GW Design Law: Ecommerce remedies

AFTERNOON SESSION 1: Design Patents & Ecommerce
Moderator: Judy Yee, Microsoft
Howard Hogan, Gibson, Dunn & Crutcher: Counterfeiting is
a growing problem, but sometimes they don’t use a copyrighted work of
authorship but are still selling a knockoff of a design. © and TM have more
developed bodies of law on secondary infringement.  Contributory & vicarious liability—right to
supervise & financial interest in continuing infringement = liability.
Gucci v. Frontline (SDNY 2010).  Companies that process credit card payments
are effectively giving loans to merchants. We looked at merchants’
applications; they weren’t particularly shy about the fact they were selling
fakes. Used words like “replica” or admitted sourcing Gucci from China.  Entity called Durango, going out to midmarket
banks, saying you only get 2% on a typical transaction, but if you take a high
risk credit card merchant you can get 4-5%. Asserted Durango was inducing
infringement, encouraging banks to get in the business of helping the sale of
infringing goods. Against banks, we asserted contributory infringement. Opposite
to Perfect 10, you’re allowing sites to take orders/materially contributing to
the infringement.  SDNY issued a decision
that purports not to disagree w/Perfect 10 but really does; cites a lot to the
dissent. Can be held contributorily liable if they help sites take orders w/
their eyes open.
Christopher V. Carani, McAndrews, Held & Malloy, Ltd.: WD
Wash, Milo & Gabby v. Amazon, fully briefed at the 9th Circuit
though no argument scheduled. Design patent case: not interested in selling on
Amazon, only boutique children’s items. 
Found third-party seller using pictures of makers’ own children using
the pillows. No dispute that there is infringement of registered design patents
(though we don’t know what people actually received).  Is this “offering for sale” when Amazon
provides its website?  Amazon calls
itself a virtual shopping mall, which isn’t liable for goods particular vendors
sell, pre-notice. They don’t have title or the ability to transfer title. This
case could open up the floodgates/create a firewall for the gears of commerce.
[Not sure about these metaphors.] 
District court rules that Amazon isn’t liable, but said it was troubled
by that conclusion and impact on small retailers. Amazon can disavow
responsibility for offering to sell.  The
statute requires: make, use, offer to sell, sell, or import; also a specific
provision for active inducement of a patent. Requires knowledge of the patent,
knowledge of the infringement for inducement. 
What about fulfilled by Amazon?  3d party sellers who put their products up on
Amazon: seller uses Amazon as a warehouse.
When ecommerce sites appear notice: different from TM
situation b/c word searching can easily find Tiffany knockoffs.  Design patent infringement analysis requires
more expert analysis.  Not conducive to
spot judgment. Customs also knows this—will allow © and TM as predicate but
they won’t use design patent, patent, or even trade dress w/o order from court
or ITC.  Amazon points out that it took
down M&G copiers within a week.
Hogan: Taking the patentee position in this debate; not
always his position.  Brick & mortar
principles not automatically abrogated online. There’s no intent element.  Liability exists if you do infringe/sell
infringing goods. Mom & pop shops on a larger scale; they don’t have teams
of att’ys go through each product, but can be liable if they sell infringing
goods.  Customer doesn’t care who has
title to the good or in whose warehouse it sits. Online marketplace should also
be held liable like a brick and mortar store.
Carani: that same theory would apply without any knowledge
at all. Craigslist would have the same liability. FedEx sells a package and
delivers it.
Yee: but Amazon takes a portion of the sale.
Carani: but that’s a factor independent of knowledge—it would
sweep even the NYT, FedEx, etc.  A lot of
design patent att’ys are filing junk claims on partial designs.  Impact on damages is huge, but consider
partial designs & injunctive relief. 
You’re asking us to pull stuff down, but you might not even be able to
get an injunction. Why should we have to police when we wouldn’t be ordered to
take it down?
Yee: Staff required to respond to requests is an issue, but
TM and © takedowns do work. Can imagine a similar system for design patents
where you have to provide the claim chart. Shouldn’t be as rigorous as on the
utility side.
Carani: Congress did respond with the DMCA, and Congress
didn’t do that for design patent. eBay came up with VERO, self-regulation. A
little of fox guarding henhouse—false positives. Concept fallacy: people have a
design patent on a multicomponent tool and think they can stop any other
version of the tool.
Hogan: there is a difference in kinds of online mktplaces.
The more involved the platform is in determining what consumers see, the more
it’s fair to hold them liable for infringing products. eBay and Amazon both
have algorithms to get consumers shown products they’re likely to want.
Agnostic as to which merchant makes the sale. Alibaba is different.  Biggest retailer in the world. They make
their money selling “assessed status” to merchants—paying Alibaba to come up in
searches on their site. They go to factories, create videos, involved in
marketing. Then get a percentage of all transactions through their payment
Carani: we don’t hold the NYT liable for advertising, or for
housing a product in their warehouse, or for delivering a product.  The ability to combine all these services
into a convenient one-stop shop shouldn’t be penalized—it’s efficient.
Yee: what about a company whose product is knocked off by
hundreds of companies through your website? What should they do?
Carani: look at reviews of sellers. Some of the
responsibility is on the consumers. 
Buyer beware. But ultimately you may have to go to the source.
Hogan: courts in the US are there to protect US businesses
and US consumers. Companies that invest in developing products deserve
protection. Who should bear the burden? The company that can more easily write
the algorithm to identify goods being sold at suspiciously low prices/coming
from incorrect sources? [How does the algorithm know suspicious prices or
sources?]  On eBay, more than 70% of
sellers are from outside the US.
Carani: ITC is active here; Razr scooters.  China does include design patents etc; it
creates painful problems in China where they just don’t have the information to
make the difficult conclusions—just too cumbersome to take on, especially given
Amazon’s size.
Hogan: it used to be easier to store large quantities of
infringing goods: trucks, warehouses. Increasingly, products are drop-shipped
one at a time.  So customs will always be
important, but more come through small orders shipped directly to the buyer.  You don’t want to hold customs liable for a
mistake; but a physical store would be liable if it let an infringing good
Carani: indemnification is a real thing that can flow down.
Box stores are in much the same situation—Wal-Mart is selling 50 million
products. We like the online marketplace b/c of the variety.  There is much more of a vetting process; if
we impose liability on Amazon, there will be more vetting of everyone and that
will increase transaction costs/the overall costs of the products themselves.
Q: images are misleading—can you get them taken down?
Yee: Online marketplaces respond more quickly to TM/©
takedowns, but they give the sellers the opportunity to respond and come back
with just slight changes. Design patent requests come down and stay down if
they come down at all.
Hogan: M&G case: they didn’t assert © in the Cozy
Critters themselves, but in images of their son in front of the pillow. Image
search tech is growing by leaps and bounds. 
Often the most dangerous third-party merchants are taking photos right
off of brand website. Does require diligence; counterfeiters are inventive in
getting around screening.
Q: complaint about Amazon’s algorithm suggesting cheaper
knockoffs even when a person has made an effort to find the seller’s actual
Q: another wrinkle is that there are a lot of grey market
goods out there; may be represented as grey market goods even if they aren’t.
Q: Note that you can find the M&G pillows with the
M&G pictures on Amazon right now, with a sale/review from August—isn’t
Amazon on notice?
Yee: Amazon may not know that particular store is
Carani: that’s part of the case; every time they’ve been
given notice, Amazon has taken the store down. 
Survey of other countries: Japan, Europe, Korea—they all look at notice;
once there’s notice, they attach liability. 
Purist approach to US statute: even knowledge might not be enough.  Clarification: Notice means notice specific
to the location/seller, not notice “this product is counterfeit”; may also
require attention to sellers with previous strikes.
Q: platforms play games—they take down a seller but allow it
to come back under a new name.
Carani: the problem is that they create new entities/new
names.  If you see someone who’s never
sold a good before, some of the responsibility rests with the consumer.
Q: unrealistic to expect brand owner to file serial DMCA
notices.  Is it more onerous to platform
or brand to but the duty on them? It’s not a close question.
Carani: Rests w/consumers as well.  Birkenstock pulled out of Amazon.
Q: not every brand has that market power.
Hogan: anonymity is an issue; we have to keep in mind the
value of anonymity as well as the risks it creates.
Carani: Legal title was the key to the analysis in the
M&G case below.

Hogan: statute doesn’t define “sale” or “offer for sale.”  Analogy: consignment stores.

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