November 12, 2010
Amazon Isn't Liable for Rogue Affiliate's Keyword Ad Buys--Sellify v. Amazon
By Eric Goldman
Christopher Maki runs Sellify, which in turn runs a website/eBay store called OneQuality.com. An Amazon affiliate, "Cutting Edge Designs," purchased the keywords "onequality" and close variants in Google AdWords and displayed ads saying “Don't Buy from Scammers” or “Beware the SCAM Artists” and linking to Amazon (presumably using CED's Amazon affiliate ID in the link). Sellify contacted Amazon regarding these ads but reached the wrong internal department, which was unsurprisingly unhelpful. Sellify then sent Amazon a demand letter, which prompted Amazon to tell CED to cut it out. Apparently CED didn't, so Sellify sent Amazon a second demand letter, and Amazon then terminated CED's affiliate status and withheld accrued commissions. The ads stopped shortly thereafter.
Logically, the matter should have ended there. Instead, Sellify sued Amazon under the Lanham Act and ancillary claims, seeking $2.4M in damages.
The court quickly rejects Amazon's direct liability for a Lanham Act violation because Amazon didn't buy the ads in question.
The court then discusses Amazon's vicarious liability for any Lanham Act violations. The court's discussion is a little confusing because it never establishes that CED violated the Lanham Act, nor does it resolve the test for vicarious liability. Instead, it says that some courts establish vicarious Lanham Act liability based on either actual authority over the agent or apparent authority:
Actual Authority: CED did not have actual agency authority from Amazon. Amazon's affiliate agreement (the "Operating Agreement") expressly disclaims such authority. "Further, Amazon did not control the form or substance of Cutting Edge's ads, and it is undisputed that Amazon had no authority to remove the Cutting Edge ads from the Internet. "
Apparent Authority: The court rejects apparent authority because Amazon never communicated anything validating CED's ability to act as its agent. Amazon only communicated that affiliates like CED could link to its site.
The court also rejects Amazon's contributory Lanham Act liability, citing the Tiffany v. eBay case. The court says "In this case, there is no evidence that Amazon had particularized knowledge of, or direct control over, Cutting Edge's disparaging ads." The court disregards Sellify's initial misdirected contact with Amazon. Then, "upon receipt of Sellify's May 2009 demand letter, Amazon promptly initiated enforcement action against Cutting Edge, and eventually terminated its contractual relationship with the company in large part because it continued to infringe on plaintiff's mark." Once again, although trademark law doesn't have a statutory notice-and-takedown procedure akin to 17 USC 512, adhering to a trademark notice-and-takedown procedure is clearly a best practice.
The court rejects all of Sellify's state law claims, saying they require "proof that either Amazon itself placed the Cutting Edge ads or that Cutting Edge acted as Amazon's agent in placing the ads," and the court already said that Sellify couldn't show that. This is a good move, but it would have been even better if the court discussed how 47 USC 230 immunized Amazon for its affiliates' acts.
Affiliate Tax. I wonder how this ruling might bear on the Amazon affiliate tax battles? In NY, Amazon and Overstock are battling over whether their affiliates are "sales representatives" that allow the state to impose sales tax collection obligations on them. Here, we get a federal judge in NY saying that affiliates aren't "agents" for purposes of a variety of legal doctrines. The efforts to use affiliates as a basis to impose sales tax collection obligations has always a crock; this opinion indirectly reinforces that.
TM Liability for Affiliate's Ads. Other lawsuits have tried to impose trademark liability on an affiliate program operator for the ads placed by affiliates. See my recap here. I can't recall any of the other cases reaching a final conclusion. I don't think this case is the final word on the subject, but it may reinforce that those cases are meritless.
Keyword Ad Lawsuits Are Economically Irrational. As I've repeatedly indicated, keyword advertising lawsuits usually make no economic sense. See, e.g.:
- King v. ZymoGenetics. The defendant advertiser got 84 clicks.
- Storus v. Aroa. The defendant advertiser got 1,374 clicks over 11 months.
- 800-JR Cigar v. GoTo.com. The search engine defendant generated $345 in revenue from the litigated terms.
In this case, CED's ads generated about 1,000 ad impressions and 61 clicks. No matter how you slice it, bringing a lawsuit against Amazon over the diversionary effect of 1,000 ad impressions and 61 clicks is a terrible economic decision. The court especially guffawed at the $2.4M damage request--even more farcical given that OneQuality.com was generating a total of about $50k of annual profits. No matter what, Sellify should have dropped the issue once it succeeded with the takedown. Running to court was an unnecessary waste for everyone.
Rebecca's post on this ruling.
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