Hard Rock Cafe Licensing Corp. v. Concession Services, Inc.
1992 WL 16299, 955 F.2d 1143 (1992)
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Rule of Law:
A third party, such as a flea market operator, can be held contributorily liable for a vendor's direct trademark infringement if the operator knew or had reason to know of the infringing activity. This standard does not impose an affirmative duty on the operator to seek out and prevent infringement, and it is narrower than the vicarious liability standard applied in copyright law.
Facts:
- Hard Rock Cafe Licensing Corporation (Hard Rock) owns registered trademarks for its merchandise, including t-shirts.
- Concession Services Incorporated (CSI) owned and operated several "Swap-O-Rama" flea markets, renting space to vendors for a flat fee.
- CSI's supervision of vendors was minimal; it had a general rule prohibiting the sale of "illegal goods" but did not inspect merchandise or keep detailed records of its vendors.
- Hard Rock hired investigators who discovered a vendor, Iqbal Parvez, selling counterfeit Hard Rock t-shirts at two of CSI's flea markets.
- The counterfeit shirts were of poor quality, had cut labels, and were sold for a fraction of the price of genuine merchandise.
- Hard Rock did not notify or warn CSI about the infringing activity occurring at its markets prior to filing a lawsuit.
Procedural Posture:
- Hard Rock Cafe Licensing Corporation sued Concession Services Incorporated (CSI), Iqbal Parvez, and Harry's Sweat Shop in U.S. District Court, alleging trademark infringement under the Lanham Act.
- Parvez and most other defendants settled with Hard Rock.
- After a bench trial, the district court found CSI and Harry's liable for trademark infringement.
- The district court entered a permanent injunction against CSI and denied Hard Rock's request for attorney's fees.
- CSI, the defendant, appealed the finding of liability to the U.S. Court of Appeals for the Seventh Circuit.
- Hard Rock, the plaintiff, cross-appealed the denial of attorney's fees.
- Harry's Sweat Shop's appeal was dismissed as untimely.
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Issue:
Does a flea market operator incur contributory liability for trademark infringement by its vendors when the operator provides the venue but does not directly sell the counterfeit goods?
Opinions:
Majority - Cudahy, Circuit Judge
Yes, a flea market operator can be held contributorily liable for trademark infringement by its vendors if it knew or had reason to know of the infringing conduct. The court applies the contributory infringement test from Inwood Laboratories, Inc. v. Ives Laboratories, Inc., which holds a party liable if it continues to supply its product or service to one whom it knows or has reason to know is engaging in trademark infringement. The court found that the district court incorrectly applied the law by conflating willful blindness with mere negligence. Willful blindness—which requires a person to suspect wrongdoing and deliberately fail to investigate—is equivalent to actual knowledge, whereas negligence or the failure to take precautionary measures is insufficient to establish contributory liability. The operator of a flea market has no affirmative duty to police its premises for infringement. The court also declined to apply the broader vicarious liability standard from copyright law, noting that secondary liability for trademark infringement is more narrowly drawn. Because the district court's finding was ambiguous and seemed to rely on an incorrect negligence standard, the judgment against CSI was vacated and the case was remanded for a new determination under the proper 'knew or had reason to know' standard.
Analysis:
This decision clarifies the scope of secondary trademark liability for third-party facilitators like landlords or flea market operators. It solidifies the application of the 'knew or had reason to know' standard for contributory infringement from Inwood Labs, preventing the imposition of liability based on mere negligence. By explicitly rejecting the broader vicarious liability doctrine from copyright law, the court maintained a clear distinction between the two intellectual property regimes, reinforcing that trademark law requires a greater showing of knowledge or involvement by the third party. The ruling provides a crucial framework for analyzing liability in cases involving physical and, by extension, online marketplaces, by balancing the rights of trademark holders against the burden placed on intermediary service providers.
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