Caught in The Crosshairs: The Rise of Secondary Liability for E-Commerce Providers

Introduction

The Internet has fostered a vast, quickly growing landscape of interconnectivity that links an innumerable number of entities across the world. Embedded in this interconnectivity is the possible extension of liability on one entity as a result of the actions of another. In recent times, a trend of holding web hosts liable for assisting e-commerce businesses in the sale of counterfeit goods has emerged, giving rise to a heated debate as to what responsibility, if any, such web hosts should be saddled with for the actions of their affiliates.

Louis Vuitton & The Battle Against the Invisible Middleman

Last Fall, I had the opportunity to gain firsthand insight into this debate through my work in the Intellectual Property department of Louis Vuitton Moet Hennessey (LVMH), a French multinational luxury goods conglomerate comprised of roughly 60 clothing, cosmetics, fashion, and alcoholic beverage subsidiaries including Louis Vuitton, Fendi, Sephora, Moet et Chandon, Veuve Cliquot, Hennessy, and Sephora, amongst others. It is no secret that LVMH is extremely aggressive in protecting its IP, as the success of its brand entirely depends on its ability to make off a profit off of its luxury trademarked goods.

Louis Vuitton Malletier, S.A. v. Akanoc Solution's, Inc.

Over the course of my twelve weeks at LVMH much of the litigation I participated in was not centered on the physical world, such as pop-up shops in Chinatown, but centered on cyberspace. In 2011, prior to the start of my term at the company, LVMH secures a victory against a web-host for numerous websites that sold counterfeit Louis Vuitton products in Louis Vuitton Malletier, S.A. v. Akanoc Solution's, Inc., 658 F.3d 936 (9th Cir. 2011). In Akanoc, Louis Vuitton sued the defendant for contributory trademark and copyright infringement. LVMH alleged that the defendant failed to end service for the infringing sites, despite eighteen notices of infringement. The trial and appellate courts found the defendant liable for contributory copyright and trademark infringement because of the way it had guided web users to the infringing sites and exercised direct control over and monitored the websites.

Louis Vuitton Malletier v. Eisenhauer Flea Market Inc.

Soon thereafter, at the beginning of my term at LVMH, the company sued Eisenhauer Road Flea Maret, a large indoor flea Market in San Antonio, Texas in Louis Vuitton Malletier v. Eisenhauer Flea Market Inc., No. 11-SA-CA (W.D. Tex. 2012). In Eisenhauer, LVMH alleged that the flea market owner and landlords engaged in contributory trademark infringement by failing to police booth tenants for selling fake Louis Vuitton products. Although the defense alleged that it was not their responsibility to do Louis Vuitton’s work of policing the use of their brands, the court ultimately found this contention unpersuasive. The jury returned a verdict of $3.6 million dollars and a far reaching injunction prohibiting the defendants from (i) engaging in further acts of contributory infringement; (ii) leasing to tenants who the landlords knew, had reason to know or have been presented with credible evidence about their dealing in counterfeit Louis Vuitton items; (iii) manufacturing or dealing in counterfeit Louis Vuitton products; or (iv) engaging in conduct that contributes, directly or indirectly to counterfeiting by a tenant. The opinion also required the defendants to: (i) periodically inspect the booths for evidence of counterfeiting; (ii) promptly terminate the lease of anyone they find engaging in counterfeiting or if they are presented with credible evidence of such counterfeiting; (iii) include a provision in their leases prohibiting such counterfeiting; (iv) put warning signs at all entrances indicating that counterfeit material can not be sold on the premises; and (v) allow representatives of the plaintiffs to make periodic inspections for counterfeit material.

Louis Vuitton Malletier, S.A. v. 1854louisvuitton.com, et. al.

This past July, LVMH filed a case in the Federal District Court in Nevada against 182 websites and 1,000 “John Does” for infringement of its rights by manufacture advertising and sale of Vuitton nock offs. The Court granted Vuitton a temporary restraining order against a number of the defendants, finding a strong likelihood of success at trial by LVMH and that immediate and irreparable harm would accrue to the company without the TRO. Louis Vuitton Malletier, S.A. v. 1854louisvuitton.com, et. al., 2012 EL 2576216 (D.Nev. Juy 3, 2012).

Potential Implications

The potential implications the abovementioned line of cases may have for internet service providers, web hosts, online retailers, and others involved directly, or indirectly, in the online sale of counterfeit merchandise is expansive and has lead me to question whether or not the policy driving the law to hold these entities liable for their affiliates’ intellectual property infringement is sound. In fact, this policy is downright abusive. It is inherently unjust to require Internet intermediaries to take preventative or proactive measures to step into the shoes of law enforcement officials and police their affiliates. While I recognize that the effort, time, and money needed to individually identify, track, and sue primary infringers is extensive and inefficient, to do the alternative by casting a dangerously wide net that holds host websites responsible for the actions of their affiliates will have disastrous implications and will inevitably push society down a very slippery slope as intellectual property owners such as Louis Vuitton will inevitably try to continue to expand the boundaries of secondary liability by suing any and every party involved in some manner in the sale, whether it be advertisers, payment providers, shippers, or other activities relating to such goods.

This draft is long with the statements of facts in trial court litigation. They don't really help to evaluate the conclusion, which seems to come out of nowhere. Evidently, there are forms of complicity between people selling infringing goods and others with whom they deal (financiers, landlords, etc.) that would be sufficient to justify imposition of legal liability. Doubtless, there are also cases in which parties with the same legal category of relationship to the parties selling infringing goods are not complicit and should not be liable in any way. If those differences are matters of fact, surely litigation at the margins will be necessary to resolve the issue. If the differences in treatment can be resolved as a matter of law you don't say how. It seems to me that we don't need quite so much of the facts in individual cases as we need some analytical progress in determining how to exit the pattern whose flaws you describe.