Richemont-Tradekey Contributory Trademark Infringement

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A new judicial decision has further defined the shady world of secondary trademark infringement, whereby Web site owners and operators can be held liable for the infringements of their users. Luxury conglomerate Richemont, whose brand catalog includes Cartier and Montblanc, won a case preventing Tradekey, the world’s second-largest business-to-business trading platform, from dealing unauthorized knockoffs of Richemont’s trademarked goods, potentially reversing a major hurdle facing brand owners from precedent set just three years ago.

Before Richemont, a series of cases carved the contours of contributory trademark infringement. The basic test for contributory trademark infringement is simple: a manufacturer or distributor can be liable for supplying its product to a third party if it knows or has reason to know that the product is being used to infringe and yet continues to supply the product to the infringer. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982). The “has reason to know” prong prevents an Internet distributor such as Tradekey simply from burying its head in the sand; constructive knowledge that infringement is likely occurring is the same as actual knowledge – and both require the distributor to do something to fix it.

Nearly thirty years later, Tiffany Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010), struck a victory for service providers and distributors like Tradekey, as it established that trademark owners must monitor for counterfeit items when their products are sold in an online marketplace – an onerous and expensive task. The court’s reasoning refined the “knows or has reason to know” test, admonishing that a service provider must have more than a general knowledge or reason to know that its Web site is being used to sell counterfeit goods. Moreover, eBay wriggled away from liability by showing that it suspended the accounts of specific users who were trafficking in counterfeit goods on the eBay marketplace.

Secondary copyright infringement law also includes a determination of the service provider’s reaction to notification of infringement. Peer-to-peer file sharing system Grokster, for instance, was guilty of contributory copyright infringement because its technology was not only not “capable of substantial noninfringing uses,” the secondary copyright infringement test set forth in of Sony v. Universal City, 464 U.S. 417 (1984), but its nearly sole purpose was to circumvent copyright restrictions that forced individual users to pay for content such as music files. Grokster left Web site owners with a new test for contributory copyright infringement: “[O]ne who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” MGM Studios v. Grokster, 545 U.S. 913 (2005). Grokster made it quite clear: computer system operators must not provide services for the specific purpose of circumventing intellectual property laws, and they should certainly not admit that the purpose of their Web sites and servers is to do so. Yet Grokster – and, the Richemont court found, Tradekey – did exactly that.

Though Tradekey was found liable for contributory trademark infringement under the Inwood Labs standard rather than contributory copyright infringement under the Sony/Grokster standards, the essential conduct giving rise to liability is quite similar. To boot: a Tradekey employee told a Richemont investigator that “it did not” have a problem selling counterfeit goods and that Tradekey “relies” on the “replica industry” for a “whole lot of revenue.” This revelation combined with Richemont’s discovery of more than 6,000 unauthorized sellers of Richemont replicas on Tradekey’s site led the judge to drop a hammer on Tradekey – barring the site from selling Richemont-marked goods, prohibiting the use of Richemont’s trademarks in any of Tradekey’s search engine metadata, ordering Tradekey to institute compliance mechanisms, and requiring Tradekey to police its site for counterfeits.

These actions – along with what should be the obvious lesson of don’t sell unauthorized replicas of trademarked goods – lay out the proper protocols for avoiding contributory trademark infringement for service providers. Whereas eBay couldn’t be held liable for counterfeit items sold by third parties that move across its platform because it was responsive to notifications of trademark infringement, Tradekey’s entire business model appeared to be predicated on actively promoting and facilitating the sale of counterfeit goods. The ruling and the set of contributory intellectual property infringement cases in both trademark and copyright law therefore highlight the importance of mechanisms to monitor and restrict illicit, unauthorized use of another company’s trademarks and copyrighted materials. It also shows that American trademark registration can prevent piracy all over the world; Tradekey is based in Pakistan, but its user base includes Americans, bringing the site under American federal jurisdiction.

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