Naming Your Sales Division “Replica Products” Is Never A Good Idea or How Not To Facilitate Counterfeiters

Trade-Key1

Here’s some advice for online marketplaces giving sellers a platform to hawk their wares:

  • Do not name any of your sales divisions “Replica Products” or “Replica Retention.”
  • Do not let your employees tell sellers that marketing counterfeit luxury goods will not be a problem.  (It will be.)
  • Do not let your employees tout replica sales as “one of the businesses that we rely on to get us a whole lot of revenue.”
  • Do not enlist your employees to develop keywords to drive potential buyers to sellers of counterfeit products.
  • Do not permit your employees to revise sellers’ listings to conceal the counterfeit nature of the sellers’ products.

Unfortunately, TradeKey (PVT) Ltd. (“TradeKey”), an online business to business marketplace, failed to heed this advice, and accordingly suffered an adverse summary judgment in a lawsuit accusing it of contributory counterfeiting, contributory trademark infringement and unfair competition, among other things.

The lawsuit arose out a private investigation commissioned by the plaintiffs, a group of luxury brand manufacturers including Chloé, Montblanc, and Cartier.  The investigator discovered thousands of unauthorized sellers hawking apparent counterfeit replicas of the plaintiffs’ branded products on TradeKey or affiliated websites.  Posing as a seller of counterfeit goods, the investigator purchased a premium membership, which entitled him to special TradeKey assistance, including the development of keywords.  Flouting the advice listed above, TradeKey all but blessed the investigator’s desire to traffic in counterfeit goods.  TradeKey also exercised unusual control over members’ listings by preventing them from making any changes to their content.

In its opposition to summary judgment, TradeKey disputed, among other things, the existence of any “Replica Products” and “Replica Retention” sales divisions, and the credibility of the private investigator.  TradeKey also emphasized its policy prohibiting members from infringing the intellectual property rights of others, and its “notice and takedown” system for investigating complaints about counterfeit goods. However, the investigator’s experience, together with TradeKey’s tight control over the content of members’ listings and its keyword development program, readily persuaded the court that TradeKey knew or had reason to know that it provided a virtual marketplace for counterfeiters.

This case stands on a different footing from Tiffany (NJ) Inc. v. eBay, Inc., where the Second Circuit held that eBay’s substantial anti-counterfeiting measures and its responsiveness to specific complaints about counterfeit goods absolved it from contributory infringement liability.  In contrast, TradeKey had actively facilitated the sale of counterfeit goods despite its intellectual rights policy and its “notice and takedown” procedure.  Moreover, while e-Bay facilitates the resale of at least some genuine branded products, TradeKey does not appear to have much, if any, resale business.

In short, it is not enough to have a written policy prohibiting the sale of counterfeit goods or a process to take down associated listings.  Online marketplaces must ensure that employees know, understand and implement the business’ policy on a day-to-day basis, and proactively monitor listings for infringing products.  And, of course, online marketplaces shouldn’t name any of its sales divisions “ReplicaProducts” or “Replica Retention.”

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