®
Official Journal of the International Trademark Association
Revisiting Initial Interest Confusion on the Internet
By Daniel C. Glazer and Dev R. Dhamija
The Internet Auction House and Secondary Liability—
Will eBay have to Answer to Grokster?
By Deborah J. Peckham
Bubbles and Squeaks: “Irrational Exuberance” and
Its Impact (or Lack Thereof) on Damages
Under the Lanham Act in the Dot.Com Era
By Robert Morrill, Cate Elsten and Kevin Arst
Establishing Geographic Rights in
Trademarks Based on Internet Use
By W. Scott Creasman
Free Speech and “Sucking”—
When Is the Use of a Trademark in a Domain Name Fair?
By W. Scott Creasman
The Anticybersquatting Consumer Protection Act: Developments
Through Its First Six Years
By Joseph J. Weissman
Amicus Brief of the International Trademark Association in
Contessa Premium Foods, Inc. v. Berdex Seafood, Inc.
Amicus Letter of the International Trademark Association in
Tungsway Food & Beverage Holdings, Pte. Ltd. v.
Pt Istana Pualam Kristal
Vol. 95
September-October, 2005
No. 5
®
EDITOR’S NOTE
The Trademark Reporter published its first volume devoted to
the Internet in 1997, with articles focused on legal issues then in
their infancy, such as domain name infringements, the use of
hyperlinks and metatags, and how the sale of goods and services
on the Internet affected the traditional “minimum contacts”
analysis for personal jurisdiction. Two years later, the TMR
published an extensive update of Internet-related issues, again
focused primarily on what was by then commonly known as
cybersquatting, along with further coverage of the issues of
linking, framing and metatags.
Since 1999, the TMR has regularly published articles on
various Internet-related issues, but the time seemed ripe for
another issue devoted exclusively to trademark issues arising in
the context of the Internet and other new technologies. The articles
included in this volume show that some issues that were once “hot”
in the late 1990s, such as cybersquatting and initial interest
confusion, have cooled down considerably, while other issues have
become more controversial. Undoubtedly, as new business models
of electronic commerce emerge, different and unanticipated
trademark issues will come to the forefront, and the TMR will do
its best to cover these developments as well in the years to come.
Sandra Edelman
Editor-in-Chief
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THE INTERNET AUCTION HOUSE AND
SECONDARY LIABILITY—
WILL eBAY HAVE TO ANSWER TO GROKSTER?
By Deborah J. Peckham∗
I. INTRODUCTION:
THE RISE OF FRAUD ON THE INTERNET
AND THE PROBLEMS CAUSED BY AUCTION SITES
By all accounts, fraud on the Internet is at an all time high.
The popular press is filled with stories about Internet-based
scams, and it is obvious that the web has provided an attractive
new medium of exchange for counterfeiters.1 One area of particular
concern, perhaps because of its growing popularity as a means of
creating personal income, is the rise of use of online auction sites
to sell both legitimate and bogus or counterfeit goods.2 While the
major online auction sites—eBay, Amazon and Yahoo!—each have
taken steps intended to eliminate fraud and counterfeiting via
their services, mark owners and consumers alike often find
themselves
without
effective
recourse
against
online
counterfeiters.3
∗ Partner in the Intellectual Property Department at Kirkpatrick & Lockhart
Nicholson Graham LLP in Boston, MA, Associate Member of the International Trademark
Association. The author gratefully acknowledges the assistance of Elizabeth A. Walker in
researching and writing this article. Ms. Walker is an associate in the Intellectual Property
Department at Kirkpatrick & Lockhart Nicholson Graham LLP in Boston, MA.
1. See Top Ten Scams, Internet Scams Fraud Trends 2004, published at
http://www.fraud.org/2004-internet%zoscams.pdf by the National Consumers League
estimating that in 2003 the average victim of online fraud lost $895 (up from $527 in 2003)
and noting that a full 51% of all reported fraud could be traced back to phony online auction
activities.
2. See generally The Hazards of Online Auctions, Ten Tips To Avoid Being Scammed,
published
at
http://www.lawsguide.com/mylawyer/guideview.asp?layer=3&article=401
(citing, among other examples of online auction fraud, the counterfeit sales of Ty’s BEANIE
BABIES. See also, Going, Going, Gone . . . When Online Auction Users Lose Out to Phony
Payment and Escrow Services, FTC Consumer Feature, Bureau of Consumer Affairs, April
2003 (stating that the FTC has received increasing complaints from users of online auctions
complaining of fraud, in part because the goods delivered were not the quality stated in the
auction); and Internet Auctions: A Guide for Buyers and Sellers, Federal Trade Commission
booklet, available at www.ftc.gov/bcp/conline/pubs/online/auctions.htm. Regarding the rise
of counterfeiting generally, see Facts on Fakes, International Anticounterfeiting Coalition
(IACC) available at www.iacc.org.
3. For information on Yahoo’s terms of service relating to auctioning see: http://
docs.yahoo.com/info/terms/; http://user.auctions.yahoo.com/html/guidelines.html; http:// auctions.
yahoo.com/phtml/auc/us/legal/additionaltos.html. For eBay see: http://pages.ebay.com/help/
policies/user-agreement.html; http://pages.ebay.com/help/confidence/ vero-rights-owner.html. For
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To combat the threat to intellectual property rights posed by
online counterfeiting the more popular auction sites have
promulgated policies to address illegal behavior, and at least one of
the major auction sites has published detailed procedures to
address infringement claims.4 Of course, no program provides
complete insurance against counterfeit sales. Moreover, as with all
forms of Internet-related illegal activity, finding the actual
wrongdoer is often a losing battle. Auctions are often over before a
comprehensive investigation can even commence, and motivated
counterfeiters are able to unload goods or disappear before eBay or
others can take action.
While counterfeiters are busy exploiting new ways to profit
from their wrongdoing, brand owners and service providers are left
pointing to each other, suggesting that each is to blame for the
problem.5 Who should be responsible for stopping online
counterfeiting? Is it a burden that only the brand holders should
bear? Or should there be liability for auction sites that host the
counterfeiters—and if so, under what theory? 6
At the same time that trademark owners are pondering this
dilemma, producers of so-called “peer-to-peer” (“P2P”) technologies
and the recording and motion picture industries have been duking
it out to determine whether liability for pirating of music and
motion pictures can be imposed on those providing online file
sharing services.7 In fact, in one of the most momentous rulings on
Amazon see: http://www.amazon.com/exec/obidos/tg/browse/-/508088/103-8694615-2321424;
http://www.amazon.com/exec/obidos/tg/browse/-/508088/103-8694615-2321424#copyright.
4. See eBay’s Verified Rights Owner Program at http://pages.ebay.com/help/
confidence/vero-rights-owner.html; see also infra text at note 14.
5. Tiffany (NJ) Inc. and Tiffany and Co. have instituted a suit for contributory
infringement against eBay in Federal District Court for the Southern District of New York.
Tiffany (NJ) Inc. et al. v. eBay Inc. Civ. Doc. # 1:04-cv-04607-NRB (“Tiffany Complaint”). As
of the date of completion of this article, the case was still pending with discovery set to close
on November 4, 2005. In the Tiffany Complaint, Tiffany alleges, among other things, that
eBay facilitates counterfeiting by encouraging sales of brand name goods, by promoting
Tiffany-branded listings at the site, maintaining a large percentage of auction sites selling
allegedly counterfeit Tiffany items, and by manipulating sponsored links from Yahoo! and
Google in such a way that web surfers are directed to auctions on eBay selling counterfeit
goods. See Tiffany Complaint at ¶¶ 24-30.
6. For a general discussion of secondary liability for trademark infringement
occurring online see Walsh, Gregory J., Internet Service Provider Liability for Contributory
Trademark Infringement After Gucci, 2002 Duke L. & Tech. Rev. 0025 (December 9, 2002);
Easton, Eric B., Current Developments in Cyberspace, 9 U. Balt. Intell. Prop. L.J. 181
(Spring 2001); Janis, Daniel T., Internet Domain Names and the Lanham Act: Broadening
Trademark Definitions and Their Implications for Speech on the Web, 25 Colum. J.L. & Arts
21 (Fall 2001).
7. According to Wikipedia, “A peer-to-peer (or P2P) computer network is a network
that relies on the computing power and bandwidth of the participants in the network rather
than concentrating it in a relatively few servers. . . . A pure peer-to-peer file transfer
network does not have the notion of clients or servers, but only equal peer nodes that
simultaneously function as both “clients” and “servers” to the other nodes on the network.
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intellectual property rights in the last several years, the U.S.
Supreme Court issued its decision in Metro-Goldwyn Mayer
Studios, Inc. et al. v. Grokster, Ltd. et al.8 on June 27, 2005. That
case confirmed that manufacturers of products designed and
promoted with intent that they be used to infringe copyrights could
be held contributorily liable for the infringements of their users—
even in the absence of actual knowledge of those infringements.
This article will investigate whether recent developments in
the law of contributory liability are likely to help or hinder brand
owners to establish viable secondary liability claims against
auction houses that provide services to online counterfeiters. In so
doing, this article will briefly summarize the anti-pirating policies
of the most popular auction sites, and then review the development
of contributory trademark law in the federal courts. It will also
investigate recent developments in contributory liability law in the
copyright context and suggest that those developments should be
equally relevant to the trademark bar. This article concludes that
while brand holders are not precluded from bringing successful
contributory infringement claims against auction sites, the
grounds for those claims are probably limited and may have
become even more limited in the wake of the Grokster decision.
Nevertheless, this summer’s Grokster opinion provided some
important guidance that brand holders and service providers
should review as they continue to combat counterfeiting on the
web.
II. THE PRELIMINARIES—
RESPONSIBILITIES OF THE ONLINE AUCTIONEER
Direct responsibility for sales of bogus goods resides in the
first instance with the auctioneers or users themselves.9 Moreover,
the online auction sites have taken steps to reinforce the notion
that liability ought to be imposed exclusively on the subscriber by
implementing terms of use and policies that strictly prohibit illegal
behavior, including sales of counterfeit goods.10 In addition to
adhering to these policies, sellers must “register” or otherwise sign
up with the site and in most instances fees are charged either for
This model of network arrangement differs from the client-server model where
communication is usually to and from a central server. A typical example for a non peer-topeer file transfer is an FTP server. One user uploads a file to the FTP server, then many
others download it, with no need for the uploader and downloader to be connected at the
same time.” See http://en.wikipedia.org/wiki/Peer-to-peer.
8. 125 S. Ct. 2764 (2005). A full discussion of this case can be found infra at the text
accompanying notes 103-28.
9. See 15 U.S.C. § 1114(1)(a) et. seq.; 18 U.S.C.A. § 2320(a) et seq.
10. For relevant policies, see supra note 3.
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participation in an auction or as a commission at the time of sale.11
In addition to payment of fees, auctioneers must abide by each
site’s policies and procedures including terms for bidding and
intellectual property violations.12 In particular, eBay’s policy
prohibits the sale of counterfeits, unauthorized replicas and
unauthorized copies. Amazon also forbids illegal activities
generally, and Yahoo prohibits the listing or sale of “any item that
infringes the rights of a third party, including items that violate
copyrights, trademarks, publicity or privacy rights of third parties”
and “any item that is counterfeit or stolen.” All three sites claim to
cancel listings and/or account privileges for violations of their
respective policies.13
In addition to forbidding trafficking in illegal fakes, eBay has
what appears to be the most comprehensive set of procedures for
attempting to avoid infringement. The Verified Rights Owner
(VeRO) program allows intellectual property rights owners to
request removal of listings that offer an item (or contain material)
that allegedly infringes a claimant’s copyrights, trademarks, and
other intellectual property rights. To report a listing to eBay, an
intellectual property owner sets up a user account with eBay and
completes and submits a “Notice of Claimed Infringement” form.
By signing and returning the completed form, the intellectual
property owner notifies eBay that it has a good faith belief that the
identified listing infringes the notifier’s rights and that the
information in the form is accurate. After receipt of the Notice,
eBay removes the listing at issue and notifies the seller and
bidders of the removal.14
Despite the existence of the VeRO program, allegations of
infringement and counterfeiting continue.15 Indeed, web sales of
11. eBay’s fees vary depending on the starting and closing prices of the auction, but
range from $0.25 to $4.80 for the “Insertion Fee,” and from $0.01 to over $1,000.01 for the
“Final Value Fee.” In addition, eBay charges different fees for certain business and
industrial categories, such as heavy equipment, and food service and retail. Also, sellers can
add optional features to help increase their chances for a successful auction but these
features come with additional fees. There are no such fees to sell on Yahoo! Auctions.
However, Yahoo! Auctions requires that a credit card be provided for verification.
12. For relevant policies, see supra note 3.
13. Id.
14. See VeRO program http://pages.ebay.com/help/confidence/vero-rights-owner.html.
Participants in the VeRO program also are encouraged to create “About Me” pages, which
are designed to educate eBay sellers and buyers about the products and intellectual
property rights of the owners. Despite eBay’s extensive published policies, the responsibility
is still squarely on the intellectual property owners to enforce their rights. In fact, the VeRO
policy itself emphasizes that intellectual property owners must do their own policing. See id.
15. See Lewis, Mark, Shabby Chic Settles IP Lawsuit with eBay Sellers,
AuctionBytes.com, July 12, 2004. See also Tiffany (NJ) Inc.’s lawsuit against eBay supra
note 5; and Bob Sullivan, EBay Fights Its Toughest Legal Battle: Tiffany Lawsuit Puts
Vol. 95 TMR
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counterfeit and gray market goods seem to be increasing generally,
with eBay apparently a frequent target of illegal activity.16 For its
part, eBay contends that its commitment to VeRO is sufficient to
insulate it from liability. In particular, it contends that its role is
limited to that of a trading platform: it does not receive the goods
nor control them, and hence it should not be held accountable for
the illegal trades of its members.17 Hence, brand owners seeking to
stamp out online auctioning of illegitimate goods must actively
police the auction sites and cannot rely on the auction site owners
to protect brands, unless the owners are notified of wrongdoing.
III. THE DEVELOPMENT OF CONTRIBUTORY
TRADEMARK INFRINGEMENT DOCTRINE
To determine whether and under what circumstances an
online auction site might be liable for the infringing activities of its
users, a review of the law of contributory trademark liability is
necessary. It is generally accepted that there are two types of
secondary liability applicable to trademark claims—contributory
liability and vicarious liability.18 While both have their roots in the
common law of torts,19 the underlying theories are rather distinct.
Contributory liability can be traced to concepts of joint tort
doctrines.20 Vicarious liability, on the other hand, has origins in
concepts of master/servant and respondeat superior.21 Although
both theories have been applied in the trademark context, theories
of contributory liability are more likely to be relevant to the
question of liability for online providers who allegedly aid in the
sale or trafficking of counterfeit goods.22 Therefore, this article will
“Hands Off” Approach to the Test, MSNBC.com, September 21, 2004; Scalet, Sarah D.,
Auction Blocks, CSO Magazine, August 2005.
16. See Scalet, Auction Blocks, id.
17. See id.
18. See, e.g., Hard Rock Café Licensing Corp. v. Concession Services, Inc., 955 F.2d
1143, 1148-50 (7th Cir. 1992).
19. See, e.g., 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition
§ 25:23 (4th ed. 2005) [hereinafter McCarthy].
20. See generally Prosser and Keeton on Torts, 5th ed., 1988 § 46, 322-23 [hereinafter
Prosser].
21. See id. at § 69.
22. In part because it is based on doctrines like master/servant and respondeat
superior, vicarious liability doctrine in the trademark context has rather narrow
applications. The current generally accepted test for vicarious trademark infringement is
whether the alleged secondary infringer: 1) was in a partnership with or had apparent
authority to act on behalf of the direct infringer; and 2) benefited financially from the
infringement. Viable claims for vicarious trademark infringement usually involve parent
and subsidiary relationships or where there is a strong principal/agent relationship. See
Buckman, Deborah F., Liability as Vicarious or Contributory Infringer Under Lanham Act—
Modern Cases, 152 ALR Fed 573; American Telephone and Telegraph Co. v. Winback and
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focus on contributory trademark theory as a possible option for a
brand holder seeking recourse against online auction sites.
Contributory trademark infringement theory grew out of
general tort doctrine. A “joint tortfeasor” is one who acts in concert
to commit a crime and therefore is considered equally responsible
for its commission, even though only one individual may actually
have battered the victim while another one merely held him
down.23 Prosser teaches that:
[a]ll those who, in pursuance of a common plan or design to
commit a tortious act, actively take part in it, or further it by
cooperation or request, or who lend aid or encouragement to
the wrongdoer, or who ratify acts done for their benefit are
equally liable.24
Significantly, mere knowledge of the activities of another
tortfeasor generally is not sufficient to trigger liability. Rather,
there has to be some greater evidence of acting in concert (though
express agreement is not necessary).25 Furthermore, as Prosser
notes, innocent acts by a party that happen to further the tortious
purpose of another are insufficient to assign liability. Rather, there
must be some manifestation of intent and/or concerted action.26
Hence, under basic joint tort doctrine deliberate encouragement of
or support of the wrongful act of another creates equal liability for
the aider, even when the assistance is rendered without express
intent to commit a crime.
The application of common law tort theory to trademark
infringement claims has a long history—dating at least as far back
as 1924. Interestingly, over the course of the last 80 years, the
articulated test for contributory trademark infringement has
remained relatively static—though its application to various
channels of trade, as well as its interpretation have evolved and
adapted quite a bit.27 Still, its contours are not completely defined.
As a general matter, in order to be contributorily liable for
trademark infringement, one must have: 1) induced the direct
infringement of another; or 2) continued to supply goods (or
Conserve Program, Inc., 42 F.3d 1421 (3d Cir. 1994) (citing agency principles as basis for
concluding that defendant could be liable for the infringements of resellers); but see Banff
Ltd. v. Limited, Inc., 869 F. Supp. 1103 (S.D.N.Y 1994) (no vicarious liability of corporate
parent) and Mini Maid Services Co. v. Maid Brigade Systems, Inc., 967 F.2d 1516 (11th Cir.
1992) (no vicarious liability for franchisor because of conduct of franchisee).
23. See 4 McCarthy, supra note 19, § 25:23; Prosser, supra note 20, § 46 at 322-23;
David Berg & Co. v. Gatto Int’l Trading Co., 884 F.2d 306 (7th Cir. 1989).
24. Prosser, supra note 20, § 46 at 323 (footnotes omitted); see also 4 McCarthy, supra
note 19, § 25:23; Berg v. Gatto, 884 F.2d at 311.
25. See generally Prosser, supra note 20, § 46.
26. Id.
27. See infra text accompany notes 32-88.
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facilities) to the infringer, knowing of the underlying direct
infringement.28 As will be illustrated, “inducement” for purposes of
trademark law traditionally has meant direct or implied
suggestion to the direct infringer that the infringement occur.29 On
the other hand, even if there is no evidence of inducement to
infringe, one may still be held contributorily liable if, under the
second “prong” of the test, there is continued distribution of a
product or other facilitation of infringement with knowledge (or
reason to know) of the infringing activities of others.30 While these
tests may seem on their face to be rather facile, courts have
struggled with their interpretation and their proper application. 31
A. The Mere Suggestion to Re-Label as
Contributory Infringement
The seminal decision on contributory trademark infringement
is the Supreme Court’s 1924 decision in Warner v. Eli Lilly.32 In
Warner, the Court considered the appeal of the William Warner
company of a holding of infringement of Lilly’s alleged rights in its
COCO-QUININE mark arising from Warner’s sale of a similar
concoction under the name QUIN-COCO. Lilly had accused
Warner of unfair competition because its distributors had actively
encouraged druggists to replace Lilly’s branded product with
Warner’s when filling prescriptions for Lilly’s product. Specifically,
Warner’s salesmen, during face-to-face meetings with pharmacists,
had actively implied, if not directly suggested, that prescriptions
for Lilly’s COCO-QUININE could be filled with Warner’s product
and that druggists could pocket the excess profit since Lilly’s
product was more expensive than Warner’s. The district court
agreed with Lilly that such activities unfairly induced the palming
28. See, e.g., Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982)
29. See Inwood, 456 U.S. 852-53.
30. See, e.g., Inwood, 456 U.S. at 854; Fonovisa, Inc. v. Cherry Auction, Inc. et al., 76
F.3d 259, 264 (9th Cir. 1996); Hard Rock Café Licensing Corp. v. Concession Services, Inc.,
955 F.2d 1143, 1148 (7th Cir. 1992).
31. For a general discussion of secondary liability for trademark infringement, see
Buckman, Deborah F., Liability as a Vicarious or Contributory Infringer Under Lanham
Act—Modern Cases, 152 ALR Fed 573; and Cross, John T., Contributory Infringement and
Related Theories of Secondary Liability for Trademark Infringement, 86 Iowa Law Rev.
(Oct. 1994).
32. 265 U.S. 526 (1924).
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off that was the subject of the litigation,33 but on appeal the Third
Circuit Court of Appeals overturned that ruling.34
The Supreme Court agreed with the district court that
Warner’s salespeople induced pharmacists, either explicitly or by
suggestion, to palm off Warner’s goods for Lilly’s, and that such
activity left Warner liable for the infringing acts of third party
pharmacists.35 In so doing, the Court harkened to common law
principles stating that “[t]he wrong was in designedly enabling the
dealers to palm off the preparation as that of the respondent. One
who induces another to commit a fraud and furnishes the means of
consummating it is equally guilty and liable for the injury.”36
A full 58 years after Lilly, the Supreme Court considered
Inwood Laboratories, Inc. v. Ives Laboratories, Inc.,37 yet another
pharmaceutical case—this one dealing with generic drugs. The
facts of Inwood were similar to those addressed by the court in
Warner. Specifically, druggists were alleged to have re-labeled
cheaper generic forms of certain look-alikes as the branded product
and then pocketed the difference in price, all at the alleged behest,
or acquiescence, of the defendant manufacturer of the generic.38
Inwood’s claims were premised on the claim that the generic
apparently had been deliberately manufactured to look just like
the previously patented original. This use of confusing trade dress
combined with defendant’s promotion of the product that used
catalog entries to compare the products “contributed” to the
mislabeling by the druggists, according to the plaintiff.39 After a
bench trial, the district court determined that there was
insufficient evidence to suggest that the manufacturers
intentionally had contributed to the wrongful mislabeling by the
druggists.40 According to the lower court, defendant’s choice of
33. See Warner, 265 U.S. at 528. Interestingly, none of the courts agreed with Lilly on
the pure trademark claim, finding that COCO-QUININE lacked trademark significance and
therefore that Warner had not infringed. Id. This is an odd result because, in most
instances, a finding of contributory or secondary infringement requires a finding of direct
infringement.
34. See id.
35. Id. at 530.
36. Id. at 530-31.
37. 456 U.S. 844 (1982).
38. Inwood, 456 U.S. at 848-50.
39. Id. at 847-48. Specifically, the plaintiff had claimed that by selling the product as
the “equivalent” of the original, the generic manufacturer was “placing an instrument of
fraud” in the hands of pharmacists, thereby unfairly appropriating the business that would
otherwise go to plaintiff. Ives Laboratories, Inc. v. Darby Drug Co., Inc., 455 F. Supp. 939,
rev’d, Ives Laboratories, Inc. v. Darby Drug Co., 601 F.2d 631, (2d Cir. 1979), rev’d and
remanded, Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982).
40. Ives Laboratories, Inc. v. Darby Drug Co., Inc., 488 F. Supp. 394, 397 (E.D.N.Y.
1980).
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similar trade dress and promotional activities did not support a
finding that the defendant suggested, “by implication” or
otherwise, that pharmacists fill their bottles with the generic
version of Inwood’s pharmaceutical product and sell it with
plaintiff’s label.41
On appeal, the Second Circuit Court of Appeals overturned the
district court’s ruling, suggesting that the district court had failed
to accord the proper weight to the evidence of implied suggestion.42
The court emphasized:
[b]y using capsules of identical color, size and shape, together
with a catalog describing their appearance and listing
comparative prices of [the branded drug] and generic [drug],
appellees could reasonably anticipate that their generic drug
product would by a substantial number of druggists be
substituted illegally for Ives’ trademarked [product name] or
that bottles of their lower-priced product might be
mislabeled. . . . This amounted to a suggestion, at least by
implication, that the druggists take advantage of the
opportunity to engage in such misconduct.43
The court also pointed out that there had been evidence showing a
pattern of illegal substitution in New York and that, based on this
evidence, manufacturers could have “reasonably anticipated” the
infringing activities of druggists. Hence, at least according to the
Second Circuit, contributory infringement under the first prong of
the standard test (“inducement”) could be predicated on evidence
consisting of the combination of: 1) promotional materials
suggesting that the two drugs were interchangeable; and 2) the
similarity of the alleged trade dress chosen for both products.44
The Supreme Court reversed the Second Circuit’s holding—
but did so on the limited ground that the appeals court was not
entitled to substitute its own judgment relating to the weight of
the evidence for that of the trial judge.45 In reaching its conclusion,
however, the Supreme Court was careful to emphasize that the
overall test for contributory infringement articulated by the
Second Circuit was correct.46 Specifically, the Court stated that
contributory infringement could lie if there was a “suggestion, even
by implication,” that retailers fill bottles with the generic form of a
41. Id. at 397.
42. Ives Laboratories, Inc. v. Darby Drug Co., 638 F.2d 538, 544 (2d Cir. 1981).
43. Id. at 543.
44. See id. at 544-45.
45. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 857-58 (1982).
Professor McCarthy notes that the Supreme Court’s Inwood decision is open to
interpretation. See 4 McCarthy, supra note 19, § 25:18, text at nn.18-19.
46. Id. at 853-54.
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drug and label it with the proprietary mark of a competitor.47 But,
by affirming the Second Circuit’s articulation of the test, the
Supreme Court seemed to create an ambiguity in the law.
Specifically, the Second Circuit opinion had suggested that
inducement could be inferred from evidence indicating that the
contributor could have reasonably anticipated illegal substitution
based upon surrounding facts.48 Indeed, in Justice White’s
concurring opinion, he noted with some concern that the majority
opinion significantly altered the test of contributory trademark
infringement.49 In particular, he feared that inducement evidenced
by “suggestion or by mere implication” could now encompass
merely anticipating possible misbehavior by third parties, rather
than the more explicit encouragement that the concurring justices
believed precedent required.50 This distinction may be critical
because a standard of “reasonable anticipation” of infringing
activity begins to suggest that actual knowledge of the underlying
infringement is not necessary to a finding of contributory
infringement.
B. Development of Contributory Liability
for Trademark Infringement
From Drugs and Salespeople to Flea Markets,
Landlords and Domain Name Registrars
In the years since Inwood, there have been several
adjustments to the Inwood test, each of which lend greater support
to the trademark owner—as the changes arguably expand the
scope of who is liable for the direct infringements of third parties.
By and large, the cases after Inwood concerned not so much the
inducement part of the test, but rather the second prong relating
to material contribution. These cases clarified and expanded the
doctrine of contributory trademark infringement in two crucial
ways. First, the post-Inwood cases expanded the definition of who
might be a “contributor” under the traditional test from one who
supplies the goods (allegedly) knowing they will be used to
infringe, to defendants who also supply facilities or services used
in connection with the infringing activities of others. Secondly, the
development of the law post-Inwood clarified that one’s lack of
actual knowledge of infringing activities will not insulate a
contributor where there is evidence of “willful blindness.” Hence,
47. See id. at 851 (emphasis added).
48. Ives Laboratories, 638 F.2d at 543.
49. See Inwood Laboratories, 456 U.S. at 859-61 (J. White, concurring).
50. Id. at 861. The majority opinion seemed to address Justice White’s concern by
affirming its view that the Second Circuit’s opinion was grounded in the traditional two
prong test. Id. at 854.
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“don’t ask don’t tell” generally will not immunize a contributory
infringer from liability.
In Hard Rock Café Licensing Corp. v. Concession Services,
Inc.,51 the U.S. Court of Appeals for the Seventh Circuit considered
the appeal of flea market operator, Concession Services, of a lower
court’s finding of contributory infringement. Concession ran a flea
market and had leased space to sellers of counterfeit goods.52
Affirming the district court’s decision on Concession’s liability, the
Seventh Circuit looked to the traditional test for contributory
infringement set out in Inwood.
It is well established that “if a manufacturer or distributor
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, the
manufacturer or distributor is contributorily responsible for
any harm done as a result of the deceit.”53
The court noted that although the standard seemed clear, it was
uncertain how it should be applied, if at all, in the context of a
landlord/tenant relationship. The plaintiff’s claims of contributory
infringement as to Concession were novel because the test for
contributory infringement articulated by the Inwood and Warner
courts had both been devised to address the contributory activities
of a manufacturer of the item involved in the infringement.54 In
the present case, however, the plaintiff was seeking extension of
that test to someone who provides the place or facility of
infringement. In analyzing this question, the court pointed out
that under common law principles a landlord is responsible for the
torts committed on its premises, provided that the landlord has
knowledge of such tortious activity and fails to intervene to stop
it.55 As such, Concession could be held liable if it knew about the
counterfeiting activity but did not take steps to intervene.
Significantly, in Concession’s case, it was not at all clear that
Concession had the requisite actual knowledge of counterfeiting
under the second prong of the contributory infringement test that
the articulated test seemed to require.56 The court avoided the
knowledge issue, however, by pointing out that Concession could
not avoid being contributorily liable simply by being “willfully
blind” to the potential wrongdoing of Concession’s lessors. Such
willful blindness to illegal activities could be tantamount to actual
51. 955 F.2d 1143 (7th Cir. 1992).
52. Id. at 1148.
53. Id., quoting Inwood Laboratories, 456 U.S. at 854.
54. Id.
55. Id. at 1149, citing Restatement (Second) of Torts § 877 & cmt. d (1979).
56. See Hard Rock, 955 F.2d at 1149.
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knowledge of such activities for purposes of assigning contributory
liability under the second prong of the contributory liability
standard.57 Accordingly, the Seventh Circuit remanded the case to
the district court for factual findings relating to the defendant’s
state of mind, with instruction that if there was evidence that the
operator either knew or had reason to know of the counterfeiting,
then the defendant’s failure to investigate that knowledge (or
suspicion) created liability.58 In ordering the remand, the Seventh
Circuit noted that there seemed to be evidence supporting willful
blindness because the defendant had observed the bogus goods in
question “and had the opportunity to note that they had cut labels
and were being sold cheap.”59 Hence, after Hard Rock, a landlord
or lessor could be held liable for contributory infringement if it
knew or had reason to know of the infringing activity taking place
on its premises, or was willfully blind to that behavior, and failed
to take action to address the infringement.
A few years after the Hard Rock decision, in 1996, the Ninth
Circuit Court of Appeals considered a similar factual scenario in
Fonovisa, Inc. v. Cherry Auction, Inc. et al. 60 Fonovisa concerned
claims against a swap meet promoter who allegedly contributed to
the counterfeiting activities of its vendors by failing to control the
foreseeable infringement of those vendors.61 Specifically, defendant
Cherry Auction had leased space to various vendors who had sold
counterfeit musical recordings at auction. Similarly to Concession,
Cherry argued that it was not supplying any product (but only
leasing space) knowing that the recipient vendors would engage in
infringement. Following the Hard Rock court’s reasoning, the
Ninth Circuit ruled that Cherry Auction was contributorily liable
for the counterfeit sales of its vendors and was not, as Cherry
argued, simply an “absentee landlord.”62 In reaching its conclusion,
the court emphasized that Cherry Auction had the right and
ability to control the auction premises, terminate vendors and
control access of customers.63 Given the amount of control
exercised by Cherry Auction, the defendant could not argue it was
merely a passive entity uninvolved in the infringing activity.
Rather, according to the court, Cherry was supplying the necessary
57. Id.
58. Id.
59. Id.
60. 76 F.3d 259 (9th Cir. 1996).
61. Id. at 265-66.
62. Id. at 262.
63. Id.
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marketplace for infringing activities.64 Moreover, consistent with
Hard Rock, the defendant had been willfully blind to the infringing
activities of its vendors.65 Accordingly, the defendant had fulfilled
the second prong of the Inwood test and materially contributed to
known infringing activities.66
Hence, Hard Rock and Fonovisa introduced and confirmed two
relatively novel expansions to the law of contributory trademark
infringement. First, these cases suggested that willful blindness to
facts that should alert a potentially liable party to infringing
activities could be tantamount to “actual knowledge” of those
activities for purposes of the test for contributory infringement.
Second, the decisions confirmed that the theory of contributory
infringement could be used to pursue claims against those entities
that provided the facilities where infringement occurs in addition
to the manufacturers of the infringing products who supply
counterfeiters or infringers.67
C. Contributory Trademark Infringement
on the Internet
The traditional bounds of contributory liability set out by
Inwood and expanded by the Fonovisa and Hard Rock courts were
further tested as commercial activities migrated to the Internet in
the late 1990s. In particular, in a series of cases beginning in 1999,
plaintiffs attempted to assign contributory trademark liability to
domain name registrars as well as Internet service providers.
However, while the invitation to expand the scope of potentially
liable parties was repeatedly made, courts were reticent about
extending the doctrines to service providers who could, at best,
only be shown to be tangentially involved with the direct
64. See id. at 264-65. The Fonovisa decision was more concerned with contributory and
vicarious copyright claims against Cherry Auction for the underlying infringement in the
plaintiff’s copyrighted recordings. Hence, much of the court’s analysis was focused on those
claims, rather than the trademark claims.
65. Id. at 265.
66. Id., quoting Inwood, 546 U.S. at 854-55.
67. These theories were not entirely novel before Hard Rock. In particular, contributory
liability for copyright infringement had already expanded the scope of liability to cover
dance hall operators and landlords who had knowledge of copyright infringements on their
premises. See, e.g., Famous Music Corp. v. Bay State Harness Horse Racing & Breeding
Assn., 554 F.2d 1213 (1st Cir. 1977) (racetrack retained infringer to supply music to paying
customers); Dreamland Ballroom, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th Cir.
1929) (defendant leased record concession for its chain of retail stores to infringer and had
strong financial incentive for it to succeed as well as authority to police concession for
bootleg recordings); Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443
F.2d 1159 (2d Cir. 1971) (alleged contributory infringer had actual knowledge that artists
were performing copyrighted songs, was in a position of control and had ability to police). In
addition, the concept of willful blindness was introduced in Louis Vuitton S.A. v. Lee, 875
F.2d 584, 590 (7th Cir. 1989).
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infringers. As the cases have unfolded, it has become increasingly
clear that only those service providers who have continuing
relationships with infringers such that they have knowledge of
and/or control over infringing activities can be potential targets of
contributory liability claims. Conversely, those entities that have
only ephemeral contact with the infringing activity will not be
liable. Of course, the challenge for service providers and potential
plaintiffs is determining where involvement sufficient to give rise
to liability begins and ends.
In 1999, the Ninth Circuit Court of Appeals considered
whether Network Solutions, Inc. (NSI) should be held
contributorily liable for the allegedly infringing registration of
domain names that included plaintiff’s trademarks.68 In particular,
Lockheed Corporation complained that NSI’s registration of
Lockheed’s marks as portions of domain names for third parties
rendered NSI liable for the infringing activities of the registrants.
Considering Lockheed’s appeal of the district court’s dismissal of
its claims, the court looked to Fonovisa’s teaching that a service
provider could be liable for contributory infringement if it
facilitated the infringing activities of others. The court concluded
that when the alleged contribution involves services or facilities
(rather than provision of the directly infringing product), the court
requires a higher threshold of control—namely direct control and
monitoring of the service allegedly used to infringe to support a
conclusion of contributory infringement.69 Because NSI, acting
merely as a registrar of domain names, did not have control over
the actual allegedly infringing use of the domain names in
question, it could not be held accountable for that infringement.70
The court emphasized:
Where domain names are used to infringe, the infringement
. . . result[s] from the registrant’s use of the name on a web
site or other Internet form of communication in connection
with goods or services. . . . NSI’s involvement with the use of
the domain names does not extend beyond the registration.71
In addition, because NSI was not in a position to control activities
on the Internet at large it had no duty to police those downstream
68. Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999).
69. Id. at 984.
70. Id. at 984-85.
71. Id. at 985, quoting Lockheed Martin Corp. v. Network Solutions, Inc., 985 F. Supp.
949, 958 (C.D. Cal. 1995). See also Ford Motor Co. et al. v. Great Domains.com, Inc., 177 F.
Supp. 2d 635 (E.D. Mich. 2001) (holding that the domain name registrar was not
contributorily liable for alleged infringing activities of domain name registrants since Great
Domains was not in a position to know of or police the activities of its registrants and
because claims brought under the Anticybersquatting Consumer Protection Act (ACPA)
required a higher level of intent and knowledge on the part of the direct infringer).
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activities of registrants that occurred after NSI’s involvement had
ceased.72 Furthermore, the mere notice to NSI of alleged
infringement did not trigger an obligation to investigate such
claims, since NSI was in no position to know whether any
particular use of a trademark might be fair or whether it might
cause confusion in the marketplace.73
More recently, courts have begun to grapple with allegations
that other online service providers—including those that may have
more control over the activities of users—should be held
contributorily liable for infringement. Specifically, cases have been
brought against both Google and Netscape claiming that their
sales of so-called “adwords” and “keywords” constitute contributory
trademark infringement.74 Google, for example, sells adwords—
including words that may contain proprietary brands—to the first
bidder. Those words or terms are then used to generate specialized
search results, called “sponsored links,” when Google users type in
those adwords into its search engine.75 In Google Inc. v. American
Blind and Wallpaper,76 American Blind challenged Google’s
adword sales, contending that because these “sponsored links”
(which arguably receive preferential or higher appearance on the
search page) were likely to mislead consumers as to source, the
sale of such adwords constituted active encouragement to infringe
under the inducement prong of the contributory infringement test.
The court declined to grant Google’s motion to dismiss those claims
on the grounds that it required a fuller record to determine
whether such activities could be infringing.77
In a similar case, Playboy Enterprises objected to Netscape’s
sale of “keywords” to generate banner ads for competitors under
the same theory posited by American Blind—namely that
consumers would be confused by the misleading banner ads.78 The
Ninth Circuit reversed the lower court’s summary judgment ruling
in favor of Netscape, but did so without providing any reasoning
relating to the potential basis for contributory infringement.
Specifically, the court ruled that there were questions of fact as to
whether the banner ads were confusing to customers and that, if
72. See Lockheed, 194 F.3d at 985; Lockheed, 985 F. Supp. at 967.
73. See Lockheed, 985 F. Supp. at 963.
74. Google, Inc. v. American Blind and Wallpaper, 74 U.S.P.Q.2d 1385 (N.D. Cal. 2005);
Playboy Enterprises, Inc. v. Netscape Communications, Inc., 354 F.3d 1020 (9th Cir. 2004).
75. Hence, in theory, General Motors could acquire from Google the adword for “FORD”
and when users search for FORD, GM’s website and/or links to its dealerships might be
displayed under so-called “sponsored links.”
76. 2005 U.S. Dist. LEXIS 6228 (N.D. Cal. 2005).
77. Id.
78. Playboy Enterprises, Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th
Cir. 2004).
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they were, whether Netscape could be contributorily or directly
liable.79
Although the Google and Playboy examples are both
intriguing, unfortunately neither case has progressed far enough
to be able to glean likely outcomes or impact on future cases.
However, the Playboy decision in particular clarifies that at least
some courts are willing to countenance theories of contributory
liability for online providers of allegedly “manipulative” linking,
listing or targeted advertising practices that have the cause and
effect of confusing consumers.80 Ultimately, to be consistent with
prior case law, a finding of liability against Netscape and Google
would have to be based, in part, on each company’s alleged
“inducing” behavior or on the defendants’ continuing relationship
with the direct infringers and the right and ability to control the
infringing conduct on its Internet “premises.”
In the wake of Lockheed, Google and Playboy, at least in some
circuits, it would seem that online service providers may be held to
be contributorily liable only under a limited number of
circumstances. First, under the Inwood standard for inducement, a
service provider could be liable if the evidence shows that the
alleged contributor directly suggested to the infringer or actively
promoted, even by mere implication, the use of their services for
infringing purposes.81 Alternatively, under the second prong of the
test for contributory infringement, a court could assign liability if
there is evidence that a service provider, with knowledge of
infringement, continued to provide the site, facilities, services or
products used to infringe.82 However, based upon the standards
articulated by the Lockheed court, liability would not generally
attach unless there is a direct and continuing relationship between
the service provided and the actual infringing activities.83 Hence,
the provision of ancillary or temporary services that do not directly
facilitate the infringement probably will not trigger contributory
79. Playboy, 354 F.3d at 1023. Not all courts have been willing to grant relief on claims
similar to those posited in Netscape and Google. In fact, several jurisdictions have
questioned whether the kind of use of the mark alleged in such cases is “use in commerce”
for purposes of the Lanham Act. See 1-800 Contacts v. WhenU.com, Inc. et al., civ. Doc. Nos.,
04-026-cv(L), 04-0446-cv(CON) (2d Cir. June 27, 2005) (reversing district court ruling and
finding that using a trademark to trigger pop-up advertising was not use in commerce that
would trigger liability). Hence, at a minimum, there is a split developing in the circuits
regarding whether using a mark for keyed advertising or linking is “use in commerce” under
the Lanham Act. Were a consensus to develop among the circuits that the use of adwords or
keywords is not “use in commerce” for Lanham Act purposes, then neither purchaser of the
adword/keyword, nor the seller could be liable under either a direct or contributory theory.
80. See id.
81. See supra text accompanying notes 37-50.
82. See supra text accompanying notes 51-67.
83. See supra text accompanying notes 68-73.
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liability claims. However, if a service provider is involved in a
continuing relationship with the direct infringer, and provides
services that directly facilitate or support that infringement, such
providers may be at greater risk if it can be shown they knew or
had reason to be aware of the infringing activity and took no
action. Furthermore, providers generally cannot shield themselves
from liability by being willfully blind to knowledge.84
Despite the development of the law in this area, there is still
significant ambiguity regarding exactly what kinds of services may
be contributing to infringement, and whether services provided by
auction sites could be considered “inducing” and/or “materially
contributing” to the counterfeiting activities of online sellers.
Under the inducement portion of the test, as articulated by
Inwood, arguably any combination of evidence suggesting or
implying ill intent on the part of the auction site is all that will be
required to show inducement. To avoid liability for inducement to
infringe, auction sites and other online providers need only ensure
that they carefully design and promote their services to ensure
that none of their outward behaviors suggest that users traffic in
illegal goods. In fact, given that the auction sites seem to have
robust non-infringement policies and procedures and are willing to
disable allegedly infringing sales, at least under the Inwood
standard it would seem that proving an auction site induced
infringement would be an uphill battle.85 On the other hand, there
is at least a credible argument to be made that the Inwood court
may have, inadvertently or otherwise, slightly expanded the test
for inducement by tacitly confirming the Second Circuit’s view that
inducement might be shown if an alleged contributor had reason to
anticipate potential infringement but failed to take steps to police
it.86 Under this version of the Inwood test, a court might consider
evidence that a site had an adequate collection of facts—possibly in
the form of prior history of counterfeiting, or in the way of brands
or goods commonly counterfeited—such that an auction house
reasonably had a basis to know or anticipate additional
infringement.87 However, given the lack of clear precedent, such an
argument, without other evidence, would appear to be less than
compelling.
The development of the case law under the second prong of the
contributory trademark infringement test is similarly unclear in
its application to online service providers and auction sites in
84. See Hard Rock Café Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143,
1149 (7th Cir. 1992); Fonovisa, Inc. v. Cherry Auction, Inc. et al., 76 F.3d 259, 265 (9th Cir.
1996).
85. See discussion, supra at notes 37-50.
86. See discussion, supra at notes 45-50.
87. See id.
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particular. Although after Lockheed it seems clear that an online
service provider with more direct and ongoing control or
interaction with infringing activities may be contributorily liable
for such activity, as of yet no court has assigned such liability in
the online context. Hence, we do not know for certain whether a
court would assign liability to a service provider who, arguably like
the landlord/operator(s) in Fonovisa and Hard Rock, knew or had a
reason to know that infringing activities were occurring online but
did not stop them. Moreover, because the auction sites appear to
remove or disable sales of which they are notified, it seems dubious
at best to assume a court would assign liability merely because
other infringing sales could have been detected but were not
policed by the auction house. Fonovisa teaches that evidence that
one had reason to be suspicious (because the goods in question
simply looked bad) might suffice to trigger a duty to investigate.
However, because online providers have no independent actual
exposure to the physical goods, a reason to be suspicious of any
specific sale would have to come from another source. Moreover,
because mere notice of alleged infringement given to a service
provider does not trigger a duty to investigate after Lockheed, it
would appear that brand owners may have a difficult road in
attributing counterfeit sales to the auction sites unless notice of
specific infringements was unheeded by the service provider.88
In sum, it is not clear from the development of the case law on
contributory trademark infringement whether a service provider
like an auction site has a duty to actively police activities of users
over whom it arguably exercises some control just because it has
reason to know that some of those activities are likely to be illegal
but otherwise has no direct knowledge of specific infringing or
counterfeiting sales of any particular user.
IV. CONTRIBUTORY LIABILITY FOR
COPYRIGHT INFRINGEMENT:
MGM v. GROKSTER
There are relevant parallels in the law of contributory
copyright liability that might help shed some light on the
ambiguities present in the law of contributory trademark
infringement. In considering these parallels, it is important to
remember that copyright law grants more expansive protection
than trademark rights. Hence, it stands to reason that the tests for
contributory copyright liability or their application should be
slightly different from their application in the trademark context,
with the result that the copyright holder retains a somewhat
88. See discussion of Lockheed, supra notes 68-73.
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stronger or more expansive right as compared with the trademark
owner. Hence, tests developed in the copyright context should
provide broader protection for copyright holders and would at least
provide a sort of “outer boundary” for the likely contours and
application of similar tests in the trademark realm. Accordingly,
the June 2005 decision by the Supreme Court in Metro-Goldwyn
Mayer et al. v. Grokster, et al. bears careful review because its
articulation of the standard for inducement to infringe copyrights
does shed light on some of the ambiguities outlined above.
As a general matter, the scope of secondary trademark
infringement liability is narrower than its cousin doctrine under
copyright law.89 There have been several proposed reasons for this
differential treatment, including the assertion that as a general
matter the property right protected by trademark law is narrower
than that protected by copyright and the fact that trademark law
generally “tolerates a broad range of non-infringing uses of words
that are identical or similar to trademarks.”90 The genesis of this
assertion seems to be a footnote in the Supreme Court’s 1984
decision, Sony Corporation of America et al. v. Universal City
Studios, Inc.,91 in which the court stated rather unequivocally:
. . .[g]iven the fundamental differences between copyright law
and trademark law, in this copyright case we do not look at
the standard for contributory infringement set forth in Inwood
Laboratories, Inc. v. Ives Laboratories, Inc. . . ., which was
crafted for the application of trademark cases. . . . If Inwood’s
narrow standard for contributory trademark infringement
governed
here,
respondents’
claim
of
contributory
infringement would merit little discussion. Sony certainly does
not “intentionally induc[e]” its customers to make infringing
uses of respondents’ copyrights, nor does it supply its products
to identified individuals known by it to be engaging in
continuing infringement of respondents’ copyrights. . . .92
A brief synopsis of the context and reasoning of Sony will help
explain the Court’s footnote and provide guidance on what portions
of the doctrine of contributory copyright liability might still be
instructive on the proper standard to apply and quality of evidence
to require in analyzing contributory trademark claims.93
89. See Sony Corporation of America et al. v. Universal City Studios, Inc., 464 U.S. 417,
438 n.19 (1984); Lockheed, 985 F. Supp. at 965.
90. Lockheed, 985 F. Supp. at 965.
91. 464 U.S. 417, 438 n.19 (1984). Interestingly, the scope of the Sony decision was also
the genesis for the series of cases giving rise to Grokster.
92. Id. (citations omitted).
93. For a good general discussion of secondary copyright liability in the counterfeiting
context see Kolsun, Barbara and Bayer, Jonathan, Indirect Infringement and
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In Sony the Supreme Court was asked to determine the
circumstances under which the manufacturer of a device that
could be used to infringe copyrights would be liable as a
contributory infringer of the works infringed.94 The owners of
copyrighted television programs brought suit against Sony, the
developer of the BETAMAX machine, for the illicit copying being
accomplished by the machines in people’s homes.95 In arguing that
Sony should be responsible for the infringing activities of users of
the BETAMAX machine, respondents pointed to a long line of welldeveloped cases addressing the liability of landlords and dance hall
operators for the copyright infringements of orchestras and bands
playing on their premises.96 Briefly, those cases laid out a standard
for secondary copyright liability that, in essence, assigned liability
if the landlord or dance hall operator knew or, by virtue of its
ability to control the premises had reason to know, of an infringing
activity—and took no steps to stop it.97 But the Supreme Court
quickly rejected this standard as inappropriate to the fact pattern
before it in Sony. Specifically, the Court noted that all of the
foregoing precedents referred to cases where the contributor knew
or had reason to know of the infringement at the time that the
infringing activities occurred.98 Because Sony’s only contact with
the direct infringers was at the moment of sale, it simply could not
be said (according to the Supreme Court at the time) that there
was any contribution that Sony made to the actual, downstream
infringing activities of users.99 The Court emphasized:
Counterfeiting: Remedies Available Against Those Who Knowingly Rent to Counterfeiters, 16
Cardozo Arts & Ent. L.J., 383 (1998).
94. See generally, Sony, 464 U.S. at 419-21.
95. Notably, Sony was argued just six and half months after the Court had issued its
decision in Inwood Labs.—a case that had, as the reader will recall, a vociferous
concurrence issued by Justice White questioning whether the Court was acquiescing to a
broad standard for contributory trademark infringement. See supra text accompanying
notes 45-50. It is also worth noting that at the time Sony was decided, it lacked the
precedent on the trademark side that came about in Fonovisa v. Cherry and other cases
expanding contributory trademark infringement analysis to cover service providers.
96. Sony, 464 U.S. at 436-37 and n.18; see Famous Music Corp. v. Bay State Harness
Horse Racing & Breeding Assn., Inc., 554 F.2d 1213 (1st Cir. 1977).
97. See, e.g., Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Assn.,
Inc., 554 F.2d 1213 (1st Cir. 1977) (racetrack retained infringer to supply music to paying
customers); Dreamland Ballroom, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th Cir.
1929) (defendant leased record concession for its chain of retail stores to infringer and had
strong financial incentive for it to succeed as well as authority to police concession for
bootleg recordings); Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443
F.2d 1159 (2d Cir. 1971) (alleged contributory infringer had actual knowledge that artists
were performing copyrighted songs, was in a position of control and had ability to police).
98. Sony, 464 U.S. at 437-38.
99. Id. at 438.
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If vicarious liability is to be imposed on Sony in this case, it
must be by reason of the fact that it sold equipment with
constructive knowledge of the fact that its customers may use
that equipment to make unauthorized copies of copyrighted
materials. There is no precedent in the law of copyright for the
imposition of vicarious liability on such a theory. The closest
analogy is provided by the patent law cases to which it is
appropriate to refer because of the historic kinship between
patent law and copyright law.100
It was at this point in the decision that the Court rejected the
Inwood test for contributory infringement (which it had considered
and ruled on just six months earlier) as inapplicable because the
scope of trademark law that was the substance of that decision
provided a narrower set of rights as compared with copyright and
hence the correct alternative analogy had to be found in the patent
context.101 The Court went on to construct an apparently new
doctrine for contributory liability for copyright infringement that
would apply in cases similar to Sony where a manufactured device
could be used for both infringing and non-infringing purposes. In
essence, after Sony, if a technology could be shown to be capable of
substantial non-infringing uses, manufacturers of such equipment
would not be held to be contributorily liable for introducing such
products to the market, provided the manufacturer “had no direct
involvement with any infringing activity.” 102
Whether one agrees or disagrees that the trademark monopoly
is fundamentally narrower than the copyright monopoly, one at
least theoretical effect of Sony was to confer on copyright holders
additional protection not shared by trademark owners. After Sony,
copyright owners who could show that a device lacked substantial
non-infringing uses could halt its production even in the absence of
actual knowledge of the infringement. Trademark owners, as we
have seen, have no such veto power. At least in theory, after
Inwood and its progeny, to prevail on a claim of contributory
infringement a trademark owner must be able to show inducement
100. Id. at 439. The Court’s use of the word “vicarious” is interesting at this juncture.
The standard test for vicarious copyright infringement was distinct from that applied for
contributory infringement. Specifically, vicarious copyright infringement could be found if
the alleged infringer had the right and ability to supervise the infringing activities and a
financial interest in the infringement. See Gershwin Publishing Corp. v. Columbia Artists
Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); Shapiro, Bernstein & Co., Inc. et al.
v. H.L. Green Company, Inc., 316 F.2d 304 (2d Cir. 1963); see also Famous Music, 554 F.2d
at 1214-15. Vicarious liability did not require knowledge of infringement, only a vested
interest in the outcome and the ability to control the illegal activity. Notwithstanding this
difference, the Court’s word choice clearly articulates the accepted standard for contributory
copyright infringement and not vicarious infringement.
101. Id. at 439 and n.19.
102. Id. at 446-47.
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or material contribution with knowledge of infringement. It does
not matter under the law of contributory trademark infringement
whether or not a device that has been used to infringe trademarks
has or lacks substantial non-infringing uses.
Even though the protection for copyrights became, at least
theoretically, stronger or broader after Sony, that should not mean
that the similar aspects of the two doctrines cannot inform our
analysis of how future courts will or could apply contributory
liability doctrine to trademark claims because the tests, at a
minimum, are still quite similar, and the exception granted by
Sony only goes to the scope—but not to the definition—of the test
itself. Specifically, both under copyright and trademark law, the
first prong of the test for infringement remains essentially the
same. That is, if there is palpable evidence that one has induced
another party to infringe, such behavior will give rise to liability.
Because the inducement standards are so similar and because the
Supreme Court’s Grokster decision clarified the standard for
inducement in the copyright context, reviewing that decision
should be helpful to trademark practitioners seeking to use
inducement theory to enforce rights against auction sites.
V. RECENT CASES ON PEER-TO-PEER
FILE SHARING AND THE DEVELOPMENT OF
CONTRIBUTORY LIABILITY FOR
PROVIDERS OF THESE TECHNOLOGIES
One of the most hotly contested areas in the development of
the law of contributory liability in the last several years has
surrounded who should be liable for the infringement caused by
online file sharing. Cases in both the Seventh and Ninth Circuits,
attempting to follow Sony’s precedent, applied and developed the
basic tests for contributory infringement in the context of peer-topeer (“P2P”) file sharing, with the effect that the definitions of
knowledge, willful blindness and inducement all have received
further definition.103 These cases culminated in the Supreme
Court’s June 27, 2005, decision in Metro-Goldwyn Mayer Studios,
Inc. et al. v. Grokster Ltd. et al.104 That unanimous decision
clarified that one may be contributorily liable for copyright
infringement if one: 1) actively encourages or induces infringing
behavior through specific acts or 2) distributes a product that
103. See Metro-Goldwyn Mayer Studios, Inc. et al. v. Grokster Ltd. et al., 380 F.3d 1154
(9th Cir. 2004); In re Aimster Copyright Litigation, Appeal of John Deep, 334 F.3d 643 (7th
Cir. 2003); A&M Records, Inc. et al. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001)
104. 125 S. Ct. 2764 (2005).
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distributees use to infringe copyrights, if the product is not capable
of substantial non-infringing uses.105
Litigation over file-sharing first received attention with A&M
Records’ suit against Napster in 1999.106 Napster’s service
consisted of downloaded software and a central server controlled
by Napster used to maintain indexes of searchable titles. In
essence, users relied upon Napster’s servers and software to trade
copyrighted files. In the Napster decision, the Court of Appeals for
the Ninth Circuit concluded that Napster’s file sharing service had
contributorily infringed A&M’s (as well as the other plaintiffs’)
copyrights. The court predicated its decision on the fact that
Napster provided a centralized indexing and searching service
that, in turn, was used to locate and copy copyrighted works. In
reaching its decision in Napster, the Ninth Circuit relied in part on
its prior Fonovisa v. Cherry decision. The court emphasized that
Napster’s service provided the “facilities” for infringement and
that Napster possessed actual knowledge of infringement on its
servers. Because Napster, like Cherry Auction, had the ability to
police and control access to its servers (and presumably halt
infringement), but apparently took no steps to stop the
infringement, the court concluded that Napster was contributorily
liable.107
The file sharing peer-to-peer wars climaxed with the Supreme
Court’s 2005 decision in Grokster in which the Court was asked by
dozens of amici variously to revisit, refine, clarify or overturn its
momentous 1981 decision in the Sony case. Interestingly, the
Court took the opportunity to do none of the above—and instead
retreated to the traditional (and evolving) test for contributory
infringement without upending Sony or its central tenets. Without
ruling specifically on whether Grokster’s service was capable of
substantial non-infringing uses under the Sony standard, the
Supreme Court found Grokster’s service objectionable because it
had, under traditional contributory liability theory, “induced” the
infringing activities of users.108
Similar to Napster, the Grokster defendants each had
distributed free software that facilitated the indexing, searching
and exchange of files among computers connected to the
105. Slip op. at 1.
106. A&M Records, Inc. et al. v. Napster, Inc. et al., 239 F.3d 1004 (9th Cir. 2001).
107. Id. at 1021-22. See also In re Aimster Copyright Litigation, Appeal of John Deep,
334 F.3d 643 (7th Cir. 2003) (where infringement occurred on a semi-decentralized file
sharing system and defendant deliberately avoided knowledge, court held that defendant
was liable because of willful blindness to infringement).
108. See Grokster, slip op. at 1.
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Internet.109 However, unlike Napster, Grokster-owned servers
were not used in aiding the actual trading or indexing of files.
Rather, the software distributed by the Grokster defendants only
facilitated the peer-to-peer networking connections among
software users themselves. Before the case was heard by the
Supreme Court, the Ninth Circuit Court of Appeals had absolved
Grokster of liability because the configuration of Grokster’s
service—decentralized and beyond the control of Grokster—meant
that under the prevailing understanding of the Sony doctrine, the
Grokster defendants did not have the requisite actionable
knowledge of the infringing activities of its users.110 The Ninth
Circuit interpreted Sony to apply to the “knowledge” portion of the
material contribution test. In essence, according to the Ninth
Circuit, if an alleged contributory infringer was unable to show
that its device was capable of substantial non-infringing use, then
the plaintiff need only show that the defendant had constructive
knowledge of infringement. If, on the other hand, the defendant
was able to show non-infringing uses, then the plaintiff had to
show that the defendant had specific knowledge of infringements
and failed to act on that knowledge.111 Because Grokster was able
to demonstrate non-infringing use, the burden shifted to the
copyright owners to demonstrate that the Grokster defendants had
knowledge of specific acts of infringement.112 More specifically, any
actual knowledge that Grokster acquired of infringement arose
only after Grokster’s software was released to the direct
infringers.113 This disjunction between the timing of infringement
and defendants’ knowledge and ability to control it absolved the
defendants of contributory liability according to the Ninth
Circuit.114 Moreover, the Ninth Circuit interpreted the Sony
doctrine to mean that, in light of the de-centralized, non-integrated
nature of Grokster’s services, Grokster had not provided the “site
and facilities” for known infringing behavior.115
Not surprisingly, the recording industry filed a Petition for
Certiorari with the U.S. Supreme Court so that, once again, the
Court could revisit the standards it had set out 24 years earlier in
109. The original suit initiated by recording industry representatives included several
co-defendants who had independently developed various iterations of P2P technology. For
procedural reasons, only the cases against Grokster, Ltd. and StreamCast Networks, Inc.
progressed all the way to the Supreme Court.
110. Grokster, 380 F.3d 1154, 1162-64 (9th Cir. 2004).
111. Id. at 1161.
112. Id. at 1162.
113. Id.
114. Id.
115. Id. at 1163, citing Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 261, 264 (9th
Cir. 1996), see supra text accompanying notes 60-66.
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Sony. Interestingly, however, although the majority of the briefs
filed in the case concerned issues of material contribution,
knowledge of infringement and the meaning of “capable of
substantial non-infringing uses,” the Supreme Court took an
entirely different tack, emphatically pronouncing that the Sony
decision did nothing to eradicate traditional contributory liability
theory:
Sony did not displace other theories of secondary liability. . . .
[N]othing in Sony requires courts to ignore evidence of intent
if there is such evidence, and the case was never meant to
foreclose rules of fault-based liability derived from the
common law.116
The Supreme Court thus reaffirmed the doctrine of inducement,
pointing out that Grokster had intended that users infringe
copyrights and that such intent could not be insulated from
liability merely because the technology also might have had noninfringing uses. As such, even lacking the actual (and temporally
relevant) knowledge of infringement under the second prong of the
traditional test, Grokster could and should be held accountable—
even if substantial non-infringing uses for its technology could be
demonstrated.117
The Supreme Court described evidence of the Grokster
defendants’ guilty behavior as follows:
• In the wake of Napster (and with knowledge of the Ninth
Circuit’s pronouncements of the basis for Napster’s guilt),
Grokster co-defendant StreamCast Networks designed and
promoted Napster-compatible software—evidencing intent
to benefit from Napster’s 50 million users.118
• Defendant StreamCast created promotion and press kits
demonstrating its intent to be the alternative to Napster
and urged Napster users to migrate to StreamCast’s
system.119
• StreamCast published advertising to Napster users stating
“‘Napster Inc has announced it will soon begin charging you
a fee. That’s if the courts don’t order it shut down first.
What can you do to get around it?’”120
116. Grokster, slip op. at 16-17.
117. Id.
118. Id. at 6.
119. Id. at 6-7.
120. Id. at 7.
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• Evidence that StreamCast’s Chief Technology Officer
welcomed a lawsuit over the file-sharing activity since that
would be great promotion too.121
• Company internal email from StreamCast demonstrating
an intent to profit from Napster’s closing.122
With respect to Grokster, the Supreme Court noted the following
evidence of intent to induce:
• Grokster inserted digital coding into its site that would help
computer surfers searching for “Napster” or “‘[f]ree
filesharing’” to be directed to Grokster’s site; and the
Grokster name was a derivative of Napster.123
• Grokster sent users a newsletter promoting its ability to
provide copyrighted materials.124
Finally, the Supreme Court pointed to evidence that both
defendants:
• Based their business plans on the principal objective of
using their software to download copyrighted works.125
• Relied on income generated by advertising that was driven
by infringing use of the service.126
• Had failed to attempt to filter out copyrighted content, nor
taken steps to ensure non-infringing use. The Court
emphasized:
Although Grokster appears to have sent emails warning
users about infringing content when it received
threatening notice from copyright holders, it never
blocked anyone from continuing to use its software to
share copyrighted files.127
After reviewing the evidence of the defendants’ culpable
intent, the Supreme Court then pointed out that the Ninth Circuit
had misapplied the Sony doctrine by assuming that such evidence
could be negated with evidence demonstrating that the product in
question was capable of non-infringing use.
121. Id.
122. Id.
123. Id.
124. Id. at 8.
125. Id.
126. Id.
127. Id. The Court emphasized, however, that evidence of failure to implement such
technology, standing alone, would not be enough to prove inducement. Id. at n.12
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Referring back to the history of the development of
contributory infringement and the doctrine’s basis in common law
tort theory, the Supreme Court quoted Black’s Law Dictionary:
The classic case of direct evidence of unlawful purpose occurs
when one induces commission of infringement by another, or
“entic[es] or persuad[es] another” to infringe . . . as by
advertising.128
Thus, after Grokster, at least in the copyright context,
inducement to infringe can be shown by evidence in the way of
words and deeds that supports an intent on the part of the
defendant-induced infringement. Such evidence may include
advertising or promotion that outwardly suggests infringement or
an intent to lure known infringers to your product or evidence that
your business plan or income are knowingly tied to infringing
behaviors.
VI. CONCLUSION:
THE VULNERABILITY OF AUCTION SITES
A. Material Contribution With Knowledge
Auction sites, like any site that facilitates online activity, may
be vulnerable to claims of contributory trademark infringement
under the second prong of the traditional test for contributory
liability. An auction site’s ongoing relationships with vendors gives
rise to the site’s ability to control the activities on its premises.
Further, sellers generally have a form of contractual relationship
with the auction site that gives the service control and the specific
ability to terminate the vendor at any time. Hence, unlike some
service providers who only provide ancillary or temporary services
that are unrelated in time to the infringing activities, the function
of the auction site is to facilitate the very sales that become the
subject of illegal activity. Significantly, however, because these
sites apparently abide by the reasonable demands of intellectual
property owners to remove actual alleged instances of
counterfeiting, getting a court to attribute liability to an auction
site for other illegal sales about which the site has no actual
knowledge—at least under the law as it has currently evolved—
will be an uphill battle.
Nevertheless, potential plaintiffs do have a credible argument
after Fonovisa and Hard Rock that if there is an adequate
combination of evidence, such as a pattern of illegal activity for
particular sellers, together with an auction site’s generalized
knowledge that sales of counterfeits do occur online, then the
128. Id. at 17.
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auction site has an obligation to investigate such activity. Under
such circumstances, failure to investigate could give rise to
liability under the theory that the site “should have known” but
failed to take action to stop counterfeiting activities. It remains to
be seen whether any court will stretch Fonovisa and Hard Rock so
far.
B. Inducement Theory:
Is It Inwood or Grokster That Controls?
An online auction site also could be contributorily liable for
counterfeiting under the “inducement” prong of the traditional test
for contributory liability if, through its outward behavior,
promotion or some combination of related activity, it could be
shown that the site intended for users to infringe at its website. In
addition, if one reads Inwood in the most liberal light, that
evidence of inducement could be shown by a combination of
promotion and product characteristics that enable the auction site
to reasonably anticipate infringement by users. Such evidence
could take the form of advertising, promotion and, for instance,
other manipulative behavior that an auction site might engage in
to induce sales. If the auction site functions in such a way to make
it easier to sell counterfeit goods (in the way that creating a lookalike pill makes it easier to switch the generic for the branded
item) and there is promotion that is highly suggestive of using the
auction to facilitate illegal sales, then it may be possible to
structure a successful case of contributory infringement under an
inducement theory decided under Inwood.
If, however, a court were to look to Grokster to determine the
type of evidence necessary to prove inducement, then the threshold
for assigning liability under an inducement theory may have been
raised as compared with the Inwood standard. In Grokster, the
Supreme Court was very focused on the deliberate activities of P2P
developers who designed an entire business model around
encouraging infringing behavior. While it cannot be said
categorically that the Supreme Court would require the level of
guilty behavior described in Grokster in every instance, the
decision is more direct in its description of what constitutes
inducement than its Inwood predecessor and, as such, arguably
sets a higher threshold for finding inducement. Specifically, under
a Grokster-like standard, arguably one must produce evidence of
outward culpable conduct directly inviting counterfeiting
activities, or promotion, business plans or other evidence of intent
that the site be used to infringe. In particular, both the Ninth
Circuit in Netscape and the Supreme Court in Grokster noted that
using keywords to direct or encourage a user to take part in
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infringing activities can be evidence of inducement.129 Hence, for
plaintiffs to succeed after Grokster, plaintiffs may need to do more
than merely point to a combination of activities that suggest “even
by implication” that the site be used to traffic in counterfeit goods.
Finally, there is good reason to believe that the Grokster
standard for inducement is relevant to the trademark analysis.
Sony and its progeny clarified that the law considers the rights of
trademark owners to be narrower than those owned by copyright
holders. This distinction supports a theory of contributory liability
in the trademark context that would grant a comparatively
narrower swath of protection than its cognate in the copyright
context. In Grokster, the Supreme Court articulated a basis for
finding inducement that appears to require strong evidence of
intent in order to assign liability—at least under an inducement
theory. Therefore, any standard, including perhaps Inwood’s
“suggestion, even by mere implication” may be too weak (and too
protective of trademarks) in comparison. Hence, it is reasonable to
assume that a plaintiff in a claim against an auction site for
contributory liability will have to adduce evidence of guilty intent
or conduct—similar if not more powerful than that produced in
Grokster—in order to prevail.
129. Note, however, that there is a big difference between encouraging someone to use
your services to make infringing copies and encouraging someone using your site to make
purchases that may or may not be counterfeit. Furthermore, unlike the users in Grokster, a
user visiting an auction site and purchasing counterfeit goods is not himself committing the
illegal act.