Flea market operator liable for contributory infringement due to sales by vendors

In Coach Inc v Goodfellow, dba The Southwest Flea Market (No 12-5666, May 31 2013), the US Court of Appeals for the Sixth Circuit has affirmed a district court decision granting summary judgment to Coach Inc and Coach Services Inc holding the owner of a flea market liable for contributory trademark infringement due to the sale of counterfeit Coach products by vendors selling at his flea market, and upheld a damages award of $5,040,000 and an award of attorney’s fees and costs of $186,666.61.

Goodfellow owned and operated a flea market in Memphis, at which he rented 175 booths and storage space to vendors. The day-to-day operations of the flea market were managed by an employee who reported to Goodfellow, but Goodfellow controlled the flea market and had ultimate authority to allow and remove vendors who sold goods there.

Coach, the manufacturer of the well-known handbags, leather goods and other related products, sent a letter to Goodfellow on January 15 2010, notifying him that counterfeit Coach products were being sold at his flea market and demanding that those sales cease. On March 26 2010 Goodfellow received a letter from the District Attorney’s Office notifying him that sales of counterfeit products were continuing and that he was “in wilful disregard of the law”. Shortly thereafter, the police raided the flea market and seized counterfeit Coach products. Coach commenced this action in June 2010. Law enforcement officers conducted additional raids of the flea market the following March and again in June 2011, at which time more than 4,600 counterfeit Coach products were seized and the flea market was permanently shut down.

Goodfellow admitted knowing that vendors continued to sell counterfeit Coach merchandise at the flea market after he received the first letter from Coach, but he never trained his employees to identify counterfeit goods or expelled any vendors who sold counterfeits from the market. There was some evidence that Goodfellow distributed pamphlets to vendors, posted copies of a “counterfeit is prohibit” sign and called a meeting with vendors to address the sale of counterfeit goods. However, the pamphlets were distributed randomly and incompletely, and the signs were intended to address a growing problem with counterfeit money, not counterfeit products.

Coach moved for summary judgment, but Goodfellow did not respond to the motion. The district court entered summary judgment for Coach on the issue of liability and then conducted a jury trial to determine Coach’s damages. The jury awarded $240,000 per mark for 21 infringed marks, and the court found the case to be exceptional, both because Goodfellow failed to litigate the liability issue and because the jury found his infringement to be wilful, and consequently awarded Coach $186,666.61 in attorney’s fees and costs.

Goodfellow appealed, claiming for the first time on appeal that the Lanham Act does not provide for contributory infringement by third parties. Because Goodfellow did not challenge the merits of the summary judgment motion in the district court, he forfeited his right to appeal the liability ruling. Nevertheless, the court analysed the legal question of whether Goodfellow could properly be held liable for the infringing acts of the vendors at his market.

On appeal, Goodfellow argued that there was no showing that he and the infringing vendors were in partnership, had the authority to bind one another or exercised joint ownership or control. The court pointed out that these are the factors to determine vicarious liability, rather than contributory infringement, which is what was in issue here.

Contributory liability for trademark infringement, which the Supreme Court established in Inwood Laboratories Inc v Ives Laboratories Inc, applies to one who facilitates trademark infringement by another. The Seventh and Ninth Circuits in Hard Rock Café Licensing Corp v Concession Services Inc (955 F2d 1143 (7th Cir 1992)), and Fonovisa Inc v Cherry Auction Inc (76 F3d 259 (9th Cir 1996)), applied Inwood to flea market operators to hold them liable for contributory infringement for trademark violations by their vendors if they knew or had reason to know about the infringement. Similarly, the Fourth and Second Circuits applied this reasoning to internet marketplaces in Rosetta Stone v Google and Tiffany (NJ) Inc v eBay Inc, respectively. The Sixth Circuit followed these decisions in holding that the operator of a flea market could potentially be liable for contributory trademark infringement for the sale of counterfeit products by the vendors at its market.

Here, Goodfellow continued to rent booths and storage space to vendors who he knew or had reason to know were selling counterfeit Coach products. His actual knowledge was established by his receipt of the letters from Coach and the District Attorney and the police raids of his market. The court distinguished the facts in Tiffany v eBay, where eBay was found not to be a contributory infringer despite the sale of counterfeit products through its website, because eBay had only general knowledge of the counterfeit sales through its website, it promptly removed all listings that Tiffany challenged as counterfeit, and it spent millions of dollars to remove and monitor counterfeit Tiffany merchandise. These steps went well beyond Goodfellow’s actions and supported the district court’s conclusion that Goodfellow engaged in “ostrich-like practices”. In view of these facts, the court held that Goodfellow was properly held liable for contributory trademark infringement.

The court also affirmed the district court’s holding that this case was exceptional, a predicate to awarding attorney’s fees to Coach, because Goodfellow knew or had reason to know that his vendors were engaging in infringing activity. 

This decision is consistent with decisions in other circuits imposing a duty on operators of flea markets and other landlords not to turn a blind eye to the sale of counterfeits and other egregious violations of intellectual property rights from their premises. However, the courts continue to be more willing to find contributory liability for activities taking place in the brick and mortar world than online.

Susan Progoff, Dorsey & Whitney LLP, New York