Yes. The court decided that Cherry Auction could be held responsible. It wasn't just a landlord renting out space and looking the other way. The court said there were two ways Cherry Auction was liable. First, it had 'vicarious liability' (like a boss is for an employee) because it had (1) the power to control the sellers (it could kick them out) and (2) it made direct financial profit from the illegal sales because the cheap knock-offs were a big 'draw' that brought in paying customers. Second, it had 'contributory liability' (like a getaway driver) because it (1) knew the illegal sales were happening and (2) it 'materially contributed' by providing the whole setup—the space, the parking, the advertising, and the crowd of customers—that made the massive illegal sales possible.

Yes, the flea market Cherry Auction can get in trouble for the fake CDs being sold there because:

1) They had control over the sellers and could have stopped it, but didn't. 

2) They made money directly from the sellers renting space and people coming to the market to buy the fake CDs.

3) They knew it was happening and let the sellers keep doing it by giving them a place to sell the fake stuff.

The lower court was wrong to say Cherry Auction wasn't responsible. The case is going back to the lower court to look at it again with the idea that Cherry Auction can be liable.

Even in the absence of an employment relationship, a defendant incurs liability for vicarious copyright infringement if he "has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities."

—observing that a flea market operator "can not disregard its vendors' blatant trademark infringements with impunity

The Tenth Circuit has determined that a defendant can be secondarily liable for another's copyright infringement under principles of vicarious and contributory liability.

—noting that "it would be difficult for the infringing activity to take place in the massive quantities alleged without the support services provided by the [flea market]... includ [ing], inter alia, the provision of space, utilities, parking, advertising, plumbing, and customers

"[O] ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a `contributory'infringer. "

—by virtue of a "broad contract" with its vendors the defendant swap meet operators had the right to stop the vendors from selling counterfeit recordings on its premises,

Vicarious liability for copyright infringement arises where "the right and ability to supervise" the conduct of the infringer coalesces with "an obvious and direct financial interest in the exploitation of copyrighted materials."

"Financial benefit exists where the availability of infringing material acts as a `draw'for customers. "

A manufacturer or distributor can be held liable for the infringing acts of another if it "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."

Although "the Inwood case involved a manufacturer-distributor," the Court did not limit its decision only to those situations

Yes. An operator of a swap meet can be held vicariously and contributorily liable for copyright and trademark infringement by its vendors. The court rejected the district court's analogy of Cherry Auction to an absentee landlord. For vicarious copyright infringement, the court found Fonovisa sufficiently alleged both prongs of the test: (1) the right and ability to supervise the infringing activity and (2) a direct financial interest. Cherry Auction's contractual right to terminate vendors for any reason, coupled with its control over the premises, established the 'control' prong. The 'direct financial benefit' prong was met because the availability of counterfeit recordings acted as a 'draw' for customers, thereby increasing Cherry Auction's revenue from admission fees, parking, and concessions, not just the vendors' fixed rental fees. For contributory copyright infringement, the court found Fonovisa alleged both knowledge and material contribution. Cherry Auction had actual knowledge from law enforcement and Fonovisa. It materially contributed by providing the entire venue and the necessary support services (space, utilities, advertising, customers) without which the infringement could not have occurred on such a large scale. Finally, for contributory trademark infringement, the court adopted the reasoning of *Hard Rock Cafe*, applying the *Inwood Laboratories* test and holding that by supplying the necessary marketplace for the sale of counterfeit goods, a swap meet operator can be held liable if it knew or had reason to know of the infringement.

Yes, the swap meet operator Cherry Auction can be held liable for contributory and vicarious copyright infringement and contributory trademark infringement because:

1) For vicarious copyright infringement, Cherry Auction had the right and ability to control the vendor activities through their broad contract allowing them to exclude any vendor, and received a direct financial benefit from the infringing sales in the form of booth rental fees, admission fees, and parking/concession revenues. The infringing sales enhanced the swap meet's attractiveness to potential customers.

2) For contributory copyright infringement, Cherry Auction had knowledge of the infringing activity and materially contributed to it by providing the space, facilities, and services enabling the infringement to occur in large volumes. Their support was more than passive and included failing to share vendor information with law enforcement.

3) For contributory trademark infringement, Cherry Auction is liable under the Inwood test for continuing to supply a venue for known infringing activity. While not directly supplying the infringing goods, they supplied the necessary marketplace for large-scale infringement to take place.

The district court erred in dismissing these claims. The case is reversed and remanded for further proceedings consistent with recognizing Cherry Auction's potential liability under these theories.

Fonovisa, Inc. v. Cherry Auction, Inc.

Case Podcast

Rule of Law:

The Legal Principle

Facts:

Procedural Posture:

How It Got Here

Issue:

Legal Question at Stake

Opinions:

Majority, Concurrences & Dissents

Analysis:

Why This Case Matters

Gunnerbot