Tabberone is pronounced tab ber won
not tay ber own

Trademarks and Unfair Competition Committee

March 2003

The concept of "knowledge" of infringement, however, was soon expanded, in a critical series of cases. In Hard Rock Cafe Licensing Corp. v. Concession Svcs., Inc.,21 the Seventh Circuit extended the Inwood test for contributory trademark liability to the operator of a flea market. The court stated that a flea market owner and operator can be held contributorily liable for sales of counterfeit products by a market vendor if the owner knew, had reason to know or was "willfully blind" to the infringing sales.fn22 While the court found it to be axiomatic that a company “is responsible for the torts of those it permits on its premises ‘knowing or having reason to know that the other is acting or will act tortiously,’”fn23 it also stated that there is no affirmative duty to take precautions against the sale of counterfeits. The court refused to hold the flea market vicariously liable for the infringement because, in that case, the defendant and the infringer had no apparent or actual partnership, had no authority to bind one another in transactions with third parties and did not exercise joint ownership or control over the infringing product. Nevertheless, the implication in this case was that, had some or perhaps all of these factors been present, Hard Rock Cafe’s broader vicarious liability argument may have been successful. While demonstrating the presence of these factors to prove vicarious infringement may be a difficult burden for trademark holders to meet under the circumstances surrounding online auction sites, the likelihood of successfully proving contributory infringement is far greater. 21 955 F.2d 1143 (7th Cir. 1992). In this case, the owner of trademarks for HARD ROCK CAFÉ on apparel brought suit against a vendor at an Illinois flea market for selling counterfeit goods, as well as the flea market owner for its vendor’s infringement.

fn22 Id. at 1149.
fn23 Id. quoting Restatement (Second) of Torts § 877(c) & cmt.d (1979).

The next significant decision in this area was Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996). in which a record company brought suit for trademark infringement against the operators of a swap meet at which vendors sold counterfeit music cassettes. The Ninth Circuit, citing the decision in Hard Rock Cafe, held that the swap meet could be held liable for contributory trademark infringement.fn25 The court, reaffirming the notion that “willful blindness”fn26 satisfies the knowledge prong of the contributory infringement test, stated that a swap meet that is supplying the necessary marketplace cannot disregard its vendors’ blatant trademark infringements with impunity. By analogy to Fonovisa, it would appear that trademark holders could attempt to meet the willful blindness test and build a case for proving “willful blindness” by routinely providing notice letters to online auction sites informing them of counterfeit merchandise being auctioned on their sites. Thus, contributory trademark infringement could at least theoretically be established if sufficiently specific notices are ignored and an online auction site continues to allow its site to be used to conduct known infringing activities.

In Polo Ralph Lauren Corp. v. Chinatown Gift Shop,fn27 Polo Ralph Lauren Corp., Rolex Watch U.S.A., Inc., and Louis Vuitton brought suit against three retailers and their landlords for the sale of counterfeit goods bearing the three companies’ trademarks. To support their claim of contributory trademark infringement against the landlords, the plaintiffs contended that the landlords were providing their tenants with a safe haven and marketplace to engage in the sale of counterfeit goods; that the tenants had been openly selling the counterfeit goods with impunity; and that the landlords had knowledge of their tenants’ illegal acts and that their premises were being used for such unlawful trade.fn28 The court denied a motion to dismiss brought by one of the defendants, holding that under Inwood and Hard Rock Cafe, the plaintiffs stated a cause of action for contributory trademark infringement against the landlord.fn29 In addressing liability under the Lanham Act, the Polo Ralph Lauren court observed that “a landlord is neither automatically liable for the counterfeiting of a tenant, nor is the landlord automatically shielded from liability. The question of liability depends on the circumstances.”fn30 The court held that the landlord had a responsibility under both federal and state law, commencing at the time it received notice from the plaintiffs regarding the counterfeiting, to take “reasonable steps to rid the premises of the illegal activity.”fn31 Thus, this decision seems to indicate that a court may require that a trademark holder prove that the landlord’s failure to act is the proximate cause of the trademark holder’s damages.

fn25 The bulk of the Fonovisa decision discussed secondary copyright liability. This analysis has been significantly affected by the enactment of the DMCA (see infra). For a detailed discussion of how Fonovisa would have affected ISPs had the DMCA not been enacted, see Kenneth A. Walton, Is A Website Like A Flea Market Stall? How Fonovisa v. Cherry Auction Increases The Risk Of Third-Party Copyright Infringement Liability For Online Service Providers, 19 HASTINGS COMM. & ENT. L.J. 921 (Summer 1997). Also, for an in-depth analysis of Fonovisa with respect to anti-counterfeiting efforts in general, see Barbara Kolsun and Jonathan Bayer, Indirect Infringement And Counterfeiting: Remedies Available Against Those Who Knowingly Rent To Counterfeiters, 16 CARDOZO ARTS & ENT. L.J. 383 (1998).
fn26 As explained in Hard Rock Cafe, in order to constitute willful blindness, a person must “suspect wrongdoing and deliberately fail to investigate.” Hard Rock Cafe, 955 F.2d at 1149 (citing Louis Vuitton S.A. v. Lee, 875 F.2d 584, 590 (7th Cir. 1989)). Additionally, such willful blindness constitutes knowledge under the Trademark Counterfeiting Act of 1984. H.R. Rep. No. 98-997, at 10.
fn27 855 F. Supp. 648 (S.D.N.Y. 1994).
fn28 The plaintiffs based their case upon several civil seizures of counterfeit goods at each of the retail locations, followed by notice letters to the landlords regarding the tenants' illegal sale of counterfeit goods. After receiving no response from the landlords to these letters, the plaintiffs commenced litigation. The retailer defendants defaulted and the plaintiffs secured a substantial default judgment against them. Id. at 650.
fn29 Id. at 648.
fn30 Id.
fn31 Id.

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