IP Law Daily Evidence supported jury verdict that mall owners are contributorily liable for tenants’ counterfeit sales
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Thursday, August 8, 2019

Evidence supported jury verdict that mall owners are contributorily liable for tenants’ counterfeit sales

By Robert Margolis, J.D.

Mall operators had actual or constructive knowledge of tenants’ infringement, including prior law enforcement raids and eyewear maker Luxottica’s notifications of trademark infringement.

A jury properly found that owners and landlords of the International Discount Mall in College Park, Georgia, had at least constructive knowledge that subtenants were infringing Luxottica Group’s Ray-Ban and Oakley marks by selling counterfeit sunglasses, the U.S. Court of Appeals in Atlanta has held. The court affirmed the jury’s verdict that the defendants were guilty of contributory infringement, because with that constructive knowledge, they continued to lease space to those subtenants (Luxottica Grp., SpA v. Airport Mini Mall, LLC, August 7, 2019, Pryor, J.).

Counterfeiters. Luxottica Group manufactures and sells luxury eyewear, including the Ray-Ban and Oakley brands, for which it owns registered trademarks. The defendants own the mall and lease space to various subtenants, and in the process also providing them with services including lighting, water, sewerage, maintenance and repairs, painting and cleaning, and parking for customers. After 2009, defendants saw three law enforcement raids, in which officers executed search warrants, made arrests, and seized counterfeit Luxottica eyewear and knock-offs of other brands. In addition, Luxottica twice sent letters to the defendants notifying them that subtenants were not authorized to sell Luxottica eyewear and that any marks resembling Ray-Ban or Oakley would be counterfeit. The second such letter identified particular subtenants that Luxottica suspected. After receiving the letters, defendants’ representatives met with law enforcement.

Despite the above examples of notice, the defendants took no action against the subtenants, and in fact renewed subleases with several who had been arrested during one of the raids.

Luxottica sued the defendants for contributory trademark infringement. After an 11-day trial, the jury found defendants liable, assessing $100,000 against each of the 19 defendants (entities and individuals). Defendants’ post-trial motions were denied, and they appealed.

Contributory infringement. A Lanham Act § 32 claim for contributory infringement, has the following elements: (1) someone commits direct infringement; and (2) the defendant either (a) "intentionally induces" the direct infringer to infringe, (b) supplies a "product" to the direct infringer with actual knowledge of the infringement, or (c) supplies a "product" to the direct infringer with constructive knowledge of the infringement (i.e., defendant "has reason to know" of the infringement). There was no dispute of the underlying infringement, so the first element was not at issue. As to the second element, Luxottica did not contend that the defendants induced the infringement, but instead provided evidence that they had actual or constructive knowledge. The Eleventh Circuit agreed with them that the evidence of both types of knowledge was sufficient to support the jury’s verdict. The court agreed with other courts around the country that had held that evidence of a defendant’s "willful blindness" was sufficient to establish constructive knowledge.

Landlord-tenant context. The court noted that whether contributory liability extends to the landlord-tenant context was a question of first impression in the Eleventh Circuit. The Supreme Court decision first recognizing contributory liability, Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982), concerned a defendant that provided the very infringing product that the direct infringers mislabeled with the plaintiff’s mark. Here, the defendant mall owners did not supply infringing products, just the aforementioned services to tenants. However, because the defendants did not challenge that Inwood liability for contributory negligence can be applied in the landlord-tenant context, the court assumed, without deciding, that it could.

Constructive knowledge. The court noted another question of first impression was raised in the appeal—whether the knowledge element requires proof that the defendant had actual or constructive knowledge of specific infringing acts. Again, the court determined that it need not answer if this is required because there was sufficient evidence of constructive knowledge (or willful blindness) of specific infringing acts by the subtenants. The court rejected the defendants’ argument that it was Luxottica’s burden to notify them about specific infringers, before they could be found to have contributorily infringed. That argument was based on a Second Circuit case finding that eBay lacked actual or constructive knowledge of each of the thousands of infringers on its site and could only be liable for contributory infringement when it received direct notice about a specific infringer. Tiffany (NJ) v. eBay, Inc., 600 F.3d 93 (2d Cir. 2010). The court distinguished Tiffany, which involved an ecommerce platform with 100-million listings, from the claim against the defendants, mall owners with a small number of vendors whose activities and identities were easily accessible to them.

As for the evidence of constructive knowledge of specific instances of subtenant infringement, the court pointed to Luxottica’s notice letters as sufficient to prompt "a reasonable landlord to at least do a cursory visual inspection of the Mall’s 130 booths to determine which vendors displayed eyewear with Luxottica’s marks" and sold it at prices sufficiently low to alert a reasonable person that the eyewear was counterfeit. In addition, the three law enforcement raids provided evidence of "serious and widespread" infringement, which the Eleventh Circuit had previously held supports an inference that a defendant knew about the infringement. Taken together, the letters and the raids, as well as the meeting with law enforcement by the defendants’ representatives, all supported the jury’s finding of at least constructive knowledge of infringement, the court held.

Individual defendants. Similarly, evidence that one of the individual defendants had seen emails from a prior mall lessee and local police about infringing activity in 2008, were sufficient for the jury to find that he was put on notice to watch for sales of counterfeit goods, the court held. And other individuals knew about the raids and Luxottica notice letters.

Evidence properly admitted. The court also upheld several evidentiary rulings by the trial court. Defendants contended that evidence of counterfeit sales before they took over the mall was irrelevant, but according to the court, evidence of "serious and widespread" infringing sales increases the likelihood that defendants knew about and failed to stop the infringement on their later watch. Similarly, evidence of allegations of infringement of non-Luxottica brands also was relevant, even though there was no evidence produced that such other brands actually were infringed. The jury could reasonably have found that even mere allegations of such infringement of other brands should have alerted the defendants to possible infringement of Luxottica brands.

This case is No. 18-10157.

Attorneys: George G. Mahfood (Nelson Mullins Riley & Scarborough LLP) and John David Farrish (Mase Tinelli Mebane & Briggs, P.A.) for Luxottica Group S.p.A.. Marvin D. Dikeman (Webb Zschunke Neary & Dikeman, LLP) and Daniel J. Huff (Huff Powell & Bailey, LLC) for Airport Mini Mall, LLC.

Companies: Luxottica Group S.p.A.; Oakley, Inc.; Airport Mini Mall, LLC

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