Apr 18 2010

Indirect Trademark Liability - who takes the risk?


Online aggregators, site operators and search engines are in a seemingly endless conflict with content providers and rights owners. This extends to trademark law. The confrontation relates to deciding what obligations aggregators (and others) have to police and prevent advertising and sale of counterfeit products or services through their systems. A recent Second Circuit case leaves one pondering the answer where at least some of the advertised products or services from third parties are counterfeits.


As with copyright and patent, indirect liability exists under trademark law, although there are very few reported cases dealing with it. The Supreme Court described the concept as follows:

if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done.

Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982).

This formulation facially refers to supplying products and does not specifically address whether access and service providers (such as Google, Bing, eBay) also have potential liability. Generally, however, the concept has been extended to service providers, at least where the service provider has sufficient control and can monitor the instrumentality or conduct involved in the infringement.

      The Second Circuit in Tiffany (NJ) Inc. v. eBay, Inc., 2010 WL 1236315 (2nd Cir. 2010), assumed without deciding that the concept applied to eBay’s auction services, but concluded that eBay was not indirectly liable for what is apparently a very large amount of sales of counterfeit Tiffany products by auction sellers. The issue turned on whether eBay’s generalized knowledge that numerous counterfeit sales under the Tiffany occurred on its site was sufficient for liability. The court held that, while the applicable standard involved knowledge or reason to know of the infringing conduct, mere generalized knowledge did not suffice. Instead, for “contributory trademark infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.” This, of course, is a win for the aggregators et. al. In practice, eBay maintained an active program of responding to notices of claimed infringement as to specific products or sellers. Thus, there was no pattern of eBay continuing to provide its site or services to persons it had reason to know were infringing the Tiffany mark.

      Tiffany sets out a narrow interpretation of contributory liability, giving broad freedom for aggregators and enhancing the difficulty of enforcing a mark online. The court did, however, provide two important grounds for caution applicable to access and service providers. 

First, it emphasized that its concept would not allow a provider to adopt a policy of “willful blindness.” Exactly what that means remains to be seen, but it suggests that some policing obligation arises if the environment involves widespread (albeit not universal) trademark infringement. eBay had a very active program of responding to infringements. The court commented:

[We] agree with the district court that if eBay had reason to suspect that counterfeit Tiffany goods were being sold through its website, and intentionally shielded itself from discovering the offending listings or the identity of the sellers behind them, eBay might very well have been charged with knowledge of those sales sufficient [for liability]. A service provider is not, we think, permitted willful blindness. When it has reason to suspect that users of its service are infringing a protected mark, it may not shield itself from learning of the particular infringing transactions by looking the other way.

      A second caution for service providers came in the court’s treatment of a claim that eBay engaged in false advertising under the Lanham Act when it advertised that Tiffany products were available for purchase on its site. Liability here can come either because of literal misrepresentation or because the advertising, “while not literally false, is nevertheless likely to mislead or confuse consumers.” While there was no proof of literally false advertising (some products sold on the site as Tiffany products were in fact Tiffany products), the court believed that the advertisements might be deceptive and confuse consumers by suggesting that all of the products sold as Tiffany products were genuine. It remanded the case for consideration of this issue. On the policy question of whether creating this liability risk would place too heavy of a burden on online commerce, the court commented:

eBay and its amici warn of the deterrent effect that will grip online advertisers who are unable to confirm the authenticity of all of the goods they advertise for sale. We rather doubt that the consequences will be so dire. An online advertiser such as eBay need not cease its advertisements for a kind of goods only because it knows that not all of those goods are authentic. A disclaimer might suffice. But the law prohibits an advertisement that implies that all of the goods offered on a defendant's website are genuine when in fact, as here, a sizeable proportion of them are not.

Online advertisers and aggregators live in a world where intellectual property is important, and their conduct should reflect that. Simply being an online service does not absolve one from respecting and protecting another person’s property rights.

Written By:Paul Castran On November 2, 2010 11:55 PM

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