License to infringe?

Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories Ltd., 2009 WL 4857605 (S.D.N.Y.)

Plaintffs, who make fancy modular jewelry, sued a lot of defendants in their roles as licensors for contributory trademark infringement and related claims, alleging that they supplied rights to the licensor defendants’ own IP to manufacturers and distributors of products that directly infringed on plaintiffs’ trademark.

Plaintiffs’ jewelry is “composable”: made of individual links of stainless steel or gold that can be filled/replaced with decorative designs or semiprecious stones. This allows customers to create unique, personalized jewelry. Plaintiffs alleged that H.E.R. and other supplier defendants made and distributed counterfeit links packaged with Nomination’s trademark, constituting direct infringement. Plaintiffs also sued fifteen entertainment and media companies for contributory infringement (and related torts), for licensing their own intellectual property rights to famous characters (e.g., SpongeBob Square Pants, Betty Boop, Popeye, Super Mario Brothers) to the supplier defendants, who manufactured the counterfeit links depicting these characters and sold them in packaging that used the Nomination mark.

Plaintiffs alleged that the licensor defendants knew or should have known that they were contributing to the infringement. Furthermore, by the end of 2005, plaintiffs notified many, but not all, of the licensor defendants that H.E.R. was using their respective intellectual property to infringe upon the Nomination trademark, and the licensor defendants allegedly ignored plaintiffs’ request to cooperate with their investigation.

Under Inwood Labs, “a manufacturer or distributor [who] intentionally induces another to infringe a trademark, or ... continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement ... is contributorially responsible for any harm done as a result of the deceit.” The allegations here were of knowing continued supply, not inducement. But it’s not immediately clear how the test applies to defendants who don’t supply the “product” itself, but some service or other assistance to the direct infringer. Many courts have considered the extent of control and monitoring exercised by such a defendant over the infringer’s means of infringement.

Here, the licensor defendants “supplied an ancillary service or benefit that is alleged to have increased the desirability of the underlying product” rather than manufacturing or distributing the infringing product. So, did plaintiffs adequately allege direct control and monitoring of the bracelet links used to infringe the plaintiffs’ mark? Plaintiffs alleged that the licensor defendants are sophisticated companies with careful monitoring programs for their licensees. But that refers to the care they take with their own marks, and doesn’t mean that they monitor and control the manufacture and distribution of the supplier defendants’ counterfeit bracelets. Mere allegations of contribution to the infringement by knowing participation are just the type of conclusory allegations the Supreme Court rejected in Iqbal. “Although participation in the development, promotion and sale of the counterfeit bracelets would, if true, likely equate to direct control and monitoring, Plaintiffs have not stated any factual allegations as to how the Licensor Defendants have done so.”

Further, the licensor defendants argued that plaintiffs failed to adequately plead knowledge of direct infringement. And the court agreed. Even the pleading that plaintiffs notified “many” of the licensor defendants of the infringement fails to specify which ones, nor did it allege that they continued to provide their own marks to the supplier defendants after receiving notice. Thus, the contributory infringement claims were dismissed.

A similar fate awaited the claims of deceptive acts and practices/false advertising, which under NY law has a required public interest element, generally based on health or safety concerns. The majority view is that infringement claims are generally not cognizable without an injury to the public over and above the ordinary injury from infringement. That was the only injury alleged here. And because this argument covers both licensor and supplier defendants, the court sua sponte dismissed the same claims against the supplier defendants.

The court did, however, grant plaintiffs leave to replead the contributory infringement claims if they could allege non-conclusory facts showing monitoring/direct control over the bracelet links, as long as they could also allege knowledge or reason to know of the infringement.