Louis Vuitton: A Potential Game-Changer for Contributory Infringement Liability
March 24, 2010
The trial court in Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc. et. al has upheld a $10.8 million award against an Internet Service Provider (ISP), in a decision that might be a real eye-opener to companies who had thought that the lack of specific Notice and Takedown provisions in the Lanham Act eliminates the need to take action on allegations of third-party trademark infringements on their websites.
Background
The plaintiff, a well-known creator and seller of designer merchandise, sued ISP Akanoc Solutions for contributory copyright and trademark infringement due to Akanoc’s failure to properly take down infringements occurring on the websites of Akanoc’s customers.
Despite Akanoc’s hosting of these websites on its servers, the defendant did not designate a Copyright Agent as required by the Digital Millennium Copyright Act (DMCA) to receive allegations of copyright infringement on its customer websites. This took away any possible DMCA safe-harbor defense that the defendant may have otherwise had for the copyright claims. Additionally, Akanoc did not take active steps to remove infringing material when notified by Louis Vuitton. At best, Akanoc only sent the plaintiff’s copyright allegations to the relevant customers, but took no action if the infringements were not taken down by the website operators.
Akanoc also had no policies or procedures to remove trademark infringements. Although the defendant had the ability to stop a website’s infringing activity and suspend blatant infringers, or disable the IP addresses operating allegedly infringing websites on its servers, Akanoc took no action when informed by the plaintiff that counterfeit Louis Vuitton merchandise was being sold on Akanoc-hosted websites.
The jury found Akanoc liable for contributory infringement on two copyrights and 13 trademarks. It awarded the maximum statutory damages of $150,000 for each copyright infringed and just over $800,000 (out of the $1 million maximum allowed for counterfeit marks) on each of the 13 trademarks for a $10.5 million trademark verdict and a total award of $10.8 million. In addition, the owner of Akanoc was found liable for a separate award of $10.8 million, as was the company that owned the servers.
In deciding the defendants’ various post-trial motions, the Court overturned the award against the company that owned the servers since it did not directly engage in any of the activity being complained about, and did not operate the servers, sell any domain names, or host any websites. However, the Court upheld, in full, the awards against both Akanoc and its owner.
The Importance of the Decision, Part 1: Liability for Contributory Trademark Infringement
The fact that Akanoc was found liable for copyright infringement is not a surprise given that there is a specific statute in place to protect ISPs that follow a standard set of rules, and the defendant followed none of them. Although an award of the statutory maximum is rare, given the willful and continuing nature of the defendants’ blindness and lack of adherence to fairly well-known rules, the $300,000 award is not a shock. The trademark infringement/counterfeiting award, on the other hand, should be a wake-up call to any company that hosts websites as well as any company that allows third parties to post material on its websites.
As previously mentioned, there is no DMCA equivalent under the Lanham Act, the statute that sets forth federal trademark law. Therefore, many businesses operate under an assumption that they do not need to have the same sort of rigid policies in place to protect against trademark infringement. After all, there is no statutory requirement to have a “Trademark Agent” who handles allegations of infringement; nor is there a specific requirement in the Lanham Act that every alleged trademark infringement be removed, to be put back up only if the alleged infringer sends a counter-notice and the intellectual property owner does not file a lawsuit – all of which pertain to copyright infringement allegations under the DMCA. Louis Vuitton clearly shows that a failure to have protocols and policies in place to handle trademark allegations can subject a company to massive potential liability.
The facts in Louis Vuitton are obviously in stark contrast to those in Tiffany, Inc. v. eBay, Inc., 576 F. Supp.2d 463 (S.D.N.Y. 2008), where eBay was found not liable for the trademark infringements that occurred on its website. In that case, eBay had a detailed trademark policy in place: it took down any trademark infringement of which it was notified, and had procedures that closely followed those of the DMCA to accept and handle such allegations and suspend blatant infringers from its site. Because of those actions, the Court found eBay not liable and made a point that eBay was not responsible for proactively searching its site for infringements. The Court in Louis Vuitton did not mention eBay, but both Louis Vuitton and eBay are based on a similar principle found in the Supreme Court’s decision in Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982): if you continue to provide services to a trademark infringer after being put on notice of infringements, you will become liable for those infringements. The differing results in Louis Vuitton and eBay make it clear that setting up and following procedures similar to the requirements for copyrights under the DMCA safe-harbor provisions is an excellent way for a company to reduce the potential for liability on third-party trademark infringements.
The Importance of the Decision, Part 2: Awards Within the Statutory Damages Range Cannot Be Excessive
In the past couple of years, the constitutionality of large statutory awards is an issue that has come to the forefront. While not quite approaching the maximum $150,000 per work infringed, there have been verdicts against individuals for illegally uploading and downloading music, which have reached tens of thousands of dollars per work infringed. This has led certain groups to cry foul, claiming that such awards are “grossly disproportionate” to the actual damages suffered by the intellectual property owner, and therefore unconstitutional under the due process clause.
Plaintiffs in these cases and others argue that any award within statutory limits cannot be unconstitutional. The argument is that any award within the range designated by Congress is not only to be expected, but fits precisely within the goals of the statute. The decision in Akanoc falls in line with the plaintiffs’ arguments in those cases. Here, Akanoc claimed that the copyright and trademark awards were unsupported by any evidence of actual damages to Louis Vuitton, and if the actual damages were minimal, the statutory award should be fairly minimal as well, or else it would be unconstitutional as applied. The Court disagreed, noting that the statutory damages provisions for copyright and trademark violations have no requirement that the damages be based on any evidence of actual damages, and as the awards were within the statutory range, there were no due process concerns. Furthermore, the Court stated that the Supreme Court’s decision in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) – the main decision cited by those who believe that large statutory awards well-beyond actual damages to the plaintiff are unconstitutional – does not apply because that case dealt with punitive damages only and not statutory damages. According to the Louis Vuitton Court, punitive damages may be unconstitutional if the ratio between them and compensatory damages is too high, but the same is not true for statutory damages.
Conclusion
This case – to the extent it is upheld on any appeal and followed by other courts – will have wide-ranging consequences. For intellectual property owners, the case acts as a powerful weapon. Trademark owners are not bound by the exact wording requirements of DMCA Takedown Notices. Therefore, they can use Louis Vuitton to inform companies hosting websites or third-party content of the potential damages for non-compliance with their requests to take down infringing content. The ability to put such companies on notice that a loss in court may result in millions of dollars in damages, and not merely an injunction, will make it far more likely that an initial cease and desist or Takedown Notice sees immediate results.
This case also reminds traditional ISPs, as well as any company allowing others to post content on its website, to follow DMCA procedures for copyright allegations and to set up corresponding procedures to handle allegations of trademark infringement. It shows such companies that their liability might not be limited just because the intellectual property owner did not suffer damages, and that juries will not hesitate to award (and courts will uphold) substantial damages within statutory ranges if they feel that a company has not followed through on its duty to respond to third-party infringement allegations.
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