Brandon Evenson is a JD candidate at Osgoode Hall Law School.

A recent case in the US has sent a clear message to US Internet Service Providers (ISPs) that they can be liable for secondary trade-mark infringement.  All that is required is that the ISP knows or ought to have known that their customers were directly infringing or facilitating the infringement of a trade-mark via the ISP’s services.

Akanoc Solutions, a California-based ISP provided website hosting solutions. Via a hosted website, one of Akanoc’s customers sold goods that infringed the trade-mark of Louis Vuitton. Despite Louis Vuitton providing multiple notices to Akanoc that their customer was infringing Louis Vuitton’s trade-marks, Akanoc did little to remedy the situation or take down the infringing content. At trial the jury awarded $31.5M and found that Akanoc willingly contributed to direct trade-mark infringement.

For Canadians this may seem a strange outcome given the current state of Canadian law. There is no right of action for contributory trade-mark infringement in Canada. Sections 19, 20, and 22 of the Canadian Trade-marks Act are the bases for trade-mark infringement actions. Section 19 provides protection for a registered trade-mark holder allowing them the “exclusive right to the use” of the trade-mark throughout Canada in respect of the particular wares or services covered by a registration. In contrast, the deemed infringement rule in section 20 is broader in application.  Pursuant to section 20, infringement is perpetrated by a “person not entitled to its use under [the] Act, who sells, distributes, or advertises wares or services in association with a confusing trade-mark.”

Section 22 of the Act prohibits “use [of] a trade-mark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto.” Introduced in 1953, section 22 is the only enforcement provision that primarily favors the intangible rights of trade-mark owners rather than protecting the consumer.

Even if there was a cause of action for contributory trade-mark infringement in the Canada’s Trade-marks Act, it is unlikely that ISPs would be found liable for failing to take down allegedly infringing content. The closest cause of action for contributory infringement of intellectual property rights in Canada is found in the Canadian Copyright Act. Section 3 of the Act provides owners of copyright the sole right to authorize certain acts. In the leading case of CCH v. LSUC, the Supreme Court of Canada judicially considered the word “authorization” and held that for there to be authorization, it needs to be shown that there is active encouragement, that somehow the defendant sanctioned or approved the infringing acts. Similarly in Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, 2004 the SCC said that:

…notice of infringing content, and a failure to respond by “taking it down” may in some circumstances lead to a finding of “authorization”.  However, that is not the issue before us.  Much would depend on the specific circumstances.

The SCC in Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers also commented on the difficulty in finding an ISP liable under Canadian law for authorizing copyright infringement by failing to take-down infringing content when notified:

An overly quick inference of “authorization” would put the Internet Service Provider in the difficult position of judging whether the copyright objection is well founded, and to choose between contesting a copyright action or potentially breaching its contract with the content provider.  A more effective remedy to address this potential issue would be the enactment by Parliament of a statutory “notice and take down” procedure as has been done in the European Community and the United States.

Despite this sound reasoning, US courts have had no issue finding secondary trade-mark infringement even without a specific “notice and take down” procedure for trade-marks. The first case to consider contributory infringement of trade-marks after the Lanham (Trade-mark) Act was passed in the US, was Inwood Labs., Inc. v. Ives Labs., Inc..

In reaching its conclusion, the US Supreme Court re-affirmed the basic principle that:

“liability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another.” Thus, “[e]ven 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.”

The US Supreme Court also established a two-part test for evaluating contributory liability claims. Specifically:

if a manufacturer or distributor intentionally induces another to infringe 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, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit.

This test has been adapted by other US courts to fit various factual situations. In Akanoc specifically, the court drew a parallel between hosting websites and providing real estate in a flea market as in the previous case of Fonovisa:

In this case, Defendants’ activity as Internet service providers is more like the flea market proprietors in Fonovisa than the domain name translation service in Lockheed. Here, Defendants do not simply translate domain names into IP addresses. Defendants physically host websites on their servers and route internet traffic to and from those websites. This service is the Internet equivalent of leasing real estate. Defendants’ services, combined with Defendants’ ability to remove infringing websites, entails a level of involvement and control that goes beyond “rote translation.” As with the flea market  operators in Fonovisa, Defendants cannot remain “wilfully blind” to trademark infringement taking place on their servers.

The court reasoned that the guiding principle of holding a flea market operator liable for contributory infringement is that a host who permits others to use his premises cannot remain “wilfully blind” to their directly infringing acts.

Based on these comments, it would seem that the judge in Akanoc might not have had a complete understanding of website hosting on servers. An understanding of the technology is important since the policy reason for finding flea markets vicariously liable is vitiated in the case of website hosting because of the differences between the two. The physical acts involved in hosting websites couldn’t be any more different than leasing real-estate – even real-estate in a flea market. It is entirely possible for an ISP to be blind to the acts taking place on their servers. “Hosting” a website is usually just as simple as renting a certain amount of hard drive space on an internet facing server. Customers access and control their websites remotely via FTP or other similar protocols. This website information is stored in bits and bytes on hard drives located in secure data centers with hundreds or thousands of servers. These data-centers can be located anywhere around the world, and new technology from vendors such as VMWare now allows for virtual servers and virtual networks such that data for one website could be spread across many servers or data centers. If they have the capacity, ISPs can host millions of websites and in many instances the whole process can be automated so that an ISP need never have any human contact with the individual customers.

Despite the fact that the law in Canada is entirely different, one can’t help but wonder if Canadian ISPs will be caught by the decision in Akanoc. It is conceivable that if a suit is brought in a US jurisdiction, Canadian ISPs may find themselves with a $31.5M judgment against them.

Posted in Internet, IP, Trademarks