Web hosting entity and its owner found liable for contributory trademark infringement

United States of America
In Louis Vuitton Malletier SA v Akanoc Solutions Inc (Case 10-15909, September 9 2011), the US Court of Appeals for the Ninth Circuit, in a unanimous opinion authored by Judge Gould, has upheld the jury verdict against Akanoc Solutions Inc and its owner for contributory trademark infringement for hosting websites of Chinese companies selling counterfeit Louis Vuitton goods. It affirmed the district court’s judgment notwithstanding the verdict against defendant Managed Solutions Group Inc (MSG), which only “leased servers, bandwidth, and some IP addresses to defendant Akanoc”. 

The case arises from a compelling set of facts. In a period of one year, Louis Vuitton Malletier SA sent over 18 notices of infringement to the defendants based on their hosting of counterfeit retailers and received not a single response to any of the notices from any of the defendants. Accordingly, Louis Vuitton sued the defendants in the Northern District of California, where all the defendants were based, for contributory trademark infringement and statutory damages under the Lanham Act’s counterfeiting provisions, 15 USC §1117(c). 

At trial, the defendants claimed that they each generally took steps to address infringement claims, but none of them identified any action taken in response to the multiple notices received from Louis Vuitton. Based on the evidence presented, the jury found all of the defendants liable of contributory infringement and awarded statutory damages under the Lanham Act of $10.5 million against each of the defendants. 

The district court granted judgment notwithstanding the verdict as to defendant MSG, since the evidence had not proven that MSG did anything other than leasing the hardware used by Akanoc and its owner for Akanoc’s business. Louis Vuitton had not shown that MSG sold domain names or operated the servers that hosted the actual counterfeiters. The Ninth Circuit affirmed the district court’s ruling as to MSG, finding that there was no evidence that MSG had reasonable means to withdraw services to the counterfeit retailers. 

In direct contrast, as to Akanoc and its owner, the Ninth Circuit found that they did have a reasonable means to withdraw services to the counterfeit retailers of Louis Vuitton’s goods. The Ninth Circuit found that these defendants “had direct control over the ‘master switch’ that kept the websites online and available”. The Ninth Circuit adopted the district court’s analogy that Akanoc and its owner physically hosted the sites on their servers and routed internet traffic to and from the counterfeit websites so that their services consisted of “the internet equivalent of leasing real estate". Under this reasoning, it is now clear that web hosts have an affirmative obligation to intervene on infringement claims on which they have been put on notice or risk becoming contributory infringers. This holding materially adds to the trademark owner’s arsenal of attack against trademark infringement by pursuing any US-based web host, with or without the actual infringer. 

Finally, Akanoc and its owner failed to convince the Ninth Circuit that only actual damages, and not statutory damages for counterfeiting, can be awarded against contributory infringers under the Lanham Act. The Ninth Circuit rejected this contention summarily, holding that the argument would totally undermine the purpose of the doctrine of contributory infringement. 

Akanoc and its owner did prevail on one aspect of damages. The Ninth Circuit held that only one award of damages against all defendants, with joint and several liability, could be issued. Thus, instead of facing two awards of $10.5 million for contributory trademark infringement, Akanoc and its owner faced one award of $10.5 million - a material difference. However, a $10.5 million judgment remains a compelling judgment.

Thus, this opinion sends a powerful message to web hosts that they should not ignore infringement notices and, if they do so, they will be risking substantial damage awards, particularly for the hosting of counterfeit resellers.

Rochelle D Alpert, Morgan Lewis & Bockius LLP, San Francisco

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