GW Design Law: Ecommerce remedies

AFTERNOON SESSION 1: Design Patents & Ecommerce

Moderator: Judy Yee, Microsoft

Howard Hogan, Gibson, Dunn & Crutcher: Counterfeiting is a growing problem, but sometimes they don’t use a copyrighted work of authorship but are still selling a knockoff of a design. © and TM have more developed bodies of law on secondary infringement.  Contributory & vicarious liability—right to supervise & financial interest in continuing infringement = liability.

Gucci v. Frontline (SDNY 2010).  Companies that process credit card payments are effectively giving loans to merchants. We looked at merchants’ applications; they weren’t particularly shy about the fact they were selling fakes. Used words like “replica” or admitted sourcing Gucci from China.  Entity called Durango, going out to midmarket banks, saying you only get 2% on a typical transaction, but if you take a high risk credit card merchant you can get 4-5%. Asserted Durango was inducing infringement, encouraging banks to get in the business of helping the sale of infringing goods. Against banks, we asserted contributory infringement. Opposite to Perfect 10, you’re allowing sites to take orders/materially contributing to the infringement.  SDNY issued a decision that purports not to disagree w/Perfect 10 but really does; cites a lot to the dissent. Can be held contributorily liable if they help sites take orders w/ their eyes open.

Christopher V. Carani, McAndrews, Held & Malloy, Ltd.: WD Wash, Milo & Gabby v. Amazon, fully briefed at the 9^th Circuit though no argument scheduled. Design patent case: not interested in selling on Amazon, only boutique children’s items.  Found third-party seller using pictures of makers’ own children using the pillows. No dispute that there is infringement of registered design patents (though we don’t know what people actually received).  Is this “offering for sale” when Amazon provides its website?  Amazon calls itself a virtual shopping mall, which isn’t liable for goods particular vendors sell, pre-notice. They don’t have title or the ability to transfer title. This case could open up the floodgates/create a firewall for the gears of commerce. [Not sure about these metaphors.]  District court rules that Amazon isn’t liable, but said it was troubled by that conclusion and impact on small retailers. Amazon can disavow responsibility for offering to sell.  The statute requires: make, use, offer to sell, sell, or import; also a specific provision for active inducement of a patent. Requires knowledge of the patent, knowledge of the infringement for inducement. 

What about fulfilled by Amazon?  3d party sellers who put their products up on Amazon: seller uses Amazon as a warehouse.

When ecommerce sites appear notice: different from TM situation b/c word searching can easily find Tiffany knockoffs.  Design patent infringement analysis requires more expert analysis.  Not conducive to spot judgment. Customs also knows this—will allow © and TM as predicate but they won’t use design patent, patent, or even trade dress w/o order from court or ITC.  Amazon points out that it took down M&G copiers within a week.

Hogan: Taking the patentee position in this debate; not always his position.  Brick & mortar principles not automatically abrogated online. There’s no intent element.  Liability exists if you do infringe/sell infringing goods. Mom & pop shops on a larger scale; they don’t have teams of att’ys go through each product, but can be liable if they sell infringing goods.  Customer doesn’t care who has title to the good or in whose warehouse it sits. Online marketplace should also be held liable like a brick and mortar store.

Carani: that same theory would apply without any knowledge at all. Craigslist would have the same liability. FedEx sells a package and delivers it.

Yee: but Amazon takes a portion of the sale.

Carani: but that’s a factor independent of knowledge—it would sweep even the NYT, FedEx, etc.  A lot of design patent att’ys are filing junk claims on partial designs.  Impact on damages is huge, but consider partial designs & injunctive relief.  You’re asking us to pull stuff down, but you might not even be able to get an injunction. Why should we have to police when we wouldn’t be ordered to take it down?

Yee: Staff required to respond to requests is an issue, but TM and © takedowns do work. Can imagine a similar system for design patents where you have to provide the claim chart. Shouldn’t be as rigorous as on the utility side.

Carani: Congress did respond with the DMCA, and Congress didn’t do that for design patent. eBay came up with VERO, self-regulation. A little of fox guarding henhouse—false positives. Concept fallacy: people have a design patent on a multicomponent tool and think they can stop any other version of the tool.

Hogan: there is a difference in kinds of online mktplaces. The more involved the platform is in determining what consumers see, the more it’s fair to hold them liable for infringing products. eBay and Amazon both have algorithms to get consumers shown products they’re likely to want. Agnostic as to which merchant makes the sale. Alibaba is different.  Biggest retailer in the world. They make their money selling “assessed status” to merchants—paying Alibaba to come up in searches on their site. They go to factories, create videos, involved in marketing. Then get a percentage of all transactions through their payment system.

Carani: we don’t hold the NYT liable for advertising, or for housing a product in their warehouse, or for delivering a product.  The ability to combine all these services into a convenient one-stop shop shouldn’t be penalized—it’s efficient.

Yee: what about a company whose product is knocked off by hundreds of companies through your website? What should they do?

Carani: look at reviews of sellers. Some of the responsibility is on the consumers.  Buyer beware. But ultimately you may have to go to the source.

Hogan: courts in the US are there to protect US businesses and US consumers. Companies that invest in developing products deserve protection. Who should bear the burden? The company that can more easily write the algorithm to identify goods being sold at suspiciously low prices/coming from incorrect sources? [How does the algorithm know suspicious prices or sources?]  On eBay, more than 70% of sellers are from outside the US.

Carani: ITC is active here; Razr scooters.  China does include design patents etc; it creates painful problems in China where they just don’t have the information to make the difficult conclusions—just too cumbersome to take on, especially given Amazon’s size.

Hogan: it used to be easier to store large quantities of infringing goods: trucks, warehouses. Increasingly, products are drop-shipped one at a time.  So customs will always be important, but more come through small orders shipped directly to the buyer.  You don’t want to hold customs liable for a mistake; but a physical store would be liable if it let an infringing good through.

Carani: indemnification is a real thing that can flow down. Box stores are in much the same situation—Wal-Mart is selling 50 million products. We like the online marketplace b/c of the variety.  There is much more of a vetting process; if we impose liability on Amazon, there will be more vetting of everyone and that will increase transaction costs/the overall costs of the products themselves.

Q: images are misleading—can you get them taken down?

Yee: Online marketplaces respond more quickly to TM/© takedowns, but they give the sellers the opportunity to respond and come back with just slight changes. Design patent requests come down and stay down if they come down at all.

Hogan: M&G case: they didn’t assert © in the Cozy Critters themselves, but in images of their son in front of the pillow. Image search tech is growing by leaps and bounds.  Often the most dangerous third-party merchants are taking photos right off of brand website. Does require diligence; counterfeiters are inventive in getting around screening.

Q: complaint about Amazon’s algorithm suggesting cheaper knockoffs even when a person has made an effort to find the seller’s actual page.

Q: another wrinkle is that there are a lot of grey market goods out there; may be represented as grey market goods even if they aren’t.

Q: Note that you can find the M&G pillows with the M&G pictures on Amazon right now, with a sale/review from August—isn’t Amazon on notice?

Yee: Amazon may not know that particular store is infringing.

Carani: that’s part of the case; every time they’ve been given notice, Amazon has taken the store down.  Survey of other countries: Japan, Europe, Korea—they all look at notice; once there’s notice, they attach liability.  Purist approach to US statute: even knowledge might not be enough.  Clarification: Notice means notice specific to the location/seller, not notice “this product is counterfeit”; may also require attention to sellers with previous strikes.

Q: platforms play games—they take down a seller but allow it to come back under a new name.

Carani: the problem is that they create new entities/new names.  If you see someone who’s never sold a good before, some of the responsibility rests with the consumer.

Q: unrealistic to expect brand owner to file serial DMCA notices.  Is it more onerous to platform or brand to but the duty on them? It’s not a close question.

Carani: Rests w/consumers as well.  Birkenstock pulled out of Amazon.

Q: not every brand has that market power.

Hogan: anonymity is an issue; we have to keep in mind the value of anonymity as well as the risks it creates.

Carani: Legal title was the key to the analysis in the M&G case below.

Hogan: statute doesn’t define “sale” or “offer for sale.”  Analogy: consignment stores.