Ever been approached by an enterprising salesperson with a coat full of fake Rolex watches?  It’s a risky business. The FBI, federal marshals, customs officials and brand owners may be involved in enforcing trademark and anti-counterfeiting laws. Did you know that not only sellers but their landlords may be liable? Under a theory of contributory infringement, knowingly permitting a tenant to sell counterfeit goods may lead to civil and, perhaps, criminal liability.

A recent appellate decision from the United States Court of Appeals for the Second CircuitOmega, SA v.. 375 Canal, LLC is a case in point and provides a window into the pervasive counterfeiting activities at 375 Canal Street in New York City.

Apparently, counterfeiting and trademark violations at 375 Canal Street were well known to the City as was the property owner, 375 Canal LLC (“Canal”).  In 2006, Canal paid the City an $8000 penalty because counterfeit merchandise was being sold from its property. In a settlement with the City, Canal agreed that the property would not be used in any way for “the sale and/or possession of trademark counterfeit merchandise or pirated merchandise.” Canal also agreed to unannounced warrantless searches. The same year, Louis Vuitton sued Canal for counterfeiting at the property. The settlement of that dispute required Canal to post signs “stating that the sale and purchase of counterfeit Louis Vuitton items is illegal.” Canal agreed to allow inspections by Louis Vuitton personnel. In 2009, the city sued Canal once again for sale of counterfeit goods. Like the first litigation, this dispute ended in a similar settlement. Canal also agreed to destroy all “hidden storage facilities” and again consented to “unannounced, warrantless inspections.” This time, its penalty increased to $10,000.  

But this was not the end of the story.  A police raid in December 2010 revealed that Omega watches were also being sold at the Canal Street address. In this raid, an individual was arrested. In September 2011, counsel for Swatch (Omega’s owner) sent a letter to one of Canal’s owners, informing him of the December 2010 arrest and wrote, “As the owner of this premise [sic] with the ability to oversee and control the tenants residing within, you can be found liable for the conduct of your tenants. This includes contributory and vicarious liability for the sale of counterfeit products.” Counsel for canal responded that the tenant responsible for the illegal activities “apparently … sublet the space to an entity that was selling counterfeit goods bearing your clients’ trademarks,”  and that the subtenant had been removed. At trial, there was evidence that the subtenant may not have been removed until sometime in 2012. Omega sent an undercover agent to the property in May 2012 and documented his purchase of a counterfeit Omega watch, which led to the lawsuit .

Omega alleges that Canal turned a blind eye to the activities at its property and continued to lease property to vendors that were knowingly selling counterfeit Omega products and, therefore, was liable for “contributory trademark infringement.” Canal contended that Omega’s failure to identify specific vendors was fatal to its contributory trademark infringement theory, basing its defense on legal precedent that it read to require a plaintiff to identify specific vendors. The lower court rejected Canal’s defense. The jury returned a total award of $1.1 million on grounds that Canal had contributorily infringed four of Omega’s trademarks.

Canal appealed the decision to the 2nd Circuit Court of Appeals, which rejected Canal’s defense based upon the court’s decision in Tiffany (NJ) Inc. v. eBay Inc.,  a counterfeiting case involving eBay. Contrary to Canal’s interpretation of eBay, the court did not require the plaintiff to identify particular sellers when there is evidence of willful blindness by the defendant. 

The moral of the story landlords, don’t rent property to counterfeiters and if you know that counterfeiting activities are taking place don’t turn a blind eye. Otherwise, it may cost you dearly.

-Adam G. Garson, Esq.