Monday, January 14, 2013

No secondary liability for lessor of flea market land

Coach, Inc. v. Swap Shop, Inc., --- F.Supp.2d ----, 2012 WL 6830423 (S.D. Fla.)

Coach claimed that a flea market in Fort Lauderdale was a hotbed for knockoffs, including counterfeit Coach products.  Coach went after everyone but the electric company, and the court here was somewhat skeptical about the breadth of its claims.  The landlord defendants were the owners/lessor of the land on which the flea market operated, and co-owned the flea market.  The Swap Shop was the lessee and/or co-operator; other defendants included individual principals of the Swap Shop.

Coach alleged that they all induced, caused, and/or materially contributed to the sale of counterfeits, and that they all had knowledge or were willfully blind to the illegal activities and benefited financially from them. Thus, they were contributorily and vicariously liable. 

Coach alleged that its investigator found multiple vendors selling counterfeits at the flea market, and that the police then raided the flea market and arrested six Swap Shop vendors.  Coach sent a C&D to the landlord and Swap Shop management defendants, and then a list with all its federally registered marks in order to assist them in policing the flea market.  Nonetheless, its investigator again discovered multiple vendors selling counterfeits.  It sent another C&D, and another raid followed, including the seizure of more than 3000 counterfeit items.  ICE agents visited the flea market’s management office before the raid to tell the defendants about the investigation and the plan to seize counterfeits, but they were told the owner was unavailable because he was taking a nap.  Shortly thereafter, law enforcement conducted a second investigation and then a third, and they bought counterfeits from more vendors.  Another raid followed, resulting in numerous arrests, including the arrest of two repeat offenders who were operating from the same booth and location where they’d been arrested during the first raid over a year previous.  A few months later, there was another seizure.

The defendants moved to dismiss.  The court first addressed the contributory trademark infringement claims, which require either intentional inducement of the direct infringer or a continued supply of a product to an infringer with knowledge that the infringer is mislabeling the product.  In the flea market context, contributory liability can exist when a defendant supplies the necessary market for the sale of infringing products in substantial quantities and has knowledge of or is willfully blind to the trademark violations.  Negligence alone, however, is insufficient.

While flea market operators are appropriate targets, “an owner of property where the flea market is located, that leases the property to a separate entity that operates the flea market and rents space to a vendor, is not liable for contributory trademark infringement by virtue of its ownership, if it is not also the flea market operator.”  Property ownership alone doesn’t establish sufficient control over infringing sales. Thus, the contributory infringement claim against the land owner defendants failed.  But the complaint stated a claim against the Swap Shop management and principal defendants. “[W]hile Defendants may not have had a duty to police its vendors for unknown violations, the alleged facts make it plausible that the Swap Shop Management and Principal Defendants were willfully blind to the violations, or had actual knowledge of them.”

As for vicarious infringement, in trademark it requires apparent or actual partnership/joint ownership or control over the infringing product.  The complaint failed to allege that kind of partnership or control.  The copyright standard is lower (and shouldn’t be since the justifications are exactly the same, but the doctrine got stuck that way) and inapplicable to trademark infringement.  So the claim was dismissed as against all defendants.

The court accepted a claim for contributory trademark dilution, though, against the non-lessor defendants. 

As for contributory copyright infringement, Coach alleged that the defendants were liable because they provided the site and facilities for known infringing activity and failed to take any action to prevent that infringing activity. The court found this claim properly alleged against the Swap Shop management and principal defendants, but not against the lessor defendants.

Turning to vicarious copyright infringement, it occurs when a defendant directly benefits financially from infringement and has the right and ability to supervise the infringing activity.  Again, this was sufficiently alleged against the non-lessor defendants.  The direct financial interest came from rents from vendors, including those selling fake Coach products, along with parking/concession fees “fueled in large part by the draw created by the widespread availability of fake Coach products at the Flea Market.”  (Can Coach prove that it’s Coach counterfeits specifically that create the draw, not others, even if it can allege it to survive a motion to dismiss?)  However, the financial benefit to the landowners was only indirect, and also they didn’t operate and manage the flea market and therefore couldn’t be alleged to supervise and control the infringing activity.

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