Flea Market Operator vs. Coach Inc. Who do you think won?

In an endless and well justified quest to prevent others from selling knock off bags, Coach, Inc. won a giant settlement against a Flea Market Operator in Tennessee; not just any judgment but a judgment worth over five million USD. The case presented a novel issue for the Six Circuit Court of Appeals. Could an operator of a Flea Market be held liable for contributory trademark infringement when the vendors operating in the market sell counterfeit goods? The answer was a resounding “yes”.

The defendant in this case, Frederick Goodfellow, operates the Southwest Flea Market in Memphis. Goodfellow rented around seventy-five booths to vendors who sold various goods. During operation of the market Goodfellow had ultimate control over operation of the market as well as the power to decide who may sell goods in the market. Apparently several of these vendors made the fatal mistake of selling “Coach” bags, a fact which it appears Goodfellow was well aware.  It is quite obvious that he was aware because Coach sent a letter to Goodfellow notifying him of the sale of Counterfeit Coach products at the market. He received an additional letter from the District Attorney notifying him of the sale of the goods. As if these presumably strongly worded letters were not enough to put him on notice the police conducted two raids on the premises and seized the counterfeit goods. (According to the opinion the second raid involved around 150 law enforcement officers).

Adding to the facts mounting against him, it seems Goodfellow did not do much to rectify the problem. He posted a sign which clearly stated “counterfeit is prohibit”, sporadically distributed pamphlets to vendors, and met with vendors to discuss the problem. However, communication with the vendors was difficult due to language difficulties and the meetings were not well attended.

Coach Inc. moved for summary judgment and Goodfellow failed to respond; even in viewing the record in a light most favorable to him the court held Goodfellow liable for contributory trademark infringement.  When the question of damages was tried in front of a jury; Goodfellow suddenly had a judgment of $5,040,000 looming over his head as well as a permanent injunction and nearly $187,000 in fees and costs. Not fun for Goodfellow.

This is a pretty clear cut example of trademark infringement, as the court said “a party proves trademark infringement by showing (1) that it owns a trademark, (2) that the infringer used the mark in commerce without authorization, and (3) that the use of the alleged infringing trademark ‘is likely to cause confusion among the consumers regarding the origin of the goods offered by the parties.” Leelanau Wine Cellars, Ltd. V. Black & Red, Inc., 502 F.3d 504, 515 (6th Cir. 2007). Goodfellow defended that he could not be held liable for trademark infringement because he was not in a partnership relationship with the vendors, the vendors and Goodfellow did not have power to bind each other and they did not exercise joint ownership or control. The court of appeals agreed with this contention but pointed out that this was the standard required for vicarious liability; in this case the court found that Goodfellow was liable for contributory trademark infringement which is different than the former. The court explained that contributory infringement is where a “distributor intentionally induces another to infringe on a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, [it] is contributorially responsible for any harm done as a result of that deceit. ” Inwood Laboratories Inc., v. Ives Laboratories Inc., 456 U.S. 844 (1982). This standard has been applied against flea market owners throughout several circuit courts but never in the sixth, that is, until last week.

Goodfellow knew of the activity but continued to allow the counterfeit goods to be sold at this market. While Goodfellow will likely appeal I don’t see any way he could win. People are not allowed to freely sell counterfeit goods and it is obvious owners of strong marks will police their brands with the ruthlessness of the Galactic Empire. It is a good idea for any flea market operator to take note of this case. Pay attention to what is being sold in your market if there are third party vendors present, when one of the biggest names in the fashion industry sends you a letter advising you of infringing activity; heed the warning, and be more diligent about informing vendors what they may and may not sell in your market. For the full opinion check here: Goodfellow v Coach.

This article is a case review and my opinion only and is not intended in any way to be legal advice. If you need legal advice please contract an attorney.

The Sad and Untimely Demise of the Art Car “La Contessa”

This is a bit old but remains one of my favorite copyright cases.

Artists Simon Cheffins and Gregory Jones brought an action against Michael Stewart, land owner near the area where the Burning Man Festival takes place. The action stems from the destruction of the plaintiffs beloved “sculpture” known to patrons of the Burning Man Festival as “La Contessa”. La Contessa is an “art ship” built around the frame of an old bus and made to be a replica of Spanish ships of yesteryear. The plaintiffs are two artists that conceived of the idea of creating a land roaming ship. The artists received a $15,000 grant to design and build the magnificent vessel. Cheffins v. Stewart, 2011 WL 196932. It took several months and over seventy volunteers to construct the large replica. The ship had several decks, room for dozens of people, two bars, and was beautifully decorated.

The La Contessa was indeed a gem of the Burning Man Festival and had no equal among other roaming “art cars”. Sadly, after several years of use at the festival the ship sustained damage during a battle with wayward sand dune (to its credit, it survived a battle with a whale art ship before it met the dune).  The damage, perhaps, could have been avoided had the driver been able to see. You see, there was no way for the driver to see, so a navigator sat above decks and relayed directions via radio communications. Crippled and immovable, the derelict vessel was left on the property of Michael Stewart. Stewart was known locally for his angst against the attendees (hipsters) of the Burning Man Festival (probably, because they left giant pirate ships on his property). Stewart, annoyed at the presence of the sailing ship, decided to burn it to the ground.  The result was the destruction of the La Contessa, the art ship lay in ruins, sadly, it would never sail again.

Cheffins and Jones filed suit under 17 U.S.C. §106A and an action in conversion for the destruction of their ship. Unfortunately for them, § 106A of the copyright act is usually a losing battle and almost never enforced.

Visual Artists Rights Act

The opinion notes “[N]ot every artist has rights under VARA, and not everything called “art” is protected by such rights” Cheffins v. Stewart, 2011 WL 196932. “VARA protected only things defined as ‘works of visual art,’ a definition that is a ‘critical underpinning of the limited scope of the Act.’” Id.

The issue for the court was whether the ship was a work of art that fell under the protection of VARA. The plaintiffs contended that the ship was protected because it was a sort of “applied art” and therefore sculpture. Applied Art is defined as “[T]wo-and [T]hee-dimensional ornamentation or decoration that is affixed to otherwise utilitarian objects.” Carter v. Helmsley-Spear. 861 F.Supp 303, 315. (2nd Cir. 1995). The problem here was that the ship was not a traditional sculpture and VARA does not define “applied art” in any of its provisions. However, the legislative history of the Copyright Act defines works of applied art as “all original pictorial, graphic, and sculptural works that are intended to be or have been embodied in useful articles”, for example, a piece of furniture that could be called a sculpture. Cheffins v. Stewart, 2011 WL 196932.

The court ruled that the ship was a utilitarian object with the purpose of transporting people. Because the ship could transport people, accommodate bars, concerts, and house dozens of people, it was not considered art subject to protection by VARA. The unique functionality of the art barred its protection and therefore the plaintiff could not sue Stewart under VARA. The court granted summary judgment for the defendant on the VARA claim but allowed the conversation claim to remain.

Apparently karma caught up with Mr. Stewart as his Yacht mysteriously sank to the bottom of a lake shortly after the verdict.

Soft IP News for Week of April 29th

Another example of trademark bullying, Washington D.C. restaurant “Rogue 24” is being sued by Oregon Brewing Co., one of the country’s largest breweries, for trademark infringement, trademark counterfeiting, and cybersquatting. Full Story

The maker of Sam Adams Beer files Trademark for “Boston Strong” beer. All profits from the Boston Strong beer will be donated to Boston bombing related charities. Furthermore, the company said that if the trademark application is successful it will allow others to use the mark if profits are donated to charities. Full Story

I’ve never heard of this, the government seeks to seize control as biker gang’s trademark using its asset forfeiture power. The government claims the gang is responsible for crimes ranging from selling iPods to murder. Full story

Craigslist had its copyright claims thrown out after it attempts to sue third party for indexing its material. Craigslist claimed copyright in user’s posts; judge disagreed. Full Story

Warner Brothers, copyright enforcement GURU and supporter of SOPA, has come into its own bit of infringing troubles. The media giant is being used for the use of cat memes “Nyan Cat” and Keyboard Cat. Full Story

Eminent author Harper Lee sues former agent of breach of fiduciary duty for failing for properly protect the copyright of “To Kill a Mocking Bird”. Full Story

Facebook and Timelines Inc. settle dispute before any quality time is spent in court. Facebook was sued by the company of its use of “Timeline” on the social networking site. Full Story

Ukraine gets a bad grade from the U.S. Trade Representative’s office for failing to protect copyrights. This mark on the Ukraine can lead to serious consequences in international trading with the country. Full Story.

Wholesale retailer “Costco” and fine jeweler “Tiffany & Co.” square off in court. It seems Costco has been selling “Tiffany” Jewelry in its stores which are not actually authentic. Costco claim the Tiffany name has become generic term for “a mount common on engagement rings”. Good luck with that, Costco. Full Story

Supreme Court and the First Sale Doctrine

In a recent Supreme Court case Kirtsaeng v. John Wiley & Sons, Inc., the justices were tasked with interpreting the first sale doctrine of the copyright act and how it applied to goods manufactured abroad. The pivotal question which the court decided was whether a person who lawfully obtains copyrighted work abroad and subsequently resells it violates the copyright owner’s distribution rights. This required the court to interpret the statutory language “lawfully made under this title” and whether the importation provision of the copyright act prohibited such resale in the United States. Luckily the court sided with the Kirtsaeng and held that the first sale doctrine applies to copies of copyrighted work lawfully made abroad and the import provision is limited by the first sale doctrine in a manner which does not prohibit the sale of lawfully purchased material.

The petitioner, Kirtsaeng, was studying in the United States and is a citizen of Thailand. While studying here he discovered, as nearly every penny pinching college student in America has, that books are quite expensive in the United States. As it turned out the books were much less expensive his native country. Therefore, he did what any Ramen eating dorm-dweller might do, he had his family buy the books in Thailand and mail them back to the United States at a substantial savings. It seems that saving money was not his only motivation because Kirtsaeng also bought the books and resold them in the United States at a higher price. This annoyed publisher enough to sue the student for violating its distribution rights.

John Wiley & Sons, Inc. publishes academic textbooks. Wiley often licenses its material to its Asian subsidiary to “publish, print, and sell Wiley’s textbooks abroad.” These books are printed in English and, from what I can tell, contain the same information as the books printed and sold in the United States; except they carry a notice which warning buyers that the books may not be sold outside the country of origin.

As I posted in my previous entry on the exclusive rights of copyright holders, the rights are limited by §§ 107-122. Section 109 is the first sale doctrine, which essentially says that if you buy a book, a CD (not a digital download *cough*), magazine, or any other copyrighted work the original owner loses any right to distribution they had. Therefore you are free to sell it, give it, throw it away, or take it on a trip with you to Canada and sell it to your friend there. You don’t need permission from the copyright owner; if you did it would create some pretty ridiculous results. The text of §109 says:

“Notwithstanding the provisions of section 106(3) [the section that grants the owner exclusive distribution rights], the owner of a particular     copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy” 17 U.S.C. § 109

As previously mentioned the case turned on the parties interpretation of “lawfully made under this title” in § 109.

Kirtsaeng contend that the because the books he sold were lawfully made in Thailand and lawfully purchased, the first sale doctrine applied and he could not be liable for violating the distribution rights of Wiley. The books were lawfully made because Wiley’s Asian subsidiary sold and manufactured the books in Asia; the books he was selling were not unlawfully copied without Wiley’s permission, and therefore were subject to the first sale doctrines limitation.

Wiley argued that the unauthorized importation and resale was a violation of its distribution rights and a violation of the copyright acts import prohibition. Previous courts and the solicitor general read the language “lawfully made under this title” to restrict the first sale doctrine geographically. Wiley asserted that these words are only effective where the United States Copyright Act is effective and therefore the first sale doctrine cannot apply to copies made outside the United States, regardless of whether the goods were lawfully manufactured. Furthermore, Wiley says petitioners actions are further limited by §602(a)(1) of the copyright act which says “[i]importation into the United States, without the authority of the owner of the copyright under this title, of copies…of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies…under section 106…” . 17 U.S.C §602(a)(1). The court disagreed.

The court noted that §602(a)(1) may make it clear that importing a copy without permission violated the distribution right but that right is limited by the first sale doctrine, just as §106 of the copyright act. This was first discussed in Quality King Distributors, Inc. v. L’anza Research Int’l, Inc. 523 U.S. 135 (1998). However, the court had to decide whether the fact that the books were manufactured outside the United States created a distinction between this case and Quality King. The Court determined that it does not create an important distinction between the two cases. The import limitation does not apply to lawfully purchased materials and a person who purchases a book abroad may subsequently resell that book without the publisher’s permission. Therefore, Kirsaeng was free to resell the books and there is no geographical limitation to the first sale doctrine.

If you would like to read the entire case in all its 74 pages you may download it here. For further analysis and amicus briefs, check out the Kirtsaeng v. John Wiley & Sons, Inc. page on the SCOTUS blog.

Raptorchef

 

Copyright Basics: The Exclusive Rights of Copyright Holders

Copyright law can be confusing. As my last post focused what material is subject to copyright I wanted to focus this post on the next basic concept: The exclusive rights in copyrighted works.

The rights of copyright holders are outlined in 17 §106 and subject to restrictions laid out in §§ 107-122. Because these posts are meant to be short I will not dive deeply into the restrictions, suffice to say they are filled with nuisances that could fill several copyright textbooks.

Copyright holders have the exclusive rights as outline below

1. The reproduction Right

The reproduction right is the right of the author to make copies of his or her work. Thus the owner of a copyright is the only one authorized to make copies of the work and the right is violated when someone other than the holder of the copyright creates a copy of the work. There are certain situations where the statute allows “unauthorized” copying of work such as in the case of libraries making copies for archival purposes, home video recording, and, more recently, recording of copies onto a home DVR device.

2. The right to prepare derivative works

A “derivative work” is another work which is based on a preexisting work. These can be a “musical arrangement, dramatization, fictionalization, motion picture” or other forms of the original work.  Essentially it means that any work which is based on the original that in itself an original work of authorship. It gives the copyright holder the exclusive right to create new works based on the original. Therefore, making a movie version of a book is an excellent example. The copyright in the derivative work in no way extends or enlarges the “scope, duration, ownership, or subsistence of copyright protection in the preexisting material”. Additionally, the copyright in a derivative work extends only to the material “contributed by the author of such work, as distinguished from the preexisting material employed in the work”. Creating a derivative work does not give the author any right in the material on such the derivative work is based.

This means that only the copyright holder is authorized to make derivative works and anyone who wishes to create such work must obtain the appropriate rights from the author in order to do so.

3. The distribution right

The distribution right can be described as the right of the author of a work to distribute to the public copies of work “by sale or other transfer of ownership, or by rental, lease, or lending.” This means that only the copyright holder has the right to sell or distribute their work. This is an area that sees a lot of action these days as lawsuits involving torrent sites and file sharing often assert that this  right violated by hosting the files or allowing others to download them via torrent programs. Therefore, you do not have the right to share music through computer systems as this it can result in some pretty huge lawsuits.

4. The public performance right

This right applies, as indicated by §106, in the case of “literary, musical, dramatic, and choreographic works, and pantomimes, and motion pictures and other audiovisual work”.

For this right to be infringed the work has to be “performed” and it has to be to the “public”. The statute doesn’t define performance but it is not limited to someone standing there and singing a song or preforming a play; it also can apply to playing music in a café.  Performing a work publically means to “perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family is gathered.

Really this just means that the copyright holder has the exclusive right to perform the work or authorize the performance of the work publically; if someone wants to play music at their bar or restaurant they have to obtain these rights and pay royalties to a performing rights society such as the American Society of Composers, Authors and Publishers (ASCAP), and Broadcast Music, Inc. (BMI).

5. The right to display the work publically

This right applies in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or…sculptural works.” This right also applies to individual images of motion picture or other A/V work.  §101 defines displaying a work as showing “a copy of it, either directly or by means of a film, slide, television image, or any other device or process…”

This right is quite similar to the public performance right. That is, the holder of the copyright has the exclusive right to display the work except as limited in §109 and the first sale doctrine

I have decided not to include two rights listed under § 106, the right to perform work by means of digital audio transmission and the right of attribution and integrity. I did this not only for the sake of length but also because the digital performance right is exceedingly complicated by §114 of the act. The right of attribution and integrity, also known as the moral rights, are infrequently enforced and only a part of the copyright act because of the provisions of the Berne convention, most likely I will return to “moral rights” in a subsequent post.

As always, this information is not legal advice. Should you have a legal issue related to copyright please contact an attorney.

Raptorchef’s Weekly Soft IP Round-up. Week of April 8, 2013

This week was quite slow in Soft-IP related news. Below find links to this week’s most interesting stories on Soft IP Law.

Should your company in South Korea be worried about the tense situation with North Korea? A great post by Sean Hayes at the Korean Law blog.  Full Story

In a move to streamline international trademark registration, India joins he Madrid Protocol. This will enable rights holders in India to obtain cost effective registration. The treaty will be effective in India on July 8, 2013. Full Story

In a short news week this story seems to have dominated any Trademark related news.  Texas restaurant chain Trademarks the term “Breastaurant” used in relation to food ordered with a “scenic” view. Full Story

USTPO apologizes to Apple and determines its initial refusal of a trademark for “IPAD Mini” was premature. The trademark examiner has decided to allow the mini mark as long as Apple disclaims the right to use the word mini. Full Story

Fifty Shades of Grey and a grey area of Copyright law. Movie studio asserts material for movie adaptation is in the public domain because most of the content of the book was user submitted fan-fiction. Full Story

As always, China Law Blog has good advice on protecting your Trademarks in the dynamic market. Counterfeit goods and working in China. Full Story

As Maria Pallante testifies for comprehensive changes to the copyright law the need for protection and the purpose of copyright remains the same. Protection encourages creativity and new work. Full Story

A new study shows that having a Trademark attorney greatly increases the chances your trademark will be approved. Full Story

Last Week’s IP roundup:

Prenda Lawyers continue to have problems as Judge Otis Wright attempts to have them explain their actions, but Prenda lawyers plead the Fifth. John Steele is said to have sued from than 20,000 people and made millions from pornography copyright lawsuits. Full Story

ISOhunt’s founder, Gary Fung, demands a jury trial after the Motion Picture Industry of America automatically wins a case on the merits in the 9th Circuit Court of Appeals. ISOhunt is a popular torrent site; Fung faces up to $150,000 per infringement. Fung claims liability will chill free speech and ruling is a miscarriage of justice. Full Story

Microsoft and Fox agree to share the “Killer Instinct” Trademark as long as they promise not to move into each other’s territory in using the mark. Microsoft is the owner of the Killer Instinct mark as used on video games; Fox registered a mark for a TV show under the same name. Full Story

As we see more retro car designs entering the market, Chevrolet applies for a trademark on Chevelle sparking questions of whether the automaker plans to remake its classic muscle car. Full Story

More IP problems for Facebook as it faces a Trademark battle for use of “Timeline”. As it turns out, another social media company used the same name on a website which catalogs a user’s history of events as posted on social media. Timelines.com registered their mark in 2010, Judge rejects facebook’s claim that is term is too generic as facebook has claimed use of “like” is not generic. Full Story

DC claims copyright in its Official Code, public domain advocates deliver special package to ThinkProgress. Currently there is no way to digitally download the code unless a person has a subscription to Lexisnexus. Full Story

Why are CD and tapes are better than digital copies? First Sale Doctrine takes a hit as a Judge rules that reselling digital copies is Copyright Infringement. Full Story