The Software IP Report
Are E-commerce Sites Liable for Trademark Infringement? The Sixth Circuit Gives Guidance
Can an e-commerce facilitator be liable for trademark infringement when the products they sell are designed by a third-party? The Sixth Circuit says it depends on the degree of control the e-commerce facilitator has over manufacturing, quality, and delivery of product to consumers.
Digital marketplaces such as Amazon and eBay are typically not liable for trademark-infringing goods sold through their platforms. This immunity from liability is rooted in the notion that such marketplaces are “passive e-commerce facilitators.” In other words, when a digital marketplace lacks sufficient control and involvement in the design, manufacture, quality control, and delivery of goods to consumers, it is shielded from liability. This of course, creates a spectrum of e-commerce facilitators and there is no bright line for when immunity from liability exists. Thanks to an appeal from a small university in Ohio, the Sixth Circuit has provided guidance on when an e-commerce faciliator may be subject to liability for trademark infringement. The Ohio State University v. Redbubble, Inc., Case No. 19-3388 (6th Cir. Feb. 25, 2021; Opinion by Judge Nalbandian, joined by Judges Griffin and White).
The case comes on appeal from U.S. District Court for the Southern District of Ohio at Columbus. The district court granted summary judgement for the Appellee, an e-commerce facilitator, and the Sixth Circuit reversed holding that the district court interpreted the Lanham Act too narrowly. This case involves two claims by the appellant against the appellee: 1) a Lanham Act violation for use of the appellant’s trademarks without permission; and 2) a violation of Ohio’s right-to-publicity law for use of the persona of one of the appellant’s former employees. This post does not discuss the issues related to violations of Ohio’s right-to-publicity law, though we may cover them in a follow up.
Relevant Law
The Lanham Act creates a cause of action against any person who, without the consent of the trademark owner, either:
(a) [U]se[s] in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or
(b) reproduce[s], counterfeit[s], cop[ies], or colorably imitate[s] a registered mark and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.
15 U.S.C. § 1114(1).
On appeal, the appellant claims that the appellee directly infringed on appellant’s trademarks and that the appellee is vicariously liable for the vendors operating on the appellee’s e-commerce platform. Vicarious liability under the Lanham Act is permitted in the Sixth Circuit under the Grubbs test. The Grubbs test requires that the defendant and the infringer: 1) have an actual or apparent partnership; 2) have authority to bind one another in transactions; or 3) exercise joint ownership or control over the infringing product. Grubbs v. Sheakley Grp., Inc., 807 F.3d 785, 793 (6th Cir. 2015).
Lesson for Practice #1: Be Explicit in the Complaint
The appellant attempted to make an argument for vicarious liability on appeal, an issue not raised in its complaint nor its motion for summary judgment. The appellee argued that the appellant may not rely on the vicarious liability theory for the first time on appeal, and the Court agreed. There is lengthy discussion in the opinion about whether the appellant made an imperfect statement of the legal theory supporting their claims of infringement.
The Court cites Circuit precedent that claims or arguments made for the first time on appeal are only reviewed in exceptional cases “when application of the rule would produce a ‘plain miscarriage of justice.’” In this instance the Court found “no injustice barring [appellant] from pursuing a claim it chose not to pursue below.”
This lesson is clear: when pursuing claims for trademark infringement under the Lanham Act, if you think you want to pursue theories of direct infringement AND vicarious liability, it is best to explicitly state both of them in the complaint. Had the appellant “used the magical words,” they may have succeeded on this argument.
Passive E-Commerce Facilitator v. Appellee
The Court spent much of the opinion discussing the differences between a “passive e-commerce facilitator,” such as Amazon, eBay, or Facebook Marketplace, and the Appellee’s business. In the Sixth Circuit, there is an important distinction between “a direct seller who ‘uses’ a trademark under the [Lanham] Act and a mere facilitator of sales who does not is the degree to which the party represents itself, rather than a third-party vendor, as the seller, or somehow identifies the goods as its own.”
When looking at eBay, for example, the Court noted that the site clearly indicates to consumers that goods are from a third-party seller, not eBay, and the court has found that this is not a violation of the Lanham Act. However, a brick-and-mortar retailer who stocks and sells trademark-infringing products to consumers has been found liable under the Lanham Act.
Comparing the two ends of this spectrum, passive e-commerce facilitators and brick-and-mortar retailers, the Court believes the Appellee is somewhere in the middle. While the Appellee does not design or manufacture the products it sells, it does label the products with the Appellee’s logo and tag. The products on the Appellee’s platform are designed by independent artists, but the products are not created until the sale of the product occurs on the platform. The Appellee’s argument is that the independent artists are in violation of the Lanham Act, but the Appellee is not directly liable. In sum, the consumer browses the Appellee’s website, selects a trademark-infringing product designed by an independent artist, handles the entirety of the transaction on the Appellee’s website, and the Appellee then coordinates manufacturing and shipping of the product.
The Court reasoned, in its reversal of summary judgment, that there remained issues of fact that had not been sufficiently developed in the district court, to determine the “degree of control and involvement exercised by [the Appellee] over the manufacturing, quality control, and delivery of goods to consumers…” The Court further reasoned that the Appellee was making more use of the trademark than other non-liable passive e-commerce facilitators.
Lesson for Practice #2: Digital Marketplaces Fall on a Spectrum for Liability
This case isn’t resolved, so it isn’t clear whether the Appellee will ultimately be liable for infringement, but nevertheless there is a lesson from the Court’s opinion. Keeping litigation costs low is always in the client’s best interests and, at least within the Sixth Circuit, we now have some additional data points on when a digital marketplace can be liable for infringement.
The case also provides a lesson for discovery requests and drafting of interrogatories. The Court focused on the control the Appellee had over manufacturing, quality control, and delivery of goods to consumers. By zeroing in on these issues early and identifying key evidence during the discovery process, a motion for summary judgment may have a better chance of success.