Tag Archives: Initial Interest Confusion

U.S. District of Arizona: “No automatic injunction upon a finding of copyright infringement”

Originally posted 2008-09-05 17:38:37. Republished by Blog Post Promoter

Not that the plaintiffs in the Designer Skin case didn’t get an injunction:  They did (here it is); a narrow one utilizing proposed language by defendants explicitly permitting S&L to use its own photographs of Designer Skin merchandise on its website (see the prior post).  But the Court ruled that they were not entitled to it merely by virtue of proving copyright infringement.  Here’s an excerpt from the opinion, discussing the point:

The parties dispute the law governing the issuance of a permanent injunction in a copyright-infringement case. Relying on MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 520 (9th Cir. 1993), Designer Skin argues that “a permanent injunction [should] be granted in a copyright infringement case when liability has been established and there is a threat of continuing violations.”  Conversely, S & L Vitamins argues that the MAI rule has been overruled by the recent Supreme Court opinion in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), and that the traditional four-factor test reaffirmed by eBay applies.

MAI’s general rule may accurately describe the result of applying the four-factor test to a copyright-infringement case in which liability has been established and there is a threat of continuing violations. Nevertheless, as Judge Wilson persuasively demonstrated in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197, 1209-10 (C.D. Cal. 2007), this general rule, as a rule, is clearly inconsistent with the Supreme Court’s decision in eBay. Thus, for the reasons given by Judge White in Grokster, Designer Skin’s reliance on this pre-eBay rule is unavailing, and the Court will apply the traditional four-factor test. . . .

This is an important holding, making the District of Arizona among the handful of earliest courts to apply the rule of eBay to copyright infringement.  After the jump, you can see how the court did apply it to one particular factor of interest, the need for a plaintiff seeking an injunction to prove irreparable harm.  The court agreed with S&L that past infringement does not lead to a presumption of future infringement. Unfortunately, to our client’s (nominal) detriment, and despite our argument that, seeing as how Designer Skin enunciated no coherent description of harm it suffered by the infringement — and that, in fact, it probably benefited from it — an injunction should not issue, the court found that there was irreparable harm, for reasons best expressed in its own words. Read More…

Fat lady sings: Findings of Facts and Conclusions of Law in Designer Skin v S & L Vitamins

Originally posted 2008-09-05 17:01:27. Republished by Blog Post Promoter

The District of Arizona ruled today in a case we defended through trial and have reported on here extensively.  The decision is here; the minute entry on the electronic docket reads as follows:

FINDINGS OF FACT AND CONCLUSIONS OF LAW – that S & L Vitamins has infringed Designer Skin’s copyrights in the electronic renderings of the 42 products styled [by various brand names] and that Designer Skin is entitled to a permanent injunction enjoining S & L Vitamins from any such future infringement of these copyrights;

FURTHER ORDERED that S & L Vitamins has not infringed Designer Skin’s copyrights in the electronic renderings of the 12 products styled [by various brand names];

FURTHER ORDERED that each party shall bear its own costs in this matter.

Signed by Judge James A Teilborg

No attorneys’ fees for either side.  The injunction reads as follows (per the minute entry); prefatory language is omitted and emphasis is added:

FINAL JUDGMENT AND PERMANENT INJUNCTION in favor of Designer Skin, LLC against S&L Vitamins, Inc. . . . S & L Vitamins . . . are hereby immediately and permanently ENJOINED from publicly displaying, using, copying, or otherwise infringing Designer Skin’s copyrights in these electronic renderings for any purpose whatsoever. Nothing herein, however, shall be construed to enjoin S & L Vitamins from taking, using, or displaying original photographs of the physical Products themselves in connection with S & L Vitamins’ sale of the Products on the internet.

Signed by Judge James A Teilborg

Interested persons may wish to ponder how, and to what extent, the Court addressed the issues framed by the counsel for the respective parties, including identification of what indeed are “Designer Skin’s copyrights in [its] electronic renderings,” by considering the proposed findings and facts and conclusions of law submitted by the plaintiffs, and by the defendants, respectively.

For practitioners interested in the law of injunctions, the most interesting part of the decision concerns the court’s application of the rule in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) that there is no automatic entitlement to an injunction upon a finding of infringement to a copyright infringement case.  We have made a separate post addressing that part of the decision.

S&L’s website is here, by the way.  Buy Designer Skin lotion from S&L!  It’s the way both sides pay their lawyers!

Drive-by infringement

Originally posted 2010-05-04 01:28:05. Republished by Blog Post Promoter

Coca-Cola Host of the Highways

Commuter Host

Steve Baird says initial interest confusion is “the real thing” and in the process  seeks to “add life” to Professor McCarthy’s famous “evil highway road sign” analogy:

Wagner's Coca Cola SignWhatever the criticisms might be to the doctrine of Initial Interest Confusion, including those detailed by our friends Ron ColemanMarty Schwimmer, and Eric Goldman, in the context of keyword advertising, the road-side restaurant sign shown [at left] definitely is “the real thing” for purposes of trademark initial interest confusion, in more ways than one:

It does depict the Coca-Cola brand, in all its glory, after all, so It’s The Real Thing, by definition.

And, unlike the very hypothetical scenario relied upon in the Wolf Appliance case, the above drive-in restaurant signage is real world and in current use, designed to attract attention, and has been for years, in fact, well after the business responsible for the sign dropped Coca-Cola for Pepsi. That’s right, “no Coke, Pepsi.” To twist Sean Penn’s words in I Am Sam, Wagner’s change was a “very bad choice,” at least in my humble opinion of taste.

Yeah, me too.  I used to think I liked Pepsi better.  Crazy!  It’s one more reason Steve and I are likethis.  More:

Last, it certainly is a good example of the Initial Interest Confusion doctrine at work.

Uh oh.  Like the old “Coke brings your ancestors back from the dead” story, I’m afraid this sincere run at resuscitating initial interest confusion is a grave error.  For now Steve would take us from the brand-laden anecdote and the cultural mix-and-match moment to–as if  he were a judge in a Lanham Act case! (some day, I’m sure!)–slapping some poor sap with legal liability over what’s probably just laziness, business logic or a little bit of both.  Here’s his real-life tale of interest, initially and heartbreakingly confused:

Minneapolis drivers on Highway 81 pull off the road for a great cheeseburger and a refreshing Coca-Cola, or in my case, Diet Coke. Only to find that there is no Diet Coke, or any Coca-Cola products for that matter, only Pepsi products. Drivers likely aren’t confused at the point of purchase, however, since the menu and interior soda fountain signage refer to Pepsi not Coke. Nevertheless, the exterior sign no doubt has steered more than a few thirsty types off the road over the years to end up purchasing Pepsi products, not Coca-Cola products.

Not me, however, I’m not even initially confused any longer, just annoyed with the change, and deciding with each visit, well in advance, to enjoy a chocolate malt instead of a soft drink, since I can’t have the real thing any longer at Wagner’s Drive-In II.

I’m not the first to say that, unlike a refreshing Coca-Cola® brand soft drink beverage product, this “detour of doom” argument leaves me flat.

Coca-Cola Sign of Good Taste

Lord, just show me a sign!

Read More…

Side by side comparison doesn’t decide likelihood of confusion

Originally posted 2006-07-11 17:14:18. Republished by Blog Post Promoter

Dooney & Bourke's pattern

This is an important decision: The Second Circuit Court of Appeals has partially reversed the earlier ruling of the U.S. District Court for the Southern District of New York (full decision here) in Louis Vuitton Malletier v. Dooney & Bourke, Inc.

Here’s the “money quote” as a once-great blogger taught me to say (citations and internal quotes omitted; link added) :

We turn next to the question of likelihood of confusion. . . . The similarity of the marks is a key factor in determining likelihood of confusion. To apply this factor, courts must analyze the mark’s overall impression on a consumer, considering the context in which the marks are displayed and the totality of factors that could cause confusion among prospective purchasers.’ The district court here noted that there were “obvious similarities” between the Louis Vuitton and Dooney & Bourke handbags. However, it determined that despite the similarities, the two marks were not confusingly similar. It appears the trial court made the same mistake that we crioticized in [the] Burlington Coat Factory [decision]: inappropriately focusing on the similarity of the marks in a side-by-side comparison instead of when viewed sequentially in the context of the marketplace. The district court reasoned:

[I]t could not be more obvious that Louis Vuitton uses the initials “LV,” while Dooney & Bourke uses its trademarked “DB” logo. Thus, a consumer seeing these trademarks printed on these bags, either up close or at a distance, is not likely to be confused. . . . [T]he Dooney & Bourke bags only use their “DB” initials; there are no geometric shapes interspersed with the monogram. . . . [T]he colors used on the Dooney & Bourke bag are noticeably toned down, and consequently fail to evoke the characteristic “friction” sparked by Murakami’s bright, clashing colors, the Louis Vuitton marks create a very different overall impression (i.e., large interspersed shapes and initials in crisp, bold colors) than the Dooney & Bourke bags (i.e., tightly interlocked initials in dulled colors).

Vuitton's pattern


We disapproved almost identical language in Burlington Coat Factory. Utilizing a side-by-side comparison can be a useful heuristic means of investigating similarities and differences in respective designs, so long as a court maintains a focus on the ultimate issue of the likelihood of consumer confusion. Courts should keep in mind that in this context the law requires only confusing similarity, not identity. Further, where, as here, the plaintiff claims initial-interest and post-sale confusion, market conditions must be examined closely to see whether the differences between the marks are likely to be memorable enough to dispel confusion on serial viewing. The district court erred because it based its determination that confusion between the Vuitton and Dooney & Bourke marks was unlikely at least in part on an overemphasized side-by-side comparison. This is suggested by the district court’s comment that no amount of expert opinion, legal analysis, or demonstrative evidence can overcome the clarity that comes from direct observation.

Read that excerpt again, then re-read it; then email it to your favorite federal judge — and your favorite client or prospective client, or non-specialist lawyer dabbling in trademark, who can’t understand why the PTO doesn’t understand the difference between his spelling that uses a “z” and the other guy’s pre-existing registration that uses an “s”.  Again:

Courts should keep in mind that in this context the law requires only confusing similarity, not identity. Further, where, as here, the plaintiff claims initial-interest and post-sale confusion, market conditions must be examined closely to see whether the differences between the marks are likely to be memorable enough to dispel confusion on serial viewing.

Got it? Read More…

District of New Jersey: Initial interest, other confusion okay in search terms claim

Originally posted 2006-07-19 20:45:27. Republished by Blog Post Promoter

Just when the Southern District of New York was hinting that it might be safe to go back in the water and stop worrying about “initial interest confusion,” a friend in a position to care a lot about the result passes along the just-out decision in 800-JR Cigar, Inc., v. GOTO.COM, Inc., from the other side of the water (the Hudson, that is). Salient points: Read More…

Best of 2010: “Drive-by infringement”

Originally posted 2010-12-15 08:00:28. Republished by Blog Post Promoter

The last couple of weeks of the year or so I always re-post, with typical humility, the “Best of 2010.”  I arrange it in a sort of month-by-month recapitulation.  It’s like having your whole life passing before your eyes right before you die, only you aren’t going to die.  Yet.

This year is no different.  But it’s better, see?  Because I’m going to start even earlier!  I’ll still do the month-by-month, but not until starting next week, see?  This week what I’ll do to avoid having to write new posts is … re-run some other ones!   In no special order.  Ones I like.  Great ones.  Best ones.  Well, ones with a lot of words and pictures that took so much work to put together in the first place that maybe if someone reads them this time I’ll feel a little better about it.

On the merits, this post full of words and pictures (and captions on the pictures — do you …. people … pay no attention at all?!) should have caused a societal sensation when it was first published on May 4, 2010.  Inexplicably, it didn’t.  This is your second chance, society. 

Coca-Cola Host of the Highways

Commuter Host

Steve Baird says initial interest confusion is “the real thing” and in the process  seeks to “add life” to Professor McCarthy’s famous “evil highway road sign” analogy:

Wagner's Coca Cola SignWhatever the criticisms might be to the doctrine of Initial Interest Confusion, including those detailed by our friends Ron ColemanMarty Schwimmer, and Eric Goldman, in the context of keyword advertising, the road-side restaurant sign shown [at left] definitely is “the real thing” for purposes of trademark initial interest confusion, in more ways than one:

It does depict the Coca-Cola brand, in all its glory, after all, so It’s The Real Thing, by definition.

And, unlike the very hypothetical scenario relied upon in the Wolf Appliance case, the above drive-in restaurant signage is real world and in current use, designed to attract attention, and has been for years, in fact, well after the business responsible for the sign dropped Coca-Cola for Pepsi. That’s right, “no Coke, Pepsi.” To twist Sean Penn’s words in I Am Sam, Wagner’s change was a “very bad choice,” at least in my humble opinion of taste.

Yeah, me too.  I used to think I liked Pepsi better.  Crazy!  It’s one more reason Steve and I are likethis.  More:

Last, it certainly is a good example of the Initial Interest Confusion doctrine at work.

Uh oh.  Like the old “Coke brings your ancestors back from the dead” story, I’m afraid this sincere run at resuscitating initial interest confusion is a grave error.  For now Steve would take us from the brand-laden anecdote and the cultural mix-and-match moment to — as if  he were a judge in a Lanham Act case! (some day, I’m sure!) — slapping some poor sap with legal liability over what’s probably just laziness, business logic or a little bit of both.  Here’s his real-life tale of interest, initially and heartbreakingly confused:

Minneapolis drivers on Highway 81 pull off the road for a great cheeseburger and a refreshing Coca-Cola, or in my case, Diet Coke. Only to find that there is no Diet Coke, or any Coca-Cola products for that matter, only Pepsi products. Drivers likely aren’t confused at the point of purchase, however, since the menu and interior soda fountain signage refer to Pepsi not Coke. Nevertheless, the exterior sign no doubt has steered more than a few thirsty types off the road over the years to end up purchasing Pepsi products, not Coca-Cola products.

Not me, however, I’m not even initially confused any longer, just annoyed with the change, and deciding with each visit, well in advance, to enjoy a chocolate malt instead of a soft drink, since I can’t have the real thing any longer at Wagner’s Drive-In II.

I’m not the first to say that, unlike a refreshing Coca-Cola® brand soft drink beverage product, this “detour of doom” argument leaves me flat.

Coca-Cola Sign of Good Taste

Lord, just show me a sign!

Read More…

Diversion, yes, but no

Originally posted 2009-11-26 08:30:51. Republished by Blog Post Promoter

Some people have all the luck in the Eastern District of New York.  Whereas me — I think I’ve got it coming to me right down the middle, and then it seems to get, I don’t know — diverted from me!

So some lawyers get assigned judges in the Eastern District of New York whose ideas about trademark law and, well, the Federal Rules of Evidence — and, actually, the Federal Rules of Civil Procedure have, well, um . . . okay, I won’t say.  But in their courtrooms this is the kind of thing happens to “unauthorized resellers,” regardless of the actual “law” stuff.

RDC BIG BEARDI know, regular readers are sick of hearing about the S&L case, but I’m just framing the story here, okay?  Stick with me.

And then there are other judges in that same court who actually not only get it, but really, really, really get it:  There’s no such thing as “diversion” of authentic, untainted merchandise by “unauthorized” resale on the Internet.  Whether or not the manufacuter of a product thinks you need a whole two years of community college or that certificate from beauty school to slather on hair goop or tanning sludge, that preference does not “run with” the over-hyped blech they sell.

So — still setting the stage here, stay with me! — Judge Leonard Wexler, in 2007, went this far to make that point, as reported here exactly two year agos from tomorrow:

L’Oréal maintains that to keep the value, integrity and status of the products, they are supposed to be sold only by company-trained professionals in fashionable salons. Matrix alone “has been the number one professional hair brand on the market, with an estimated 16 percent market share,” L’Oréal said in court papers.

Quality King and Pro’s Choice, however, were obtaining the products in violation of the injunction by buying them, or, as it is called, diverting them, from middlemen and reselling them to nonqualified dealers, L’Oréal contended.

Diverting attention

Diverting attention

In his opinion, Wexler declined to enforce the old injunction, in effect, throwing out L’Oréal’s case against the two companies.

The judge said that if L’Oréal wanted seriously “to stop diversion of Matrix products,” it could terminate those of its distributors who are the sources of the diverted products.

He actually declined to enforce the old injunction, did Judge Wexler, because it would have actually been, well, wrong to!  Because of the law stuff.

Isn’t that enough mazal for Quality King?  Can’t some other lawyers in other courtrooms in that District have some of that good fortune?

No!  Evidently, on appeal of the earlier decision, the Second Circuit affirmed his vacatur (cancellation) of the injunction going forward, but remanded for further determination of whether the injunction should be not only — not “only”! — vacated, but also “terminated,” i.e., retroactively time-traveled into non-ever-existence.

So once more comes Matrix, the plaintiff, and with them this time big guns from the collossal Weil Gotshal, a real New York law firm this time.  So, was it a good idea to spend a good 50% more on fees (not to mention their markup on donuts!) to make the same arguments? Read More…

Designer Skin v. S&L Vitamins trial update

Originally posted 2008-07-17 11:39:17. Republished by Blog Post Promoter

The remaining issues in the case, you may recall, were copyright infringement and Arizona unfair competition. Here is the status per this morning’s minute entry in the court’s electronic case filing docket:

Minute Entry. Proceedings held before Judge James A Teilborg on 7/16/2008: Jury Trial – Day 2 held. Plaintiff’s case continues. Evidence and testimony presented. Plaintiff rests. Defendant rests. The Court grants defendant’s oral Rule 50 Motion as to statutory damages, actual damages and unfair competition claim. The Court grants defendant’s oral Rule 50 motion to dismiss defendant Lawrence Sagarin as a defendant. The remaining issue in the case is the injunction issue. Closing arguments. Jury deliberations. Jury to return at 9:00 a.m. 7/17/2008 to resume deliberations. (Court Reporter David German.) (TLB )

A tad terse and bloodless — quite unlike how trial has gone.  Not terse or bloodless at all.  [UPDATE:  Here's the transcript.  Dismissal of the damages claims were stipulated; see the ruling from the bench at page 124 of the PDF for the ruling as to Sagarin.]

“The Court grants defendant’s oral Rule 50 Motion as to statutory damages, actual damages and unfair competition claim” means “The Court grants defendant’s’ oral motion to dismiss Designer Skin’s claims for statutory damages, actual damages and unfair competition. (Earlier on the court declined to take our “suggestion” of a lack of copyright jurisdiction.)

So, so far: No damages, no plaintiff attorneys’ fees in play. Jury (advisory per Rule 39(c) of the Federal Rules of Civil Procedure; injunction against further use of Designer Skin’s “electronic renderings” is not a jury issue, but they are charged with deciding whether there was copyright infringement) is out; they return this morning, Phoenix time, at 9.

We will update and backfill…

UPDATE: The jury returned a verdict of infringement on 42 of the 54 copyrights. In post-verdict interviews, interestingly, the jurors reported they would have awarded no damages, or nominal damages, had the judge permitted them to consider damages. (Per the above the damages claims were dismissed.) The jurors rejected the idea that a manufacturer is entitled to damages in connection with the sale by third parties of merchandise the manufacturer already sold once before, regardless of the legal theory. This came as quite a surprise to the plaintiff’s legal team, whereas the advisory verdict of infringement (which the court indicated he would adopt) was not particularly surprising to us… considering.

RELATED POST: Two Cities.

Legal in Phoenix, liable in Central Islip

Originally posted 2009-01-21 18:24:42. Republished by Blog Post Promoter

UPDATE: All the below is still very relevant, very important and very significant — except as to the final judgment, which has been vacated by consent and replaced with this Agreed Injunction and Order.

D'Amato Federal courthouse EDNYMy client S&L Vitamins and I just suffered a devastating loss in its Eastern District of New York litigation against Australian Gold (now owned by a holding company called New Sunshine, LLC) after a five-day jury trial on claims by AG for tortious interference with contract and trademark infringement.  I posted both sides’ trial briefs here.  The jury instructions in the Australian Gold case are here.  I will post more documents later.

Before sharing the verdict and recounting some extraordinary highlights of the trial, here’s some background.  I am focusing on the contrast between this outcome and the mirror-image rulings on virtually identical operative facts in the Designer Skin case, discussed below, also involving my client — not because it must be the case that the court in Designer Skin was right and the court in Australian Gold was wrong, but to point out the utter inconsistency of these rulings and the impossibility of doing business in such a legal environment: Read More…

Designer Skin v. S&L continued: “S&L had a perfect right to sell this product”

Originally posted 2008-07-18 13:50:34. Republished by Blog Post Promoter

Unfortunately for future defendants in the position of our client, Internet retailer S&L, U.S. District Judge James Teilborg’s decision from the bench in the District of Arizona dismissing the damages claims of suntan lotion manufacturer Designer Skin will not be officially published, being an oral opinion. Well, it will not be published unless and until it is quoted and affirmed by the Ninth Circuit, which a Designer Skin lawyer has promised will happen soon — though not exactly in those words. (Earlier post here.)

Bronze AnarchyFortunately we can mitigate some of the sting of the lack of officially published precedent, for now, and on our electronic mimeograph machine “publish” that opinion. The ruling is below; an example of the subject “electronic renderings” is at left; the transcript of the entire colloquy, including the striking of the would-be “damages” testimony of the company’s president, Beth Romero, and the argument of counsel can be downloaded here.

Disclosure: Neither counsel nor court had prepared particularly thoroughly for these oral motions or the ruling from the bench, which came up earlier in the proceedings than had been anticipated for reasons we will discuss next week. Therefore, in contrast to a situation where one can read each side’s thoroughly researched and argued written briefs and then a meticulously sourced judicial opinion, the oratorical edges in the transcript linked to above as well as the opinion also set forth below may appear somewhat rough all around. Be kind to all of us as you consider them.

The Court has, obviously, heard the evidence and heard the arguments of counsel and I have previously granted the motion to strike certain of the damage evidence from Miss Romero and set forth my reasons why. The Court has now granted the unopposed motion to dismiss the claim for statutory damages. I now grant the Rule 50 motion with respect to actual damages on the bases that there has been no showing of actual damages suffered as a result of the alleged copyright infringement.

As I pointed out earlier, there has been a witting or unwitting conflation between the alleged lifting of the electronic image from Designer’s website and pasting it on the S & L website, and yet we’ve heard virtually all the evidence, in fact, I think it’s fair to say all the so-called damage evidence, directed at product. In other words, the difference here is between the alleged copyright infringement in connection with the image and the product distribution issues.

It is clear that the beef, if you may, on the part of the plaintiffs is the selling of product by S & L, and we’ve heard evidence in terms of how much money Designer has spent in their product development, how much they’ve spent in their product image, the money they’ve spent in their diversion program, and it would appear that is all directed at seeking out product distributors such as S & L.

But even if one could assume that somehow it is to seek out and take action against a copyright infringement of its images, there is no basis for this jury or any reasonable jury to attempt to connect how much of those expenditures are connected to the images themselves as opposed to the product distribution issues. Read More…

Aw, shucks

Originally posted 2008-06-12 12:50:01. Republished by Blog Post Promoter

We already covered the Designer Skin v. S&L Vitamins summary judgment decision, and linked to commentators Greg Beck, Bill Patry, Rebecca Tushnet, Eric Goldman and Jason Lee Miller.

But it’s positively nerve-wracking reading the commentary of someone like Evan Brown! ;-)

Best of 2010: Gucci v. Frontline Processing: Giving credit for infringement where it’s due

Originally posted 2010-12-28 08:30:01. Republished by Blog Post Promoter

First posted July 12, 2010.

This is an adaptation of a summary and analysis of the recent decision in Gucci America, Inc. v. Frontline Processing Corp., 2010 WL 2541367 (S.D.N.Y.), discussed here casually earlier. Jane Coleman’s definitive online treatise Secondary Trademark Infringement has recently been updated and the impact of this decision integrated into the text; a full update is planned for September. The complete analysis of Gucci, including full citations, can be found here.

The essential role played by credit card companies in online trademark infringement was recognized in Gucci America, Inc. v. Frontline Processing Corp. In that case, the court allowed contributory infringement claims to go forward against companies that had established credit card processing for an online counterfeit merchant. The payment for the counterfeit goods sold on its website was part of the infringing process, the court reasoned, drawing on Judge Kozinski’s dissent in Perfect 10, Inc. v. Visa Intern. Serv. Ass’n, and most of the infringing sales – of which the companies allegedly knew or should have known – were consummated using credit cards.

Gucci v. Frontline arose out of successful trademark infringement litigation brought by Gucci, the well-known manufacturer of luxury goods, against an online merchant operator of a website called “TheBagAddiction.com,” in which the owners admitted to liability for selling counterfeit Gucci products. Thereafter, Gucci turned to the three companies that had helped the merchant obtain credit card services, alleging both vicarious and contributory liability for trademark infringement. One of the three defendants, Durango Merchant Services acted as a middleman, while the other two, Frontline Processing Corporation and Woodforest National Bank, provided credit card processing services to the merchant.

In rejecting the defendants’ motion to dismiss, the court allowed the contributory liability claims to go forward as to all three defendants, but on different legal theories in accordance with their roles. As to Frontline and Woodforest, the court found the pleadings sufficient to allege contributory trademark infringement, based on their knowledge and control over the infringing activity on the website. As to the middleman, Durango, the court found the pleadings sufficient to allege contributory infringement based on an inducement theory.

As to Frontline and Woodforest, the court also found the pleadings stated a claim for contributory trademark infringement, based on the defendants’ knowledge and control over the infringing activity on the website. Citing eBay and Perfect 10, the Gucci court reiterated the direct control and monitoring test, stating that

[e]ven if a defendant does not seek out and intentionally induce a third-party to commit trademark infringement, it may still be held liable for the infringement if it supplied services with knowledge or by willfully shutting its eyes to the infringing conduct, while it had sufficient control over the instrumentality used to infringe.

Moreover, an allegation of the defendants’ general knowledge that infringement is taking place is not sufficient. “[A] service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods,” the court emphasized, citing further language in Tiffany that “’Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.’”

Both credit card processing companies either knew or should have known that they were servicing an infringing site, under the facts alleged, the court concluded. In both cases, a Durango agent had a dual role as both an employee of his company and a sales representative for the two credit card companies, and the court consequently accepted the allegations charging the companies with his knowledge. Thus, regarding Frontline, Gucci alleged that that company was aware of customers’ written acknowledgement of purchasing “replicas” as directed by the Durango agent. Read More…