Sellify Inc. v. Amazon.com Inc.

Sellify, Inc. v. Amazon.com, Inc. 2010 WL 4455830 (S.D.N.Y. 2010)

FACTS: Through its Associates Program, Amazon allows more than 3 million individuals and business to link to Amazon's website. If an Amazon customer made his or her way to the Amazon website by clicking on the link of an Associate, that Associate earns a small percentage of the items placed in the customer's Amazon cart within 24 hours. As part of the Associate Program, Amazon trains its Associates on the design of ads, and allows the Associates to use the Amazon logo in the ads. Amazon, however, does not monitor the ads, nor does it authorize Associates to act as its agents. In fact, the Associates Program Operating Agreement provides that Associates are responsible for the content of their own ads and bars Associates from disparaging or infringing the intellectual property of third parties. If Amazon learns that an Associate is violating the Operating Agreement, its usual practice is to issue a warning to the Associate that threatens to terminate the account and withhold advertising fees if the Associate continues to violate the Operating Agreement. If the Associate does, indeed, continue to violate the Operating Agreement, that Associate's account will be terminated.

Two Associates that are at issue in this case are OneQuality, LLC, which is owned and operated by Sellify, and Cutting Edge Designs. In March, 2009, Cutting Edge purchased the keyword "onequality.com" from Google, Inc. As a result, whenever a Google user searched the word "onequality.com," the search results would display an ad stating "Don't Buy from Scammers" and "Beware the SCAM Artists," and linked to the Amazon website. When Christopher Maki, the owner of Sellify and OneQuality, saw the ads in March, 2009, he contacted Amazon, which initially told him that there was nothing it could do about the ads. On May 8, Sellify's counsel sent a letter to Amazon accusing Amazon of placing the ads, and threatening Amazon with a lawsuit if a settlement was not reached. Amazon then wrote to Cutting Edge threatening to shut down Cutting Edge's Associates account if it did not cease running the ads. After Sellify received no response from its threatening letter, it sent another letter to Amazon on July 13, after which Amazon terminated Cutting Edge's account and withheld all unpaid advertising fees. The ads finally ceased to run in August, 2009.

PROCEDURE: Sellify filed suit, alleging violations of the Lanham Act and for false advertising, unfair competition, and unfair trade practices in violation of Connecticut Law. Amazon moved for summary judgment.

ISSUE: Whether an internet service provider that contracts with third party advertisers to link to the ISPs website can be held liable directly and vicariously under the Lanham Act and Connecticut Law for the third party's trademark infringement.

HELD: No, an ISP cannot be held subject to direct liability under the Lanham Act for the acts of a third party, nor can it be held vicariously liable if the third party was not acting under the actual or apparent authority of the ISP. In addition, an ISP cannot be held liable for contributory trademark infringement because the ISP did not have sufficient knowledge of the infringement, nor did it continue to supply it services after it obtained knowledge of the third party’s trademark infringement.

ANALYSIS: The court first addressed the issue of direct liability under the Lanham Act. The court held that, because the evidence shows that Cutting Edge, and not Amazon, designed and purchased the infringing ads, Amazon could not be held directly liable under the Lanham Act.

The court next addressed the issue of vicarious liability under the Lanham Act. It noted that courts in other circuits recognize vicarious liability under the Lanham Act under theories of both actual and apparent authority. An agent acts with actual authority when a principal, here Amazon, has manifested its intent for the agent, here Cutting Edge, to act on the principal’s behalf, the agent has the authority to legally bind the principal, and the agent is subject to the principal’s actual control. The evidence here shows that Cutting Edge was not acting under the actual authority of Amazon. Indeed, the Operating Agreement between Cutting Edge and Amazon specifically disclaimed any agency relationship, and further provided that Associates did not have the power to contractually bind Amazon. Finally, Amazon had no control over the form or substance of the ad, and had no ability to remove the ad itself.

An agent acts with apparent authority when the principal, either intentionally or by lack of ordinary care, induces a third party to believe that an individual has been authorized to act on its behalf. The court found that allowing a third party to link to an ISP’s own website cannot support a finding of apparent authority, and that a reasonable user of the internet would not interpret the ad as indicative of an agency relationship between Cutting Edge and Amazon.

The court next addresses the issue of contributory infringement as discussed in Inwood Laboratories v. Ives Laboratories. Inwood held that in order to prove contributory infringement, the plaintiff must prove the “manufacturer or distributor intentionally induced another to infringe a trademark,” or that it “continue to supply its product to one whom it knew or had reason to know was engaging in trademark infringement.” Not only is there no evidence that Amazon “intentionally induced” Cutting Edge to infringe the trademark of OneQuality, but Amazon did not “continue to supply” its services to Cutting Edge after Amazon knew of Cutting Edge’s infringing behavior.

As for the Connecticut claims, given the court’s findings that Amazon did not directly infringe OneQuality’s trademark and no agency relationship existed between Cutting Edge and Amazon, Sellify’s Connecticut state law claims necessarily fail as a matter of law.

The court also touched on the fact that, even if Amazon were to be found liable for any of the claims, Sellify’s asserted damages are too speculative to survive a motion for summary judgment.

The court grants Amazon’s motion for summary judgment.

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