Jury hits Internet service providers with $31.5 million verdict for contributory trademark infringement
Last week, a jury awarded $31.5 million in damages against a group of Internet service providers (ISPs), for contributory trademark infringement. The verdict marks the first time that ISPs have been assessed damages under the federal Trademark Act’s potent statutory damages provision for contributory trademark infringement. The decision clearly signals that ISPs may face extensive exposure for trademark infringement committed by third parties that use their services.
In 2007, Louis Vuitton Malletier, S.A., a unit of luxury-goods maker LVMH Moët Hennessy Louis Vuitton, filed a lawsuit against Akanoc Solutions, Inc.; Managed Solutions Group, Inc.; and Steven Chen in the U.S. District Court for the Northern District of California (Louis Vuitton Malletier, S.A. v. Akanoc Solutions, et al., Case No. 5:07-cv-3952-JW). Akanoc and Managed Solutions Group, controlled by Chen, were ISPs that provided Internet protocol addresses, routers that linked Internet traffic to websites, and servers that stored Internet content and allowed the content to be accessed through the Internet. The defendants did not operate websites, but sold IP addresses and use of their servers to customers, who used the servers to host their own website content or sold the services to other parties.
Louis Vuitton discovered that a number of the defendants’ customers, or customers of the defendants’ customers, were operating websites that they used to sell counterfeit goods bearing Louis Vuitton trademarks. Louis Vuitton claimed that it sent multiple notices to the defendants about the infringement and requested that the defendants shut down the websites, but that the defendants failed to do so.
When it filed suit, Louis Vuitton alleged four causes of action, including contributory trademark infringement and vicarious trademark infringement. The Trademark Act allows a plaintiff to recover actual damages or lost profits for contributory trademark infringement. Alternatively, a plaintiff that claims a defendant is using counterfeit trademarks can elect to recover preset statutory damages ranging between $500 and $100,000 per counterfeit mark per type of goods or services sold. If the infringement is found to be willful, statutory damages can rise to $1 million. Statutory damages can prove lucrative for plaintiffs because, in many counterfeiting cases, actual damages and lost profits are negligible or difficult to prove.
Until the Akanoc case, no court had awarded statutory damages against a party for contributory trademark infringement.
Defendants cannot remain “willfully blind” to infringement
Before trial, the defendants filed a motion in which they requested that the court grant judgment in their favor on the contributory trademark infringement count. The defendants claimed, among other things, that they were only resellers of services and that they could not monitor every website that uses their services. The court denied the motion because it believed there were genuine issues of material fact that had to be resolved at trial.
In ruling on the summary judgment motion, the court set forth the test for contributory infringement that Louis Vuitton would have to prove to recover against the defendants: (1) The defendants had knowledge of the third parties’ direct infringement, and (2) the defendants exercised control over their customers’ websites or websites operated by their customers’ customers.
The court suggested that there was enough evidence to prove that the defendants knew of the infringement because they had received multiple notices from Louis Vuitton about the infringement. The court also suggested that the defendants had the ability to take down the infringing websites because there was evidence in the record that they could disable offending IP addresses in about 30 minutes. The court opined that the “[d]efendants cannot remain ‘willfully blind’ to trademark infringement taking place on their servers.”
The jury agreed, finding that the defendants committed contributory infringement because they knew, or should have known, that the defendants’ customers were using the defendants’ services to infringe or facilitate others to directly infringe Louis Vuitton’s marks. The jury further found that the defendants had reasonable means to withdraw their services so their services could not be used to directly infringe, but continued to provide the services. To top it off, the jury found that the contributory infringement was willful, thereby entitling Louis Vuitton to enhanced statutory damages to the tune of $31.5 million.
The way ahead
The law remains extremely unsettled as to whether ISPs should be liable when users commit trademark and copyright infringement on their networks. The Akanoc case, however, suggests that courts will not allow ISPs to willfully turn a blind eye to their users’ activities.
That raises the question, of course, of how much ISPs need to do to avoid liability. IPS must establish protocols for handling complaints from IP owners about infringement. Not only do protocols need to be in place, however; ISPs need to act on complaints quickly. The longer an ISP allows a user to conduct potentially infringing activities, the more damages the ISP could face.
On the other side of the coin, the Akanoc case demonstrates that trademark owners have a potent weapon in enforcing their rights. Those who own large trademark portfolios, such as Louis Vuitton, can potentially recover mammoth judgments under the per-mark/per-type formula. This prospect can provide trademark owners with significant leverage when they need to compel an ISP to take down offending websites.