March 13, 2019

Cases Highlight Commercial Landlord Potential Liability for Trademark Infringement by Tenants

Holland & Knight Alert
Brett D. Carroll | Timothy Andrea

HIGHLIGHTS:

  • Reported verdicts and settlements in the last 10 years confirm that commercial landlords/owners could be held liable for the trademark infringement activity of their tenants.
  • Commercial landlords/owners must take immediate steps to investigate and act when given notice of alleged suspicious activity by retailers selling goods bearing well-known trademarks. And, commercial landlords/owners might consider engaging in proactive steps to monitor the activity of tenants.
  • Because the exposure in these types of cases is significant and because many retail brands show an increased willingness to protect their brands, commercial landlords should carefully consider the terms of their leases and the tenants which are selected.

A recent jury verdict in New York illustrates the potential and significant liability that commercial landlords/owners can face if their tenants engage in certain types of illegal activity involving the sale of trademarked property.

The Extent of Commercial Landlord Liability

Toward the end of the 20th century, several courts around the country extended liability for trademark infringement beyond just the party engaging in the infringing activity. In Inwood Labs., Inc. v. Ives Labs., Inc., the U.S. Supreme Court held that a third party could be contributorily liable for trademark infringement in certain circumstances.1 There, independent pharmacists labeled a generic version of a drug under the brand-name label. The manufacturer of the brand-name drug sought to hold the manufacturer of the generic version responsible for this infringing activity. The Supreme Court held that a manufacturer could be liable for infringing activity if it "intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement ..."2

Following the Supreme Court's lead in Inwood, two federal circuits further extended liability for contributory infringement in a very unique way – to commercial landlords/owners.3 In each case, the courts held that the commercial landlords of properties that hosted flea markets were contributorily liable for the infringing activities of its flea market vendors. Hard Rock Café, a U.S. Court of Appeals for the Seventh Circuit case, involved a vendor selling fake T-shirts and infringing on Hard Rock's trademarks. Fonovisa, a U.S. Court of Appeals for the Ninth Circuit case, involved a vendor selling fake recordings and infringing on Fonovisa's trademarks and copyrights. The courts emphasized the fact that the commercial landlords knew or should have known of the infringing activities from prior incidents and did not act to abate or prevent the infringing conduct.4 And, at least one federal court has gone a step further and concluded that a commercial landlord could be liable for contributory infringement when its retail tenants, rather than simple vendors, committed trademark infringement.5

A Recent Jury Found a Commercial Landlord Liable for Infringing Activity

Several prominent brands, including Omega and Swatch watches, believed that retailers located at a commercial building in New York City had infringed on several of their trademarks by selling counterfeit watches. In Omega SA et al. v. 375 Canal St., LLC,6 the brands sued the commercial landlord of the property, arguing that the landlord should be held liable for the infringement. The brands argued that the landlord knew that the tenants were selling counterfeit goods, pointing to at least one prior lawsuit as well as two prior nuisance disputes with the city involving similar infringing conduct. The claims survived both a motion to dismiss and a motion for summary judgment. After almost six years of litigation, the jury returned a verdict in favor of the brands, awarding damages of $275,000 per trademark for a total award of $1.1 million.

The Omega/Swatch jury verdict continues a trend of a number of highly favorable settlements reported in favor of luxury brands in the last several years. Companies appear willing to engage in aggressive global campaigns to protect the value of their brand despite the time and expense incurred.

Practical Considerations

Commercial retail landlords/owners should:

  • conduct an update of their lease terms to ensure appropriate language exists regarding alleged illegal and/or improper activity conducted (especially regarding the sale of "knock off" goods). Further, landlords should review their indemnification provisions to ensure the most comprehensive protection (however, often, such provisions are worthless if the tenant is judgment proof).
  • consider "less-established" retail tenants carefully as those tenants are more transient, more likely to engage in the targeted unlawful conduct, and are less likely to have any assets against which the trademark holder can collect.
  • be proactive regarding suspicious tenant activity including monitoring the sales of your retail tenants. If a brand-name product appears to be selling at an amount too good to be true, it probably is. A landlord/owner could work proactively with a brand whose products appear to be sold to ensure that there are no violations.
  • not ignore notices from a trademark holder of alleged illegal activity of a tenant. An appropriate investigation should be conducted as soon as possible. Otherwise, there is a chance that strict liability could attach exposing the landlord to multimillion-dollar judgments.
  • utilize outside counsel to help preserve privilege in a contentious dispute including retention of relevant investigators to confirm alleged illegal activity.

Conclusion

For assistance in evaluating your leases and/or in conducting appropriate investigations, contact real estate attorney Diane McDermott and litigation attorney Brett D. Carroll in Holland & Knight's Boston office.


Notes

1 Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982)

2 Inwood, 456 U.S. at 854

3 Fonovisa Inc. v. Cherry Auction Inc., 76 F.3d 259 (9th Cir. 1996); Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143 (7th Cir. 1992)

4 See Fonovisa, 76 F.3d at 261 ("There is also no dispute for purposes of this appeal that Cherry Auction and its operators were aware that vendors in their swap meet were selling counterfeit recordings in violation of Fonovisa's trademarks and copyrights."); Hard Rock Café, 955 F.2d at 1154 (discussing whether the landlord was deliberately ignorant of the infringing activities)

5 Polo Ralph Lauren Corp. v. Chinatown Gift Shop, 855 F. Supp. 648 (S.D.N.Y. 1994) (denying a motion to dismiss and concluding that commercial landlord could be liable for contributory trademark infringement when its retail tenants engage in infringing conduct)

6 Omega SA et al. v. 375 Canal, LLC, Case No. 1:12-CV-06979-PAC, U.S. District Court for the Southern District of New York


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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