Gucci America Defeats Motion to Dismiss in Alleged Contributory Infringement Claim for Trademark-Infringement Against Credit Card Service Provider Defendants

July 6th, 2010

trademark infringementGucci America is the trademark owner behind the popular “Gucci” brand. In its quest to rid the streets of “Gucci” knockoff products the company has been very persistent even if seemingly ineffective. However, Gucci America may be gaining some traction with these most recent decisions concerning infringement of the “Gucci” trademark.

The stimulus for the most recent case is the 2008 case of Gucci America, Inc. v. Laurette Co., Inc., 08 Civ. 5065 (LAK) (S.D.N.Y. June 3, 2008)). In that case Gucci was able to get a permanent injunction against defendant Laurette for their use of the now parked Website at www.TheBagAddiction.com. That site was used by Laurette prior to the suit for sale of a variety of ‘replica’ goods for sale, including those using both Gucci designs and trademarks without authorization.

After winning the Laurette suit, Gucci went on in 2009 to bring suit against (primarily) the companies providing credit card services for Laurette’s then infringing use of www.TheBagAddiction.com. The instant case is the S.D.N.Y. case of Gucci America Inc., v. Frontline Processing Corp., Woodforest National Bank, Durango Merchant Services LLC, “ABC Companies”, and “John Does”, it can be found in its full 24 pages at http://tinyurl.com/ILG-Gucci.

This case is closely examined by the InfoLawGroup in an article posted yesterday titled, SDNY Court Holds Credit Card Processors May Be Contributorily Liable for Trademark Infringement.

Gucci’s complaint alleges that Frontline, Woodforest, and Durango aided and assisted Laurette and had actual or constructive knowledge of Laurette’s infringing activities and further that the credit card services conducted by the defendants were vital to Laurette’s ability to conduct infringing sales over the Internet, and finally that therefore the defendants should be directly, vicariously and contributorily liable as a result. Slip Op. at 15.

Judge Harold Baer, Jr. ruled against Frontline’s motion to dismiss. Although the court found insufficient proof for Gucci America to proceed under a direct or vicarious theory of infringement it did find that Gucci could proceed under a theory of contributory infringement against defendant credit card service providers Frontline and Woodforest but did not support such a finding against Durango whom the court characterized as a ‘middleman’ without sufficient knowledge or control of Laurette’s infringing activities for Gucci to maintain its action against Durango.

Judge Baer, Jr. traced his authority for the decision back to a modified version of the Inwood test, stemming from the 1982 case of Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 854 (1982), available at http://tinyurl.com/2b4yn2y, which held that;

“Even if a manufacturer does not directly control others in the chain of distribution, it can be held responsible for their infringing activities under certain circumstances.”

While noting that this is a case of fire impression for the Second District at least in regard to its use of the modified Inwood test, Baer Jr. made reference to the persuasive approaches taken by other circuits and found that;

“Gucci can proceed with its action against Defendants if it can show that they;
(1) intentionally induced the website to infringe through the sale of counterfeit goods or
(2) knowingly supplied services to websites and had sufficient control over infringing activity to merit liability.” Id. at 17.

Essentially, Gucci’s ensuing case will have to proceed under the (2) prong and will hinge upon whether it can demonstrate that the remaining Defendants had sufficient control.

After dismissing Gucci’s arguments that Defendants intentionally induced infringement, the court gave a nod to Gucci about its future direction in the suit, “the most significant dispute between the parties with regard to contributory liability is whether any or all of the Defendants had sufficient control over Laurette and TheBagAddiction to render them liable for the web merchant’s counterfeiting practices.”  Id. at 20.

As noted above, the court found that Durango did not have sufficient knowledge of Laurette’s activities to be held liable. However, this left Frontline and Woodforest as viable defendants and the court found that Gucci provided sufficient support in its arguments to show that it at least remains a disputed question of fact whether the credit card processing services provided by the remaining defendants were necessary and essential to the online sale of goods from Laurette’s www.TheBagAddiction.com.” Id.

The InfoLawGroup article also importantly highlighted that Gucci need not establish that the Defendants had complete or direct control over the infringing website;

“Significantly, the court did not agree with defendants’ argument, based in part upon the holding in Perfect 10, that in order to be held contributory liable they needed “direct or complete control over the [infringing] website itself.” Id. at 22. Rather Judge Baer distinguished Perfect 10 and analogized the instant case to those “with defendants who helped consummate infringing transactions by delivering the counterfeit or infringing goods to the customer.” Id. at 23.

To maintain its suit, Gucci will have to demonstrate that, “the Laurette website was functionally dependent upon Woodforest and Frontline’s credit card processing services to sell counterfeit Gucci products.”

This is an important early victory for Gucci in spite of it being only to defeat a motion to dismiss. The InfoLawGroup article points out that Judge Baer, Jr.’s reasoning seems in-line with contributory infringement trademark law but that to-date the Gucci America holding appears to be limited to;

“Credit card processors/services who either:
(1) intentionally induce others to engage in infringement; or
(2) provide card processing services with actual knowledge of ongoing infringing conduct or in such fashion as to exhibit a willful blindness to such infringement in circumstances that the credit services exert sufficient de facto control over the website’s commerce as to be functionally necessary to the infringing activity.”

For more information on this case;

Lexology – Credit card services firms with knowledge of sales of infringing merchandise may be liable for trademark infringement