Hard Rock Cafe Licensing Corp. v. Concession Services, Inc.
955 F.2d 1143 (7th Cir.)
FACTS: Hard Rock Cafe Licensing Corp. owns trademarks on clothing items such as T-shirts and grants the use of trademarks to the operators of the Hard Rock Café restaurants. Only these restaurants are authorized to sell Hard Rock merchandise. Hard Rock conducted an investigation to find counterfeit items and found them sold at stands at flea markets operated by Concession Services Inc. (CSI), the Tri-State Swap-O-Rama and the Melrose Park Swap-O-Rama. CSI’s operation consists of renting space at flea markets to vendors. Iqbal Parvez was the vendor selling counterfeit Hard Rock items at CSI’s flea markets. Counterfeit items were also discovered at Harry’s Sweat Shop (Harry’s).
PROCEDURAL POSTURE: Hard Rock sued among other defendants, CSI, Harry’s, and Iqbal Parvez for violations of sections 32 and 43 of the Lanham Trademark Act. Only CSI and Harry’s went to trial after the other defendants settled. The district court found that CSI and Harry’s violated the Lanham Act and entered permanent injunctions against CSI and Harry’s, forbidding the sale of products with the Hard Rock trademarks and for allowing the sale of such merchandise at its flea market, respectively. Hard Rock appealed and sought attoney’s fees from both defendants. All the three parties appealed, but Harry’s appeal was dismissed because it was filed one day too late.
ISSUE: Whether the operator of flea markets that leases space to vendors can be contributorily liable for counterfeit items sold by the vendors.
HOLDING: Operator of flea markets that leases space to vendor who sells items with infringing trademark may be held contributorily liable if the operator knew or had reason to know the vendor was selling products that infringed another’s trademarks. Case is remanded to lower court to determine contributory liability under the correct reasonableness standard.
ANALYSIS:
It is established that manufacturers or distributors are contributory liable when they intentionally induce another to infringe a trademark, or to continue to supply its product to parties it knows or has reason to know are infringing a trademark. It was unclear how this doctrine of contributory liability applied to operators of flea markets who were non-manufacturers and non-distributors and the court turned to tort law for guidance. CSI argued it was not liable because it merely was Parvez’s landlord, whole Hard Rock argued CSI was liable because it was a licesor. Regardless of how CSI and PArvez’s relationship was characterized, the Restatement if Torts imposed the same responsibility of knowing or having reason to know that the other was acting to or would act tortuously. Treating trademark violation as a common law tort, the court held the Inwood Laboratories test applied in determining whether there was contributory liability.
The district court applied willful blindness as a sufficient basis for finding violations of the Lanham Act. However, its focus on CSI’s failure to take reasonable precautions against counterfeiting suggests the court incorrectly applied a negligence standard in finding CSI contributorily liable. The proper reasonableness standard in finding contributory liability does not impose a duty to seek out and prevent violations.
Furthermore, the court found CSI was not vicariously liable when it did not fall into the category of joint tortfeasor. CSI did not have the resquite actual or apparent partnership with Parvez, the authority to bind another in a transaction with third parties, or exercise joint ownership or control over infringing products.
Under § 35(a) of the Lanham Act, attorney’s fees may be awarded to prevailing plaintiffs under “exceptional circumstances†if a defendant mistakenly or negligently sold counterfeit goods. Alternatively, under § 35(b), the defendant must pay attorney’s fees to the plaintiff if the defendant intentionally used a mark, knowing it was counterfeit. This knowledge requirement can be shown through willful blindness. If CSI can be liable for contributory infringement, CSI likewise satisfies the provisions of §35(b). However, if CSI merely had reason to know of the counterfeits, § 35(a) controls and an award of attorney’s fees was warranted only under exceptional circumstances.
955 F.2d 1143 (7th Cir.)
FACTS: Hard Rock Cafe Licensing Corp. owns trademarks on clothing items such as T-shirts and grants the use of trademarks to the operators of the Hard Rock Café restaurants. Only these restaurants are authorized to sell Hard Rock merchandise. Hard Rock conducted an investigation to find counterfeit items and found them sold at stands at flea markets operated by Concession Services Inc. (CSI), the Tri-State Swap-O-Rama and the Melrose Park Swap-O-Rama. CSI’s operation consists of renting space at flea markets to vendors. Iqbal Parvez was the vendor selling counterfeit Hard Rock items at CSI’s flea markets. Counterfeit items were also discovered at Harry’s Sweat Shop (Harry’s).
PROCEDURAL POSTURE: Hard Rock sued among other defendants, CSI, Harry’s, and Iqbal Parvez for violations of sections 32 and 43 of the Lanham Trademark Act. Only CSI and Harry’s went to trial after the other defendants settled. The district court found that CSI and Harry’s violated the Lanham Act and entered permanent injunctions against CSI and Harry’s, forbidding the sale of products with the Hard Rock trademarks and for allowing the sale of such merchandise at its flea market, respectively. Hard Rock appealed and sought attoney’s fees from both defendants. All the three parties appealed, but Harry’s appeal was dismissed because it was filed one day too late.
ISSUE: Whether the operator of flea markets that leases space to vendors can be contributorily liable for counterfeit items sold by the vendors.
HOLDING: Operator of flea markets that leases space to vendor who sells items with infringing trademark may be held contributorily liable if the operator knew or had reason to know the vendor was selling products that infringed another’s trademarks. Case is remanded to lower court to determine contributory liability under the correct reasonableness standard.
ANALYSIS:
It is established that manufacturers or distributors are contributory liable when they intentionally induce another to infringe a trademark, or to continue to supply its product to parties it knows or has reason to know are infringing a trademark. It was unclear how this doctrine of contributory liability applied to operators of flea markets who were non-manufacturers and non-distributors and the court turned to tort law for guidance. CSI argued it was not liable because it merely was Parvez’s landlord, whole Hard Rock argued CSI was liable because it was a licesor. Regardless of how CSI and PArvez’s relationship was characterized, the Restatement if Torts imposed the same responsibility of knowing or having reason to know that the other was acting to or would act tortuously. Treating trademark violation as a common law tort, the court held the Inwood Laboratories test applied in determining whether there was contributory liability.
The district court applied willful blindness as a sufficient basis for finding violations of the Lanham Act. However, its focus on CSI’s failure to take reasonable precautions against counterfeiting suggests the court incorrectly applied a negligence standard in finding CSI contributorily liable. The proper reasonableness standard in finding contributory liability does not impose a duty to seek out and prevent violations.
Furthermore, the court found CSI was not vicariously liable when it did not fall into the category of joint tortfeasor. CSI did not have the resquite actual or apparent partnership with Parvez, the authority to bind another in a transaction with third parties, or exercise joint ownership or control over infringing products.
Under § 35(a) of the Lanham Act, attorney’s fees may be awarded to prevailing plaintiffs under “exceptional circumstances†if a defendant mistakenly or negligently sold counterfeit goods. Alternatively, under § 35(b), the defendant must pay attorney’s fees to the plaintiff if the defendant intentionally used a mark, knowing it was counterfeit. This knowledge requirement can be shown through willful blindness. If CSI can be liable for contributory infringement, CSI likewise satisfies the provisions of §35(b). However, if CSI merely had reason to know of the counterfeits, § 35(a) controls and an award of attorney’s fees was warranted only under exceptional circumstances.