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Counterfeits, Trademark Infringement, and Contributory Liability: Your Vendors are Your Problem

Written by: Susan Neuberger Weller

 Counterfeit goods seem to be everywhere, and efforts to police their ubiquitous existence often seem futile. However, a recent decision involving counterfeit Coach products should inspire those who host vendors of counterfeit products to rethink their business strategy.

Last month, the US Court of Appeals for the Sixth Circuit in Coach, Inc. et al v. Frederick Goodfellow , no. 12-5666 (6th Cir. 2013) confirmed a district court’s award of $5,000,000 in damages and an additional $186, 000 in attorneys’ fees to Coach for a flea market owner’s failure to stop his vendors from selling counterfeit Coach goods. The flea market owner operated as a sole proprietorship and rented 75-100 booths to vendors at a rate of $15 per day Thursday through Sunday each week, and also rented storage containers to vendors for their goods. The owner had received letters from Coach and the local district attorney regarding the counterfeit sales, and law enforcement officers made multiple raids on the flea market before and after Coach filed suit, seizing more than 4600 counterfeit Coach product. The owner admitted knowledge of both the letters and the raids, but he never expelled or rejected vendors for selling counterfeit products, never questioned or required confirmation of the authenticity of their goods, and never required licenses for sale of the products. The owner did take some small remedial and intermittent measures such as distributing pamphlets and posting notices.

The issue before the court was whether the flea market owner could be held liable for the infringing acts of others. Although finding that the owner could not be held vicariously liable for the vendors’ counterfeiting activities (since there was no showing that he and the vendors were in a partnership relationship or had authority to bind one another or to exercise joint ownership or control of anything), the court upheld a finding of contributory liability. Contributory liability exists when a third-party facilitates trademark infringement by another. As the US Supreme Court stated in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 US 844, 854 (1982), where “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 as a result of the deceit.” Since the owner of the flea market provided rental booths and storage units to vendors that he knew or had reason to know were engaging in trademark infringement, he was supplying a “product or service” under the liability standard. As the court stated, since the owner “continued to supply flea market resources to vendors with knowledge of and willful blindness toward ongoing infringing activities,” he facilitated the continuing infringing activity and must bear responsibility for his actions.

Contributory liability for trademark infringement is not limited to brick and mortar marketplaces, and has been applied to sales on the internet. Thus, online retailers who sell third-party products should be diligent in taking measures to ensure that counterfeit products are not available on their sites. Moreover, manufacturers who knowingly continue to manufacture counterfeit goods for third parties can also be held contributorily liable.

As the ancient Roman playwright Titus Maccius Plautus said “He who seeks for gain, must be at some expense.”  Unfortunately, the flea market owner found this out the hard way. At $15 a booth per week, it will take a very long time to satisfy the judgment entered against him in this case. Thus, “willful blindness” is not an option when it comes to involvement with those who infringe upon the trademarks of others, so you are well advised to keep your head out of the sand.

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Susan Neuberger Weller manages the Trademark & Copyright Practice at Mintz. Susan assists clients with securing and protecting IP assets across the globe. She's worked with clients in a variety of industries, including pharmaceuticals, medical devices, software, electronics, and entertainment.