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Web-Hosting Companies Found Liable For Customer’s Trademark And Copyright Infringements –$10,800,000 Judgment Against Web-Hosts

Submitted by: Douglas Kim on Jan 19, 2012 at 4:59 pm Tagged with: company policies, Copyright, infringement, Intellectual Property, Trademark, web-hosting Source: McNair Law Firm, P.A., Douglas W. Kim

On September 9, 2011, a Federal Court of Appeals for the 9th Circuit found that web-hosting companies (Akanoc Solutions, Inc. and Managed Solutions Group, Inc.) were liable for contributory copyright and trademark infringement committed by Chinese websites using its servers to sell counterfeit goods. Generally, the web-companies liability arose when they failed to take steps to curtail infringement after being warned by Louis Vuitton.

In this case, contributory infringement for the trademark violation arose when the web-hosting companies continued to supply web-hosting services to entities that the web-hosting companies knew (or had reason to know) were engaging in trademark infringement; e.g. selling counterfeit goods. Concerning the contributory infringement for the copyright violation (e.g. content on the counterfeiter’s website), the court said that since the web-hosting companies knew (or had reason to know) that the content was in violation of Loius Vuitton’s copyrights and did nothing about it, that the web-hosting companies were liable. The court concluded that “there is no question that providing direct infringers with server space” constitutes a material contribution to direct infringement because this "substantially assists" direct infringement. Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936 (9th Cir. 2011).

Learning Points for Web-Hosting Companies (Cloud Based or Not):

1. Web-hosting companies should understand The Digital Millennium Copyright Act Of 1998. Particularly the role of the section 512 agent since in the above case, the agent was also found personally liable.
2. Web-hosting owners should understand that personal liability for owners and directors for intellectual property cases is different (and easier to find) than other cases and that appropriate precautions should be taken by these owners ad directors.
3. Web-hosting companies should have clear and enforced policies (posted and agreed to by its customers) concerning the permissible and non-permissible activities of its customers using its web-hosting services.
4. Web-hosting companies need to understand how to recognize a trademark, service mark or copyright takedown notice and have a defined policy outlining the actions that the web-hosting company will take in response to such a notice.
5. Web-hosting companies cannot delay in its response to any such takedown notice.

It is this author’s opinion that this wake-up call to web-hosting companies is just the beginning. In 2011, 62% of the counterfeit goods seized by the United States Customs and Border Patrol originated in China. Further, 44% of the seizures were taken from international mail and express courier (DHL, FedEx, UPS, and the like) which is due to the increased use of websites by counterfeiters, according to the US Customs and Border Patrol. With the increase of websites as the distribution channel for bogus goods, counterfeiters will be constantly looking for companies to host these illegal sites.

Doug Kim is a shareholder with McNair Law Firm, P.A. and practices intellectual property law. Doug can be reached at 864-271-4940, dkim@mcnair.net