Friday, November 12, 2010

Amazon not responsible for Associate's ad

Sellify Inc. v., Inc., 2010 WL 4455830 (S.D.N.Y.)

Sellify sued Amazon for state and federal false advertising/unfair competition. Sellify’s sole proprietor created OneQuality LLC with two partners, Meli and O’Connor. OneQuality buys used electronics and sells them on eBay or on its website, It earned six-figure profits in 2006 and 2007, though 2007’s profits were only half those of 2006. In late 2007, Meli decided to shut down the company, and it stopped restocking inventory; in 2008, its website and eBay store operated only minimally. Maki acquired the rights to the OneQuality brand and began operating the website and eBay store in 2009. Sellify's profits dropped to approximately $50,000 in 2009.

Amazon allows more than 3 million Associates to link to its site. If a customer comes to Amazon through an Associate link, the Associate earns a fee, usually around 4%, on items placed in the customer’s shopping cart within 24 hours. Amazon provides detailed training and assistance in designing ads, and allows Associates to use the Amazon trademark and logo in their ads. But Amazon doesn’t monitor or control the content of Associates’ ads (though its contract bars them from disparaging or infringing third party IP) or authorize Associates to act as its agents. If Amazon finds a violation of the contract, it issues a warning threatening to terminate the Associate’s account and withhold accrued advertising fees if the Associate persists, and it follows up on the threat where necessary.

Through early 2009, Associates could buy keywords for sponsored ads. In March 2009, an Associate, Cutting Edge Designs, bought “” and several close variants from Google. The triggered ad stated "Don't Buy from Scammers" or "Beware the SCAM Artists" and linked to the Amazon website. Though the ads indicated no source other than Amazon, Cutting Edge bought the ads without Amazon’s knowledge or consent.

Maki contacted Amazon’s Seller Central department, which told him that there was nothing that could be done about the ads. Sellify then threatened to sue Amazon, at which point Amazon told Cutting Edge about the complaint and threatened to close Cutting Edge's Associates account and withhold its accrued advertising fees if it did not stop running the ads. Amazon had no independent ability to remove the ads. After Sellify sent a second demand letter, Amazon terminated Cutting Edge’s account and withheld all unpaid ad fees; the keyword ads eventually stopped appearing. Sellify never contacted Cutting Edge or Google (though it’s not clear to me that the ads violated Google’s guidelines).

Sellify alleged $2.4 million in damages. In the six months the ads were active, they were viewed 1069 times and clicked on 61 times.

There was no direct liability for unlawful use of another’s trademark. Cutting Edge, not Amazon, designed and purchased the ads at issue. Courts in other circuits have recognized vicarious liability under the Lanham Act under theories of both actual and apparent authority. However, Sellify alleged insufficient facts to support either theory. Actual: the contract specifically disclaimed any agency relationship and expressly provided that Cutting Edge didn’t have the power to bind Amazon. Amazon didn’t control the form or substance of Cutting Edge’s ads and had no authority to remove them from the internet. “After being informed of the ads' existence in July 2009, Amazon exercised the only possible influence it had over them: breaking off contractual relations with Cutting Edge and withholding Cutting Edge's accrued advertising fees under the Operating Agreement. While these actions eventually led Cutting Edge to cease running the ads the following month, there is a wide chasm between such indirect contractual influence and the direct authority and control necessary for a finding of actual authority under agency law.”

Apparent authority exists when "a principal, either intentionally or by lack of ordinary care, induces [a third party] to believe that an individual has been authorized to act on its behalf." There was no evidence of this here. The contract allowed Cutting Edge to link to Amazon in its ads. But “standing alone, the mere act of allowing another to link to one's website, even if undertaken for commercial gain, cannot support a finding of apparent authority.” “[A] reasonable user of the internet would not interpret such a tenuous ‘link’ between entities as firmly indicative of an agency relationship.”

What about contributory infringement? (Given the ad text, I don’t know why we’re talking about infringement and not false advertising by disparagement/defamation, but ok.) There was no evidence that Amazon intentionally induced Cutting Edge to infringe; rather, it specifically sought to bar infringement. Did Amazon continue to supply a product to Cutting Edge knowing that it was infringing? First, Amazon supplied a service, not a product. (Is this even true in these circumstances? The relevant service is apparently the “right to link,” but I don’t believe anybody needs a contract to have that right.)

Following Tiffany v. eBay, and assuming without deciding that service providers can also be contributory infringers, the service provider must have “more than a general knowledge or reason to know that its service is being used” as a platform for trademark infringement. Particularized knowledge is required. Tiffany also spoke favorably of the idea that a service provider can be liable only when it has direct control of the instrumentality used to infringe. There was no evidence of particularized knowledge or direct control. “Although plaintiff had informed Amazon of Cutting Edge's infringing activity by calling their ‘Seller Central’ department and speaking with an unknown Amazon representative, these contacts pale in comparison to those found insufficient to satisfy the knowledge requirement in eBay--where the plaintiff had sent eBay two general demand letters and literally thousands of ‘Notice of Claimed Infringement’ submissions with respect to specific instances of infringement.” By contrast, Amazon acted once Sellify threatened to sue, and thus didn’t continue to supply its services to Cutting Edge after it knew that Cutting Edge was infringing.

This is cute, but misleading. Let me be clear: I don’t think these facts support contributory liability. But it’s not particularly honest to compare this situation to that in eBay on those terms. Here, there was particularized notification of the specific “infringing” behavior that Amazon’s service rep said it could do nothing about (until the lawyer got involved). By contrast, every time eBay was told about a specific infringing listing, that listing was removed. eBay’s particularized knowledge of infringements that it then fixed simply didn’t justify imputing knowledge to it of other, similar infringements it didn’t fix. The difference between these situations is direct control, not particularized knowledge. It’s not as if the individual eBay reps who did the grunt work in eBay were any more “known” or any more employees than the “unknown” rep who blew Sellify off here.

This was all Lanham Act analysis, but the reasoning was the same for alleged violations of the Connecticut Unfair Trade Practices Act ("CUTPA), unfair competition, and defamation/trade libel.

Anyway, even with viable liability claims, Sellify’s asserted damages were far too speculative to survive summary judgment. “Sellify crudely calculated its damages by subtracting its estimated 2009 profits from OneQuality's 2007 profits and multiplying by nine. Beyond the fact that Sellify has failed to put forth any evidence that the ads caused any potential customer to choose not to purchase its products, the evidence flatly contradicts Sellify's apparent contention that the entirety of its drop in sales from 2007 to 2009 is attributable to Cutting Edge's disparaging ads.” Its profits fell 50% from 2006-2007, long before the ads appeared. The store was virtually shuttered from late 2007 to early 2009, at which point it was restarted with no staff and less inventory. The ads only appeared 1069 times and got 61 clickthroughs. Thus, there was no support for the assumption that the ads were a but-for cause of driving 2009 profits down from 2007 profits. There was also no basis for alleged harm to future profitability; “given the paucity of views the ads received, it is highly unlikely” that any damage to Sellify’s future reputation occurred.

No comments: