February 2010 Issue

Civil Cases

Nomination di Antonio e Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd.,
2009 WL 4857605 (S.D.N.Y. Dec. 14, 2009)

ABSTRACT
Plaintiffs sued two groups of defendants: a group of direct-infringer defendants who allegedly manufactured and distributed counterfeit products packaged with plaintiffs’ trademark, and a second group of defendants that licensed their intellectual property to the direct infringers, who in turn depicted that intellectual property on the allegedly infringing goods.  Plaintiffs alleged that they had notified the licensor-defendants of the infringement.  The licensor-defendants moved to dismiss the infringement claims, arguing that plaintiffs had failed to state a claim for contributory infringement.  The court found that because the licensor-defendants provided the direct infringers with an ancillary service or benefit that was alleged to have increased the desirability of the underlying product, rather than the allegedly infringing product itself, the relevant inquiry was whether the licensor-defendants had directly controlled or monitored the direct infringers’ activity.  The court granted the motion to dismiss, holding that plaintiffs had not pled sufficient facts to support their conclusory allegations of direct control and monitoring.  The court also granted the motion to dismiss on the alternative ground that the plaintiffs had not adequately pled that the licensor-defendants had knowledge of the direct infringers’ activity, which is an essential element for a contributory infringement claim under Supreme Court precedent.

CASE SUMMARY

FACTS
Plaintiff Nomination di Antonio e Paolo Gensini S.N.C. (“Nomination”) is an Italian partnership that manufactures “composable” jewelry, that is, bracelets, necklaces, and earrings comprising individual links of stainless steel or gold.  Each link can be filled and replaced, one by one, with a different decorative design or with semiprecious stones.  Nomination’s complaint alleged that H.E.R. Accessories, Ltd. (“H.E.R.”) and five other defendants directly infringed Nomination’s trademark by manufacturing and distributing counterfeit links packaged with Nomination’s NOMINATION trademark (collectively, the “Supplier Defendants”).

Nomination’s complaint also named fifteen additional entertainment and media companies as defendants for contributing to the Supplier Defendants’ infringement.  Specifically, these “Licensor Defendants” were alleged to have licensed their own intellectual-property rights to famous characters (e.g., SpongeBob Square Pants, Betty Boop, Popeye, and Super Mario Brothers) to the Supplier Defendants.  The Supplier Defendants then manufactured the allegedly counterfeit links depicting these characters and distributed them in packaging that used the NOMINATION mark.

In 2005, Nomination notified many, but not all, of the Licensor Defendants that H.E.R. was using their respective intellectual property to infringe upon the NOMINATION trademark, and requested that each Licensor Defendant “cooperate with Nomination’s investigation into such infringing activity.”  The Licensor Defendants allegedly ignored this request.

Nomination sued all defendants for trademark infringement, unfair competition, and related claims.  The Licensor Defendants moved to dismiss all of Nomination’s claims pursuant to Rule 12(b)(6) for failure to state a claim.

ANALYSIS
After Nomination conceded that its claims against the Licensor Defendants were for contributory infringement only and not direct infringement, the Licensor Defendants contended that Nomination failed to state a claim for contributory infringement because (1) as a matter of law, the Licensor Defendants’ conduct was not actionable as contributory infringement under the standard established by the Supreme Court in Inwood Laboratories., Inc. v. Ives Laboratories., Inc., 456 U.S. 844 (1982); and (2) irrespective of the scope of Inwood, the complaint did not allege sufficient facts to satisfy the element of knowledge.

In Inwood, the alleged contributory infringers were generic drug manufacturers who supplied drugs to pharmacists who then directly infringed on the plaintiff’s mark by relabeling the generics as brand-name drugs.  Inwood held that  “a manufacturer or distributor [who] intentionally induces another to infringe a trademark, or . . . continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement . . . is contributorially responsible for any harm done as a result of the deceit.”  Nomination based its claims on the second prong: that the Licensor Defendants continued to supply their own intellectual property to the Supplier Defendants despite their knowledge that the Supplier Defendants were infringing on Nomination’s mark.

The decision noted that courts have struggled to determine how the Supreme Court’s test in Inwood applies to defendants who do not provide the “product” itself to the direct infringer, but rather merely provide some service or other assistance.

The court looked to the Ninth Circuit’s opinion in Lockheed Martin Corp. v. Network Solutions, Inc.,
194 F.3d 980, 984 (9th Cir. 1999), which held that “when measuring and weighing a fact pattern in the contributory infringement context without the convenient ‘product’ mold dealt with in Inwood Lab., we consider the extent of control exercised by the defendant over the third party’s means of infringement [and thus the direct] control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark.”  The Lockheed Martin test had previously been endorsed by the Southern District of
New York in Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d  463, 505 (S.D.N.Y. 2008), which considered contributory infringement in the context of a defendant that provided an online platform through which sales of counterfeit goods were made by direct infringers, and found that the relevant inquiry is “the extent of control exercised by the defendant over the third party’s means of infringement.”

Here, the counterfeit links, which were the “product” that was ultimately palmed off, were neither manufactured nor distributed by the Licensor Defendants.  Rather, the Licensor Defendants supplied an ancillary service or benefit that is alleged to have increased the desirability of the underlying product.  Thus, the court examined Nomination’s allegations in light of the Lockheed Martin test.  Nomination alleged that “the Licensor Defendants are sophisticated companies that regularly engage in and carefully control and monitor the licensing of their respective intellectual property.”  The court found, however, that the fact that the Licensor Defendants monitored and controlled the licensing of their own marks did not mean that they also monitored and controlled the manufacture and distribution of the counterfeit bracelets produced by the Supplier Defendants.  Nomination also alleged that the “Licensor Defendants have contributed to such infringement by their knowing participation in the development, promotion and sale of the Counterfeit Bracelets,” but the court found this allegation to be the type of conclusory allegation that the Supreme Court was concerned with in Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) (holding that “[w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations”).  The court found that although participation in the development, promotion, and sale of the counterfeit bracelets would, if true, likely equate to direct control and monitoring, Nomination had not stated any factual allegations as to how the Licensor Defendants had done so.

The court concluded that because Nomination had not sufficiently alleged that the Licensor Defendants exercised the necessary “direct control and monitoring” of the Supplier Defendants’ activity, the claim for contributory infringement against the Licensor Defendants was deficient.

The Licensor Defendants also contended that Nomination had not adequately pled that they had knowledge of the direct infringement by the Supplier Defendants, which is a necessary element under the Inwood test.  The court agreed that the complaint’s allegation that the Licensor Defendants knowingly participated in the development, promotion, and sale of the counterfeit links was, again, conclusory under Iqbal.  The complaint did specifically allege that in 2005 Nomination notified many of the Licensor Defendants of the Supplier Defendants’ allegedly infringing activity.  But the complaint failed to specify which Licensor Defendants were allegedly notified, and it did not allege that these Licensor Defendants continued to provide their own marks to the Supplier Defendants after that notification—the complaint said only that the “Licensor Defendants have ignored th[e] request” to “cooperate with Nomination’s investigation into such infringing activity.”  Accordingly, the court also dismissed Nomination’s claims against the Licensor Defendants for failure to adequately plead the necessary element of knowledge.

Finally, the court granted Nomination leave to replead with nonconclusory facts regarding control and knowledge, except that Nomination was denied leave to replead as to any Licensor Defendants who did not receive the December 2005 notice, unless Nomination could allege that these defendants had knowledge on some other basis.

CONCLUSION
This decision demonstrates that some claims for contributory trademark infringement that do not fall within the traditional model—a contributory infringer providing a product to the direct infringer—are subject to a variation of the Inwood test that looks to whether the contributory infringer directly controlled or monitored the direct infringer’s activities.  It also provides insight into the application of the stricter pleading standard established by the Supreme Court in Iqbal in a contributory-infringement context, and shows that allegations regarding the control and knowledge of the contributory infringer must have facts supporting them to survive a motion to dismiss.