Should designers pay the price? A look at contributory trademark infringement as it relates to different outcomes of internet auction site litigation in the United States and France.

• Author: Haynes, Rebecca M.

They fill the streets of New York and Los Angeles; hundreds line the Las Vegas strip--counterfeit goods that is. Not only do counterfeit handbags, sunglasses, and jewelry now line the sidewalks of big cities, but the items are also invading smaller communities. A local headline just before one of the largest shopping days of the year read, "$650k Worth of Fake Goods Seized at Knoxville Malls." (1) The local police seized fake handbags, sunglasses, designer cell phone cases, and jewelry when they executed search warrants at the ten retail outlets just before Black Friday. (2) The counterfeiting problem does not stop with street vendors and malls. The largest shopping mall in the world is the Internet, and it provides customers with thousands of different items daily. Among these hot buys found on the Internet are "knock-offs." One estimate for 2006 "posits that 14 percent--or $84 billion--of [the] year's $624 billion global counterfeit trade was derived from Internet sales." (3) As more and more counterfeits reach more and more Americans, what are Congress and the judicial system doing to stop it?

The Internet has provided a large marketplace for buyers and sellers of both real and counterfeit items, and as a result, the legal standards for contributory trademark infringement have been playing catch-up over the past twenty years. The problems associated with the trade and trafficking of these counterfeits are not found simply in the United States; courts around the world are struggling to control the problem. As designers and elite trademark owners fight an uphill battle in the United States, they are finding help in other jurisdictions. The French courts seem ready to come to the rescue of these top name-brand designers after the Commercial Court of Paris handed LMVH Moet Hennessy Louis Vuitton SA ("Louis Vuitton") a twenty-million euro verdict against eBay after eBay was found liable for selling fake Louis Vuitton merchandise. (4) Under similar circumstances, Tiffany sued eBay in the Southern District of New York only to be left with a cold verdict. (5) This begs the question as to why the courts in France are coming to the rescue of trademark owners who file suit in their jurisdiction while courts in the United States will not give the same relief.

This Note discusses the development of contributory trademark infringement law in the United States and compares it to the stand France has taken in stopping contributory trademark infringement. Part I examines the history of contributory trademark infringement law in the United States and where it may be headed in the wake of Tiffany v. eBay. Part II briefly discusses France's history of trademark laws and the holding of Louis Vuitton v. eBay. Part III looks at policy concerns that stem from contributory trademark infringement and policing the Internet. Finally, Part IV explores different laws and programs as potential models for a standardized contributory trademark law. This Note proposes a reasonably anticipated standard or similar standardized rule to resolve the discrepancies that have arisen in the international context regarding how to prevent infringement activities on internet auction sites.

1. OVERVIEW OF UNITED STATES TRADEMARK LAW AND THE OUTCOME OF TIFFANY V. EBAY

   1. Background of Trademark Law in the United States

      A trademark is defined as a "word, name, symbol, or device, or any combination thereof ... used by a person ... to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods." (6) A trademark is beneficial to its owner because it helps him establish goodwill in his product or service. (7) There are two primary justifications for trademark protection. The first justification is "to 'protect the public so that it may be confident that, in purchasing a product bearing a particular trademark which it favorably knows, it will get the product which it asks for and which it wants to get.'" (8) The second is "to ensure that 'where the owner of a trademark has spent energy, time and money in presenting to the public the product, he is protected in his investment from its appropriation by pirates and cheats.'" (9)

      The Lanham Act is the federal trademark statute that provides for claims of trademark infringement, dilution, false designations of origin, and false advertising. (10) It prohibits the use of another person's trademark without permission "in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive." (11) Contributory trademark infringement "allows certain parties other than the ones who actually infringed the trademark to be held jointly liable for the infringement." (12) However, case law gives a dearer picture and a better definition of how contributory trademark infringement is dealt with in the United States.

      Under U.S. case law, liability for contributory trademark infringement was first imposed on the manufacturer or distributor. This set the controlling test as the inducement standard. Under this standard, "one who induced another to commit a fraud and provided the means to carry out the fraud could be held liable for it." (13) The U.S. courts used this inducement standard until 1982, when the Supreme Court added a knowledge component to the test in Inwood Laboratories, Inc. v. Ives Laboratories, Inc. (14) In that case, Inwood Laboratories manufactured the drug cycladelate and intentionally copied the appearance of Ives Laboratories' trademarked cycladelate drug Cyclospasmol. (15) Ives sued Inwood, claiming that Inwood's use of look-alike capsules induced pharmacists to mislabel Inwood's drugs in order to pass them off as Cyclospasmol, thereby infringing Ives's trademark. (16) The Court found that Inwood did not intentionally induce pharmacists to mislabel generic drugs and did not continue to supply drugs to pharmacists who it knew were mislabeling its product, and accordingly held in favor of the defendant. (17)

      Inwood expanded the inducement standard of contributory infringement and presented a two-part test for contributory trademark infringement. The first part recognizes contributory liability when the "manufacturer or distributor intentionally induces another to infringe a trademark." (18) If the first part is not satisfied, contributory liability is still found under the second part when "a manufacturer or distributor ... continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement." (19)

      The cases that have followed Inwood have expanded the concept of contributory trademark infringement from including merely the manufacturer to include also landlords of venues that provide a service. In Hard Rock Care Licensing Corp. v. Concession Services, Inc., the Seventh Circuit stated that the owner of a flea market could be held liable for contributory trademark infringement in the same manner as a manufacturer or distributor. (20) The court

      justified this extension by treating a trademark violation as a common law tort and following the Restatement of Torts, which says that one is responsible for the torts of those one permits on one's premises "knowing or having reason to know that the other is acting or will act tortiously." (21) Similarly, in Fonavisa, Inc. v. Cherry Auction, Inc., the Ninth Circuit said that a swap meet's operator could be found liable because he was supplying the necessary marketplace for the sale of counterfeit goods in substantial quantities. (22) This court adopted Hard Rock Cafe's application of the Inwood test. (23) Therefore, after Hard Rock Cafe's landlord test, liability is imposed on the owner of the premises if the owner knows of infringement, because the owner supplies the premises--the means of infringement.

      The first case to apply Hard Rock Cafe's landlord test in the internet context was Lockheed Martin Corp. v. Network Solutions, Inc. (24) The Ninth Circuit found that a registrar of internet domain names was not liable for contributory trademark infringement based on a third party's registration of domain names that infringed Lockheed's trademarks. (25) The court in Lockheed stated that the Hard Rock and Fonovisa cases show that the court should "consider the extent of control exercised by the defendant over the third party's means of infringement." (26) The court went on to summarize the rule: "Direct control and monitoring of the instrumentality used by a third party to infringe the plaintiff's mark permits the expansion of Inwood Lab.'s 'supplies a product' requirement for contributory infringement." (27) Therefore, the relevant inquiry to determine if someone is liable in today's internet context is "the extent of control exercised by the defendant over the third party's means of infringement." (28)

   2. Case at Issue: Tiffany v. eBay

      Tiffany v. eBay applied the "extent of control exercised" standard to determine the defendant's liability for supplying a means of infringement in the internet context. (29) In Tiffany, the court found that the auction website eBay did not engage in contributory trademark infringement and held that the website's refusal to automatically and permanently suspend sellers when it was notified of potential infringing activities did not constitute per se contributory trademark infringement. (30)

      Tiffany & Co. ("Tiffany") is a licensee and user of trademarks for jewelry, watches, and decorative art objects. (31) Tiffany controls its reputation for high quality jewelry by employing inspectors that physically inspect each item to determine if it is authentic Tiffany silver jewelry. (32) Tiffany does not make its quality standards known to the public or other jewelry manufacturers. (33) Furthermore, Tiffany controls the distribution of its branded goods by allowing its new...