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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

Adobe Systems Inc. v. Canus Productions, Inc., et al

173 F.Supp.2d 1044, Civ. No. CV00-02963DDPAJWX (C.D.Cal., October 23, 2001)

Court denies plaintiff's motion for summary judgment, seeking to hold operator of computer fairs liable for copyright infringement as a result of the sale of allegedly infringing software by various unaffiliated vendors at fairs operated by defendants. The court held that issues of fact precluded it from determining that the fair operator was liable, on theories of vicarious and contributory infringement, for such sales. As to the former, the court held that issues of fact existed both as to whether the copyright infringement at issue provided a direct financial benefit to the fair operators, or whether the defendants had the requisite ability to control the vendor selling the allegedly infringing merchandise, both necessary to establish vicarious infringement. The court held that while defendants did not need to share in the proceeds of the goods in question to establish the requisite financial benefit, the sale of the infringing materials had to be the "draw" which attracted customers to defendants' shows, and hence produced revenue for defendants in terms of entrance and vendor fees. Issues of fact precluded the court from reaching a determination on this issue. Such issues also existed as to whether defendants had the ability to exercise the requisite control over the vendors, given, in part, the difficulty in determining whether the vendors in question had authority to sell the products in question. The court also held that issues of fact precluded it from holding defendants liable on a theory of contributory infringement, as the record did not permit the court to determine whether defendants had the requisite knowledge that infringing activities were being carried on at the fair. This determination was based, in part, on evidence that the amount of infringing goods sold at the fair was a relatively small percentage of the overall number of goods sold.

Plaintiff Adobe Systems Incorporated ("Adobe") is a software development and publishing company. Defendants are the operators of a number of computer fairs at which both computer hardware and software is offered for sale to the public by vendors not affiliated with the defendants. Defendants derive their revenue from these fairs predominantly from fees charged both to the public to entrance the fair, and to the vendors to display and sell their goods at the fair. The fees collected from the vendors are not dependent on the quantity of goods sold, or revenues achieved therefrom. Defendants reserve the right to eject from the premises any objectionable person or vendor. Defendants employ about 20 security personnel at their events. The majority operate at the perimeter of the fair, collecting the required entrance fees and monitoring fair entrance and exit. Two to five of the guards operate as undercover security agents at the fair, monitoring such issues as booth placement, vendor disputes and theft.

In April 1996, Adobe's counsel sent a letter to defendants describing allegedly activity taking place at defendants' shows and requesting that defendants insure that vendors selling infringing products be ejected from the shows. Plaintiff claimed that no action was taken in response to this notice. Thereafter, in 1999, plaintiff and the U.S. Marshall seized over one hundred units of unauthorized software from a computer fair operated by defendants. These items were being offered for sale by vendors unaffiliated with the defendants. The items seized included boxes containing genuine software manufactured by Adobe but with "Educational" or "Not for resale" stickers either removed or covered over by "Sale" or plain white stickers. Defendants claimed that such items represented a relatively minor portion of the goods offered for sale at the show. According to defendants, "less than two percent of the vendors selling less than one percent of the products for sale are involved in allegedly infringing activity." The parties disagreed as to whether such infringing activity was continuing at defendants' fairs, with defendants denying that such activity was continuing. According to the court, defendants' "position is summed up in a letter to Adobe's counsel "We are an event that sells exhibit space to reseller. We don't have a working knowledge of every piece of product that every vendor brings to the show to sell. But we do not condone illegal activity, and if a vendor is caught selling stolen, illegal, etc. merchandise, it will be prevented from exhibiting in the show."

Plaintiff moved for summary judgment, seeking to hold defendants liable for copyright infringement on theories of vicarious and contributory infringement. Finding issues of fact existed as to defendants' liability, the court denied plaintiff's motion.

The court held that to establish a claim for vicarious infringement, the plaintiff must establish (1) direct infringement of plaintiff's copyright; (2) that the copyright infringement provides a direct financial benefit to the defendant; and (3) the defendant has the right and ability to control the direct infringer.

The defendant can be held liable even though it does not directly participate in the profits reaped on the sale by third parties of infringing products. Said the court:

National contends that it has no direct financial interest in the infringing activities because it receives no percentage of any sales or any compensation based on vendor sales at the shows. Under Fonovisa, this argument is irrelevant. Commissions on individual vendor sales is not required to support a finding of vicarious liability: booth and admission fees may suffice.

However, where such direct financial interest was absent, the sale of counterfeit products must be the draw for customers to the venue operated by the defendants, which in turn produces a profit for the show operator via increased entrance and vendor fees. Said the court:

To satisfy the direct financial benefit prong of the vicarious copyright infringement test, Fonovisa holds that the sale of the counterfeit products must in fact be the "draw" for customers to the venue. Under Fonovisa, the plaintiff bears the burden of demonstrating … profits which flow directly from customers who want to buy the counterfeit recordings. The direct financial benefit must stem from the fact that substantial numbers of customers are drawn to a venue with the explicit purpose of purchasing counterfeit goods.

The court held that on the record before it, issues of fact precluded it from determining whether the sale of counterfeit goods was the "draw" which attracted the public to defendants' shows, and hence whether defendants had the requisite direct financial interest in the sales of those products by vendors to be held vicariously liable therefor. In reaching this conclusion, the court distinguished this case from Fonovisa v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996). There, the operator of a swap meet at which counterfeit music recordings were sold by unaffiliated vendors was held liable for copyright infringement on such sales on theories of vicarious and contributory infringement. As with the defendants here, the swap meet operator derived its profits not from a direct participation in the sales, but rather through admission and exhibition fees collected from the vendors and public, as well as concession stand and parking fees. However, in a prelitigation raid, over 38,000 counterfeit recordings were seized, leading the court to conclude that the lure of acquiring such counterfeit items was the draw which attracted the public to the swap meet, and which in turn produced the profit the operator received in admission and other fees. In the case at bar, however, the court, given the relative size of the items in question (approximately 100 pieces), could not determine if the availability of such counterfeit goods was the draw which brought the public to the shows.

The court also held that issues of fact precluded it from determining if defendants had the requisite degree of control over the vendors and their activities necessary to establish vicarious liability. Here, the court focused, in part, on the difficulty in determining if the vendors were permitted to sell the software in question, stating "there is a question of fact regarding the ability of National's security guards to recognize the alleged infringing product. There can be no practical ability to control the infringing behavior if National does not know what constitutes an unauthorized Adobe product." The court also pointed to the size of the shows, at which 350 to 450 vendors and an average of 15,000 visitors were present, and the relative size of defendants' security force, as raising further issues as to defendants' ability to exercise the required degree of control over the vendors in question.

The court also held that issues of fact precluded it from finding defendants responsible for the infringing sales by vendors at their fairs. "One who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a contributory infringer." The court held that an issue of fact precluded it from determining whether defendants "had sufficient knowledge of the infringing activity to justify the imposition of liability." The court reached this conclusion despite the fact that plaintiff had sent defendants a letter four years prior to the commencement of the instant lawsuit informing them of allegedly infringing activity occurring at meets at that time. In reaching this conclusion, the court again pointed to the relatively small number of infringing items seized compared with the overall sales occurring at the fairs.

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