Contributory liability is important for brand owners to consider when seeking to enforce their trademarks online, especially when dealing with online marketplaces. The Ninth Circuit is the most recent circuit court to weigh in on the correct standard for evaluating such claims.

Y.Y.G.M. SA, d/b/a Brandy Melville makes and sells a variety of clothes and home goods under various registered and unregistered trademarks. Redbubble's online marketplace allows artists to upload their designs, have them printed on various products, and sell those products. On two separate occasions, Brandy Melville notified Redbubble that products on its website infringed Brandy Melville's marks, and both times, Redbubble removed them. A year later, Brandy Melville sued Redbubble under various trademark theories. In district court, Redbubble won summary judgment on all but Brandy Melville's contributory infringement and contributory counterfeiting claims. The jury found Redbubble liable for both contributory counterfeiting and contributory infringement.

After trial, the district court let the verdict stand for all claims, except for the contributory counterfeiting claim for one of Brandy Melville's asserted marks. According to the district court, Brandy Melville failed to show evidence that any Redbubble product bearing a spurious mark was similar to genuine Brandy Melville products. The district also denied Brandy Melville a permanent injunction, attorney fees, and prejudgment interest. Both parties appealed to the Ninth Circuit.

Contributory Liability

Under the Lanham Act, a party can be contributorily liable if it "continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement." A party meets the "knows or has reason to know" standard if it is willfully blind to infringement. Willful blindness, in turn, requires two elements: (1) a "subjective belie[f] that infringement was likely occurring"; and (2) "deliberate actions to avoid learning about the infringement." Redbubble argued that willful blindness requires knowledge of specific infringers or instances of infringement, while Brandy Melville argued that defendants have a duty to take reasonable corrective action upon gaining general awareness of infringement. The Ninth Circuit agreed with Redbubble.

In the copyright context, the Ninth Circuit noted that general knowledge is insufficient to find contributory infringement. And because "trademark infringement liability is more narrowly circumscribed than copyright infringement," the court reasoned, the trademark standard should be at least as demanding. With this ruling, the Ninth Circuit joins the Second, Fourth, and Tenth Circuits in holding that willful blindness requires specific knowledge of infringers or instances of infringement.

Once a marketplace knows about specific infringers or instances of infringement, the court continued, a defendant could shield itself from liability with "bona fide efforts to root out infringement," even if such efforts are not fully successful. But the Court cautioned that context matters. "[A] reasonable response for a flea market might not be reasonable for an online marketplace with millions of listings. . . . Removing infringing listings and taking appropriate action against repeat infringers in response to specific notices may well be sufficient to show that a large online marketplace was not willfully blind." The Ninth Circuit instructed the district court to reconsider Redbubble's contributory liability under this legal standard.

Contributory Counterfeiting

The Ninth Circuit also disagreed with the district court's ruling that a contributory trademark counterfeiting violation can only occur with similar products. Not only did the district court "gloss[] over" whether Brandy Melville's mark was so strong its mere presence causes confusion, it also failed to evaluate the evidence under the correct legal standard. "The question is not," the Ninth Circuit opined, "whether products are 'stitch-for-stitch' copies; it is whether, based on the record, confusion could have resulted because the products on Redbubble's website . . . are the kinds of trademarked goods Brandy Melville sells." The Ninth Circuit vacated the district court's ruling that the products on Redbubble's website bearing Brandy Melville's marks were not counterfeits and remanded for further proceedings consistent with the court's opinion.

Permanent Injunction

The Ninth Circuit then turned to the issue of a permanent injunction. The Lanham Act creates a "rebuttable presumption of irreparable harm" when a party seeks a permanent injunction. The district court found Brandy Melville's one-year pre-litigation delay rebutted this presumption and, without that presumption, Brandy Melville failed to establish irreparable harm. The Ninth Circuit observed, however, that delay is only one factor to consider in evaluating irreparable injury, and its significance depends on context. "For example, 'tardiness is not particularly probative in the context of ongoing, worsening injuries.'" The Ninth Circuit emphasized that the statutory presumption underscores the trademark holder's ability to control its trademark's use. Among other things, the district court failed to "explain how the one-year delay indicates that no future harms would result despite the jury's verdict in Brandy Melville's favor on its infringement claims and Brandy Melville's testimony about future harms arising from a loss of control." The Ninth Circuit thus vacated the permanent injunction denial and remanded for the district court to consider, among other things, "how the existence of future harm affects irreparable harm."

Prejudgment Interest

Finally, the Ninth Circuit analyzed the issue of prejudgment interest for statutory damages under § 1117(c). According to the Ninth Circuit, prejudgment interest serves to compensate the victim in full for the damages suffered from the infringement. Statutory damages, on the other hand, "may compensate the victim, penalize the wrongdoer, deter future wrongdoing, or serve all those purposes." Therefore, allowing prejudgment interest might inflate statutory damages to amounts disproportionate to the harm. Moreover, the inclusion of prejudgment interest in another damages section (Section 1117(b)) further suggests that Congress did not intend to include it in an award of statutory damages. The Ninth Circuit thus agreed with the district court that Brandy Melville was not entitled to prejudgment interest.

The case is Y.Y.G.M. SA v. Redbubble, Inc., No 21-56150, 21-56236 (9th Cir. July 24, 2023).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.