Web hosters ordered to pay $32M for contributing to trademark infringement

Computerworld - 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.

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.