Malltail, Inc. requested us to do legal research on disclaimers and procedures to follow for preventing third party liability for alleged copyright & trademark infringement. MakeShop plans to launch an online shopping mall, ZKUMALL, and this legal research covers what kind of disclaimers and procedures ZKUMALL must implement to prevent third party liability for alleged copyright & trademark infringement.

1. Introduction

Online auction or merchandise brokerage service providers can be indirectly liable for copyright or trademark infringement, and the indirect infringement arises when a party materially contributes to, facilitates, induces or is otherwise responsible for directly infringing acts carried out by another party. There are generally two kinds of secondary liability developed by courts – vicarious liability and contributory liability. Internet service providers (“ISPs”) may be held liable for vicariously infringing copyrights or trademarks if
1) they profit from the infringing activity and
2) they have the right and ability to prevent the infringement.

ISPs can be held liable for contributorily infringing copyrights or trademarks if
1) they make Material contributions to the act (or enabling thereof), and
2) they have the knowledge of the act itself.

Copyright and trademark owners havesued ISPs on these two theories of indirectinfringement. Therefore, ZKUMALL as an online merchandise brokerage site is strongly recommended to implement procedures to prevent infringing activities. For instance, it is important to set up and enforce an effective “notice & takedown” policy because in infringement cases, courts look for website owner’s efforts in setting up and enforcing such policy. In the Tiffany v. eBay case and the Universal MusicGroup v. Veoh case, the following have been noted by the court to be sufficient efforts:
(1) warning against Intellectual Property (“IP”) infringement in the terms of use,
(2) quickly taking down listing (within 2 days),
(3) filtering technology for repost, and
(4) termination of repeat offenders.

2.Third Party Copyright Infringement Overview

Congress has enacted Digital Millenium Copyright Act (“DMCA”) in 1998 to deal with copyright infringement issues arising in Cyberspace and DMCA has “safe harbor” provisions that limit liability of ISPs in case of a copyright infringement by a user if theprocedures set out in the provisions are implemented.
The DMCA states four safe harbors: (a) Transitory network communications (b) System caching (c) Information storage and (d) Information location tools.The last three have so called “notice & take down” rules for specificity in notice of infringement,
counter-notice and put-back and liability if false noticehas been given. Website owners, including an auction service provider such as eBay, generally qualify as “information storage.” Therefore, ZKUMALL is strongly recommended to implement the “notice and take down” procedure to limit its exposure to liability and damages.

3.Third Party Trademark Infringement Overview

Unlike the DMCA for copyrights, there is no statutory procedure for trademarks that website owners can implement in orderto limit liability. However, court decisions and eBay’s VeRO program may give ZKUMALL some guidelines for preventing third party liability for trademark infringement.
ZKUMALL should be especially vigilant if the alleged infringement involves counterfeit goods.
In a famous case brought by Louis Vuitton regarding counterfeit goods, Louis Vuitton Malletier, S.A. v. Akanoc Solutions,et al., Case No. 5:07-cv-3952-JW, a group of small website operators were hit with a $35.1 million in damages for contributory trademark infringement. The court found that (1) The defendants had knowledge of the third parties’ direct infringement, and (2) the defendants exercised control over their customers’ websites or websites operated by their customers’ customers. In other words, the “ defendants cannot remain ‘willfully blind’ to trademark infringement taking place on their servers.” The court suggested that there was enough evidence to prove that the defendants knew of the infringement because they had received multiple notices from Louis Vuitton about the infringement. The court also suggested that the defendants had the ability to take down the infringing websites because there was evidence in the record that they could disable offending IP addresses in about 30 minutes. The court opined that the “[d]efendants cannot remain ‘willfully blind’ to trademark
infringement taking place on their servers.”
eBay instituted a procedure called ‘VeRO’, which borrows the “notice & takedown” procedure from DMCA. However, there is one significant difference when a “notice” alleges trademarks infringement:
unlike DMCA, there is no “counter-notice” provision which allows sellers to file a “counter-notice” and have their listing reinstated if no further action is taken by the copyright holder. eBay’s VeRO program was recently tested by the court in Tiffany v. eBay, 576 F.Supp.2d 463, 475 (S.D.N.Y. 2008), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), in which Tiffany sued eBay for indirect trademark infringement. There, the court was satisfied that, notwithstanding the volume of complaints by Tiffany, eBay had taken “appropriate steps” through its notice-and-takedown system, the VeRO Program,to avoid liability. Therefore, keeping in mind the above cases and VeRO program, ZKUMALL is strongly recommended to implement a procedure to limit its exposure to trademark-related liability and damages.

4. Recommendations to ZKUMALL

Keep in mind that name, logo and the photographic images, size charts and item descriptions that appear on other websites or in catalogsare protected IP and thus, ZKUMALL sellers cannot use copyrighted photographs to promote the sale of the item. Similarly, ZKUMALL sellers cannot use trademarks and logos to make the sellers’ listing more appealing. ZKUMALL must tell sellers to take their own picture of the items that they’re listing because this is acceptable under the first sale doctrine. Based on the legal analysis above, we recommend ZKUMALL as follows:

(1) Set out terms of use that IP infringement by listers will not be tolerated and that under the termination policy, the accounts of repeat offenders of IP rights will be unilaterally terminated.
(2) Implement the Notice& Takedown procedure with the counter-notice policy. We drafted a sample Copyright and Trademark Policy for ZKUMALL
(3) Set up an easy-to-use and visible takedown notice submission link, along with the Copyright and Trademark Policy. But, remember the first notice should be in writing. We drafted a sample Notice of Claimed Infringement..

As ZKUMALL business goes up, we recommend ZKUMALL to implement a more aggressive measure to more vigorously protect the rights of IP owners, for example, eBay’s VeRO program.