Contributory Infringement

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Contributory Infringement

Intellectual property infringement is serious business: One estimate put the United States’ economic losses resulting from IP infringement at more than $300 billion each year.

All infringement is not created equally – different actions may contribute a greater or lesser amount to IP infringement. Contributory intellectual property infringement is a form of indirect, but intentional, infringement that can be damaging to a company’s intellectual property or reputation.

This theory of infringement allows plaintiffs to recover damages from defendants who did not actually engage in direct IP infringement, but instead somehow contributed to infringement by other parties. Because contributory infringement typically involves some “willful” or “knowledge” element, courts often impose harsher penalties on defendants who are found liable for contributory infringement than on defendants who engage in other types of intellectual property violations.

Contributory Trademark Infringement

Trademark infringement occurs when the defendant utilizes a trademark that is identical or confusingly similar to a trademark that is protected by a registered trademark. While there are certain common law trademark rights that extend to well-known brands in a limited geographic area, the majority of rights under this area of law come from the Lanham Act.

Although it is not found in the Lanham Act, contributory infringement is an important part of modern trademark infringement liability because it allows trademark owners the ability to pursue the systems allowing others to infringe on their trademarks.

Types of Trademark Infringement

Trademark infringement can be broken down into two categories — direct and indirect infringement. Direct infringement occurs when the defendant utilizes the plaintiff’s trademark, or a confusingly similar trademark, without authority. There is no knowledge requirement in direct trademark infringement.  Instead, courts only look at the result of the defendant’s activity.

Indirect trademark infringement, otherwise known as secondary trademark infringement, is broken into vicarious infringement and contributory infringement. Vicarious trademark infringement occurs when the defendant had the right to control the infringing activity and the defendant received a financial or commercial benefit from the infringement.

This form of secondary liability for trademark infringement is sometimes present when an employee engages in infringing activity, and the employer is later found liable for the infringement. Unlike contributory trademark infringement, vicarious infringement does not have a knowledge element.

Contributory trademark infringement occurs when the defendant induces or otherwise contributes to a third party’s infringement of a protected trademark. Historically, manufacturers and distributors of infringing goods are the primary parties held liable for trademark contributory infringement. In recent years, websites such as eBay, which facilitate the sale of counterfeit goods, have also been the subject of lawsuits alleging contributory infringement.

Elements of Trademark Contributory Infringement

For trademark contributory infringement to occur, there must first be direct trademark infringement. Once a plaintiff has made the showing of direct infringement, he or she must prove that the defendant had either actual or constructive knowledge of the infringing activity by either:

  • Intentionally inducing another to engage in infringing activity, or
  • Continuing to supply its product to someone who the defendant had actual or constructive knowledge was engaging in trademark infringement.

The plaintiff must also show that the defendant had direct control and monitoring of the instrumentality used to infringe the protected trademarks. Although this is similar to the second element of copyright contributory infringement, this element requires the defendant to have a higher level of control in trademark cases than in copyright cases.

There is no federal statute of limitations for when trademark infringement cases can be brought. Instead, federal courts look to their local state court statutes of infringement. In California, the statute of limitations to bring a trademark case is four years from when the infringing action began.

Penalties for Trademark Contributory Infringement

In general, plaintiffs seeking to protect their trademark rights generally bring trademark lawsuits in order to stop the infringing activity. This can be achieved through equitable relief, in the form of preliminary injunctions, which are issued during the lawsuit, in order to prevent further infringing activity before a final decision is reached, or through permanent injunctions, which are issued as part of the federal judge’s final order.

In addition to equitable relief, trademark owners may also seek compensatory monetary damages by proving their damages. This can be done by looking at:

  • The defendant’s profits from using the trademark in question
  • Damages sustained by the plaintiff as a result of the defendant’s infringing activity
  • Plaintiff’s costs incurred through “corrective advertising” to restore the value of the trademark damaged by the defendant’s infringement
  • Reasonable royalties the defendant would have paid, had the trademark been properly licensed

Furthermore, because of the willful nature of contributory trademark infringement, plaintiffs may also seek enhanced damages, including treble damages for counterfeit trademarks, as well as attorneys’ fees and costs in exceptional cases.

Contributory Copyright Infringement

In the U.S., copyright infringement occurs when someone:

  • Distributes, reproduces or copies,
  • Performs or displays, or
  • Prepares derivative works of a work protected by copyright without permission of the copyright holder.

Copyright infringement requires that the defendant had access to the plaintiff’s original work and then engaged in wrongful actions. A work does not need to be registered with the U.S. Copyright Office in order to receive copyright protection. Instead, this protection is automatic as soon as the work is published.

Types of Secondary Copyright Infringement

Unlike trademark and patent law, the Copyright Act does not expressly prohibit contributory infringement. Instead, this type of copyright infringement is one of two forms of secondary liability, along with vicarious liability.

Contributory copyright infringement occurs when someone, with knowledge of the infringing activity, induces, causes, or materially contributes to someone else engaging in the infringement. In recent years, this theory of liability has come up more and more often in cases involving software and internet giants, who somehow facilitate copyright infringement by their users.

Vicarious copyright infringement, on the other hand, occurs when the defendant had the right to control the infringing activity, and the defendant derives a financial or commercial benefit from the infringement. This type of copyright infringement may occur if an employer is liable for the infringing activities of an employee. Unlike contributory copyright infringement, vicarious infringement does not have a knowledge element.

Elements of Copyright Contributory Infringement

To be successful in a copyright contributory infringement case, a plaintiff must prove two primary elements.

First, the defendant must have knowledge of direct infringement. To meet this requirement, the defendant can have either actual or constructive knowledge of the infringing activity. Courts may find the existence of constructive knowledge in cases in which the defendant suspects infringing activity might be occurring, but deliberately decides not to make further enquiries.

Second, the defendant must be significantly and materially contributing to the infringing activity. The question of material contribution was examined in a 1984 case, Sony Corp. v. Universal City Studios, Inc. There, the Supreme Court examined whether Sony’s sales of home television recording equipment, such as VCRs or Betamax, amounted to contributory infringement. The court determined that, because the equipment was capable of significant non-infringing use, Sony could not be found liable for material contributions to others’ infringing actions. Moreover, Sony had no way of preventing others from engaging in infringing activity after the recording equipment was sold, so it could not be liable for its customers’ actions.

Because contributory infringement can only occur if there is direct copyright infringement, a plaintiff must also demonstrate the existence of a copyrighted work and that the plaintiff’s copyright was infringed by someone other than the defendant.

Copyright infringement cases can only be brought within the three-year statute of limitations from when the infringing activity occurred.

Contributory Copyright Infringement and the Digital Millennium Copyright Act

Under the Digital Millennium Copyright Act, (DMCA), internet service providers (ISPs) can be found liable for secondary copyright infringement if they are made aware of copyright infringement occurring on their services and fail to take down the infringing material or take other reasonable steps to prevent the infringing activity.

In order to take advantage of the DMCA’s “safe harbor” provisions, ISPs must also register a designated agent with the U.S. Copyright Office. Designated agents are the individuals working at the ISP who are able to receive, investigate, and act upon this sort of takedown notice.

In 2016, Cox Communications was found liable for $25 million in damages due to its failure to take reasonable actions against subscribers who were repeatedly engaging in copyright infringement by torrenting songs without paying for them. Although this award was repealed by the appeals court in 2018, Cox is still recognized as having participated in contributory copyright infringement.

Other digital companies, such as Napster, were also found liable for contributory copyright infringement. Although these companies do not directly infringe upon copyrighted materials, their Peer-to-Peer or P2P sharing services contributed to digital copyright infringement of thousands of songs. Despite the availability of non-infringing uses, courts have found that many of these P2P networks are designed to facilitate copyright infringement and advertise this infringement as a primary use for the technology, which equates to actual knowledge of the infringing activity.

Penalties for Copyright Contributory Infringement

Copyright law allows plaintiffs to elect for either statutory damages from defendants found liable for copyright infringement or actual damages in the form of the plaintiff’s lost profits and the defendant’s net gains.  If a plaintiff elects for statutory damages, there is no need to prove damages. Instead, federal judges are given wide discretion under the statute.

For willful copyright infringement, the judge may provide damages ranging from $750 to $150,000 per infringement. These higher damages are available due to the willful element found in contributory copyright infringement cases. Plaintiffs may also seek other types of damages, including attorney’s fees and costs.

Plaintiffs may also seek equitable relief, in the form of preliminary or permanent injunctions, prohibiting the defendant from making available the method for infringement either during the pendency of the copyright lawsuit, or as part of the court’s final order.

Patent Contributory Infringement

In patent law, infringement is defined in 35 USC 271(c).  Unlike copyrights and trademarks, there are no common law patent rights; an invention must be registered with the U.S. Patent Office in order to be protected intellectual property.

Types of Patent Infringement

Generally, patent infringement is broken up into two categories — direct and indirect infringement.

Direct infringement occurs when the defendant is the one performing the infringing actions. This type of infringement does not require the defendant to have knowledge or even be aware of the patent, so it is possible for a defendant to be found liable for unintentional direct patent infringement. This may be the case if the defendant puts a product on the market that is covered by an existing patent the defendant did not know existed.

On the other hand, indirect infringement occurs when the defendant causes someone else to engage in infringing activities. Indirect infringement is further broken down into induced infringement and contributory infringement.

Induced infringement can occur when the defendant encourages someone else to engage in infringing activities. For example, a defendant can induce infringement by asking a manufacturer to create a product identical to one under patent protection.

Contributory infringement occurs when the defendant sells or offers to sell a component of a product that can only be used in a way that infringes upon an existing patent. This type of patent infringement is common in industries in which there are a lot of components in a particular patent, such as in pharmaceuticals.

Elements of Contributory Infringement

There are several elements that must be present for a court to find contributory infringement.

First, there must be some sort of direct infringement. Without direct infringement, a defendant cannot have contributed to someone else’s wrongdoing.

Second, the defendant must have acted willfully. In other words, the defendant must have both known of the existing patent and that his or her actions would lead to patent infringement. This element means that there can be no unintentional contributory infringement. A plaintiff must demonstrate both the defendant’s knowledge and intent in order to be successful in a case.

In 2011, in Global-Tech Appliances v. SEB S.A., the Supreme Court held that the standard to meet this knowledge requirement was the “willful blindness” test, which requires that the defendant “subjectively believes that there is a high probability” the patent exists, while “taking deliberate actions to avoid learning” about the patent.

Third, the component being sold or offered for sale must be so unique that it cannot be used for any non-infringing commercial use. If it is possible to use the component for both infringing and non-infringing uses, a court cannot issue a finding of contributory infringement.

Additionally, in order to bring a lawsuit alleging contributory infringement, the defendant’s actions must have occurred within the jurisdiction of the United States.

Plaintiffs in patent cases must also consider the six year statute of limitations – while it may be possible to bring a case within this time and stop the infringing behavior, cases brought outside of this time frame are ineligible for monetary damages.

Damages for Patent Contributory Infringement

If a plaintiff in a contributory patent infringement lawsuit is successful, there are a number of different types of damages available.

Under patent law, there are no statutory damages, meaning that plaintiffs must provide evidence in order to receive a monetary award. Plaintiffs may attempt to claim compensatory damages that equate to either:

  • Reasonable royalties, had the defendant properly licensed the patent, or
  • Lost profits due to the defendant’s infringing activity.

Although lost profits generally equate to higher patent awards, claiming this type of damage places a higher burden of proof on plaintiffs. In order to claim lost profits, a plaintiff must demonstrate that, but for the defendant’s actions, the plaintiff would have received these funds.

Because under patent law, proving contributory infringement automatically has a willful element, successful plaintiffs may be able to claim additional types of monetary damages, including:

  • The defendant’s profits from selling the infringing item
  • Treble monetary damages,
  • Punitive, or enhanced damages, which are sometimes lumped into treble damages
  • Court costs, and
  • Attorneys’ fees.

These types of damages may not be available in cases of unintentional infringement, where the defendant did not knowingly act wrongly.

Plaintiffs may also seek equitable relief, in the form of preliminary or permanent injunctions, prohibiting the defendant from selling the infringing component either during the pendency of the lawsuit, or as part of the court’s final order.

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