Coach, Inc. v. Frederick Goodfellow ( 2012 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 13a0155p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiffs-Appellees, -
COACH, INC. and COACH SERVICES, INC.,
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No. 12-5666
v.
,
>
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FREDERICK GOODFELLOW, dba The
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Southwest Flea Market, aka 3rd Street Flea
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Market,
Defendant-Appellant. N
Appeal from the United States District Court
for the Western District of Tennessee at Memphis.
No. 2:10-cv-2410—Diane K. Vescovo, Magistrate Judge.
Argued: April 30, 2013
Decided and Filed: May 31, 2013
Before: NORRIS, COOK and McKEAGUE, Circuit Judges.
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COUNSEL
ARGUED: Stephen R. Leffler, Memphis, Tennessee, for Appellant. J. Britt Phillips,
SUTTER O’CONNELL CO., Franklin, Tennessee, for Appellees. ON BRIEF: Stephen
R. Leffler, Memphis, Tennessee, for Appellant. J. Britt Phillips, SUTTER O’CONNELL
CO., Franklin, Tennessee, Matthew C. O’Connell, SUTTER O’CONNELL CO.,
Cleveland, Ohio, for Appellees.
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OPINION
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McKEAGUE, Circuit Judge. This case presents a question the Sixth Circuit has
not directly addressed: Can a flea market operator be held contributorially liable for
trademark infringement by vendors? Plaintiffs brought suit under the Lanham Act,
alleging a Memphis flea market operator is liable for sales of counterfeit products at his
1
No. 12-5666 Coach, Inc., et al. v. Goodfellow Page 2
flea market. The district court granted plaintiffs’ motion for summary judgment on
liability, entered judgment on the jury’s damages verdict of $5,040,000, and awarded
attorney’s fees and costs to plaintiffs in the amount of $186,666.61. Defendant argues
on appeal that the Lanham Act does not provide for contributory liability for trademark
infringement by third persons and that this is not an “exceptional case” warranting
attorney’s fees. Because we find the district court neither erred as a matter of law nor
abused its discretion, we affirm.
I. BACKGROUND
Plaintiffs Coach, Inc. and Coach Services, Inc. (hereinafter “Coach”) are in the
business of designing, marketing, and selling products such as handbags, briefcases,
leather goods, eyewear, and footwear. Coach owns an extensive portfolio of trademarks.
Defendant Frederick Goodfellow, d/b/a The Southwest Flea Market (“Goodfellow”), at
all times relevant owned and operated a flea market as a sole proprietorship in Memphis.
Goodfellow controlled, managed, and oversaw the day-to-day operations of the flea
market. The flea market rented seventy-five to one hundred booths to vendors at the rate
of $15 per day Thursday through Sunday each week. The flea market also rented storage
containers to vendors for storage of their goods. The flea market was managed by
Director of Operations Karl Johnson, an employee of Goodfellow. Although Johnson
managed the flea market’s day-to-day business, Goodfellow controlled the flea market
and had ultimate authority in allowing and removing vendors who sold goods at the flea
market.
On January 15, 2010, Coach sent a letter to Goodfellow, notifying him of
counterfeit sales of Coach products at the flea market, advising him of the potential
violation of both federal and state laws, and demanding that all sales of counterfeit
Coach products cease. On March 26, 2010, Goodfellow received another letter, this time
from the Shelby County Office of the District Attorney General. The letter notified
Goodfellow that counterfeit sales of Coach items were continuing at the flea market.
The letter also stated that Goodfellow was in willful disregard of the law. On April 23,
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2010, law enforcement officers raided the flea market and seized counterfeit Coach
products.
In June 2010, Coach filed this action against Goodfellow and the flea market
demanding the sale of counterfeit Coach products be stopped. After a Coach
investigator discovered continuing sales of counterfeit Coach products in February 2011,
law enforcement officers conducted another raid on March 4, 2011. Yet another raid
was conducted on June 23, 2011, this time involving approximately 150 local, state and
federal officers and various Coach investigators. More than 4,600 counterfeit Coach
products were seized and the flea market was permanently shut down.
Goodfellow admitted knowing that vendors continued to sell counterfeit Coach
products at the flea market between the time he received the first letter from Coach in
January 2010 and the time he received the letter from the District Attorney in March
2010. Goodfellow also admitted that he was aware of the multiple raids, and he knew
that arrests were made during these raids. The flea market’s employees never received
any training to identify counterfeit goods. Johnson did not remember any vendors
having been expelled or rejected for selling counterfeit products. Neither Goodfellow
nor Johnson inspected vendors’ goods or questioned them as to whether their goods were
counterfeit or authentic. The flea market did not have a license to sell Coach products
and neither Goodfellow nor Johnson asked vendors if they had licenses. Nor were
vendors required to sign a statement agreeing, as a condition of renting a booth, that they
would not sell counterfeit products.
There was some evidence of remedial measures. Goodfellow distributed
pamphlets to vendors, posted copies of a “counterfeit is prohibit” sign, and called a
meeting with vendors to address the selling of counterfeit goods. However, the
pamphlets were distributed randomly and incompletely; the signs that were posted were
actually intended to address a growing problem with counterfeit currency, not counterfeit
products; attendance at the meeting with vendors, scheduled on a day when the flea
market was not open for business, was voluntary and attended only by some vendors;
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and communication was frustrated by language differences, as many of the vendors were
from West Africa.
In the complaint, Coach alleged that Goodfellow was liable for the sale of
counterfeit products and infringement of Coach’s trademarks, in violation of the Lanham
Act, 15 U.S.C. § 1114. The parties consented to have the case decided by United States
Magistrate Judge Diane K. Vescovo pursuant to 28 U.S.C. § 636(c). Coach filed a
motion for partial summary judgment on the issue of liability on October 11, 2011.
Goodfellow failed to respond to Coach’s motion. On February 21, 2012, the district
court, without conducting a hearing, granted partial summary judgment to Coach on the
issue of contributory liability. Despite Goodfellow’s failure to respond, the court viewed
the record in the light most favorable to him as non-movant, but still held that
Goodfellow was contributorially liable for sales of counterfeit Coach products by his
vendors.
On March 1, 2012, Goodfellow moved to set aside the order granting partial
summary judgment. Goodfellow asked for relief from judgment because notice of the
motion for partial summary judgment had been misplaced by his attorney and because
Coach’s counsel had filed notice of intent to strike the motion for partial summary
judgment on January 20, 2012. While setting forth these grounds for his failure to timely
respond, Goodfellow’s motion offered no argument on the merits. The district court
denied Goodfellow’s motion, finding that his showing of attorney error did not amount
to excusable neglect, as required by Fed. R. Civ. P. 60(b)(1). The court also noted that
even if the neglect were deemed excusable, Goodfellow did not assert a meritorious
defense in his motion to justify setting aside the order.
Goodfellow’s liability having thus been established, the district court conducted
a jury trial to determine Coach’s damages. On March 20, 2012, Coach was awarded
$5,040,000 in damages. The jury found that Goodfellow willfully infringed Coach’s
trademarks. The jury awarded $240,000 per mark for twenty-one total infringed marks.
The district court entered judgment on the verdict and granted Coach permanent
injunctive relief on April 2, 2012. In granting Coach’s ensuing motion for attorney’s
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fees, awarding Coach $186,666.61 in fees and costs, the district court noted that the
Lanham Act, 15 U.S.C. § 1117(a), allows for award of attorney’s fees to the prevailing
party in exceptional cases. The court determined the case was exceptional because
Goodfellow failed to litigate the liability issue at all and because the jury found his
infringement to be willful.
II. ANALYSIS
A. Secondary Liability for Trademark Infringement
Goodfellow appears to frame the claim of error on appeal as a question of law,
contending the Lanham Act does not provide for contributory liability for trademark
infringement by third persons. In substance, however, his claim is in the nature of a
challenge to the sufficiency of the evidence to support liability in this case. Yet,
Goodfellow’s liability was established in a summary judgment ruling the merits of which
he never challenged below. By failing to present evidence creating a genuine issue of
material fact and failing to otherwise contest Coach’s motion below, he has effectively
forfeited his right to appeal the liability ruling.
Ordinarily, we will not address issues raised for the first time on appeal.
McFarland v. Henderson, 307 F.3d 402, 407 (6th Cir. 2002). This is a prudential rule
that promotes judicial economy. Its application is left to the discretion of the court. Id.We may elect not to enforce the rule where the appellate issue is developed with
sufficient clarity and completeness, in “exceptional cases,” to avoid “a plain miscarriage
of justice,” or for some “over-arching purpose beyond that of arriving at the correct
result in an individual case.” Foster v. Barilow, 6 F.3d 405, 407-08 (6th Cir. 1993).
Although Goodfellow’s counsel’s failure to defend may have handicapped full
development of the record below, the factual record on which the district court’s ruling
was based is clear and the parties’ appellate briefing of the legal issue is adequate.
Inasmuch as adjudication by default is disfavored and this case affords opportunity to
provide guidance on contributory trademark infringement, we take up the merits of the
district court’s ruling notwithstanding Goodfellow’s default below.
No. 12-5666 Coach, Inc., et al. v. Goodfellow Page 6
We review the partial summary judgment ruling on contributory liability de novo
based on the record as it existed at the time of the ruling. Chicago Title Ins. Corp. v.
Magnuson, 487 F.3d 985, 995 (6th Cir. 2007). The Lanham Act protects registered
copyrights, trademarks, and patents. In relevant part, the Lanham Act addresses
trademark counterfeiting and infringement as follows:
Any person who shall, without the consent of the registrant … use in
commerce any reproduction, counterfeit, copy, or colorable imitation of
a registered mark in connection with the sale, offering for sale,
distribution, or advertising of any goods or services on or in connection
with which such use is likely to cause confusion, or to cause mistake, or
to deceive … shall be liable in a civil action by the registrant for the
remedies hereinafter provided.
15 U.S.C. § 1114(1)(a). A party proves trademark infringement by showing (1) that it
owns a trademark, (2) that the infringer used the mark in commerce without
authorization, and (3) that the use of the alleged infringing trademark “is likely to cause
confusion among consumers regarding the origin of the goods offered by the parties.”
Leelanau Wine Cellars, Ltd. v. Black & Red, Inc., 502 F.3d 504, 515 (6th Cir. 2007)
(quoting Daddy’s Junky Music Stores, Inc. v. Big Daddy’s Family Music Ctr., 109 F.3d
275, 280 (6th Cir. 1997)). There is no dispute in this case as to whether infringement
occurred. The legal question presented is whether Goodfellow is properly held liable for
the infringing acts of others.
Goodfellow contends the district erred by holding him liable for trademark
infringement because there was no showing that he and the infringing vendors were in
a partnership relationship or had authority to bind one another or exercised joint
ownership or control. On this point Goodfellow is right: the record does not show that
he and the vendors were in such a relationship as would justify recognition of vicarious
liability for infringement. See Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144, 165 (4th
Cir. 2012); Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143,
1150 (7th Cir. 1992) (defining requirements of vicarious liability). Vicarious liability
is a species of secondary liability, but not the one applied here by the district court.
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Rather, the district court held Goodfellow was subject to contributory liability for
vendors’ trademark infringements.
This form of secondary liability was first recognized by the Supreme Court in
Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982). The Court
determined that liability under the Lanham Act may be imposed on those who facilitate
trademark infringement, stating that where a “distributor intentionally induces another
to infringe a trademark, or if it continues to supply its product to one whom it knows or
has reason to know is engaging in trademark infringement, [it] is contributorially
responsible for any harm done as a result of the deceit.” Id. at 854. Although the
Lanham Act refers only to direct trademark infringers, Inwood established that liability
may also be imposed on those who facilitate the infringement.
The teaching of Inwood has been applied to flea market operators, rendering
them subject to liability for trademark infringement by vendors. In Hard Rock Cafe
Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143 (7th Cir. 1992), the Seventh
Circuit held that a flea market operator can be liable for trademark violations by its
vendors if it knew or had reason to know of them. Id. at 1149. Although there was no
proof that the flea market operator in Hard Rock Cafe had actual knowledge that its
vendors were selling counterfeit products, the court held that knowledge could be
established and contributory liability could be imposed if the flea market operator was
shown to be “willfully blind” to ongoing violations. Id. The court defined as willfully
blind one who suspects wrongdoing and deliberately fails to investigate. Id. Thus, per
Hard Rock Cafe, a flea market operator who deliberately fails to investigate suspected
infringing activity by vendors and facilitates ongoing infringement by permitting such
vendors to use flea market resources may be subject to contributory liability.
Similarly, in Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996),
a flea market operator knew that its vendors were selling counterfeit music recordings
both before and after law enforcement officers raided the flea market and seized
counterfeit recordings. Id. at 261. The Ninth Circuit adopted Hard Rock Cafe’s
application of Inwood, holding that the flea market operator was liable for contributory
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trademark infringement because it knew or had reason to know of the infringing activity.
Id. at 264-65 (observing that a flea market operator “can not disregard its vendors’
blatant trademark infringements with impunity”). Other circuits have also applied this
reasoning to internet marketplaces, concluding that the marketplace may be liable for
contributory trademark infringement if it knew or had reason to know identified vendors
were engaging in infringing activity. See Rosetta Stone, 676 F.3d at 163-65; Tiffany
(NJ), Inc. v. eBay, Inc., 600 F.3d 93,105-10 (2d Cir. 2010).
Here, Goodfellow, provider of a product or service, i.e., rental booths and storage
units for vendors, continued to supply these resources to vendors who he knew or had
reason to know were engaging in trademark infringement. Goodfellow’s actual
knowledge of the counterfeit sales is established by several items. He received a letter
from Coach on January 15, 2010, which he signed, advising that counterfeit Coach
products were being sold at Goodfellow’s flea market. Goodfellow also received a
second letter, this time from the district attorney, dated March 26, 2010, again stating
that counterfeit Coach products were being sold at his flea market and advising
Goodfellow that he was willfully violating state and federal law. Goodfellow received
notice of the lawsuit filed by Coach on June 6, 2010, informing him of his potential
liability for the counterfeit Coach products. Moreover, law enforcement officers raided
the flea market on April 23, 2010, March 4, 2011, and June 23, 2011. Some of the raids
were conducted after Coach filed this lawsuit against Goodfellow. Because Goodfellow
continued to rent spaces at his flea market to vendors that he knew, or should have
known, were engaging in infringing activity, and because these facts are sufficient to
support a finding of contributory liability under Inwood as applied in other circuits, we
find no error in the district court’s ruling.
Goodfellow does not dispute that he was on notice of infringing activity, but
maintains he responded reasonably. He contends that his remedial measures were
analogous to those taken by the defendant in Tiffany, where the Second Circuit affirmed
judgment in favor of the defendant, eBay. The Tiffany court found that eBay was not
liable for trademark infringement for counterfeit merchandise sold on eBay’s website
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because eBay promptly removed all listings that Tiffany challenged as counterfeit and
spent millions of dollars taking affirmative steps toward the removal and monitoring of
counterfeit Tiffany merchandise. Tiffany, 600 F.3d at 103. These remedial steps went
well beyond those taken by Goodfellow. Additionally, the court in Tiffany found that
eBay was not liable for contributory trademark infringement because eBay only had
general knowledge of counterfeit sales through its website, holding that contemporary
knowledge of particular listings would have been necessary to support contributory
liability. Id. at 107-08. The present facts are distinguishable from those presented in
Tiffany in that Goodfellow had actual knowledge that the infringing activity was
occurring at his flea market over a lengthy period of time and even knew that particular
vendors were selling counterfeit Coach products. Yet, throughout this sustained period
of time, Goodfellow failed to deny access to offending vendors or take other reasonable
measures to prevent use of flea market resources for unlawful purposes, and failed even
to undertake a reasonable investigation.
Furthermore, some evidence of Goodfellow’s remedial measures was presented
only in the jury trial on damages, not in opposition to the motion for partial summary
judgment. Because Goodfellow is bound by the record developed at the time of the
summary judgment ruling, evidence of remedial measures presented in the damages trial
is not properly considered on appeal. Yet, even if the full factual record were
considered, Goodfellow’s efforts do not compare with those taken by eBay in Tiffany.
See also Coach, Inc. v. Gata Corp., 2011 WL 2358671 (D.N.H. June 9, 2011)
(distinguishing Tiffany, awarding summary judgment to Coach, and imposing
contributory liability on defendant flea market operator under facts nearly identical to
those presented here).
Although Goodfellow attempted to notify vendors that selling counterfeit goods
was prohibited through the distribution of pamphlets and by holding a voluntary meeting
with some vendors, he admitted knowing that vendors continued to sell products that
Coach charged were counterfeit both before and after Coach filed this lawsuit.
Goodfellow claims he thought the Coach products offered for sale in plain sight were
No. 12-5666 Coach, Inc., et al. v. Goodfellow Page 10
authentic. Yet, he admitted that the flea market did not have a license to sell Coach
products and he never inquired whether the vendors’ goods were licensed or authentic
despite receiving actual notice of sales of counterfeit products. Additionally,
Goodfellow rented spaces at his flea market to vendors he knew, or should have known,
were engaging in infringing activity.
In the trial on damages, Goodfellow did testify, contradicting Johnson’s earlier
testimony, that he had personally asked as many as sixteen vendors to leave during a
one-year period. Considering the overall breadth and duration of the infringing
activities, however, this effort, if believed, is hardly compelling evidence of a reasonable
response by Goodfellow. Indeed, the jury nonetheless found by a preponderance of the
evidence that Goodfellow’s facilitation of the infringement was “willful.” That is, per
instructions that Goodfellow has not challenged, the jury found that he knew of Coach’s
marks; that he knew or was deliberately indifferent to the fact that his conduct would
contribute to infringement of the marks; and that he intentionally allowed the sale of
infringing products or acted in conscious disregard for Coach’s rights. Goodfellow has
not challenged the sufficiency of the evidence to support the jury’s verdict.
Thus, even if we consider all the evidence of remedial measures, it fails to
undermine the district court’s conclusion that Goodfellow engaged in “ostrich-like
practices.” Goodfellow continued to supply flea market resources to vendors with
knowledge of and willful blindness toward ongoing infringing activities, thereby
facilitating continued infringing activity. The facts are sufficient to support a finding of
contributory liability under the prevailing standards established by the Supreme Court
as applied in other circuits, authorities which we find persuasive. We therefore hold that
Goodfellow is properly held liable for contributory trademark infringement because he
knew or had reason to know of the infringing activities and yet continued to facilitate
those activities by providing space and storage units to vendors without undertaking a
reasonable investigation or taking other appropriate remedial measures.
No. 12-5666 Coach, Inc., et al. v. Goodfellow Page 11
B. Attorney’s Fees
The district court awarded attorney’s fees and costs to Coach in the amount of
$186,666.61. The court noted that the Lanham Act allows award of attorney’s fees to
the prevailing party in exceptional cases. 15 U.S.C. § 1117(a). Although this provision
does not define “exceptional,” we have held that “a case is not exceptional where the
trademark infringement was not malicious, willful, fraudulent, or deliberate.” U.S.
Structures, Inc. v. J.P. Structures, Inc., 130 F.3d 1185, 1192 (6th Cir. 1997). We review
an award of attorney’s fees and costs for abuse of discretion. Imwalle v. Reliance Med.
Prods., Inc., 515 F.3d 531, 551 (6th Cir. 2008). An abuse of discretion is established
where the reviewing court is left with a definite and firm conviction that the district court
committed a clear error of judgment. Arban v. West Publ’g Corp., 345 F.3d 390, 404
(6th Cir. 2003).
Goodfellow insists this is not an exceptional case. He does not specifically
challenge the amount of the award, but contends that no award is warranted. He
maintains he acted in good faith and that the law under which he is held liable was not
clearly established at the time of the infringing activities.
The district court held this case was exceptional because Goodfellow knew or
had reason to know that his vendors were engaging in infringing activity, he failed to
litigate the issue of liability, and the jury found his conduct willful. Although the
applicability of contributory liability had not been established by Sixth Circuit
precedent, Supreme Court authority established well before Goodfellow started
operating his flea market that a third party could be liable for contributory trademark
infringement if it “continues to supply its product to one whom it knows or has reason
to know is engaging in trademark infringement.” See Inwood, 456 U.S. at 854.
Goodfellow had actual notice of ongoing infringing activity. Despite such knowledge,
Goodfellow continued to facilitate the infringing activity by providing space and
facilities at his flea market to infringing vendors. The district court was well within its
discretion in finding that Goodfellow’s intentional, deliberate, or willful ignorance of
actual notice of infringing activity made out an “exceptional case,” permitting award of
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attorney’s fees to the prevailing party under the Lanham Act. Because the district court
did not commit clear error or abuse its discretion in awarding attorney’s fees and costs
to Coach, we uphold the award.
III. CONCLUSION
Goodfellow continued to rent space and facilities at his flea market to vendors
he knew or should have known were engaging in infringing activity. The district court
did not err in ruling that Goodfellow was contributorially liable for vendors’
infringements. Nor did the district court abuse its discretion in holding that
Goodfellow’s actions were willful, constituting an exceptional case warranting an award
of attorney’s fees to Coach. Accordingly, the judgment of the district court is
AFFIRMED.