Credit-Card Processors May be Held Liable for Contributory Trademark Infringement in Gucci Counterfeit Suit
By Sharona Hakimi – Edited by Matt Gelfand
Gucci America, Inc. v. Frontline Processing Corp., No. 09 Civ. 6925 (HB) (S.D.N.Y. June 23, 2010)
On June 23, 2010, Judge Harold Baer of the U.S. District Court for the Southern District of New York denied a motion to dismiss claims of contributory trademark infringement brought by fashion label Gucci America, Inc. (“Gucci”) against a group of credit card processing companies. Judge Baer held that these credit card processing companies may be held liable for contributory trademark infringement under the test established by the Supreme Court in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U. S. 844 (1982), and its progeny.
Applying the principles outlined in those recent trademark infringement cases, Judge Baer held that plaintiffs can sue companies that service websites that sell counterfeit goods if plaintiffs can show that defendants (1) “intentionally induced the website to infringe through the sale of counterfeit goods;” or (2) “knowingly supplied services to websites and had sufficient control over infringing activity to merit liability.” Although Gucci did not sufficiently plead direct or vicarious liability theories, Judge Baer allowed them to proceed under the theory that the defendants induced infringement and provided services to counterfeit sellers either knowing that its clients “traded in counterfeit products, or [being] willfully blind to that fact.”
The Intellectual Property Law blog provides a detailed summary of the case. Eric Goldman’s Technology and Marketing Law Blog summarizes the case and offers relevant excerpts. Ron Coleman’s Likelihood of Confusion blog analyzes the case and compares it with recent developments in contributory trademark infringement case law.
The litigation arose from an earlier action in which Gucci successfully sued Laurette Company for operating a website known as “TheBagAddiction.com,” which sold counterfeit Gucci goods. Following that suit, Gucci later sued three credit card processing companies – Durango Merchant Services, Frontline Processing Corporation, and Woodforest National Bank – for contributory trademark infringement, among other claims. The defendants moved to dismiss the action on the grounds of a lack of personal jurisdiction and failure to state a claim. On the jurisdictional question, Judge Baer ruled that because the defendants operate interactive websites available in New York and have clients in New York, they are subject to personal jurisdiction there.
Significantly, Judge Baer’s decision cited both the Second Circuit ‘s recent decision in Tiffany v. eBay, 600 F.3d 93 (2d Cir. 2010) and the Ninth Circuit’s decision in Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788 (9th Cir. 2007). Judge Baer distinguishes the case from Perfect 10 by noting that unlike in Perfect 10, where the infringement did not necessarily rely on credit card services, here the infringement involved the sale of tangible counterfeit products. Judge Baer relied upon the “willful blindness” standard put forth in the recent Tiffany v. eBay decision, discussed here. As Eric Goldman discusses on his blog, many critics are concerned that plaintiffs will “get frisky with this ‘willful blindness’ toy and start asserting that defendants had ‘reason to suspect’ user infringement and ‘ignored that fact.’”
While Judge Baer’s ruling is not a final judgment on the merits of the case, the holding potentially expands liability for those who play indirect roles in trademark infringement. This may lead to more online counterfeiting litigation against credit card companies and other fund providers.
Sharona Hakimi is a 3L at the Harvard Law School.