Online B2B Marketplace Busted: TradeKey Held Liable for Contributory Trademark Infringement

On October 8, 2013, Judge Feess of the U.S. District Court for the Central District of California granted summary judgment against the owners of the websites www.TradeKey.com, www.SaudiCommerce.com, and www.b2bFreeZone.com, websites offering a “business to business” marketplace for bulk sales of goods.  Many of these goods were counterfeits of luxury goods sold under the names of plaintiffs (including Chloe, Dunhill, Panerai, Montblanc and Cartier).  The plaintiffs sued TradeKey and its parent company Sawabeh Information Services Co. for contributory counterfeiting, contributory infringement, unfair competition and related claims under California state law, and the court held that the internet companies were liable as a matter of law under all counts.

The result in this case stands in contrast to a ruling issued five years ago by the Court of Appeals for the Second Circuit, which affirmed a post-trial decision in Tiffany (NJ) Inc. v. eBay Inc.  Although the vast majority of Tiffany-branded silver jewelry advertised on the site was found to be counterfeit, the Tiffany court found that the business-to-consumer auction site was not liable for contributory trademark infringement because eBay expeditiously responded to notices of specific infringing listings and removed them, and further maintained other safeguards – such as filters to screen for items listed as “replicas” or “counterfeits.”

In TradeKey, the court had at hand several undisputed facts which led the judge to find that no trial was necessary to find that the defendants were liable on the secondary trademark infringement claims.  First, the court noted that TradeKey maintained “Replica Products” and “Replica Retention” divisions of its sales department, along with TradeKey keyword reports for fake branded products, which led the court to note that the sale of counterfeit goods is a large part of TradeKey’s business.  Second, a TradeKey employee represented to the brands’ investigator that counterfeiting is one of the two biggest industries featured on TradeKey.com.  Plaintiffs’ investigator asked him if it was a problem with TradeKey if a seller wanted to sell counterfeit luxury goods, and the employee said it was not.  The employee later helped plaintiffs’ investigator disguise the counterfeit nature of a sale by replacing the word “replica” with the words “fashion handbag.”  Third, the argument that the sellers were merely reselling genuine items purchased at retail (as in Tiffany) was not present:  the sellers on TradeKey were bulk wholesalers, and none of them – and there were over 6000 of them – were authorized by the plaintiffs to sell genuine goods bearing plaintiffs’ trademarks.   Finally, each of the 21 counterfeit items that the brands’ investigator purchased was counterfeit.

Interestingly, the opinion makes no mention of the Second Circuit’s Tiffany decision and instead relies on law within its own circuit.  Nor does it include any discussion of notice-and-takedown or specific infringing sales, except to note that certain sellers’ accounts implicated in a consent injunction earlier in the proceedings were not removed.  It may be that given the obviously unabashed assistance rendered by the defendants in this case, no such factual findings were needed:  TradeKey was offering countless counterfeit items, making untold money off such items, and was fully aware of it.

A determination on damages is pending.  We will update you on the result.