C. Erik Johnson
Legal Extern, Office of Policy and International Affairs, U.S. Patent and Trademark Office*
Attorney-Advisor, Office of Policy and International Affairs, U.S. Patent and Trademark Office*
The sale of counterfeit goods through brick-and-mortar retailers remains a persistent problem for brand owners seeking to enforce their intellectual property rights. Such physical markets, particularly flea markets, discount marts, and bazaars, pose a strategic challenge for enforcement efforts. The counterfeiters selling at such outlets may use fake identities that can make investigations difficult. They keep poor business records making damages calculations and other evidentiary discovery challenging. They are typically undercapitalized, which can make them nearly judgment proof. In many markets, counterfeit vendors are so numerous that after one infringer is shut-down another one quickly opens in its place. In recent years, brand owners in the United States and internationally have sought to hold landlords liable for their retail tenants’ infringing activities.
Legal Claims Roadmap in Landlord Liability Cases
A brand owner pursuing landlord liability for counterfeiting in the United States would primarily assert a claim of contributory trademark infringement under the Lanham Act, 15 U.S.C. § 1114. Other claims that may be considered are contributory trade dress infringement and false designation of origin in section 1125(a), and contributory trademark dilution in section 1125(c).
With regards to remedies, brand owners may seek to recover their actual damages in section 1117(a). Damages may include the landlord’s profits, damages sustained by the plaintiff, and costs of the action. In section 1117(b)(2), courts may award three times profits or damages, whichever is greater, unless there are extenuating circumstances. At any time before final judgment, the plaintiff can elect to recover statutory damages under section 1117(c), instead of actual damages and profits, as actual damage to the brand from the sale may be difficult to prove and the counterfeiter’s profits may be hard to establish due to poor or deceptive record-keeping.
Brand owners would also typically seek preliminary and permanent injunctive relief under section 1116. Such injunctions could be wide-ranging. Injunctive relief may include requiring the landlord to remove the infringers from the market, to prominently display anti-counterfeiting notices in the market, or to have lease provisions that prohibit vendors from trafficking in counterfeit goods.
In order to prove contributory trademark infringement, brand owners need to show that the landlord: 1) knew, or had reason to know, that its vendors were engaging in trademark infringement; and 2) continued to rent to the infringing vendors. Courts have ruled that a landlord may be held liable even if they did not know its vendors were engaging in trademark infringement if the landlord willfully blinded themselves to infringement. Plaintiffs need not prove direct infringement in the early stages of litigation but only allege or demonstrate that direct infringement did occur.
Defense Strategies Used by Landlords
Landlords have made several defenses in their attempts to escape liability for the actions of their vendors. For example, market owners have asserted that they should not be held liable because they do not have training in counterfeit detection and therefore did not know that their retail tenants were selling fake products. In response, a U.S. District court in Coach v. Dequindre Plaza determined that the relevant standard of knowledge is not what a specially trained counterfeit investigator would know but instead what a reasonably prudent person would know given the circumstances. As the Court found, given the goods being sold “at dramatically low prices, [i]t would not take a rocket scientist trained in detecting counterfeit goods to suspect that the goods being sold … might be counterfeit and to make inquiry accordingly.”
Landlords have also argued that they did not know, or have reason to know, that goods being sold in their market were counterfeit, because it was possible that the vendors were simply reselling genuine products purchased from authorized sellers. This argument was rejected by a U.S. District court in Luxottica Group S.P.A. v. Greenbriar Marketplace, No. 1:15-cv-01382, Tr. at 13 (N.D Ga., Sept. 15, 2016) because the landlord did not have any direct evidence that the goods were authentic, such as a purchase order from an authorized vendor. The Court in this case also noted that the brand owner had previously identified the vendors who were selling counterfeits in cease-and-desist letters received by the landlord, which made it evident that they knew the products were fakes.
Landlords may also seek to escape liability by asserting that they do not run the flea market, and therefore should not be secondarily liable for any infringing activity occurring there. In response to such a claim, a U.S. District court in Coach v. Sapatis has explained that the degree of control over the infringer, and not the status of the landlord as owner or lessor, is the determinative factor for secondary liability. An owner or lessor of real property upon which a flea market sits, for example, may still be held liable if the owner or lessor is actively involved in the operations of the flea market, even if another party runs it. For instance, activities related to flea market operations, such as bookkeeping, grounds keeping, supplying, or making financial decisions, could be sufficient to hold a landlord liable for the vendor’s actions.
Jurisdictions outside the United States, including the European Union (See BPP December 2016 article Landmark Landlord Liability Case in the European Union) and, more recently, Canada, have begun to consider landlord liability for retail counterfeiters. In April 2017, the Ontario Superior Court of Justice, in Louis Vuitton v. Zekria Wakilzada, permitted a brand owner to bring a contributory infringement claim against landlords who owned and operated a flea market. The brand owner was allowed to plead that the landlords were aware of counterfeit goods being sold at their flea markets through police seizures and cease-and-desist letters but despite this knowledge, continued to allow infringing vendors to conduct business at the markets. This case, the first of its kind in Canada, signals that landlord liability may be a viable legal theory for brand owners to consider in the near future.
When assessing strategies for combating counterfeiting at brick-and-mortar retailers, such as flea markets, discount marts, and bazaars, brand owners should consider the potential legal liability of the landlords where the counterfeiters are located. Holding landlords secondarily liable can be a more efficient and effective approach than the potentially endless pursuit of individual vendors. A well-prepared brand owner should be ready to counter typical defenses from landlords, such as that they were unaware that infringing goods were being sold in their market or that they are mere landowners even if they perform some operational functions for the market. Brand owners need to look beyond ownership and recognize a landlord’s activities that meet the degree of control necessary to establish liability. Landlord liability is a powerful and necessary brand protection tool that should not be overlooked.
*The opinions and views expressed in this article are solely those of the authors and do not represent, and should not be taken as, the official position or view of the U.S. Patent and Trademark Office, or the U.S. Government.
THE BRAND PROTECTION PROFESSIONAL | SEPTEMBER 2017 | VOLUME 2 NUMBER 3
2017 COPYRIGHT MICHIGAN STATE UNIVERSITY BOARD OF TRUSTEES