Secondary Liability for Trademark and Copyright Infringement
February 2012

The direct infringers can be hard to catch. Direct infringers that sell counterfeit or other infringing products on the Internet can easily avoid liability. They can easily mask their identities. They can conduct business worldwide from a distant country. They can shut down and reopen under a different domain name with ease. They move their sites to different hosting services in different countries throughout the world.  Moreover, the sheer number of such sites can make it impractical or extraordinarily expensive to attempt to shut them down. As a result, intellectual property owners have turned to attempting to impose liability on other parties that have some involvement in transactions involving counterfeit or infringing products, such as search engines involved in selling key words used by the direct infringers, auction sites that facilitate transactions involving infringing products, and credit card companies involved in processing payments for such products.

In an effort to impose liability on these participants in ecommerce, intellectual property owners rely on common law tort principles of secondary liability: vicarious liability and contributory liability. Vicarious liability imposes strict liability on a party because of the party’s relationship with the direct infringer. At common law, vicarious liability is established when: (1) the third party has the right and ability to control the actions of the direct infringer; and (2) the third party derives a direct financial benefit from the infringement. One example of strict liability is the liability of an employer for the tortious conduct of its employee. In contrast, contributory liability imposes liability on a third party that acts in concert with or provides assistance or encouragement to the direct infringer. At common law, contributory liability is established
when: (1) the defendant knows of the infringement; and (2) the defendant materially contributes to or induces the infringement. Contributory infringement is based on tort law principles of enterprise liability and imputed intent, while vicarious infringement is based on agency principles of respondeat superior. Both forms of liability require proof of an underlying direct infringement claim.

Courts do not strictly follow the common law standards for secondary liability. The standards have changed as the courts have grappled with applying the standards to new technologies and new business methods. Moreover, courts do not apply the tests for vicarious infringement and contributory infringement in trademark cases the same way the courts apply the standards in copyright cases. The test for contributory trademark infringement is narrower and more difficult to satisfy than the comparable test for copyright infringement. Hard Rock Cafe Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143, 1150, 21 U.S.P.Q.2d 1764 (7th Cir. 1992) (“[T]he Supreme Court tells us that secondary liability for trademark infringement should, in any event, be more narrowly drawn than secondary liability for copyright infringement.”); Perfect 10, Inc. v. Visa Intern. Service Ass'n, 494 F.3d 788, 806, 83 U.S.P.Q.2d 1144 (9th Cir. 2007), cert. denied, 128 S. Ct. 2871 (U.S. 2008) (“The tests for secondary trademark infringement are even more difficult to satisfy than those required to find secondary copyright infringement.”). The rationale for applying different standards in the trademark and copyright contexts is not evident in the case law.

This article explores the standards for secondary liability in the context of the Internet, with a focus on how courts have applied the standards in cases against third parties that play some role in ecommerce transactions involving the advertising or sale of counterfeit or infringing products, including internet service providers (ISPs), auction sites, search engines and credit card companies, but which engage in substantial business that does not involve such transactions. This article also will not address liability for business models that have been held to thrive on direct infringement, such as peer-to-peer music sharing sites. This article will also not address statutory safe harbors, such as under the Digital Millennium Copyright Act.

I. Overview Of Vicarious Infringement
Vicarious infringement attaches based on the nature of the relationship between the direct infringer and the accused secondary infringer and on the secondary infringer’s financial benefit from the infringement.

        A. The Nature of the Relationship: Right and Ability to Supervise
In copyright cases, a party can only be held vicariously liable for infringement if it has the right and ability to supervise the infringing activity (coupled with a direct financial interest in the infringement). In trademark cases, there is a much stricter standard for vicarious liability. A party must prove evidence of a specific principal-agent relationship (coupled with a direct financial interest in the infringement). A principal-agent relationship exists only if "the defendant and the direct infringer have an apparent or actual partnership, have authority to bind one another in transactions with third parties, or exercise joint ownership or control over the infringing product.” Hard Rock, 955 F.2d at 1150.  Thus, the accused secondary infringer’s mere ability to control the direct infringer is not enough in trademark cases. ...

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