United States: Oh! Mega Liability For Landlords Under Second Circuit's Recent Trademark Infringement Ruling In Omega SA v. 375 Canal LLC

Last Updated: October 18 2019
Article by Heather J. McDonald

In March 2019, after a seven-year-long legal battle, a Manhattan jury found defendant landlord 375 Canal LLC contributorily liable for trademark counterfeiting and infringement and awarded Omega SA statutory damages of $1.1 million ($275,000 for each mark infringed).1 In the suit, plaintiff Omega claimed that the Canal Street landlords knew about, had reason to know about or acted with "willful blindness" toward the illegal activities of its tenants. Further, Omega contended that 375 Canal possessed the power and authority to exercise control over the use of its premises for the infringing sales and, upon notice of infringing activity, failed to properly exercise such control. Omega sought statutory damages against 375 Canal as a "willful infringer" under 15 U.S.C. §1117(c)(2). Omega's claims survived both a motion to dismiss and a motion for summary judgment.

The outcome in Omega SA v. 375 Canal LLC2 is notable for two reasons. First, it evidences a rare instance in which a trademark infringement claim progressed to trial and received adjudication by a jury; most infringement cases settle. Second and more importantly, it provides a road map for plaintiffs in counterfeiting cases to successfully recover damages under the theory of contributory liability. Rather than simply pursue traditional recovery from the sellers of counterfeit goods – many of whom are often judgment-proof3Omega suggests how a plaintiff can pursue monetary damages (not just injunctive relief) from additional deep-pocketed sources, such as a landlord who rents to someone selling counterfeits.

Putting Landlords on Notice

Under trademark infringement law, contributory liability is triggered when a potential defendant either (1) intentionally induces another to infringe or (2) supplies services to one she or he knows or has reason to know is engaging in infringing activities.4 Here, actual knowledge of specific events or transactions is not required, but willful blindness may constitute infringement.5 Therefore, providing a landlord with notice of potential infringing activity on his or her premises becomes the essential element for establishing liability. A landlord's receipt of a trademark owner's warning letter or law enforcement's raids on the premises may constitute knowledge sufficient to meet that burden.

In Omega, the court found that the defendant (1) had been previously involved in three other lawsuits for the counterfeit sale of goods on the premises, (2) had received the plaintiff's letter outlining multiple New York Police Department arrests for counterfeit activities on the premises, (3) had received correspondence from a different law firm warning of infringing counterfeit sales of other trademarks on the premises and (4) had been served with a private litigation complaint and a subsequent permanent injunction regarding counterfeit activities. These findings provided a basis for the court to hold that a reasonable juror could infer that 375 Canal had knowledge of or was willfully blind to ongoing illegal activity and for it to deny the defendant's motion for summary judgment.6

In addition to the knowledge requirement, to receive statutory damages under 15 U.S.C. §1117(c)(2), a plaintiff must also show that the landlord exercised control over the premises such that the infringement of the mark is "willful." In Omega, the court found that 375 Canal "possessed the power and authority to exercise control over the use of its premises."7 Since 375 Canal knew or had reason to know that the premises were being used for counterfeiting activities and continued to lease space to the infringing tenants, their infringement was deemed willful, liable to the trademark holder for up to $2 million per infringement.

Conclusion

As of this writing, defendant 375 Canal has appealed the lower court's decision. It will be interesting to observe how any subsequent litigation plays out. If the jury's verdict is upheld, it will provide a useful and viable precedent for luxury-good trademark holders to obtain significant financial relief from infringing counterfeit activity.

Footnotes

1 As of April 12, 2019, the decision was being appealed.

2 No. 1:12-cv-06979.

3 See Guillermo Jimenez & Barbara Kolsun, Fashion Law: Cases and Materials 412 (Carolina Academic Press, 2016).

4 See Inwood Labs, Inc. v. Ives Labs, Inc., 456 U.S. 844, 854 (1982).

5 See Hardrock Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143, 1150 (7th Cir. 1992).

6 See Omega SA v. 375 Canal, LLC, No. 12-cv- 6979, 2016 U.S. Dist. LEXIS 178147, 2016 WL 7439359 (S.D.N.Y. Dec. 22, 2016).

7 See Omega SA v. 375 Canal, LLC, No. 12-cv-6979, Final Judgment (Mar. 3, 2019).

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