The Internet has fostered a vast, quickly growing landscape of interconnectivity that links an innumerable number of entities across the world. Embedded in this interconnectivity is the possible extension of liability on one entity as a result of the actions of another. In recent times, a trend of holding web hosts liable for assisting e-commerce businesses in the sale of counterfeit goods has emerged, giving rise to a heated debate as to what responsibility, if any, such web hosts should be saddled with for the actions of their affiliates. Last Fall, I had the opportunity to gain firsthand insight into this debate by working in the IP department of Louis Vuitton Moet Hennessey (LVMH), a French multinational conglomerate. LVMH is notorious for its aggression in protecting its IP, as the success of the company’s brands entirely depends on its ability to make off a profit off of its trademarked luxury goods. Over the course of my twelve weeks at LVMH much of the litigation I participated in was centered in the cyber realm. In 2011, in Louis Vuitton Malletier, S.A. v. Akanoc Solution's, Inc., 658 F.3d 936 (9th Cir. 2011), LVMH secured a victory against a web-host that supported numerous websites in the sale of counterfeit goods. In Akanoc LVMH alleged that the defendant failed to end service for the infringing sites despite receiving eighteen notices of infringement.

Soon after Akanoc, in Louis Vuitton Malletier v. Eisenhauer Flea Market Inc., No. 11-SA-CA (W.D. Tex. 2012) LVMH sued a San Antonio flea market for contributory trademark infringement. LVMH alleged that the flea market failed to police booth tenants for selling counterfeit products. Although the defense alleged that it was not their responsibility to do Louis Vuitton’s work of policing the use of their brands, the court ultimately found this argument unpersuasive. The jury returned a verdict of $3.6 million dollars and an injunction prohibiting the defendants from (i) engaging in further acts of contributory infringement; (ii) leasing to tenants who the landlords knew, had reason to know or have been presented with credible evidence about their dealing in counterfeit Louis Vuitton items; (iii) manufacturing or dealing in counterfeit Louis Vuitton products; or (iv) engaging in conduct that contributes, directly or indirectly to counterfeiting by a tenant. The opinion also required the defendants to: (i) periodically inspect the booths for evidence of counterfeiting; (ii) promptly terminate the lease of anyone they find engaging in counterfeiting or if they are presented with credible evidence of such counterfeiting; (iii) include a provision in their leases prohibiting such counterfeiting; (iv) put warning signs at all entrances indicating that counterfeit material can not be sold on the premises; and (v) allow representatives of the plaintiffs to make periodic inspections for counterfeit material.

The potential implications the abovementioned line of cases has for internet service providers, web hosts, online retailers, and others involved directly, or indirectly, in the online sale of counterfeit merchandise is expansive. This has led me to question whether or not the policy driving the law to hold these entities liable for their affiliates’ intellectual property infringement is sound. While the imposition of legal liability on secondary parties selling infringing goods would be sufficient in some cases like Eisenhauer Flea Market in which there is clear, actual notice and knowledge of a pervasive counterfeit problem, in other cases such knowledge is not present, thus making the imposition of liability less certain.

Although the effort, time, and money needed to individually identify, track, and sue primary infringers is great, the alternative solution of holding host websites responsible for the actions of their affiliates cannot stand, as it casts a dangerously wide net that will undoubtedly push intellectual property owners such as Louis Vuitton to expand the boundaries of secondary liability by suing any party involved in some manner in the sale, including advertisers, payment providers, and shippers, amongst others.

Online service providers are familiar with the process of the notice-and-take-down system of regulation, as the Digital Millennium Copyright Act established such a regime. In exchange for following a prescribed procedure involving identifying an agent and acting promptly on notifications of infringement, sites are immunized from numerous theories of secondary liability under copyright law. A similar scheme would be extremely helpful for trademarks. With copyright, rights owners argue that a take-down is mandatory once the required information is supplied and that the online service provider has no discretion to evaluate whether the use of the protected material might not be non-infringing or fair use. Once the allegedly infringing material has been removed, it can be restored only if the service provider’s customer provides a proper counter-notification. Unlike copyright, trademark rights are highly contextual: use on unrelated goods and services, use in an ordinary descriptive sense, and use to refer to the trademark owner or its products may be completely acceptable. This makes an immediate take-down, outside of the context of counterfeit goods, far less appealing from the perspective of balancing rights.

By establishing a clearly defined set of requirements for online and secondary parties can take in order to avoid contributory liability the expenditures and inefficiencies associated with individually tracking down primary infringers can be mitigated and the slippery slope holding webhosts liable can be avoided. Establishing such a rubric will not only be useful for obtaining compliance, but will also be of great use in, supporting a claim. While such requirements could be onerous to comply with, they would remove the element of uncertainty.

-- LeliseGobena - 01 May 2013