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Beware of Facilitating Counterfeiting and Trademark Infringement

Written by: Jeremy T. Walker

Published in NH Bar News (6/19/2017)

It is common knowledge that those who manufacture or sell counterfeit goods may face both criminal and civil liability. What often catches some by surprise, however, is that brand owners often pursue those who facilitate counterfeiting more aggressively than the actual counterfeiters. There are various reasons for this strategy, and the consequences can be severe, so diligence is critical when an attorney advises a business that could somehow be facilitating trademark infringement.

Counterfeiting, from jewelry to handbags, continues to run rampant in the United States. With technological advances, it is becoming much easier and cheaper to produce nearly identical knock-offs of all types of products. Counterfeit goods can severely affect the market value of a brand. When consumers purchase what they believe to be the products of a high-end brand, they can be disappointed in the poor quality and associate low quality with the brand. Companies that find success through strong brand identity, such as Coach, Tiffany, and Louis Vuitton, aggressively pursue counterfeiters and forums where counterfeiters sell their knock-offs.

It might seem more direct to pursue the makers and sellers of counterfeit goods, but brand owners often find that to be challenging. Manufacturers of counterfeit goods often operate in remote parts of foreign countries, and finding and stopping them presents various hurdles. Furthermore, individuals who sell counterfeit goods online typically do so through multiple anonymous user accounts. Individuals who sell to customers at auction houses or flea markets are a dime a dozen and often move from one forum to another to elude authorities. Even if many of these individuals are successfully prosecuted, others will fill the void.

Making the Case

In a direct infringement claim under the federal Lanham Act, a trademark owner generally must prove that a defendant has used a similar mark in commerce, in a way that creates a likelihood of confusion, mistake or deception with the consuming public. Although not encoded in the Lanham Act, the law of contributory trademark infringement has evolved such that brand owners now have meaningful remedies against those forums where counterfeiting takes place.

In 1982, the United States Supreme Court established a cause of action for contributory trademark infringement, in Inwood Labs Inc. v. Ives Labs Inc. (1982). A trademark owner can recover damages from one who knowingly induces another to infringe a trademark, or otherwise facilitates the infringement of a trademark, either with knowledge or with reason to know of the infringement occurring. Thus, flea markets, auction houses or online auction services, such as eBay, cannot turn a blind eye when vendors using their services are selling counterfeit goods. Even if the flea markets and the online services are not directly selling or profiting from the sale of counterfeit goods, their failure to take reasonable measures to stop trademark infringement exposes them to significant liability.

If successful in proving contributory infringement, brand owners can recover damages ranging from $1,000 to $200,000 per counterfeit mark, per type of good sold or offered for sale, and up to $2 million per mark if willful infringement. Brand owners have effectively used the doctrine of contributory infringement to recover large verdicts, which often cause the counterfeiting forum to go out of business. For instance, in Louis Vuitton Malletier v. Akanoc Solutions (2011), the Ninth Circuit Court of Appeals upheld a $10.5 million verdict of contributory infringement against three California-based Internet service providers for hosting websites used by Chinese sellers to sell counterfeits that infringed Louis Vuitton’s trademarks.

Coach, the maker of famous designer handbags and clothing, has aggressively pursued flea markets throughout the country where vendors may be selling counterfeit goods. Coach has successfully obtained large verdicts, often resulting in closure of the markets – undoubtedly Coach’s primary goal. In 2012, for example, Coach obtained a jury verdict of more than $5 million against a flea market in Tennessee. In 2014, Coach sued another Kissimmee, Florida, flea market and reached a settlement that ultimately resulted in the flea market filing for bankruptcy.

Granite State Cases

New Hampshire flea markets also have been the target of Coach lawsuits. In 2011, Coach obtained a summary judgment for contributory trademark against a Derry flea market, which resulted in a settlement that closed the decades-old flea market. This author represented a Londonderry flea market in a lawsuit brought by Coach for contributory trademark infringement that went to a jury trial in the United States District Court in Concord in November 2014.

In that case, Coach presented evidence to the jury of its various undercover inspections at the flea market during which it found counterfeit goods being sold by certain flea market vendors. Coach argued that despite numerous warnings to the flea market owner, vendors continued to sell counterfeit products bearing Coach trademarks. The flea market owner, however, produced substantial evidence that it had taken reasonable measures, particularly for a small business owner, to prevent the sale of counterfeit goods. Ultimately the jury found that the flea market was not liable for contributory trademark infringement, and the flea market continues to operate.

The developing law of contributory trademark infringement makes it clear that businesses providing potential forums for others to sell counterfeit goods must take reasonable measures to stop such counterfeit activity. If businesses turn a blind eye to the activity, they may be on the losing end of a crippling verdict.

Jeremy Walker is a director in the Litigation Department at McLane Middleton with an emphasis on Intellectual Property Litigation and Construction Litigation.

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