Second Circuit Rules Landlord Liable for Contributory Counterfeiting Based on “Willful Blindness”January 20, 2021
Commercial landlords face the risk of substantial economic damages if they turn a blind eye to ongoing sales of counterfeit merchandise on their leased premises. This was emphasized in a January 6, 2021 opinion by the federal Court of Appeals for the Second Circuit in Omega SA v. 375 Canal, LLC, where the court found a property owner liable for contributory trademark infringement respecting sales of counterfeit Omega watches at the premises. A jury awarded Omega $1.1 million in statutory damages under the federal Trademark (Lanham) Act. Omega argued in the appeal that it did not need to establish the identities of specific tenants who engaged in such counterfeiting, but only that a landlord was guilty of “willful blindness” in repeatedly ignoring prior incidents of counterfeiting at the premises.
In this case, the defendant landlord, Canal, had actual knowledge of prior trademark counterfeiting activity occurring at its Canal Street property, including previous criminal anti-counterfeiting raids and an earlier arrest of an individual who had been selling counterfeit Omega watches at the premises. Canal argued that Omega needed to prove that Canal continued to lease its premises to an identifiable, specific seller who Canal either knew or should have known was selling counterfeit Omega goods. The appeals court rejected this stricter burden of proof and held that such specific knowledge was not required where proof of “willful blindness” existed, i.e., where a property owner intentionally takes steps to shield itself from having actual knowledge of the identity of vendors selling counterfeit goods. At trial, Omega submitted evidence showing that Canal had a history of turning a blind eye to such activity at its premises and failed to take reasonable steps to prevent it from reoccurring.
In an earlier seminal case on contributory trademark infringement, cited in the Omega decision, Tiffany sued eBay based on allegations that a majority of Tiffany’s items sold on eBay were counterfeit. On appeal, the Second Circuit affirmed a ruling in favor of eBay, finding that a defendant must have more than a general knowledge that its service is being used to sell counterfeit goods to be liable. eBay had also acted promptly to remove all offending products after receiving notices from Tiffany. Nevertheless, the Second Circuit emphasized that a “service provider is not, we think, permitted willful blindness. When it has reason to suspect that users of its service are infringing a protected mark, it may not shield itself from learning of the particular infringing transactions by looking the other way.” Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 109 (2d Cir. 2010), cert. denied 131 S. Ct. 647 (2010).
Most commercial retail leases contain provisions that empower a landlord to declare a breach and terminate a lease for illegal activity. Such leases typically provide a landlord with relevant tenant controls through clauses respecting use, occupancy, requirements of law, permits, licenses, and retail covenants. Property owners need to enforce these provisions whenever they become aware that counterfeit goods are being sold on their premises. Difficult or potentially dangerous tenants may require law enforcement intervention.
The case serves as an important cautionary reminder to landlords that they must police uses of their properties for sales of counterfeit goods and other illegal uses and cannot simply turn a blind eye.
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