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.