By Ben Natter1 and Natalia Dulkowska2
Counterfeiters often act through intermediaries, including online marketplaces, social media companies, and internet service providers (“ISPs”), that may not be aware that their services are being used for infringing activities. Recently, the extent of these intermediaries’ liability has been one of the most pressing issues facing courts, practitioners, and rights holders all over the world. In an attempt to prevent the offering for sale and sale of counterfeit goods, rights holders are increasingly invoking the doctrine of contributory infringement against intermediaries that provide services enabling infringement. Claims have not been limited to the most high-profile intermediaries (such as eBay, Google, YouTube, and Amazon)—it has impacted a diverse group of international companies, including Cooper3 and iiNet,4 in Australia, Scarlet in Belgium,5 TDC,6 DMT2 and Tele27 in Denmark, Rokuga Net in Japan,8 Netease,9 Baidu10 and Tudou.com11 in China, RecordTV in Singapore,12 and TorrentBox in the United States.13 Claims for secondary infringement hold numerous attractions for rights holders: they may increase efficiency by securing, in a single proceeding, relief against both the third party engaging in direct infringement and the intermediaries whose conduct indirectly facilitates this infringement. Secondary liability remains perhaps one of the most meaningful remedies for copyright and trademark owners in the age of internet-based commerce.
This article considers how courts and other tribunals in the United States and Europe address the issue of secondary liability. Comparative commentary on this topic has special significance: the essential question of how the law should balance rights holders’ interest in enforcing their intellectual property against society’s interest in the legitimate development of innovative technologies. This includes new ways of trading in goods, and forms the crux of the digital economy.
Structurally, the U.S. and European approaches are nearly identical. Despite the similarity of the relevant legal frameworks on each continent, however, their development and application have been substantially different, shaped in the United States by common law and in Europe by a set of Directives that provide guidance in developing rules in E.U. Member States.
Secondary Liability in the United States
In the United States, the standard for secondary infringement is relatively clear: the federal trademark statute, the Lanham Act,14 is generally silent on liability for indirect infringers, and few state laws contain explicit provisions addressing this issue. Likewise, the Digital Millennium Copyright Act (“DMCA”)15 contains a safe harbor provision for ISPs16 that unwittingly facilitates copyright infringement, but courts have interpreted the extent of the liability that accrues under this provision inconsistently. The DMCA allows for the liability of ISPs and other intermediaries, and provides—just like its transatlantic equivalents—that ISPs may be liable for third-party infringing content when they have knowledge of this content and refuse to remove it or develop policies aimed at its reduction. Although the DMCA does not address trademark infringement, courts have applied similar principles in the trademark context. For example, the test enunciated by the United States Supreme Court in Inwood Laboratories Inc. v. Ives Laboratories, Inc.,17 offers two avenues through which rights holders can establish secondary liability: (1) intentional inducement; and (2) continued supply with actual or constructive knowledge of infringement. Establishing indirect infringement using the Inwood test is not always so simple, however.
Indirect Infringement and Online Marketplaces
The Inwood decision forms the basis of the “specific knowledge” requirement that emerged almost thirty years later in Tiffany v. eBay.18 Tiffany v. eBay’s application of the Inwood test by the Second Circuit considers whether an online auction site like eBay can be liable for the infringement of third-party sellers. Tiffany alleged contributory trademark infringement based on the sale of counterfeit Tiffany merchandise on eBay’s online marketplace.19 While eBay implemented some measures to ensure the authenticity of the products offered for sale on its marketplace, Tiffany argued that eBay should have taken preventive measures to avoid infringement.20 The court ultimately held that eBay’s use of Tiffany’s trademark was a protected, nominative fair use.21 Tiffany v. eBay potentially established that when an intermediary receives specific notice of infringement and fails to act, it might be held to be liable—but without adequate notice, it is not. The Second Circuit left a narrow opening for rights holders, however, in suggesting that willful blindness may satisfy the notice standard.
The United States District Court for the Middle District of Pennsylvania recently weighed in on this issue in a pretrial motion to a forthcoming case. In Dentsply Sirona Inc. v. Net32,22 the Court denied the defendant’s motion to dismiss the case.23 The court found that the plaintiff had sufficiently pleaded a claim for contributory infringement liability because it alleged that the defendant had knowledge that vendors on its website were directly infringing the plaintiff’s trademarks and continued to allow vendors to sell the infringing products, despite this knowledge.24 The court did not, however, state that attempting to stop vendor infringement is enough to dismiss a contributory infringement claim, only that allowing the vendors to sell the products at all with actual knowledge of that infringement is enough to sufficiently plead such a claim against the defendant.
Primary Versus Secondary Liability in the Eueopean Union
To illustrate these divergent approaches to the question of secondary liability, there is probably no better case study than the analogous French LVMH v. eBay decision,25 which stands in sharp contrast to Tiffany v. eBay.26 The European E-commerce Directive27 and the European Information Society Directive both contain provisions similar to those contained in the DMCA. From a comparative perspective, however, the rulings adopted by the European Court of Justice (“ECJ”) and the national courts in the E.U. carve out different solutions in order to deter infringing activities.
Perhaps because of Europe’s tradition of strong unfair competition laws, the substantive rules in Europe are more favorable for rights holders than those in the United States. Even if intermediaries have a superficial advantage in Europe, because the ECJ limits direct infringement to individuals who have used a mark in connection with their own advertising or sales practices, other provisions of European law reduce the effects of these privileges. In particular, Article 11 of the European Enforcement Directive, which extends to all intellectual property and is the mechanism previously introduced into European copyright law by Article 8(3) of the Information Society Directive, requires Member States to ensure that “rights holders are in a position to apply for an injunction against intermediaries whose services are used by third parties to infringe an intellectual property right.”28 Therefore, even if the conduct of an intermediary is not sufficient for damages, the intermediary may face an injunction requiring the elimination of infringing activities enabled by their services. As a result, in LVMH v. eBay, the French Supreme Court found eBay liable for passivity and negligence that resulted in the violation of LVMH’s exclusive rights, holding that because eBay played an essential role in the commercialization of counterfeit products and profited from their sale, eBay was liable for failing to control its own activity.29
What is crucial to note is that the claims in Europe include allegations of primary and secondary trademark infringement. For example, in France, the infringement claim discussed against eBay was in fact advanced as a direct violation of the general fault provision in the French Civil Code.30 But the core question in the E.U. remains the same, focusing on the reasonableness of the alleged behavior of the intermediary and its knowledge of infringing activity.
Additionally, the E.U. recently adopted a Directive on Copyright in the Digital Single Market that would impose obligations on a certain ISPs to implement technological measures, primarily ﬁltering, to help prevent infringement.31 Article 17 of this Directive was designed to solve the “value gap,” whereby some user-uploaded content platforms were obtaining revenue from protected content that should have been directed to the relevant content creators. But from the point of view of this subject, the core of Article 17 is in truth a reallocation of enforcement duties among rights holders and intermediaries.
The Balance Between Protecting Rights Holders and the Digital Economy: Control, Knowledge, Willfull Blindness, and Duty of Care
Another noteworthy case related to contributory trademark liability in the United States is the United States Court of Appeals for the Ninth Circuit’s decision in Louis Vuitton v. Akanoc Solutions,32 in which the jury awarded $32.4 million to Louis Vuitton in connection with a web hosting provider’s continued provision of services to websites selling counterfeit goods. Even though Akanoc did not sell counterfeit merchandise directly, but rather listed an email address to initiate a transaction, the court focused on Akanoc’s knowledge of the direct infringement as evidenced by numerous cease and desist letters and internal Akanoc emails recognizing the sale of counterfeit goods by end users. The court found that Akanoc’s services were “the Internet equivalent of leasing real estate” and highlighted Akanoc’s ability to remove infringing content in its decision to find Akanoc liable.33
In Europe, the landmark decision concerning online marketplace liability is L’Oréal v. eBay.34 L’Oréal brought four lawsuits against eBay for trademark infringement, negligence, and violation of its selective distribution networks in France, Belgium, England, and Spain.35 The ECJ found that the operator does not “use” L’Oréal’s marks within the meaning of E.U. trademark law because it does not use them for its own commercial communication.36 Rather, for the purposes of the infringement provisions, use “is made by the sellers who are customers of the operator of that marketplace and not by that operator itself.”37 As a consequence, the ECJ held that while intermediaries are normally entitled to the hosting provider exemption, they must limit their actions to “providing an intermediary service, neutrally, by a merely technical and automatic processing of data.”38 Intermediaries are not entitled to this exemption if they “play an active role of such a kind as to give them knowledge of, or control over, those data.”39 The ECJ stressed that eBay was subject to a duty of care to make sure its platform was not used for unlawful purposes, which means that rights holders can always enjoin intermediaries to dissuade or prevent existing infringement.40
Both the Akanoc and L’Oréal decisions were based upon issues of control, awareness, willful blindness, and duty of care. Courts on both sides of the Atlantic found that the provision of services via the internet could be an instrumentality of direct infringement, and that liability depends upon prophylactic measures adopted by defendants and the alacrity of their responses to notices of direct infringement.
Also in Europe, the infamous high-heeled red sole shoe designer and trademark owner Christian Louboutin won suit in 2019 against Amazon in Louboutin v. Amazon. A Brussels court held Amazon EU liable for contributory infringement of Louboutin’s trademark because it promoted over one hundred product listings of counterfeit shoes on its French and German websites and designated them as “shipped and sold by Amazon.” Some of these products were sponsored by Amazon and others were listed in targeted ads on a multitude of websites, including Amazon. The court relied on E.U. case law in its ruling, holding that liability can be imputed to anyone taking an active part in the commission of a sale who could control it, directly or indirectly.
On a smaller scale, recent developments in the U.S. include the newly filed Reflex Media, Inc. v. RichMeetBeautiful Holding,41 for direct and contributory infringement. In a recent pretrial decision, the United States District Court for the District of Nevada denied the defendants’ motion to dismiss for fair use of the plaintiffs’ trademarks.42 The court found sufficient evidence of the defendants’ infringing use of the three trademarks on their own website, including inserting the trademarks into the website’s metadata.43 The court also found evidence that defendants copied customer reviews from the plaintiffs’ website and encouraged affiliate marketers to use the trademarks in advertising. Based upon this decision, the fair use argument may no longer be viable for these defendants.44
Effects on the Physical World: Landlords, Fleamarket Operators, and Shipping Services
Application of the rules and principles discussed above is not limited to online marketplaces, ISPs, web hosting providers, or search engines that sell or advertise counterfeit goods through sponsored links. Courts have also relied upon these precedents to analyze the potential liability of landlords of brick-and-mortar retail spaces, owners of flea markets, and logistics companies.
Case law in the United States provides a broad array of relevant jurisprudence. For example, in Hard Rock Café Licensing Corporation v. Concession Services 45—the decision that established the doctrinal framework for indirect infringement in the United States—the United States Court of Appeals for the Seventh Circuit held that willful blindness is equivalent to actual knowledge.46 Even if a plaintiff could not prove that a flea market operator possessed actual knowledge of its vendors’ sale, the court found that the defendant was contributorily liable if it ignored these violations.47 In another recent case, Cartier International B.V. v. Liu,48 a shipping company that “arrange[d] for persons to ship items via United Postal Service” was held contributorily liable for having “knowingly handled the shipment of counterfeit merchandise to customers.”49 The court stated that the shipping company “was facilitating the marketing by arranging for shipment to customer.”50
However, perhaps the most important case in recent years regarding flea market and landlord liability is Luxottica v. Airport Mini Mall.51 In Luxottica, the United States Court of Appeals for the Eleventh Circuit held that contributory trademark infringement liability extends to the landlord-tenant relationship.52 The court found that a landlord may be contributorily liable for its subtenants’ direct infringement by supplying services that faciliate infringement (such as space, utilities, or maintenance) while it had constructive notice of infringement.53
In Europe, the discussion around landlord liability was boosted by the ECJ’s decision in Tommy Hilfiger v. Delta Center.54 This ruling provided a basis to address a number of outlets across the European Union, and may be extended to organised flea markets and brick-and-mortar shops. As the ECJ clarified, the conditions for ordering an injunction against an intermediary providing a sales points letting service in a physical marketplace are identical to those applicable to injunctions against intermediaries in online marketplaces.55
Therefore, once marketplace operators become aware of infringing activity, they may be enjoined to cease such infringement and to adopt measures to prevent any future infringement.
The Future of Indirect Liability
One of the crucial challenges in framing rules for intermediary liability is determining what sorts of behaviors should be incentivized. Secondary liability for trademark infringement varies depending on economic, legal, market, and other factors. But both commercial practice and legal doctrine agree that the proper approach to enforcement is built upon the mechanism of notice and takedown procedures. While both the United States and the E.U. have passed laws to modernize intellectual property enforcement mechanisms for the digital era, the level of protection provided by the Directives (in comparison to the protection offered by U.S. case law and the DMCA) may mean that European rights holders possess stronger protections than their American counterparts, because the virtues of the European model are based upon a horizontal approach to safe harbors, highlighting the flexibility and transparency of Europe’s model for avoiding unnecessary costs.
Despite these developments, contributory and vicarious liability for copyright and trademark infringement have not received the attention they deserve. The importance of the issue should serve as a starting position for parallel debates in the United States and Europe. Future developments in the field could include a robust regulatory framework and expanded doctrines of indirect infringement to maintain the delicate balance between fostering innovation and protecting intellectual property rights.