September 18, 2009
Making Sense of the $32M Contributory Trademark Infringement Judgment Against a Web Host--Louis Vuitton v. Akanoc
By Eric Goldman
Louis Vuitton Malletier SA v. Akanoc Solutions, Inc., 5:07-CV-03952 (N.D. Cal. jury verdict returned Aug. 28, 2009). My blog post of the December 2008 ruling on summary judgment motions in the case.
Last month, a jury returned a $32+ million verdict against a web host (and related parties) for contributing to trademark infringement committed by its customers. This ruling was breathtaking on a number of fronts, but two attributes stood out: the size of the verdict and the fact that a web host was contributorily liable. Online cases interpreting contributory trademark liability are rare, and the few cases we've seen--such as the 1999 Lockheed v. NSI case, which remains the flagship case on the topic, and the Tiffany v. eBay case--generally have been defense-favorable. Indeed, I can't think of a prior case where a web host lost a contributory trademark infringement ruling, although Lockheed v. NSI case dicta implicitly contemplates that a web host could have the requisite degree of "direct control and monitoring of the instrumentalities used to infringe" that NSI, as a domain name registrar, lacked in that case.
Because this case takes us into uncharted waters, the ruling looks significant on first blush. However, some things have been bothering me about the case. First, because we're working with a jury verdict, it's hard to identify and distill the key facts that led to Akanoc's loss. If nothing else, the jury verdict blunts the precedential impact of the case; there's no written opinion, there's nothing citable, and by definition the ruling is fact-dependent. Second, I have been having this nagging suspicion that Akanoc did something goofy that stood out from industry standards. In contrast, the December 2008 ruling in this case, though troubling, didn't raise huge red flags for me, so the result seemed like an unexpected odd turn.
As we post-mortem the case, two key facts are emerging. First, Akanoc's defense invoked a jurisdictional component that any infringing activity wasn't taking place in the US. I believe the basic argument is that Akanoc's web hosting customers are Chinese and marketing the allegedly infringing goods to Chinese customers. All that may be true, but it's not clear how well that jurisdictional argument works for a US-based company (Akanoc is located in Fremont, CA). Accordingly, I don't think I would have advanced this jurisdictional defense if it were my choice.
Second, and much more importantly, Louis Vuitton claims it sent 19 takedown notices to Akanoc and most were ignored. I haven't researched the case enough to see the exact wording of the takedown notices, and I'm often skeptical of such claims because IP owners routinely send ridiculously broad takedown notices or requests with unreasonable demands that deserve to be ignored (see, e.g., Tiffany's demands that eBay enforce rules that Tiffany made up). Nevertheless, if the jury decided that Louis Vuitton sent multiple proper takedown notices that were ignored, then this verdict wouldn't be all that surprising or, frankly, all that earth-shattering. Although there is no statutory notice-and-takedown regime for online trademark complaints, I think many web hosts (and other intermediaries) follow the DMCA notice-and-takedown regime--built for copyright complaints--for trademarks as well. If Akanoc's failure to honor Louis Vuitton's takedown notices was the dispositive fact for the jury, it's unlikely that many web hosts would find themselves in a similar position. In that case, then, this case is hardly as disconcerting as it appears on the surface.
Having said that, I think the entire web hosting industry would benefit from a clear rule that notice-and-takedown eliminates contributory trademark liability, as well as clarity about what constitutes a proper takedown notice. Due to the uncertainty of this lawsuit's result, if I ran a web hosting business, I would probably take down users in response to less clear or more expansive trademark take-down requests than I would in the copyright realm where 512(c)(3) spells out the specific requirements for a proper notice. In that respect, then, I think the likely consequence of this case is to make web hosting customers more vulnerable to losing service and going dark on the basis of bogus or questionable trademark take-down requests.
We haven't seen much movement towards a statutory solution to online contributory trademark infringement problems. Maybe it's time. Or, perhaps the Second Circuit's Tiffany v. eBay ruling will give us enough clarity to sort out the issues without statutory intervention.
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