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Legal liability for counterfeits extends to online service providers - what this means to ERAI Members

Anne-Liese Heinichen
ERAI, Inc.

On November 4, 2014, the Turkish Supreme Court ruled that online service providers can be held liable for contributory infringement when they knowingly host websites or online listings that sell counterfeit products. This case between a cosmetics company and a hosting provider found that online service providers bear legal responsibility if they have received notice that a vendor is selling counterfeit products but refuse to or fail to take any action against the vendor and/or listing.

In China, laws also exist to hold online providers liable for trademark infringements if the provider is aware of the activity and does nothing to stop the activity. Similar rulings in the European Union assert that service providers also bear responsibility once they become aware of counterfeit activity from either direct notification; during optimization of listings and during monitoring activities.

U.S. courts have upheld a similar stance. The decision reached in Tiffany (NJ) Inc. v. eBay, Inc. a decade earlier reflected similar reasoning. In this case, the courts ruled the defendant could not be held responsible because Tiffany could not prove that a majority of the products for sale on eBay were in fact counterfeit nor did Tiffany provide eBay with specific examples of infringing vendors and listings. Tiffany also did not participate in a program implemented by eBay under which a brand owner could notify eBay of suspect counterfeit products and request that eBay remove the listing. Therefore, eBay's general knowledge of their users' activities was not enough to hold them accountable without specific examples of violations which Tiffany had failed to do.

Louis Vuitton Malletier, S.A. v. Akanoc Solutions Inc. further solidified the courts' viewpoint by awarding Vuitton $32.4 million in damages after demonstrating that despite numerous letters to Akanoc notifying them of trademark infringements on websites hosted by Akanoc, Akanoc failed to shut down the counterfeiters' websites.

In the more recent Kering S.A. v. Alibaba Group Holding Ltd., filed prior to the initial public release of Alibaba's stock in the New York Stock Exchange, Kering asserted fakes of their luxury goods brands were being openly sold on Alibaba, China's largest e-commerce website. However, the lawsuit was withdrawn after Alibaba agreed to work with Kering to prohibit counterfeiting activities on its platform.

These rulings show that the US courts have expectations for both the IP holder and online service providers when it comes to trademark infringements. Brand owners are expected to be proactive in monitoring and reporting to online platforms; online service providers should have policies and procedures in place to remove violators' listings and/or websites and should actively monitor content and activities on their platforms. Willful blindness is not acceptable as an excuse for failing to stop online counterfeit activities.

What this means to our Members and the industry

While sites such as Alibaba and Taobao have demonstrated cooperative efforts, hundreds, if not thousands, of other portals provide counterfeiters with access to the global marketplace. Websites, not just in China, but in India, Indonesia, Canada and even the US, also market not just counterfeit consumer goods but electronic components as well. As buyers, ERAI Members should be wary of purchasing from online portals as laws on contributory infringements vary from country to country and prosecution is many times difficult, if not impossible, making returns and refunds impossible.

It is no secret that counterfeits are prolifically sold on online platforms. The United States Government Accountability Office Report from February 2012 states that all 16 of the parts purchased for the report were either suspect counterfeit or bogus and even four bogus parts that were requested were supplied!

Despite knowing their members are supplying suspect counterfeit parts, many providers are failing to take direct action, leaving them and you at risk. Anyone sourcing parts online should expect and demand that providers routinely and proactively monitor all suppliers, their listings and activity and initiate immediate action when they receive reports of suspect counterfeit parts. This includes a system of verification to avoid repeat offenders from re-accessing the site under multiple identities.

Behind the scenes, data collection and verification are a large part of ERAI's staff duties. ERAI maintains thousands of company profiles including hundreds of thousands of contacts and notes on relationships between entities. We look for connections between companies, addresses, phone and fax numbers, contact names, cage codes and banking information to identify bad actors.

If you come across suspicious activity or have a tip for ERAI, please let us know by calling our office at 239-261-6268 or via email at eraiinfo@erai.com.

United States Government Reports:

February 2012 Government Accountability Office Report: Suspect Counterfeit Electronic Parts Can Be Found on Internet Purchasing Platforms

http://gao.gov/assets/590/588736.pdf

2013 United States Trade Representative Report: Out-of-Cycle Review of Notorious Markets

http://www.ustr.gov/about-us/press-office/press-releases/2014/February/Notorious-markets-list-focuses-fight-against-global-piracy-and-counterfeiting

2014 United States Trade Representative Report: Special 301 Report

http://www.ustr.gov/sites/default/files/USTR%202014%20Special%20301%20Report%20to%20Congress%20FINAL.pdf

Sources:

http://www.jonesday.com/files/Publication/cb405aa3-30fc-45b0-a025-6bd42493221c/Presentation/PublicationAttachment/b60b2502-8558-42ba-b2f3-447269e2d6b6/CombatingContributoryInf.pdf

http://www.bloomberg.com/news/print/2014-08-11/alibaba-cooperates-with-kering-after-fakes-suit-withdrawn.html

http://jipel.law.nyu.edu/2010/04/contributory-liability-for-trademark-counterfeiting-in-an-ecommerce-world/
 


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