Trademark
Swatch, Omega
Contributory Infringement
Theory of Willful Blindness
(‘Knows or Has
Reason to Know’)
Admission of evidence of alleged infringement of
non-plaintiff brands
Omega elected
to receive only statutory damages, which is an option the Lanham Act provides
to address the problem facing a plaintiff unable to prove actual damages.
Defendant 375
Canal, LLC (“Canal”), appeals from a judgment entered June 12, 2019, awarding
$1.1 million in statutory damages to Plaintiff Omega SA for Canal’s contributory
infringement of Omega’s trademarks, arising from sales of counterfeit
Omega watches at Canal’s property in Manhattan. Canal challenges the
district court’s denial of Canal’s pretrial motion for summary judgment, the
jury instructions on the elements of contributory infringement, several
evidentiary rulings, and the scope of the permanent injunction. We reject
Canal’s arguments on all issues. We dismiss Canal’s appeal of the
denial of summary judgment and affirm the judgment and
injunction.
We nevertheless
reach the merits of Canal’s trademark arguments via its appeal of the jury
instructions, and we reject Canal’s position as inconsistent with our precedent
in Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010). In Tiffany,
we held that a defendant may be liable for contributory trademark infringement
if it was willfully blind as to the identity of potential infringers—that is,
under circumstances in which the defendant did not know the identity of
specific infringers. Id. at 109-10. That holding precludes Canal’s
argument that Omega needed to identify a specific infringer to whom Canal
continued to lease property. At trial, Omega pursued a theory of willful
blindness, and the district court’s jury instructions accurately captured Tiffany’s
requirements. We therefore reject Canal’s challenges to those instructions.
(…) Also in 2006, Louis Vuitton Malletier sued Canal for
counterfeiting activities at 375 Canal Street. Canal entered into a consent
order permanently enjoining Canal from violating Louis Vuitton’s trademarks,
requiring Canal to post signs for two years stating that the sale and purchase
of counterfeit Louis Vuitton items is illegal, and allowing walk-throughs by
Louis Vuitton representatives. See Order for Permanent Injunction on
Consent, Louis Vuitton Malletier v. Canal Assocs., L.P., No. 1:06-cv-306
(S.D.N.Y.), ECF No. 4 (Jan. 17, 2006).
(…) In September 2011, counsel for Swatch SA (which owns Omega)
sent a letter to Albert Laboz, one of Canal’s owners, informing him of the
December 2010 arrest at 375 Canal Street and stating, “As the owner of this
premise [sic] with the ability to oversee and control the tenants
residing within, you can be found liable for the conduct of your tenants. This
includes contributory and vicarious liability for the sale of counterfeit
products.” J. App’x 2681. Canal’s counsel responded in October 2011 by email
stating that the tenant in question had “apparently ... sublet the space to an
entity that was selling counterfeit goods bearing your clients’ trademarks,”
and Canal claimed that it had “been informed that the tenant had the offending
tenant removed.” J. App’x 2692. At trial, however, Omega put forward evidence
that the ejection may not have occurred until 2012 and that Canal did not act
between 2010 and 2012 to stem counterfeiting, such as by posting
anti-counterfeiting signs, conducting walk-throughs, or inspecting the property
for hidden compartments that could contain counterfeit goods.
In May 2012,
an Omega private investigator visited 375 Canal Street and documented his
purchase of a counterfeit Omega Seamaster watch, which precipitated this
lawsuit.
In September
2012, Omega sued Canal for contributory trademark infringement, alleging that
Canal had continued to lease space at 375 Canal Street despite knowing that
vendors at the property were selling counterfeit Omega goods.
After
discovery, Canal moved for summary judgment, contending that Omega had not
identified a specific vendor to whom Canal continued to lease property despite
knowing or having reason to know that the specific vendor was selling
counterfeit goods. In opposition, Omega argued that it did not need to identify
a specific vendor because Omega’s primary theory was one of willful blindness:
Canal could not avoid liability by shielding itself from learning the
identities of the vendors who were selling counterfeits.
On December
22, 2016, the district court denied Canal’s motion, agreeing with Omega that
under this court’s decision in Tiffany, 600 F.3d 93, Omega was not
required to identify a specific vendor to whom Canal continued to lease its
property despite knowledge of counterfeiting by that vendor. Omega SA v. 375
Canal, LLC, No. 12- CV-6979, 2016 WL 7439359, at *3 (S.D.N.Y. Dec. 22,
2016), reconsideration granted in part on other grounds, 324 F.R.D. 47
(S.D.N.Y. 2018); see also Omega SA v. 375 Canal, LLC, No. 12-CV-6979,
2013 WL 2156043, at *4 (S.D.N.Y. May 20, 2013) (addressing the same issue when
denying an earlier motion to dismiss).
The Lanham Act does not expressly create liability for
contributory trademark infringement, but the Supreme Court has concluded that
“liability for trademark infringement can extend beyond those who actually
mislabel goods with the mark of another.” Inwood Labs., Inc. v. Ives Labs.,
Inc., 456 U.S. 844, 853 (1982).
We nevertheless review the substance of Canal’s trademark
arguments via its challenge to the district court’s jury instructions on
contributory infringement. As noted above, Canal insists that the district court
erred by not instructing the jury that Omega had to prove that Canal continued
to lease space to a specific, identified vendor that it knew or should have
known was selling counterfeit Omega goods. We reject Canal’s argument, which conflicts with this
court’s opinion in Tiffany, 600 F.3d 93.
In Tiffany, we affirmed a bench trial verdict that
eBay had not engaged in contributory trademark infringement. Private
sellers had used eBay’s website to sell counterfeit Tiffany products, and eBay
promptly removed listings that it identified as selling counterfeits; eBay also
formed a team to identify and remove such listings proactively. Tiffany,
600 F.3d at 97-100. Nevertheless, eBay was unable to eliminate the sale of
counterfeit Tiffany goods on the website. We affirmed the district court’s
verdict that there was no contributory infringement, noting that “Tiffany
failed to demonstrate that eBay was supplying its service to individuals who it
knew or had reason to know were selling counterfeit Tiffany goods.” Id. at
109.
Canal relies on the portion of Tiffany that describes
contributory trademark infringement as occurring when the defendant “continues
to supply its product to one whom it knows or has reason to know is
engaging in trademark infringement,” id. at 108 (emphasis in original)
(quoting Inwood, 456 U.S. at 854), meaning that the defendant must be
aware of “particular sellers” whom it “knew or had reason to know were selling
counterfeit [plaintiff] goods,” id. at 109.
Canal argues
that the district court’s jury instructions failed to follow these requirements
by allowing for liability without a showing that Canal continued providing
services to a specific vendor suspected of infringement. But Canal is wrong
that actual knowledge of a specific infringer is required in all cases. In
the course of holding that the plaintiff must identify particular sellers
suspected of counterfeiting, Tiffany explained that evidence of
willful blindness would also suffice: “A service provider is not, we think,
permitted willful blindness. When it has reason to suspect that users of its
service are infringing a protected mark, it may not shield itself from learning
of the particular infringing transactions by looking the other way.” A
defendant may be willfully blind either to particular transactions or to the
identities of infringers: “If eBay had reason to suspect that counterfeit
Tiffany goods were being sold through its website, and intentionally shielded
itself from discovering the offending listings or the identity of the
sellers behind them,” we said, “eBay might very well have been charged with
knowledge of those sales sufficient to satisfy Inwood’s ‘knows or has
reason to know’ prong.”
Tiffany’s discussion of
willful blindness confirms that a defendant may be held liable for contributory
trademark infringement despite not knowing the identity of a specific vendor
who was selling counterfeit goods, as long as the lack of knowledge was due to
willful blindness. Tiffany therefore precludes Canal’s argument that
Omega was required to identify a specific individual or entity to whom Canal
continued to lease its property despite knowing or having reason to know of infringement
by that same individual or entity.
Canal insists that the verdict below portends widespread
liability even for innocent actors. But Tiffany made clear that
contributory trademark infringement based on willful blindness does not create
liability simply because of a defendant’s “general knowledge as to
counterfeiting on its” property, or because a defendant “failed to anticipate
that others would use its service to infringe a protected mark”. Tiffany provided
a test for identifying which scenarios could result in liability: “Contributory
liability may arise where a defendant is ... made aware that there was
infringement on its site but ... ignored that fact.” There is no
inherent duty to look for infringement by others on one’s property. Indeed, the
district court’s jury instructions correctly stated that Canal had no
affirmative duty to police trademarks.
But where a
defendant knows or should know of infringement, whether that defendant may be
liable for contributory infringement turns on what the defendant does next. If
it undertakes bona fide efforts to root out infringement, such as eBay did in Tiffany,
that will support a verdict finding no liability, even if the defendant was not
fully successful in stopping infringement. But if the defendant decides to take
no or little action, it will support a verdict finding liability. See Coach, Inc. v.
Goodfellow, 717 F.3d 498, 505 (6th Cir. 2013) (upholding liability because
the defendant knew or had reason to know of infringement yet continued to lease
vending space “without undertaking a reasonable investigation or taking other
appropriate remedial measures”). The jury, properly instructed, reasonably
found that the latter scenario occurred here.
Accordingly, we reject Canal’s challenges to the jury
instructions on contributory liability.
(…) The
defendants object to the admission of evidence of alleged infringement of
non-plaintiff brands, arguing that this evidence was also irrelevant and
unduly prejudicial because the plaintiff failed to show that the non-plaintiff
goods were actually counterfeit. Yet the jury reasonably could have inferred
that even mere allegations of counterfeit sales of non-plaintiff products
should have alerted the defendants to watch out for infringement of plaintiff’s
brands, so this evidence was relevant to the jury’s determination of liability.
Luxottica, 932 F.3d at 1319-20.
Canal also fails to explain how it suffered prejudice. It
argues that it was not permitted to offer evidence showing that “Omega would
have been unable to prove actual damages.” Appellant’s Reply Br. 23-24. But Omega
elected to receive only statutory damages, which is an option the Lanham Act
provides “to address the problem facing a plaintiff unable to prove actual
damages.” Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83,
110 (2d Cir. 2012). Given that statutory damages were necessarily in lieu of
actual damages in this case, Canal cannot show that it was prejudiced by
not being allowed to offer evidence refuting an actual-damages claim that Omega
did not pursue.
(The
award is by law capped at $2 million “per counterfeit mark per type of goods
or services sold” where the “use of the counterfeit mark was willful.” 15
U.S.C. § 1117(c)(2)).
(U.S. Court of Appeals for the Second Circuit, Jan 6,
2021, OMEGA SA, SWATCH SA v. 375 CANAL, LLC, Docket No. 19-969-cv)
