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Should landlords care what business their tenants are operating?
The obvious general answer of "yes" now has a more
detailed and important caveat. If your client is retailing goods,
you as a landlord may be liable if those goods are counterfeit.
Thanks to some new developing case law which intersects
intellectual property and real estate, landlords cannot willingly
turn a blind eye to a tenant selling counterfeit products.
Before too much lease review hysteria sets in, courts are not
asking landlords to do a ten-point inspection of a tenant's
product sales to ensure there are no counterfeits being sold from a
leased premises. However, in a recent case out of New York, Omega
v. 375 Canal Street, a jury awarded the high-end watch retailer,
Omega, with $1.1 million in damages against a landlord that was
found to have contributed to trademark infringement with its
willful blindness to its tenants' sales of counterfeit Omega
watches. In a similar case out of Georgia that was upheld by the
appellate court, Luxottica Group, S.P.A. v. Airport Mini Mall, a
mini-mall owner was hit with a $1.9 million damages verdict for a
type of indirect trademark infringement stemming from its
subtenant's sale of fake designer glasses.
There is, however, a silver lining– in both of those
cases, the property at issue had been raided by police multiple
times and the brand owners sent letters putting the landlords on
notice of the illegal activity. The takeaway for landlords? Once
you are put on notice of illegal activity on your leased property,
you have a duty to take action. And for online landlords that think
a court can't reach your virtual domain, think again. The same
rules apply to virtual landlords providing forums for sales on
which infringing activity occurs when they knowingly ignore it. As
addressed in the Tiffany (NJ) Inc. v. eBay Inc. case out of New
York City, and affirmed by the appellate court, eBay was not liable
for the infringing acts of an on-line seller because it had
established procedures for removing sellers of counterfeit
merchandise and promptly took action when notified of such illicit
activity.
For all landlords, the good news is that (as usual) you are not
powerless. Here are a few general issues that should be covered in
leases: (1) make sure your lease has language about illegal
activity, and indemnification, insurance, and access rights
relating to a reasonable suspicion of illegal activities; (2) have
procedures in place to deal with tenants selling counterfeits on
your property; and (3) take prompt action when you are notified of
any such illicit activity. So for all landlords, you better remain
vigilant, because while the products sold may be fake, the million
dollar verdicts are very real.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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