"In all fighting, the direct method may be used for joining battle, but indirect methods will be needed in order to secure victory." Sun Tzu, The Art of War.
Counterfeiting continues to escalate, with counterfeiters manufacturing everything from machine parts to pharmaceuticals. Trademark owners constantly seek new methods to combat the counterfeiting of their brands, since despite the efforts of Customs, counterfeit goods continue to flood the marketplace. In addition to the traditional methods of combating counterfeiting through interdiction, and a proactive investigative strategy, another strategy that trademark owners' in-house counsel can implement in this fight is to target property owners where the trademark owners find their counterfeit products during an investigation. By attacking indirect offenders, a number of trademark owners have successfully extended liability to owners of property where counterfeit goods are sold or produced. All trademark owners should add enforcement against third parties as a strategy in their fight against counterfeiting.
I. Statutory Third Party Liability
Many states have statutes that outline the duties of a landlord who finds that his tenants are selling or manufacturing counterfeit goods on the landlord's property. In New York, for example, trademark owners can pursue counterfeiters by holding landlords liable who allow illegal acts to be committed on their premises. Under New York Real Property Law § 231, landlords have the right to declare a lease void, and to immediately evict tenants conducting illegal activities on the landlords' premises.
The statute further provides that landlords can be held jointly and severally liable for the illegal conduct of their tenants when they are put on notice of the illegal activity occurring on their property and fail to take action to stop it. The specific provision provides:
[t]he owner of real property, knowingly leasing or giving possession of the same to be used or occupied, wholly or partly, for any unlawful trade, manufacture or business, or knowingly permitting the same to be so used, is liable severally, and also jointly with one or more tenants or occupants thereof, for any damage resulting from such unlawful use, occupancy, trade, manufacture or business.2
Therefore, once a landlord becomes aware that illegal acts are being committed on his property, and after receiving written notification that the premises are being used for illegal purposes, the landlord should commence a summary proceeding to evict the tenant. If the landlord fails to act, the trademark owner can seek civil penalties against and recover attorney's fees from the landlord.
The practical application of this statute is that a trademark owner should make building owners and landlords aware of the illegal activity occurring on their property as soon as such activity becomes known. If the landlord follows the edict of the statute and evicts the tenant, then the trademark owner has won at least one battle in the war against trademark counterfeiters. On the other hand, if the landlord does not act, the trademark owner can hold the landlord liable and seek an award of damages against the landlord. Either way, it is a win for the trademark owner, and all trademark owners should research to determine whether their jurisdiction has a statute similar to the New York statue.
II. Nuisance Abatement Laws
Nuisance abatement laws can also be used against third parties in the battle against counterfeiting. These laws allow the government to use building codes, fire codes and zoning laws to improve the quality of life and resolve safety issues within neighborhoods. Essentially, cities, counties and states use nuisance abatement laws to enjoin public nuisances by pursuing landlords and building owners who allow illegal activities, such as trademark counterfeiting, to occur on their premises. Most of these laws grant governmental agencies the right to levy fines on a building owner and physically shut down a commercial location if an illegal activity, such as trademark counterfeiting, is occurring on the premises. This type of program is only effective, however, if the trademark owner cooperates with city agencies and is willing to share information that it compiles during investigations. Thus, trademark owners should work with local government agencies during their investigations and notify the agencies when they locate a premises where their counterfeit goods are being manufactured or sold, so that government agencies can enforce their nuisance abatement laws and trademark owners can enforce their rights against counterfeiters. This strategy has been effectively implemented in several jurisdictions.
Utilizing nuisance abatement laws to enforce trademark counterfeiting laws gives trademark owners another weapon to fight counterfeiting without resorting to costly litigation. Moreover, a trademark owner may be able to recover a judgment against a third party landlord, as opposed to a direct counterfeiter, because the owner of the building likely has more financial means than a direct counterfeiter.
III. Indirect Trademark Infringement
The Lanham Act sets forth the regulations and guidelines for the protection of federally registered trademarks. Under the Lanham Act, trademark owners can pursue civil suits against counterfeiters to recover damages that occur due to the counterfeiting of a trademark owners goods. The Lanham Act also provides trademark owners with another means of pursuing property owners and landlords on whose property counterfeiting-related activity occurs under the theory of contributory trademark infringement. As one commentator has noted, "[l]iability for trademark infringement and unfair competition may be extended beyond those who actually sell goods with the infringing mark, to include those contributory infringers who knowingly cooperate in illegal and tortious activity."3
In 1982, the Supreme Court established that a trademark owner could hold a third party liable for the acts of a direct infringer.4 In Inwood Labs, a pharmaceutical distributor who was supplying generic medication to pharmacies, knowing that the pharmacies were committing trademark infringement, was held contributorily liable.5 The court, therefore, had to consider the "circumstances under which a manufacturer of a generic drug, designed to duplicate the appearance of a similar drug marketed by a competitor under a registered trademark, can be held . . . liable for infringement of that trademark by pharmacists who dispense the generic drug."6 The court explained that to establish contributory trademark infringement, a plaintiff must show that the defendant either intentionally induced another to infringe a mark or continued to produce or distribute a product knowing or having reason to know the recipient was engaging in trademark infringement.7 As noted above, this case established that a cause of action for contributory infringement could exist under the Lanham Act.
Courts have also applied the concept to landlords and licensors whose vendors sell merchandise that infringe upon valid trademarks, as long as the third-party knows or has reason to know that its tenant or licensee is or will act tortiously. Thus, it has been held that a flea market operator could be found contributorily liable for a vendor selling counterfeit goods if the operator was willfully blind to the violations.8 In short, trademark owners can fight trademark counterfeiting by holding third parties liable for providing a "safe harbor" for counterfeiters to sell and manufacture counterfeit goods under the Lanham Act.
IV. Conclusion: a third arrow in the quiver
Courts have made it clear that landlords and building owners have an affirmative duty to eliminate illegal activity that occurs on their premises, such as counterfeiting, or they will be held liable for the criminal conduct of their tenants. Likewise, trademark owners can use the judicially constructed doctrine of contributory trademark infringement to initiate actions against third parties who facilitate the business of trademark counterfeiting. Third-party enforcement mechanisms protect trademark holders from landlords, trade show organizers, and flea market operators who provide the location and means for counterfeiting and ignore notice of those activities. Trademark owners can in many cases link third parties to the counterfeiting operation through contributory liability and pursue claims against landlords and property owners, thus assisting in the battle to end trademark counterfeiting.
Counterfeiting continues to escalate, with counterfeiters manufacturing everything from machine parts to pharmaceuticals. Trademark owners constantly seek new methods to combat the counterfeiting of their brands, since despite the efforts of Customs, counterfeit goods continue to flood the marketplace.
Footnotes
1. N.Y. Real Prop. § 231(2) (McKinney's 2008).
2. J. Thomas McCarthy, McCarthy On Trademark and Unfair Competition (2002) §§ 25:17, 18 (citing Warner & Co. v. Eli Lilly & Co., 265 U.S. 526 (1924)) (applying common law concept of contributory infringement).
3. Inwood Laboratories, Inc. v. Ives laboratories, Inc, 456 U.S. 844 (1982)
4. Id.
5. Id. at 846.
6. Id. at 854.
7. Hard Rock Café Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143 (7th Cir. 1992).
The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations