Web hosting firms fined $32 million for supporting copyright violation

In what’s being called a landmark decision, a federal jury in California has found two Web hosting companies and their owner liable for contributing to trademark and copyright infringement for hosting sites selling counterfeit Louis Vuitton goods.

In a verdict handed down last week, the jury assessed damages totaling more than $32 million against hosting companies Akanoc Solutions Inc., Managed Solutions Group Inc., both in Fremont, Calif., and Steven Chen, the owner of the two companies. In awarding the damages, the jury agreed with Paris-based Louis Vuitton Malletier S.A.’s claims that the defendants knowingly allowed several Web sites they hosted to sell products that infringed Louis Vuitton’s copyrights and trademarks.

The U.S. District Court for the Northern District of California is expected to issue a permanent injunction banning the Internet service providers from hosting Web sites that selling fake Louis Vuitton goods in the future, the company said.

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Attorneys for the luxury goods maker said in a statement that the case is the first successful application on the Internet of the theory of contributory liability for trademark infringement.

Under this theory, companies that know, or should know, that they are enabling illegal activities have an obligation to remedy the situation. Entities that fail to do so, as Louis Vuitton alleged in this case, can be held legally responsible for contributing to the illegal activities.

Lawyers for Chen had argued that Akanoc and Managed Solutions were protected under the Digital Millennium Copyright Act’s (DMCA), which limits the liability of ISPs for activities by its customers that might constitute copyright infringements. The defense lawyers said Chen and his companies could not be held liable for the actions of Web sites they might have hosted but did not directly own or operate.

Louis Vuitton claimed that Chen and his hosting companies were contributing to the illegal activities by providing the infrastructure that enabled the sale of counterfeit goods. They further said that Chen and his companies had been informed of the activity by Louis Vuitton but still refused to implement a policy for removing the offending sites, which was their responsibility.

The verdict “establishes a standard” for trademark infringement complaints on the Internet, said Andy Coombs, Louis Vuitton’s counsel, in a statement. “It represents a positive contribution to existing case law and marks the first time statutory damages have been awarded against those found contributorily liable for trademark infringement,” Coombs said.

In an interview with Computerworld today, Coombs said the verdict shows why it’s important for ISPs to enforce acceptable use policies. “It’s one thing to have these policies, but you’ve got to implement them when given notice of abuse,” he said.

It’s equally important to ensure that the infringing activity doesn’t happen again, Coombs said. In this case, Louis Vuitton was able to show that it had sent numerous notices to the ISPs, which were ignored or not acted upon expeditiously Coombs said.

Lawyers for Chen could not be reached for comment.

The verdict drew mixed reactions. One poster with the name Bret Clark, in a discussion thread among network engineers on the North American Network Operators Group”s (NANOG) Web site, questioned why an ISP was being held responsible for “policing its customers. I’m constantly getting called up from scammers trying to [offer] me bogus warranty insurance for cars I don’t own. Does that mean I can sue Verizon because they are letting scammers use their network?” the poster asked.

But another commenter, identified as Jamie, noted that an ISP cannot ignore notification about one of its customers indulging in possibly illegal activities. “ISPs don’t really enjoy the same rights as “public carriers” [such as] telcos,” the poster said.

This is not the first time Louis Vuitton has approached the courts to help defend its copyright and trademarks against counterfeiters. In July 2007, a French court fined eBay Inc. the equivalent of $61 million for allowing the sale of fake Louis Vuitton goods and Christian Dior Couture on its Web site. While Louis Vuitton hailed that decision as a victory against online counterfeiting, eBay claimed that the lawsuit was more about Louis Vuitton protecting uncompetitive commercial practices at the expense of consumer choice and the livelihood of law-abiding sellers.

David Johnson, a lawyer specializing in digital media law with Jeffer, Mangels, Butler and Marmaro LLP in Los Angeles, called the verdict precedent setting.

“It’s the first one in an Internet case where an ISP has been found liable for trademark infringement for failing to shut down a Web site after being given notice” of trademark infringing activities, Johnson said.

Under existing precedent (outside of the Internet realm) a plaintiff seeking to prove contributory trademark infringement needs to prove that a defendant intentionally and knowingly enabled another to infringe a trademark, Johnson said. In this case, the jury appears to have been convinced by the evidence presented by Louis Vuitton that the Web hosting companies had clear knowledge of the infringing activity, he said.

The issues raised are similar to those raised in an infringement case brought against eBay by Tiffany & Co. In that case, however, eBay was able to prevail because it was able to convince the court that while it had “generalized knowledge” of infringing activity on its site, it had no “particularized knowledge” of the same, Johnson said. As a result, the company was able to convince the court that it could not be held responsible for any trademark infringing activities that may have been going on its site, he said.

Source: Computerworld

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