Retailers shift their ad spending from TV, radio and print ads to digital ads.
A service provider is held liable without being notified goods were phony, lawyers say.
A federal court has ruled that a firm that provided marketing and web hosting services was financially responsible for the sale of counterfeit golf clubs by a client e-retailer.
A federal judge in South Carolina entered a judgment against Bright Builders Inc. on counts of contributory trademark infringement and unfair trade practices for allegedly assisting in the construction and hosting of the e-commerce site CopyCatClubs.com. Judge Margaret B. Seymour of the U.S. District Court for South Carolina ordered Bright Builders to pay $770,750 in statutory damages and Christopher Prince, owner of the web site, $28,250, according to lawyers for the plaintiff, Cleveland Golf Company Inc.
Bright Builders and Prince did not immediately respond to requests for comment.
Cleveland Golf, which manufactures golf clubs and is part of Srixon, a subsidiary of Japan’s Sumitomo Rubber Industries, filed suit in 2009, initially against the retailer, claiming infringement of 11 trademarks. The manufacturer amended the complaint to include Bright Builders after learning of its role in creating the e-commerce site. Cleveland Golf argued that Bright Builders should have known that Prince’s e-commerce site was illegally selling counterfeits of trademarked goods.
“For Internet Intermediaries like SEOs and web hosts, this should be a cautionary warning," says Christopher Finnerty, one of the lawyers for Cleveland Golf. “The jury found that web hosts and SEO's cannot rely solely on third parties to police their web sites and provide actual notice of counterfeit sales from the brand owners. Even prior to notification from a third party, Internet intermediaries must be proactive to stop infringing sales when they knew or should have known that these illegal sales were occurring through one of the web sites they host."
Finnerty says it’s the first time an Internet service provider had been found liable for contributory infringement without prior notification of counterfeit sales by a client retailer. Finnerty is a partner in the Boston law firm of Nelson Mullins Riley & Scarborough LLP.
CopyCatClubs.com no longer seems to be operational. But in 2009 the site’s home page stated that it offered “the newest clubs from brands such as: Callaway golf, Ping golf, Nike golf, Taylor Made golf, Titleist golf, Cobra golf, Mizuno golf, Cleveland golf, Yes and Odyssey putters.” The home page also declared, “Along with our exceptional customer service, we are your one stop shop for the best copied golf equipment on the Internet.”
The Internet has amplified the threat of counterfeiting for manufacturers, says Stephen Gingrich, vice president of global legal enforcement and human resources for Cleveland Golf/Srixon. “Counterfeiting has existed for thousands of years but has been a localized issue,” Gingrich says. “The Internet, ease of global shipping and payments, combined with SEO's and web hosts injecting steroids into the situation has brought the issue into every consumer's living room."
“This was an unusual case and isn't likely to be replicated,” says Eric Goldman, associate professor of law at Santa Clara University School of Law and director of the school’s High Tech Law Institute. He notes that Bright Builders put up a weak legal defense. But he adds that it’s another indication that courts look askance at online sellers of goods very similar to those of brand-name manufacturers. “Service providers who know they are dealing with such businesses might tread more cautiously,” Goldman says.