Louis Vuitton Malletier v. Akanoc Solutions: Ninth Circuit Awards $11M in Damages against Web Host for Contributory Infringement

The Ninth Circuit recently affirmed contributory trademark and copyright infringement claims against a web hosting company which hosted an allegedly infringing website. In Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., Nos. 10-15909, 10-16105, 2011 U.S. App. WL 4014320 (9th Cir. September 9, 2011), the Ninth Circuit reiterated its view that web servers are “an essential step in the infringement process.” Id. at 4.

Background

Louis Vuitton discovered websites advertising products that allegedly infringed on Louis Vuitton’s trademarks and copyrights (“websites”).  The websites did not sell the products directly, but instead listed an email address to take orders.  Louis Vuitton discovered that the websites utilized IP addresses affiliated with Managed Solutions Group (“MSG”) and Akanoc Solutions (“Akanoc”).  These companies were both run by Steven Chen (“Chen”).  The two companies had distinct purposes – MSG owned a pool of servers, bandwidth, and IP addresses, while Akanoc leased some of this capacity from MSG and operated the web hosting business that hosted the websites.  Id. at *1.

Louis Vuitton sent at least 18 notices of infringement to MSG, Akanoc, and Chen from 2006 to 2007.  These notices demanded the removal of the infringing websites from the web servers run by Chen and his companies.  Louis Vuitton received no response.  There was no evidence that MSG, Akanoc, or Chen took any action, and the websites continued to be online.  Louis Vuitton eventually sued MSG, Akanoc, and Chen in the Northern District of California. Id. at *2.

A jury trial returned a verdict for Louis Vuitton.  The jury held MSG, Akanoc, and Chen liable for willful contributory infringement and awarded over $10 million in statutory damages against each defendant (totaling over $30 million in damages). Id. However, the district court granted a post-verdict motion for judgment as a matter of law in favor of MSG, explaining that MSG merely owned and leased the hardware and did not directly host the websites.  Akanoc and Chen appealed, and Louis Vuitton cross-appealed the holding in favor of MSG.  Id.

Ninth Circuit Upholds Low Threshold for Web Hosts facing Contributory Infringement Claims

The Ninth Circuit rejected appellants’ argument that its servers were not a “means of infringement” under the test set forth in Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999). Id. at *3.  While appellants’ argued that the websites alone were the sole means of infringement, the Court instead agreed with the finding that appellants’ web hosting business was the equivalent of “leasing real estate” to the alleged direct infringers and thus, appellants had “direct control” over the ability of the websites to function.  Id.  At the same time, the Court rejected Louis Vuitton’s cross-appeal against MSG.  In contrast with Akanoc, the Court noted that the websites were not MSG’s direct customers, nor did MSG have any reasonable means to withdraw web hosting services to the infringing websites. Id.

Moreover, the Court rejected appellants’ view that a finding of express intent was necessary to find contributory infringement.  Instead, the test merely mandates “actual or constructive knowledge that the users of [the web host’s] services were engaging in trademark infringement.” Id. at 4.

The Court also disagreed with appellants’ on the necessity of an express finding of material contribution.  Under that standard, the appellants’ activity must have “substantially assisted” the direct infringement.  Id.  The Court remarked unequivocally that “[t]here is no question that providing direct infringers with server space satisfies that standard.”  Id.  Thus, the Court found no error with the narrowed jury instruction, which merely asked if defendants provided their web hosting services to the direct infringers. Id.

The Court did accept appellants’ contention that the district court erred in calculating statutory damages.  At trial, the verdict form asked the jury to assign statutory damages against each defendant.  However, the Court interpreted both 17 U.S.C. § 504(c) and 15 U.S.C. § 1117(c)’s allowances for statutory damages to “reach a maximum based on the number of protected works, not the number of defendants.”  Id. at *5-6.  Thus, the Court vacated the separate damage awards against each appellant and instead held Akanoc and Chen jointly and severally liable for a single award on each claim.  Even so, the damage award totaled nearly $11 million.  Id. at *7-8.

Conclusion

The large damage award against Akanoc and Chen serves as a strong reminder to web hosting companies to take notices of infringement very seriously.  Conversely, holders of valuable trademarks and copyrights may consider taking action against a broader set of parties in cases of possible infringement, especially if the web hosting company is easier to find or has deeper pockets than the direct infringer.  Companies in these fields should contact experienced copyright and trademark counsel to see how Akanoc affects your exposure to contributory infringement.

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Olivier Taillieu

Jeff Zuber

Also See:

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UMG Recordings v. Veoh Networks: Mere Hosting Not Enough to Comply with Actual Knowledge Requirement under DMCA

Apple v. Psystar: Ninth Circuit Upholds Validity of Software Licensing Agreements against Copyright Misuse Defense

Mattel v. MGA: Specific Employment Contract Terms Dictate Employer Copyright Claims