Omega SA v. 375 Canal, LLC: A Landlord’s Liability for Tenant’s Counterfeit Practices
Trademark infringement arises when an individual uses another’s trademark in a manner that could cause confusion without their permission.[1] An individual can also be held secondarily liable for trademark infringement under contributory trademark infringement, which occurs when the individual enables or assists the infringement without actively participating in the infringing activity.[2] A recent Second Circuit decision has confirmed that a landlord can be held liable for contributory trademark infringement for a tenant’s counterfeiting practices if they know of the counterfeit activities or had reason to know and took no action to stop the counterfeit goods from being sold.[3] The Plaintiff in the case was Omega SA, a watch company, and the Defendant was 375 Canal, the property owner of the premises where counterfeit goods were being sold.[4]
Prior to Omega’s lawsuit, 375 Canal had a history of trademark violations.[5] In December 2010, an individual was arrested for selling counterfeit Omega watches within 375 Canal Street.[6] In September 2011, counsel for Swatch SA, owner of Omega, sent a letter to one of Canal’s owners, Albert Laboz, warning him of being contributorily and vicariously liable for the actions of his tenants.[7] Canal’s counsel responded stating that the arrested tenant had been a subletter and was removed from the premises.[8] Almost two years after the initial arrest, an Omega private investigator visited the premises and purchased a counterfeit Omega Seamaster watch, which lead to the lawsuit.[9]
In September 2012, Omega sued Canal alleging contributory trademark infringement because Canal continued to lease space at 375 Canal Street despite knowledge that vendors were selling counterfeit Omega products, however no specific vendor was identified.[10] Omega presented evidence at trial that the prior infringing tenant may not have been ejected from the premises when originally stated, and that Canal took no action between 2010 and 2012 to prevent counterfeiting.[11] Following the trial, the jury found that Canal contributorily and willingly infringed four of Omega’s trademarks on the 2012 counterfeit watch.[12] The jury awarded $275,000 in statutory damages for each of the four fringed marks, totaling $1.1 million.[13] Canal filed an appeal on April 11, 2019.[14] Following the filing, the district court amended the final judgment to include a permanent injunction prohibiting 375 Canal and all persons participating or working on the premise from infringing, assisting infringement, and taking any action with Omega’s marks inside and outside of 375 Canal Street.[15]
On appeal in the Second Circuit, Canal argued that the district court erred by not instructing the jury that Omega needed to prove that Canal continued to lease space to a specific, identified vendor that it knew or should have known was selling counterfeit Omega products.[16] The court rejected this argument based on prior precedent to the contrary.[17] In Tiffany (NJ) Inc. v. eBay Inc., the Second Circuit established that actual knowledge of a specific infringer is not required in every case brought before the court.[18] Rather, contributory trademark infringement can be found as long as there is “willful blindness.”[19] The Tiffany test for determining “willful blindness” finds contributory liability where a defendant is made aware of an infringement on its premises but ignores the fact.[20] However, there is no inherent duty to look for infringement activities.[21]
Below, the district court instructed the jury that liability existed if “Canal either knew or had reason to know that a tenant, subtenant or other occupant of its premises was selling, offering for sale, or distributing products bearing counterfeits of Omega’s trademarks.”[22] The court further explained that “reason to know” included the concept of “willful blindness[,]”[23] meaning that Canal failed to investigate or looked the other way to avoid seeing counterfeit activity when Canal or its agents had reason to suspect counterfeit goods were being sold.[24]
The Second Circuit rejected Canal’s challenges to the contributory liability jury instructions.[25] The court reasoned that Omega introduced evidence at trial which could lead a jury to find that Canal had a history of turning a blind eye toward counterfeiting on the premises and that Canal failed to take sufficient steps to root out the infringement it knew or should have known was occurring, including insufficient actions after the arrest of a tenant for counterfeiting in 2010.[26] Therefore, the Second Circuit confirmed the jury’s finding of contributory trademark infringement liability and affirmed the “willful blindness” test to be used in future cases.
Tips for Landlords
While Omega was a Second Circuit case- which covers New York, Connecticut and Vermont in its jurisdiction- other circuits have adopted similar holdings.[27] Landlords should be aware if the state they are doing business follows the “willful blindness” test. In the event that a landlord does live in a “willful blindness” state, they cannot turn a blind eye to illegal counterfeiting their tenants may be participating in. By being proactive and shutting down counterfeit activity, when possible, they may be able to avoid future liability. When a landlord has any suspicion of infringing activities on their premises, they need to take sufficient actions to root out the problem and stop the activity. A landlord can try to curb counterfeiting activities by posting anti-counterfeit signs, conducting surprise walkthroughs of the premises or inspecting the property for places where counterfeit goods may be hidden.[28]
Footnotes
