and *10. It upheld the “willful blindness” finding as well, as supported by “the large number of infringement notices [the defendants] received.” Id. at *10 n17. As to the direct monitoring and control elements under Lockheed, the court pointed to the “numerous tools [the defendants had] at their disposal for monitoring their servers and terminating abusive users.” Id. at *10. All told, this evidence, coupled with the evidence of direct infringement, was sufficient to uphold the jury’s verdict. Id.

In contrast, mere ownership of the server equipment was deemed insufficient to support a claim of contributory trademark liability, the court held, distinguishing Management Solutions, the company that owned the server equipment, from Akanoc and its manager, who operated it. Louis Vuitton Malletier v. Akanoc, supra. Drawing on its analysis of the contributory copyright infringement claims where it held that liability did not extend to an owner who was not an operator, the court granted the defendant’s JMOL motion as to Management Solutions, whose role was limited to ownership. See Id. at *5 and *10.

A web hosting company that was shown to have been closely involved in creating and supporting its customer’s business model was found liable by a jury for secondary trademark infringement arising out of the sales of counterfeit golf equipment on that customer’s website. Roger Cleveland Golf Co., Inc. v. Price (sic), 2010 WL 5019260 (D. S.Carolina); Jury Verdict Form. The outcome in Roger Cleveland Golf was noteworthy because the jury found liability notwithstanding that the plaintiff had not sent any kind of notice, such as a cease and desist letter to the web hosting company prior to the lawsuit.

The plaintiff in Roger Cleveland Golf manufactured and distributed CLEVELAND brand golf clubs. It discovered that an online business run by the defendants was selling counterfeit versions of its golf clubs. The plaintiff subsequently sued both the website operators and their web hosting company, “Bright Builders,” alleging direct and either contributory or vicarious infringement, respectively. Roger Cleveland Golf, supra at *1 and *2. Bright Builders moved for summary judgment, arguing that it should be dismissed as a defendant.

While Bright Builders maintained – in a  procedurally deficient motion that was criticized by the court – that its role was limited to being a “web hosting entity” and that it was unaware of the nature of the website owners’ business, the plaintiff countered with evidence that they were deeply involved in the counterfeiting enterprise, working hand-in-hand with the operators. Roger Cleveland Golf, supra at *3.  Specifically, the plaintiff showed how Bright Builders created and developed the infringing websites, providing “coaching and mentoring” services to help develop the business. Id. They demonstrated further that an advisor from the web hosting company had very detailed one-on-one discussions with the business owners about how to go about selling the golf clubs. Id.

Moreover, the plaintiff argued that Bright Builders knew or should have known based on their involvement with the owners that the websites were meant to sell counterfeit golf equipment. Roger Cleveland Golf, supra at *3. One of the domain names used by the business was “copycatclubs.com,” which the plaintiff argued should have put Bright Builders on notice that their customers were selling counterfeits. So, too, should the content of their online store’s website, which described itself as “your one stop shop for the best COPIED and ORIGINAL golf equipment on the internet.” Id. The court agreed and denied the defendant’s motion for summary judgment. Id. at *4.

In its verdict following a two-day trial, the jury found the defendant Bright Builders liable for secondary trademark infringement under the Lanham Act and violation of the South Carolina Unfair Trade Practices Act. It awarded statutory damages to the plaintiff pursuant to both Acts, in the amount of $770,750 as against Bright Builders, but only $28,250 as against the website owners. The jury award is discussed in further detail at IV.A.1.

In Gucci America, Inc. v. Hall & Associates, 135 F.Supp.2d. 409, 416 (S.D.N.Y. 2001), the plaintiff “Gucci,” which owned the trademark and trade name GUCCI, apparently discovered that one of the defendants, “Hall,” was advertising on its website jewelry that bore and infringed upon the Gucci trademark. Hall’s website was hosted by the defendant internet service provider, Mindspring. Gucci subsequently notified Mindspring by way of two e-mails that Hall was infringing its trademark. The alleged infringement persisted, and Gucci sued Mindspring for direct and contributory trademark infringement. Gucci, supra at 410-411.

Mindspring moved to dismiss for failure to state a claim, arguing that the Communications Decency Act of 1996 (CDA), 47 U.S.C. § 230, immunized it from contributory liability, and that the First Amendment barred Gucci’s claim. Id. at 411. The court rejected these two arguments and denied Mindspring’s motion to dismiss.  Although it explicitly refrained from reaching the merits of Gucci’s contributory liability claims, see Gucci, supra at 412, n.7 and at 420, n22, the court’s analysis and rejection of Mindspring’s arguments shed some light on the parameters of such a claim against an ISP.

First of all, the court ruled that the CDA did not immunize ISP’s from trademark infringement claims arising out of information posted on their customers’ websites.  See Gucci, supra at 412-417. Mindspring had relied upon §230(c)(1) of the CDA, which provides: “No provider or user or an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 U.S.C. §230(c) (1). That Mindspring, in its capacity as an ISP, was an “interactive computer service” under the statute, was undisputed by the parties. Gucci argued however, that §230(e)(2) was controlling. That section states: “nothing in this section shall be construed to limit or expand any law pertaining to intellectual property.” 47 U.S.C. §230(e)(2). The court agreed, finding that the plain language of that section precluded Mindspring’s claim of immunity. See Gucci, supra at 413. Specifically, it found, citing Inwood, that existing intellectual property law included the doctrine of contributory infringement, implying, without passing on the merits of the claim, that that doctrine was applicable to Mindspring. See id. Immunizing Mindspring from Gucci’s trademark infringement claims, the court reasoned, would “limit” the laws pertaining to intellectual property in contravention of §230(c)(2). Id. While the court reached this conclusion based upon the plain meaning of the statute alone, it nevertheless further addressed (and rejected) Mindspring’s arguments based on case law and legislative history.

In particular, the court addressed the dicta of the district court in Lockheed, supra, which each party argued had weighed in its favor. See Gucci, supra at 416, citing Lockheed, supra. In Lockheed, the district court reasoned:

[Network Solutions, Inc.’s] role in the Internet is distinguishable from that of an Internet service provider whose computers provide the actual storage and communications for infringing material, and who therefore might be more accurately compared to the flea market vendors in [Fonovisa Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996)] and [Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143 (7th Cir. 1992) ].

Gucci, supra at 416, citing Lockheed Martin, 985 F.Supp. at 962.  (Emphasis added). The Gucci court concluded from this that “Lockheed Martin does not foreclose the possibility that ISPs may be liable for contributory trademark infringement[.]” Id. Arguably, the dicta in Lockheed goes further than the court’s tentative conclusion, insofar as likening ISPs to flea market owners would dictate that they actually could be held liable in appropriate circumstances.

Secondly, as to Mindspring’s free speech arguments, the court held that Gucci’s claims were not barred by the First Amendment because they challenged allegedly infringing commercial speech used to identify the source of a product, as opposed to being part of a communicative message. See Gucci, supra at 417-418. The court further found that the liability limitation of the “innocent infringer defense” contained in §32(2) of the Lanham Act, coupled with the requirement, as to contributory infringement, that the plaintiff demonstrate “knowledge” on the part of the defendant, undermined Mindspring’s First Amendment argument that to let Gucci’s claims go forward would subject the ISP to strict liability for trademark infringement, thereby creating a “trademark plaintiff’s veto.” See id. at 420. Finally, the court rejected the notion, advanced by Mindspring, that existing First Amendment legal analysis ought to be modified in the Internet context so as to limit the enforcement of trademark rights. See id. at 420-421.

 

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(e) Online Marketplace Websites, 2. Internet Activity, D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test., II. Contributory Trademark Infringement Comments Open

D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (e) Online Marketplace Websites

By

The online marketplace eBay successfully defended against a claim for contributory liability in Tiffany v. eBay, 576 F.Supp.2d 463, 507 (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 that case, the court held that the plaintiff trademark holders should bear the burden of policing their own trademarks in the online marketplace website, where the website owner, upon notice, had taken appropriate steps to remove potentially infringing listings. Tiffany, supra at 470 and see discussion supra.

In Tiffany, Tiffany, the luxury jeweler, sued eBay, 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.

Among the issues before the Tiffany court was whether to extend the Inwood test to eBay, a defendant who was not a manufacturer or distributor of a product. Tiffany, supra at  503-507. (Note that on appeal, the Second Circuit 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.) Drawing on Hard Rock Café and Fonovisa, as well as other Southern District cases that applied the Inwood test to venues that provide a service, the court concluded that Inwood should be applied beyond the “product” context in this case as well. See Tiffany, supra at 503 – 506 and cases cited therein. In doing so, it expressly adopted the Ninth Circuit’s reasoning in Lockheed Martin, supra. Tiffany, supra at 506-507.  Following Lockheed Martin, the court stated that it would “look to the extent of the control exercised by eBay over its sellers’ means of infringement.” Tiffany, supra at 506.  See also Sellify v. Amazon, 2010 WL 4455830 *4 (S.D.N.Y.), where, citing the Second Circuit in Tiffany and the Ninth Circuit in Lockheed, the court extended Inwood to the defendant online sales company Amazon, but declined to find contributory liability because there was no evidence that Amazon had particularized knowledge of or direct control over disparaging online advertisements posted by one its Associates and linking to it website.

eBay argued that it lacked the requisite control because it was “more like an online classified ads service than an online flea market.” Tiffany, supra at 506. It pointed out that  it never took physical possession of the items sold on its website and therefore could not inspect or authenticate those items. Id.

The court disagreed, acknowledging that while eBay did not itself sell or possess the items on its website, it nevertheless retained significant control over the transactions on its website. Tiffany, supra at 506. Moreover, the premise for eBay’s liability was the same as that for the flea market operator in Fonovisa  who “was supplying the necessary marketplace for the sale of counterfeit goods in substantial quantities,” Tiffany, supra, at 504, citing Fonovisa. Similarly, the Tiffany court noted “[b]y providing the software to set up the listings and store listing information on its servers, eBay supplie[d] the necessary marketplace for the sale of counterfeit goods.” Tiffany, supra at 506. Indeed, the court found further “eBay [took] an active role in supplying customers – namely, registered buyers – to registered sellers, and actively facilitate[d] transactions between them. Id.

The court found that eBay exercised significant control in other ways as well: It actively promoted the sale of Tiffany jewelry items through its advertising; it worked directly with its sellers to help them grow their jewelry businesses, and finally it maintained significant control over the listings on its website, the court noted. Tiffany, supra at 506.  eBay’s argument that it should be treated like an online ad service was further undercut by the existence on its website of such a service, maintained “separate and apart” from its other listings. Tiffany, supra at 507.

The Tiffany court therefore concluded that eBay should be treated the same way as the flea markets in Hard Rock Café and Fonovisa, and was subject to the Inwood standard for contributory liability. Tiffany, supra at 507. Ultimately, however, eBay was not held contributorily liable for the sale of counterfeit Tiffany jewelry on its website, as the court determined that Tiffany must bear responsibility for policing its own trademarks there, as discussed in detail in Sections II.B.3.(a) and II.B.3. (c).

On appeal, eBay dropped its argument that it was not subject to Inwood, and the Second Circuit therefore “assume[d] without deciding that Inwood’s test for contributory trademark infringement govern[ed].” 600 F.3d at 105-106.  The Second Circuit’s decision upholding the district court is discussed in more detail in Sections II.B.3. (a)  and II.B. 3. (c).

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(f) Contributory Cybersquatting, (i) Introduction, 2. Internet Activity, D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test. Comments Open

D. Expansion of Inwood Standard to “Non-Product” Cases: The “Direct Control and Monitoring” Test: 2. Internet Activity: (f) Contributory Cybersquatting (i) Introduction

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Cybersquatting is a form of cyberpiracy involving the bad-faith use of another’s trademark in a domain name with the intent to profit. It is recognized as a form of trademark infringement under the Anti-Cybersquatting Consumer Protection Act (“ACPA”), passed by Congress in 1999 as an amendment to the Lanham Act. The ACPA provides in relevant part as follows:

(d) Cyberpiracy prevention

(1)(A) A person shall be liable in a civil action by the owner of a mark, including a personal name which is protected as a mark under this section, if, without regard to the goods or services of the parties, that person

            (i) has a bad faith intent to profit from that mark, including a personal name which is protected as a mark under this section; and

            (ii) registers, traffics in, or uses a domain name that—

                        (I) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark;

                        (II) in the case of a famous mark that is famous at the time of registration of the domain name, is identical or confusingly similar to or dilutive of that mark; or

                        (III) is a trademark, word, or name protected by reason of section 706 of Title 18 or section 220506 of Title 36.

15 U.S.C. §1125(d)(1)(A). See also Solid Host, NL v. Namecheap, Inc. 652 F.Supp.2d 1092, 1099-1101 (C.D. Cal. 2009)(discussing the legislative history and purpose of the ACPA). Note that the ACPA further contains a non-exhaustive list of factors for the court to consider in determining whether a domain name registrant has acted with “bad faith intent to profit.” See 15 U.S.C. § 1125(d) (1)(B)(i)((I) –(VIII) and Ford Motor Co. v. Greatdomains.com, 177 F.Supp.2d 635, 642 (E.D. Mich. 2001)

The statute grants immunity to those who do not possess bad faith intent under a safe harbor provision of the ACPA stating

 

Bad faith intent described under subparagraph (A) shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.

 

15 U.S.C. § 1125(d) (1)(B)(ii).

The statute also contains provisions that specifically shield domain name registrars from liability under certain circumstances. For example, 15 U.S.C. §§ 1114(2)(D)(i)-(ii) provide that  “[a] domain name registrar, a domain name registry, or other domain name registration authority” shall not be liable for damages or, with certain exceptions, subject to injunctive relief for “refusing to register, removing from registration, transferring, temporarily disabling, or permanently canceling a domain name” in compliance with a court order or “in the implementation of a reasonable policy … prohibiting the registration of a domain name that is identical to, confusingly similar to, or dilutive of another’s mark.” Solid Host, NL v. Namecheap, Inc. 652 F.Supp.2d 1092, 1101 (C.D. Cal. 2009).

And 15 U.S.C. § 1114(2)(D)(iii) provides that

 

 [a] domain name registrar, a domain name registry, or other domain name registration authority shall not be liable for damages under this section for the registration or maintenance of a domain name for another absent a showing of bad faith intent to profit from such registration or maintenance of the domain name.

 

Note that where liability was alleged against a domain name registrar for actions outside its “core function” as registrar, the safe harbor provisions of the ACPA were found inapplicable. See Solid Host, NL v. Namecheap, Inc. 652 F.Supp.2d 1092, 1105 (C.D. Cal. 2009), discussed below.

In practice, to bring an action for cybersquatting under the ACPA, courts have held that a plaintiff must show that “(1) the defendant registered, trafficked in, or used a domain name; (2) the domain name is identical or confusingly similar to a protected mark owned by the plaintiff; and (3) the defendant acted with ‘bad faith intent to profit from that mark.’ ” Microsoft Corp. v. Shah, 2011WL 108954 *1 (W.D. Wash.), citing DSPT International v. Nahum, No. 08-55062 2010 WL 4227883 at *3 (9th Cir. 2010); 15 U.S.C. § 1125(d)(1)(A).

Since the passage of the ACPA, cases have emerged that vary from the “paradigmatic” cybersquatting originally contemplated by the Act. In that “typical” case,

 

[c]ybersquatting occurs when a person other than the trademark holder registers the domain name of a well known trademark and then attempts to profit from this by either ransoming the domain name back to the trademark holder or by using the domain name to divert business from the trademark holder to the domain name holder.

 

Petroliam Nasional Berhad v. Godaddy.com, Inc., 2010 WL 3619780 *2 (C.D. Cal)(dismissing both the direct and contributory cybersquatting claims with leave to amend), quoting DaimlerChrysler v. The Net Inc., 388 F.3d 201, 204 (6th Cir.2004), quoted in Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672, 680 (9th Cir.2005). In contrast, the courts inMicrosoft Corp. v. Shah and Solid Host, NL v. Namecheap, Inc., discussed below, considered contributory liability claims where the cybersquatter had not acted first to register the plaintiff’s mark as a domain name.

 

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