Source: https://500law.com/counterfeit-knock-off-goods-sold-online-battle-prevent-trademark-infringement/
Timestamp: 2019-04-22 16:22:24+00:00

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Even before the United States was formed, businesses already recognized the importance of brands in everyday life. Today, this is especially true in the Internet and smartphone world where its 3 Billion users worldwide can shop through electronic commerce (“e-commerce”) markets like eBay.com, Amazon.com, Craigslist.com, along with many others. Indeed, reputations for quality provide strong preferences for consumers when they select which product will function best or which fashion catches the most attention. With over eighty percent of Americans using the Internet daily, it comes with little surprise the World Intellectual Property Organization (“WIPO”) has observed unprecedented levels of brand investing and trademark applications by businesses worldwide. By tailoring their business to serve consumers through the Internet, companies take on a broker-like role, bringing buyers and sellers together while keeping a commission for the transaction. eBay, Inc. (“eBay”), for instance, is one of the largest global online markets and offers more than 700 million items for sale.
Unfortunately, the Internet and online marketplaces have similarly created opportunities for counterfeiters to exploit legitimate businesses. The Internet has also led to complex challenges for businesses and their brands when attempting to enforce their intellectual property (“IP”) rights against thousands of counterfeit merchandise sold daily.  Businesses must quickly locate and disable trademark-infringing merchandise on the Internet, in the interest of protecting their (1) quality-control efforts; (2) good will; and (3) revenue.  Massive financial losses have left trademark owners with questions on how to hold the enablers––such as Internet service providers (“ISPs”), marketplace websites, and domain name registrars, to name a few––contributorily liable for the trademark-infringing activity of their users. This Article, however, explains why heightened legal standard create challenges for companies when attempting to hold online marketplaces liable for counterfeiting activity going on through their websites.
This Article begins by stepping the reader through the growth of the Internet and its e-commerce, in comparison to the growth of counterfeit goods. Next, the Article reviews current U.S. trademark law with a specific focus on the doctrine of contributory trademark infringement as applied to the Internet. By briefly highlighting liability found in foreign courts, notably, this Article explains why the current state of U.S. trademark law fails to effectively protect the marks of U.S. businesses against infringing products sold online. Lastly, this Article concludes by reinforcing the substantial harm done by counterfeiting while suggesting that Congress reform the Lanham Act to include legislation similar to the Digital Millennium Copyright Act (“DMCA”) under the Copyright Act.
Looking to the financial growth of Wal-Mart Stores, Inc. (“Wal-Mart”), known for its big-box retail stores, and Amazon.com, Inc. (“Amazon”), known for its marketplace website, it is axiomatic there has been a shift from traditional shopping to e-commerce shopping. Though Wal-Mart operates more than 4,000 stores across the U.S., its online revenue of $5.3 billion only accounted for less than three-percent of its overall growth during 2013; Amazon exceeded $68 billion.  No surprise that with little room for physical expansion in the U.S., Wal-Mart recently announced its investment of $430 million into their “global-technology platform.” Also, companies like Amazon, eBay, and Craigslist, create online marketplaces where sellers can list goods directly viewable by buyers. Increasing numbers of smartphone users, making mobile e-commerce quicker and easier to access, further contributes to the growth of e-commerce. In less than ten years, for instance, Groupon, Inc. (“Groupon”) grew internationally by simply connecting merchants and consumers through its mobile application and website; attributing, in 2013, over half of its global sales (over $2.6 billion) to mobile transactions.
The Internet poses a tremendous threat to a company’s business and reputation as Internet sales of counterfeit merchandise have also skyrocketed. With its relative ease of access and anonymity, it comes with little shock that counterfeit sellers will exploit online marketplaces. While the victims range broadly, from electronics to pharmaceutical businesses; companies selling luxury apparel, jewelry, and women’s handbags, often suffer the biggest impact of counterfeit goods.
In 2013, U.S. Customs reported over 24,361 seizures (an average of sixty-six per day), with an average value of $71,500. Common seizures include merchandise bearing the trademarks of Prada, Christian Dior, Michael Kors, among many others. Apart from the economical harm, counterfeits are dangerous. While consumers desire low prices, counterfeits are made with “cheap, substandard, and dangerous components that put the health and safety of consumers at risk.” For instance, the World Health Organization noted that only one percent accurately copied the original; and, one out of ten of every medication or pharmaceutical sold online is believed to be counterfeit. Counterfeiters bypass taxes, and the public suffers all resulting ripple effects. Lastly, counterfeiting is illegal, and consumers purchasing such goods not only support illegal activity but also often contribute to organized crime and terrorism.
In a trademark infringement claim, the owner of a trademark must generally prove that the defendant used (in commerce) his or her mark; which likely caused confusion, and with an intent to cause confusion, mistake, or deception.” Remedies may include: (1) lost profits, (2) compensation for harm or damage sustained, (3) the costs of the lawsuit, (4) attorneys’ fees, (5) statutory damages, and/or (5) injunctive relief.  Where that person acted willfully or intentionally in counterfeiting, courts will treble damages or heightened statutory awards.
The plaintiff in any action for contributory liability must first establish direct trademark infringement. The federal courts created the doctrine of contributory infringement, which imposes indirect liability on third parties who facilitate or encourage direct trademark infringement. Due to the difficulties associated with pursuing counterfeiters (i.e. direct liability) often located in foreign nations, trademark owners sue companies (i.e. contributory liability) that provide the Internet services facilitating them.
Also, in 2011, the Ninth Circuit in Louis Vuitton Malletier v. Akanoc Solutions found three California-based ISPs contributory liable for damages of over $32 million for hosting websites used by Chinese sellers to sell counterfeits that infringed Louis Vuitton’s trademarks. In that case, Louis Vuitton, the exclusive U.S. distributor of its luxury merchandise, discovered websites selling trademark-infringing merchandise from China, and the company sued inter alia for contributory trademark infringement after the ISPs failed to act upon receiving eighteen Notices of Infringement (“NOI”). Louis Vuitton argued the defendants deliberately disregarded the NOIs, knowingly avoided learning of the infringing activities, and willfully permitting websites to display the products.” The Ninth Circuit affirmed, holding the ISPs maintained direct control over the “master switch” that kept the websites online and available. Rejecting the ISPs assertion that a finding of intent was required, the Ninth Circuit noted constructive, willful blindness or actual knowledge sufficed for liability.
In contrast, in three recent lawsuits against eBay, the opposite approach to secondary liability taken by French courts (finding contributory liability) to U.S. courts (finding no contributory liability) illustrate the difficulties U.S businesses face under the doctrine of contributory liability as applied to online marketplaces. Interestingly, the facts of the United States case are substantially similar to the French cases: luxury-goods trademark owners sue eBay for contributory trademark infringement for the sale of counterfeit goods through eBay’s website.
First, in Tiffany (NJ) Inc. v. eBay Inc., Tiffany & Co., the famous jeweler, attempted to hold eBay liable for sales of thousands of its counterfeit jewelry sold by eBay users. Tiffany’s central allegation was that eBay knowingly facilitated the sale of counterfeit Tiffany jewelry and continued to supply its service while knowing or having reason to know that such sellers were infringing. Tiffany also argued eBay encouraged the infringement by advertising the availability of cheap Tiffany’s jewelry on search engines such as Google or Yahoo!.
Tiffany pointed out that eBay was in the better position to police for infringement given eBay received fees from every transaction and provided its users with assistance in marketing and adverting. Tiffany further claimed eBay was on notice subsequent to Tiffany sending thousands of NOIs that a problem existed throughout its website, and accordingly, eBay had the obligation to investigate and control the illegal activities of these sellers by preemptively refusing and suspending sellers who offer goods flagged by Tiffany as potentially infringing activity. Lastly, Tiffany highlighted evidence indicating over 75% of the merchandise sold on eBay was counterfeit, thereby providing sufficient notice of the massive counterfeiting problem.
Conversely, eBay argued that it spent over $20 million per year in providing intellectual property owners a notice-and-takedown policy to report listings of counterfeit merchandise under its Verified Rights Owner (“VeRO”) program. Under that program, eBay generally removed a listing within twenty-four hours and utilized software to automatically remove certain infringing listings. Also, with respect to policing, eBay argued Tiffany bore the burden to monitor the eBay website for counterfeits and to bring counterfeits to eBay’s attention.
The lower court concluded eBay was not contributorily liable for trademark infringement because (1) its general knowledge did not meet the “high burden in establishing knowledge” and (2) eBay took proactive steps to cut off the service supply whenever it received knowledge. On appeal, the Second Circuit affirmed, concluding (1) generalized knowledge was insufficient to hold eBay liable for contributory infringement, and (2) in order for Tiffany to establish the “knows or has reason to know” requirement for contributory infringement, Tiffany needed to establish that eBay had knowledge of specific instances beyond those in which Tiffany reported.
On the other hand, eBay lost both cases in France. In the first case, Hermes sued under French law after discovering its user sold counterfeit products bearing its mark seeking to hold eBay jointly liable for the infringement; though the legal standard is similar to Inwood. In considering eBay as an active provider of tools and services, the court found eBay liable because of its substantial role in facilitating these online exchanges. When providing its services, the court further found eBay bore the responsibility for policing its own site for illegal activity, and it had the burden of implementing effective anti-counterfeiting measures such as requiring sellers to provide an item’s serial number, type number, or certificate of authenticity, largely in part because the court suggested that eBay acted as a broker and therefore must ensure bonafide transactions between buyer and seller.
Just a few weeks later, in Louis Vuitton Moet Hennessy (“LVMH”), eBay was again found liable. There the court determined eBay was a brokerage because it was an intermediary between buyers and sellers, it promoted sales on its site, and it played an active role in the sales process in order to generate its own commission. Also, eBay derived profits from engaging in commercial activities, and therefore could not claim in did not have knowledge or control of the infringing activity. Lastly, the court determined eBay should have taken preemptive steps such as requiring sellers to provide a certificate of authenticity. Notably, both courts found eBay’s VeRO program an insufficient means to combat counterfeiting on its website.
Also in 2013, and contrary to the Second Circuit in eBay, the Tenth Circuit in 1-800 Contacts v. Lens.com found that a trademark owner could satisfy the Inwood test for knowledge, despite whether the website knew the identify of specific infringers, if the website could but failed to take proactive remedies under modern technology to communicate to its users and deter infringing activities. Albeit not an online marketplace, the 1-800 Contacts court applied and expanded the rationale of contributory infringement in flea markets when affirming that a website had an obligation to investigate to determine which users were infringing if doing so did not interfere with the services of lawful conduct by its users. The Tenth Circuit’s proactive measures coupled with the French court’s finding of liability and requiring that eBay take additional steps, highlight the inability of trademark owners to effectively apply Inwood to online marketplaces.
Congress has previously reformed IP laws to clarify the rights of IP owners in light of the Internet while attempting to preserve its freedom. For example, in its response to domain name cybersquatting, Congress enacted the Anticybersquatting Consumer Protection Act under the Lanham Act, which generally creates civil liability for the unauthorized registration of an Internet domain name that is identical, confusingly similar, or dilutes another’s trademark. Further, under section 230 of the Communications Decency Act, Congress protects ISPs from tort liability, such as defamation, due to the massive amounts of information generated daily by its third-party users. Lastly the DMCA, (Digital Millennium Copyright Act) protects ISPs from copyright infringement provided the ISPs follow prescribed steps in removing copyright infringing material upon notice.
Companies within the U.S. must overcome an extremely high bar to hold an online marketplace liable. This is especially true given many companies, at least at their onset, may not have the resources to meet the Second Circuit’s requirement, for instance. Also, if eBay did not suffice for knowledge, the current state of the U.S. law essentially bars any trademark owner from proving the requisite knowledge because Tiffany sent eBay thousands of NOIs. Without sending a NOI, Tiffany would have no chance to prevent any items sold instantly under eBay’s “But-It Now” option.
As such, Congress should revise the Act to provide more certainty for online marketplace liability when their users infringe trademarks. Supported by the massive shift from traditional to e-commerce shopping, the need for the United States to better protect its trademarks in a global e-commerce is necessary to protect both company and consumer. The Inwood test for knowledge, as applied to online marketplaces, severely undermines the purposes of trademark law and unfairly requires trademark owners to bear the burden of ferretting out infringement.
Building off the DMCA’s reactive measures to prevent infringement, Congress should enact legislation to the Lanham Act that also requires marketplace websites to implement proactive mechanisms to deter counterfeits. This is especially true since “modern technology enables one to communicate easily and effectively with an infringer without knowing the infringer’s specific identity.” To provide a few suggestions, the legislation should encourage marketplace websites to heighten its screening process and to require additional pop-ups informing users of penalties under trademark law in which the seller must select “I understand” prior to posting an item. Online marketplaces could also enact procedures or safeguards for those selling luxury goods to further attest to the items authenticity by providing some form of proof. To summarize, these provisions will help ensure the outdated U.S. trademark law can provide the much-needed protection in the growing age of the Internet.
 See, e.g., Elizabeth K. Levin, A Safe Harbor for Trademark: Reevaluating Secondary Trademark Liability After Tiffany v. Ebay, 24 Berkeley Tech. L.J. 491 (2009) [hereinafter Levin] (discussing the boom of Internet merchandise sale and its corollary of trademark infringement posed by online commerce websites).
 SEC, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, Groupon, Inc., Annual Report (Form 10-k) 1, 4 (Dec. 31, 2011).
http://www.ebayinc.com/sites/default/files/eBayInc_Q32014%20Fact%20Sheet.pdf (last visited Nov. 30, 2014).
 See, e.g., Robert W. Payne, Unauthorized Online Dealers of “Genuine” Products in the Amazon Marketplace and Beyond: Remedies for Brand Owners, 18 J. Internet L. 3, 7 (2014) [hereinafter Payne]; CBP, ICE Release Report on 2011 Counterfeit Seizures, U.S. Customs and Border Protection (Jan. 9, 2011) [hereinafter CBP, ICE Release Report on 2011 Counterfeit Seizures], http://www.cbp.gov/newsroom/national-media-release/2012-01-09-050000/cbp-ice-release-report-2011-counterfeit-seizures (discussing the increase of counterfeiting due to the Internet).
 These are steps in place by legitimate companies ensuring their products or services meet defined, quality test. See Jillian De Chavez, Building A Trademark Safe Harbor for Contributory Counterfeiting Liability After Tiffany v. Ebay, 86 St. John’s L. Rev. 249, 249-50 (2012) [hereinafter Chavez].
 Goodwill generally results in repeat business from previous customers because of loyalty towards the brand. Id.
 See James Ciula, What Do They Know? Actual Knowledge, Sufficient Knowledge, Specific Knowledge, General Knowledge: An Analysis of Contributory Trademark Infringement Considering Tiffany v. Ebay, 50 IDEA 129, 129-30 (2009).
 Payne, supra note 7, at 7.
Amazon vs. Walmart: E-Commerce vs. Omni-Channel Logistics, Forbes (Oct. 4, 2013, 3:38 PM), http://www.forbes.com/sites/stevebanker/2013/10/04/amazon-vs-walmart-e-commerce-vs-omni-channel-logistics/.
 SEC, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, Groupon, Inc., Annual Report (Form 10-k) 1, 4 (Dec. 31, 2013).
 Levin, supra note 1, at 491.
 United Nations Office on Drugs & Crime, The Globalization of Crime: A Transnational Organized Crime Threat Assessment 173 (2010) [hereinafter United Nations Office on Drugs & Crime], available at http://www.unodc.org/documents/data-and-analysis/tocta/TOCTA_Report_2010_low_res.pdf.
 CBP, HSI Release FY13 Intellectual Property Rights Numbers, U.S. Customs and Border Protection (Mar. 7, 2014) [hereinafter CBP, HSI Release FY13 Intellectual Property Rights Numbers], http://www.cbp.gov/newsroom/national-media-release/2014-03-24-000000/cbp-hsi-release-fy13-intellectual-property-rights.
About Counterfeiting, International AntiCounterfeiting Coalition, http://www.iacc.org/counterfeiting-statistics.html, (last visited Oct. 29, 2014).
 Id.; CBP, ICE Release Report on 2011 Counterfeit Seizures, supra note 7; Counterfeit Seizures, U.S. Customs and Border Protection (Jan. 9, 2012); United Nations Office on Drugs & Crime, supra note 30.
 Rudiger Lomb, Securing the Global Pharmaceutical Supply Chain against the Threat of Counterfeit Drugs, World Courier (June 1, 2014) (emphasis added), http://www.worldcourier.com/insights-events/market-insights/detail/securing-global-pharmaceutical-supply-chain.
 See Daniel R. Plane, Going After the Middleman: Landlord Liability in the Battle Against Counterfeits, 99 Trademark Rep. 810, 811-16 (2009) (discussing how counterfeiters, i.e., direct infringers, are but a small piece to a larger counterfeiting empire that utilizes the services of mainstream online service providers, shipping companies, and online sale platforms, to complete the counterfeit-good transaction to customers in the United States).
 Peter S. Menell & David Nimmer, Unwinding Sony, 95 Cal. L. Rev. 941, 971-72 (2007).
 15 U.S.C. § 1127 (2006).
 Qualitex Co. v. Jacobson Products Co., 514 U.S. 159, 163-64 (1995); see Two Pesos Inc. v. Taco Cabana, Inc., 505 U.S. 763, 781-82 (1992) (Stevens, J., concurring) (“The purpose of the Act is to protect legitimate business and the consumers of the country.”) (citation omitted); Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 855 (1982).
 Qualitex Co., 514 U.S. at 163-64.
 15 U.S.C. § 1114(1)(a) (2005); Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144, 152 (4th Cir. 2012).
 18 U.S.C. § 2320 (2012). To further understand the criminal penalties, see § 2320(b)-(c).
 15 U.S.C. 1117 (2008) (“In assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed.”).
 § 1114; Rebecca Dunlevy, Internet Immunity: The Limits of Contributory Trademark Infringement Against Online Service Providers, 22 Fordham Intell. Prop. Media & Ent. L.J. 927, 968 (2012) (discussing that the critical goal of trademark owners is to obtain an injunction against the counterfeit sellers) [hereinafter Dunlevy].
 Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144, 163 (4th Cir. 2012) (internal citations omitted) (examining the other doctrine of secondary liability: vicarious liability).
 The Lanham Act reaches trademark infringers based outside of the United States. See Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500, 503 (9th Cir. 1991) (noting the broad jurisdictional grant of the Lanham Act to any commerce lawfully regulated by Congress).
 See, e.g., Rosetta Stone Ltd., at 162-63; Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010); see also Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 125 S. Ct 2764, 2774 (2005) (“We hold that one 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.”).
 Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854 (1982).
 See Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1149 (7th Cir. 1992) (holding third-party vendors of flea markets liable under the Inwood test on the grounds of equating the Inwood test to common law tort, which finds a landlord or licensor liable for the acts of its tenant or licensee).
 Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 265 (9th Cir. 1996) (concluding that because the Inwood Court had “laid down no limiting principle that would require [a] defendant to be a manufacturer or distributor,” and because the “Hard Rock Café’s application of Inwood [to a landlord or licensor was] sound,” the Ninth Circuit likewise expanded the doctrine of contributory trademark infringement to hold the flea-market similarly liable).
 See, e.g., Coach, Inc. v. Farmers Mkt. & Auction, 881 F. Supp. 2d 695, 701 (D. Md. 2012) (denying a flea market owner’s motion to dismiss contributory trademark infringement claims when the evidence supported that the flea market owners knew or should have known and continued to facilitate the infringing activity by providing space, storage and failing to take any remedial measures despite continued infringing activity).
 See Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984-85 (9th Cir. 1999). In Lockheed Martin, the Ninth Circuit found the application of the Inwood test to flea market owners as landlord-like figures in Hard Rock and Fonovisa instructive for its application in cases where there is no physical product being supplied by the third party. Id. at 984.
 658 F.3d 936, 940-43 (9th Cir. 2011).
 Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936, 942-43 (9th Cir. 2011).
 See Chavez, supra note 9, at 268-70.
 Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 102-03 (2d Cir. 2010).
 Id. at 102-04. Though not as applicable for this Article, for a discussion on the doctrine of Nominative Fair Use, see id. at 102-03.
 Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 472-73 (S.D.N.Y. 2008).
 Because Tiffany maintained a general policy of refusing to sell five or more identical new items to any customer at any given time without a manager’s consent, Tiffany argued eBay needed to investigate and preemptively refuse and suspend any customer posting any listing that offers five or more Tiffany items. Id. at 469-73.
 Id. at 469. The district court noted “Tiffany and eBay alike have an interest in eliminating counterfeit Tiffany merchandise from eBay—Tiffany to protect its famous brand name, and eBay to preserve the reputation of its website as a safe place to do business.” Id.
 Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 469-70 (S.D.N.Y. 2008).
 Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 109-10 (2d Cir. 2010).
 Louis Vuitton Mallietier, supra note 88.
 See Hermes, supra note 90; Louis Vuitton Malletier, supra note 88.
 See id. at 1254; cf. Coach, Inc. v. Goodfellow, 717 F.3d 498, 504 (6th Cir. 2013) (emphasis added).
 1-800 Contacts, Inc.. 722 F.3d at 1254; see Coach, Inc., 717 F.3d at 504 (When the flea market operator had been informed that vendors were selling counterfeit goods, he was “properly held liable for contributory trademark infringement because he knew or had reason to know of the infringing activities and yet continued to facilitate those activities by providing space and storage units to vendors without undertaking a reasonable investigation or taking other appropriate remedial measures.”).
 15 U.S.C. § 1125(d) (2006).
 47 U.S.C. § 240(c)(1) (2000). “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Id.
 See 1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1254 (10th Cir. 2013).
 1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1254 (10th Cir. 2013).
 This should significantly help deter many of the more novice counterfeiters. Websites could also require that “genuine” items over a specified value amount need either a receipt posted with the item or a third party evaluation attesting to its authenticity.

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