Following the success of its 2008 case in which Gucci secured permanent injunctions against certain defendants, collectively known as “Laurette” for the sale of counterfeit Gucci products on a website called TheBagAddiction.com, Gucci brought proceedings in 2009 against Durango Merchant Services, Frontline Processing Corp, and Woodforest National Bank, alleging that they aided and assisted Laurette by offering credit card processing services which enabled infringing sales over the internet to take place.
In an important US decision that indicates that financial institutions might need to undertake due diligence into the IP legitimacy of retailer activities before offering credit card processing services, District Judge Harold Baer Jr recently held in a twenty-four page decision – Gucci America, Inc v Frontline Processing Corp et al – that claims of contributory trade mark infringement could proceed against these three defending credit card service providers who collectively arranged or handled credit card payments for TheBagAddiction.com. Although Judge Baer’s ruling is not a final judgment on the merits of the case (it is the denial of the defendants’ motion to dismiss on the grounds of lack of personal jurisdiction and failure to state a claim), it potentially expands liability for those who play indirect roles in trade mark infringement.
Interestingly, the court found insufficient proof for Gucci to proceed under a direct or vicarious liability claim. However, it enabled Gucci’s claim of contributory trade mark infringement to proceed, notwithstanding that the word “contribute” or “contributory” does not appear in the Lanham Act, which protects trade mark rights in the US.
So, why does the contributory trade mark infringement case have legs? Let’s have a look at the elements which Gucci must prove. First, Gucci must show that the service providers intentionally induced another (Laurette) to engage in trade mark infringement. Second, Gucci must show that the service providers supplied services with knowledge or by wilfully shutting its eyes to the infringing conduct, while it had sufficient control over the instrumentality used to infringe.
Intentional inducement
The court stated that there were sufficient facts to show that at least one of the three defendants, Durango, had intentionally induced Laurette to infringe Gucci’s trade marks. The evidence suggests that Durango bills itself as a company with credit card processing services that accept “high risk” clients, including those that sell “replica” products. Other evidence showed that Durango’s sales representative allegedly discussed with Laurette regarding its difficulty in finding a credit card processor because it sold replica merchandise.
The court found Gucci’s factual pleadings insufficient to hold that either of the other two defendants, Woodforest or Frontline, had intentionally induced Laurette’s sale of counterfeit products.
Knowledge and control
The court considered that “knowledge” sufficient to trigger liability means that the service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. In this case, the court found that the evidence pointed to a strong inference that each of the three defendants knew that Laurette traded in counterfeit products, or were wilfully blind to that fact.
On the control element, Judge Baer Jr acknowledged he was venturing into potential new ground. He stated that while Gucci provided enough facts “to establish a claim that Woodforest and Frontline had some control over the directly infringing third-party, but fails to provide enough facts to show control on the part of Durango”. Further, whilst Durango’s role was that of a quintessential “middleman”, Frontline and Woodforest’s credit card processing services were “essential to sales from TheBagAddict.com” and thus these defendants’ control over the payment process was sufficient to support liability in this context.
Implications in Australia
The Australian Trade Marks Act 1995, like its US counterpart, does not make reference to the word “contribute” or “contributory”. However, given that Judge Baer Jr largely developed his ruling by reference to a string of cases commencing with the 1982 case of Inwood Lab, Inc v Ives Lab, Inc, 456 US 844, 853, contributory trade mark infringement is likely to be considered a common law concept.
The Australian case law on the issue of who may infringe trade marks is currently limited to persons connected in the course of trade with infringing goods or services, such as manufacturers, distributors or retailers; however, contributory trade mark infringement is a concept that may be more fully explored and developed.
