One question on many minds after Tiffany v. eBay was whether eBay's anticounterfeiting policies were necessary to the result, or whether an intermediary could be less TM-owner-friendly and still escape liability. Though this is an intermediate state court ruling, it is also the most extensive description of an alternative policy--one with some apparent communication delays--that I've seen, and thus may be a useful signal of what courts are likely to do with entities they perceive as acting in good faith.
Tre Milano appealed from an order denying a preliminary
injunction against Amazon, and the court affirmed. Tre Milano sells the InStyler Rotating Hot
Iron Hair Straightener; Amazon offers InStylers on its website, some that are
from third parties and are counterfeit.
Tre Milano sued Amazon and some third party sellers, seeking damages and
an injunction barring Amazon from selling any “purported” InStyler products in
California or, in the alternative, from selling “counterfeit” InStylers. InStyler is popular enough to counterfeit,
and Tre Milano has in-house and outside personnel looking for counterfeiters,
along with a manual, “How to Tell It's Counterfeit.” But a typical consumer, without the manual or
a side-by-side comparison, couldn’t identify a counterfeit product.
Amazon sells from its own inventory, from third parties “fulfilled
by Amazon” and shipped from its warehouses, and from the Amazon Marketplace;
the last category is sold and shipped by third party sellers. Amazon identifies which is going on for each
particular sale, though the sales process is the same regardless, including
payment made through Amazon.
Amazon takes anti-counterfeiting measures in order to
protect the buyer experience and avoid claims and chargebacks. Among other things, it bans “Replicas of
trademarked items. The sale of
unauthorized replicas, or pirated, counterfeit, and knockoff merchandise is not
permitted.” It employs over 100 people
in “risk investigation,” which includes identifying counterfeits. Over the last 2 1/2 years, Amazon blocked
about 5900 sellers for suspected infringing content, about 75% from Amazon’s
own work and the remainder after a Notice of Claimed Infringement (NOCI), a
Digital Millennium Copyright Act (DMCA) notice or a customer complaint. “In the last year, Amazon has canceled over
4 million seller listings.”
When Amazon identifies a problem or receives a NOCI, its
team follows set procedures. If the team
decides that a listing is for an infringing product, Amazon may block the
listing or block the seller; the latter also means a bar on opening a new
account. “However, if an infringing
seller has a good relationship with Amazon and positive customer feedback,
Amazon may just block the listing and issue a warning.” Amazon tries to act within 24 hours of a
NOCI, and generally does so within 48 hours.
“If there is no supporting evidence, Amazon will review the seller's
profile to determine whether there is a probability the NOCI is accurate. If there is a probability of accuracy,
Amazon will block the seller or remove the listing and warn the seller. If there is little probability of accuracy,
Amazon will ask the sender of the NOCI for evidence to substantiate its claims.”
Amazon also screens applicants to become third-party
sellers. It monitors their monthly
sales; if they reach a certain “sales velocity,” Amazon reviews the seller to
make sure it’s shipping on time and complying with Amazon’s policies. In addition, Amazon has a database that
tracks high risk items—those likely to be counterfeit. Computer programs monitor third party offers,
flag potentially counterfeit or high risk listings, and scan feedback for
keywords such as “counterfeit,” “fake,” or “open box” to flag sellers for
review.
In November 2009, Tre Milano’s attorney bought an InStyler directly from Amazon, and determined that it was counterfeit. She contacted Amazon’s legal department with a C&D. A legal representative “acknowledged that Amazon was having trouble with its inventory being mixed with that of third parties in its facilities.” At Amazon’s request, the lawyer sent an InStyler reference guide to the legal department. In December 2009, the lawyer bought two more InStylers from DAB Nutrition, fulfilled by Amazon, and again found them to be counterfeits. Amazon’s associate general counsel stated that Amazon did not maintain its own inventory of InStylers but sold products from the inventories of third parties who maintained inventories at Amazon facilities, that Amazon did not control the supply chains of these third parties, and that Amazon had no definitive ways of determining whether their InStylers were authentic or counterfeit. Tre Milano’s attorney sent numerous NOCIs from November 2009-February 2010.
Tre Milano also used software to scan various internet
sites, including Amazon, for counterfeits.
Its compliance coordinator reviewed the flagged items and sent
infringement notices when they appeared to be counterfeit. From May 2010 through April 2011, Tre Milano
sent 311 NOCIs to Amazon, 226 for first-time listings and 85 following up on
listings not removed after a previous NOCI.
This included duplicate NOCIs when Amazon failed to respond.
In March 2011, Tre Milano sent a NOCI identifying 11
listings, including one from Success Store.
Shortly thereafter, Pete Day purchased an InStyler from Success Store
using Amazon. In April, Day’s wife was
using the product and it exploded at the point where the electrical cord
entered the product; she was injured.
Tre Milano identifed the product as a counterfeit based on its serial
number. Tre Milano also bought from several
other sellers it had sent NOCIs for and identified their products as counterfeits;
it sued some of them. One defendant also
sold under different names on Amazon.
For another, Tre Milano sent a NOCI in March, bought a counterfeit in
May, and still saw the seller offering InStylers on Amazon in June. “In the course of this litigation, Tre Milano
sought contact information for Amazon Marketplace sellers whom Tre Milano
believed were selling counterfeit InStylers.
Much of the information provided by Amazon was inaccurate.”
Amazon described its response to NOCIs. Its Copyright Compliance Officer, reviews
NOCIs, and if a NOCI “appears sufficient and legitimate,” he forwards it to
Amazon's investigators to remove the listing and determine what action to take
against the seller. If a NOCI does not
provide sufficient information, Amazon asks the sender for specific
information, including “[p]roof of the violation,” which includes an
“Amazon.com Order ID of a test buy that confirms the violation.” He stated that “[w]hile a handful of [Tre
Milano’s] notices have contained evidence or some explanation of why Tre Milano
claimed that a listing was for a counterfeit item, the vast majority have
contained nothing but a statement like ‘the item is a counterfeit product that
infringes the trademark owner's rights' ... or ‘the item is an unlawful replica
of a product made by the trademark owner’....
As I have explained to Tre Milano, Amazon.com needs more evidence
regarding the alleged infringement before it can assist Tre Milano in carrying
out our common goal of preventing the sale of counterfeits.” Without a test buy, he believed, Tre Milano’s
notices were based only on the offering price, and Amazon is reluctant to
accuse sellers of counterfeiting on the basis of price alone without other “objective
indicators” of infringement. He also
stated that Tre Milano had sent numerous erroneous NOCIs and recanted many of
them. During June 2010-April 2011,
Amazon received 159 NOCIs, but in 41% of the cases Amazon had already taken
down the listing before the NOCI was processed.
(This doesn’t seem like the same thing as an erroneous NOCI to me, but
perhaps the court is just recording two separate facts.) Amazon didn’t have any InStylers in
inventory, but had still “issued specific instructions that any future inventory
of InStylers belonging to Amazon.com is to be kept segregated from any
inventory belonging to third-party sellers for Fulfillment By Amazon.”
The court then turned to differences between Amazon and
eBay: Amazon sells its own products along with third parties’; it may provide a
single generic product photo; products may be shipped from Amazon; Amazon
handles all payments, instead of having payment arranged between buyer and
seller (though given PayPal, I don’t know how much of a difference that really
is). Tre Milano participates in eBay’s
VeRO, which allows allegedly infringing listings to be taken down almost
immediately and allows Tre Milano to get seller information on request. Amazon, by contrast, doesn’t have an API by
which rightsholders can claim infringement, but instead allegedly takes 1-2 weeks
to respond to Tre Milano’s NOCIs, and sometimes that stretches to months.
Among the harm Tre Milano suffered, it claimed was “a large
number of negative reviews from Amazon customers who purchase counterfeit InStylers®
and then give ‘1-star’ reviews on the product page as if they were reviews of
the genuine InStyler®.” These reviews
stem from the poor quality of the counterfeits—which also pose risks of injury
to consumers. Along with the incident
detailed above, there was a negative video review of the InStyler from AOL, but
it showed a counterfeit; Tre Milano contacted AOL, which removed the review,
stating: “Unfortunately, we bought our product from a reseller on Amazon that
we have now learned may be selling counterfeit goods. While that reseller was rated highly on
Amazon at the time that we purchased the InStyler, that reseller has since shut
down. Apparently, there are a number of
other sellers still engaging in this practice and we want to pass along this
word of caution about fake InStylers.”
Typical of the negative reviews was one that said that the
seller “sent me a thing that looked like an InStyler, it was the exact thing
but BOOTLEG!!!! [I]t was a fake. It was much fatter and a lot of plastic and
it made a pop sound on the first try an[d] didn't work. I thought it was a real instyler [sic ]
until I actually purchased one from ULTA. I noticed it wasn't. It was a rip off.” Eric Goldman will like this: In response,
another reviewer wrote: “There is
another place for you to review the seller.
This is not it. This is for
reporting on the quality of the INSTYLER.”
A third wrote: “I agree this
makes the ratings of the real product go down.
Why not rate it based on the one you bought at ULTA?”
So, was Amazon liable as a direct infringer under the Lanham
Act? (There’s an interesting side note
here about Amazon’s decision not to remove.
Especially if I got a sense that the state judge assigned to the case was
decent, I too might have decided not to find out which station the Ninth
Circuit’s ticket went to for my case.)
The trial court ruled that Tre Milano had failed to show
that Amazon was under a duty to affirmatively police counterfeit sales on its
site; Amazon was not selling the goods itself but only facilitating their sale. It relied on Tiffany v. eBay. The court
of appeals recounted eBay’s extensive anticounterfeiting efforts in detail,
then explained that the Second Circuit found eBay not liable for direct or
secondary infringement. (Following on my
earlier aside, I understand why the California judges preferred to use somebody
else’s—anybody else’s—secondary liability standards.)
Tre Milano argued that Amazon was a direct infringer because
it used the InStyler mark “in connection with” the sale of counterfeit products,
and that was enough regardless of whether the use was part of the sale, the
advertising, or the distribution. Except
that Tiffany held that a service
provider’s use of a mark to describe a product was protected by nominative fair
use. At least as to the InStyler, Amazon
was the service provider, not the seller; all InStylers it currently sold
belonged to third parties. It wasn’t a direct
seller even though it provided the product description and handled the
payments. (A slightly odd way to
describe the role of nominative fair use,
but ok! If they’re actually
InStylers, anyone—including but not limited to a mere service provider—is free
to describe them as such; the real point is that Amazon lacks sufficient
connection to the sales to be deemed a direct seller.) This also disposed of Tre Milano’s argument
that it was infringing to use the mark on the InStyler product page: eBay took
similar action in using Tiffany’s mark on its website and in sponsored links. Put simply, Amazon was not a retailer, but
rather a “transactional intermediary,” and was not directly liable.
Contributory infringement requires that Amazon continued to
supply its services to one who it knew or had reason to know was engaging in
trademark infringement, and that it had direct control and monitoring of the
instrumentality used by a third party to infringe. Willful blindness will suffice for knowledge. Generalized knowledge of counterfeit sales on
the site, however, is insufficient.
The evidence showed that Amazon continued listings of
suspected counterfeit InStylers after receiving NOCIs identifying specific
sources of suspected counterfeit InStylers.
But the majority of NOCIs simply claimed that the listing was
counterfeit with no supporting evidence.
And such NOCIs were not themselves proof of infringement. Just as it was ok for eBay to remove a single
listing and not (as Tiffany requested) permanently suspend a seller whose listing
received a NOCI, it was ok to have an investigation policy rather than an
automatic removal policy in response to a NOCI.
Thus, “substantial evidence” supported the trial court’s determination
that Tre Milano failed to show that it was likely to prevail on the merits. When Amazon received evidence of infringement, it acted to remove infringing listings.
What about the harm to Tre Milano, which had to be balanced
against likely success? It was clear
that Tre Milano was harmed by counterfeit sales. But its own evidence also showed that Amazon
customers were able to ID the products as counterfeits and pass the information
along to other customers. Denial of
preliminary injunction affirmed.
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