Another Bad Ruling in Louis Vuitton v. Akanoc

March 20, 2010 · by · in Copyright, Derivative Liability, E-Commerce, Trademark

By Eric Goldman

Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 5:07-cv-03952-JW (N.D. Cal. March 19, 2010)

I have not seen a definitive statement of facts in this case, so synthesizing various cryptic statements by the court, here’s my understanding of the situation. Akanoc is a US-based web host primarily servicing Chinese customers. Some of those Chinese customers advertise and sell counterfeit goods, including counterfeits of Louis Vuitton, to a US and global consumer base. Louis Vuitton sent copyright and trademark takedown notices to Akanoc, some of which Akanoc ignored. Louis Vuitton sued Akanoc for direct and secondary copyright and trademark infringement. In Dec. 2008, the judge denied Akanoc’s dismissal motion, sending the case to a jury trial. In Aug. 2009, the jury tagged the defendants with a $32M+ judgment.

In the latest ruling, Louis Vuitton requests a permanent injunction and Akanoc tries to salvage what it can from the jury loss through various JMOLs. The result is an omnibus ruling that has zero good news for web host defendants. Some “high”lights:

* posting photos of counterfeit goods constitutes direct copyright infringement

* web users who browsed those photos of counterfeit goods did not make a fair use by browsing (FN 9)

* it’s not a defense to contributory copyright infringement that the direct infringers were overseas and thus not subject to the court’s personal jurisdiction (FN 10) (this seems right to me)

* web hosts made a material contribution to copyright infringement when they (1) “provided servers with data storage, routers, and data bandwidth to the websites,” (2) “continued to host those websites despite receiving notice from Plaintiff of particular websites that engaged in such conduct, and (3) “rarely used several of the tools at his disposal to punish or deter the operation of the counterfeiting websites on Defendants’ servers.”

* the defendants didn’t designate a 512 agent for notice until 4 months after the case was filed, so they could not claim 512 protection before that time (why did they wait so long?)

* the 512 safe harbors also didn’t apply because “evidence that Defendants had reasonably implemented a policy to terminate repeat infringers was limited, at best. For example, Defendant Chen, the designated agent for Defendants, testified that he did not understand the DMCA’s requirements as to maintaining or implementing the required policy….Other evidence indicated that Defendants had not terminated certain repeat offenders.”

* the web host had the requisite control over the direct trademark infringers to support contributory trademark infringement when “Defendants had numerous tools at their disposal for monitoring their servers and terminating abusive users. For example, Defendants had the ability to suspend a particular user, disable IP addresses used by a particular website or, if necessary, unplug a server that contained the data for a particular website.”

* it’s become vogue to challenge copyright statutory damages on constitutional grounds, but this court rejects a due process challenge against both copyright and trademark statutory damages. A Gore challenge to the ratio of actual to “punitive” damages was inapplicable to statutory damages. (FN 25)

* the defendant’s sole officer was personally liable for the infringements because he “had nearly complete control over Defendants’ operations. He was the general manager and sole owner of the corporate Defendants….He also held the principal decision-making authority as to responding to infringement notices, and he instructed his part-time employee regarding how to respond to such notices….Moreover, he was the designated agent under the DMCA for receiving infringement notices and decided whether or not to terminate offending customers.” Does this ruling imply that the person designated as the 512 agent for notice has an increased risk of personal liability…?

Stepping back from the details, I can see why the defendants lost. There appears to be a fair amount of evidence that the web host provided services to counterfeiters and didn’t deploy state-of-the-art risk management techniques, such as a proper 512 designation of an agent for notice. More importantly, the web host appeared not to respond to takedown requests in an industry-standard fashion. Finally, the defendants made some bizarre legal arguments that superficially appeared doomed, such as the repeated assertions of extraterritoriality issues when a US-based web host was being sued in a US court for violations of US law. For these reasons, I sincerely hope the defendants don’t appeal this case to the Ninth Circuit. That could end up doing a lot of long-term harm to Cyberlaw doctrines.

Despite this, I remain troubled by the implications of this case for all web hosts. For example, this case’s legal standard for contributory trademark infringement leaves all web hosts at some risk. At minimum, it seems to confirm a common law notice-and-takedown regime for online trademark complaints. (This is reinforced by the injunction, which codifies a notice-and-takedown system for injunction violations). After this case, I think all web hosts will need to be quick on the trigger when they get trademark takedown notices.

I was also deeply troubled by the court’s extension of personal liability to the 512 designated agent for notice. What sucker will agree to be a 512 agent in the future?