Landlords – Watch out for Trademark-Infringing Tenants!
September 12 2019
Landlords whose tenants sell counterfeit goods can be liable for trademark infringement if they have knowledge of the infringing acts or are willfully blind to the infringement.
In Luxottica Group v. Airport Mini Mall, LLC, 932 F.3d 1303 (11th Cir. August 2019), Oakley, Inc. and its parent Luxottica sued the owners of a shopping mall in Georgia for contributory trademark infringement under the Lanham Act (15 U.S.C. §1114). Luxottica and Oakley make and sell high-end sunglasses under the Ray-Ban and Oakley trademarks. The defendants owned and managed an indoor mall, and subleased space in several hundred booths in the mall to vendors of various products. The defendants were aware of three raids by law enforcement of certain booths that sold counterfeit sunglasses; in which thousands of items bearing Luxottica’s trademarks were seized. The vendors were selling the infringing eyewear for $15 to $20, while Luxottica’s eyewear sold for $140 to $220.
The defendants received copies of the search warrants and knew which booths had been raided. Luxottica sent two letters to the defendants, informing them that certain of their subtenants were selling counterfeit sunglasses. After the lawsuit was filed, the defendants met with law enforcement and discussed the subtenants’ sales of counterfeit Oakley products.
At no time, however, did the defendants take any action to stop the subtenants’ sales of the counterfeit products. The defendants did not evict the subtenants or terminate their leases.
At trial, a jury found the defendants liable to Luxottica for contributory trademark infringement, and awarded $1.9 million in damages to Luxottica.
The defendants appealed. The Eleventh Circuit Court of Appeals affirmed the jury’s verdict, finding sufficient evidence to support the verdict.
The Lanham Act provides that a defendant is liable for contributory infringement if the defendant induces or knowingly facilitates the trademark infringement. In order to establish contributory trademark infringement, the plaintiff must show: (1) that there was direct trademark infringement by someone; and (2) that the defendant intentionally induced the direct infringer or supplied a product to the direct infringer, with either actual knowledge or constructive knowledge of the infringing acts. Willful blindness, which occurs when a defendant suspects a wrongful act but deliberately fails to investigate the act, is one type of constructive knowledge.
The court noted that whether contributory trademark infringement applies in a landlord-tenant situation was a question of first impression, but that it did not decide the issue because the defendants did not contest the issue. However, the court said that the application of contributory infringement in the landlord-tenant context was consistent with tort liability in general.
The court held that the plaintiffs had provided sufficient evidence that the defendants had constructive knowledge of, or were willfully blind to, the subtenants’ acts of direct infringement. The defendants supplied a service to the subtenants (the leased space, utilities, maintenance, and parking). The plaintiffs relied on substantial evidence, including the defendants’ knowledge of the three law enforcement raids and seizures of large volumes of counterfeit goods, the defendants’ meeting with law enforcement, and the defendants’ ability to inspect the products the subtenants sold.
The court also affirmed the verdict against several of the individual defendant owners and managers of the shopping mall.