US court confirms $5 million Coach counterfeit ruling

The US Court of Appeals for the Sixth Circuit has affirmed a $5 million damages award against a flea market owner who knew that counterfeit Coach goods were sold at his site.

In the sixth circuit’s first ruling on whether a flea market operator can be liable for contributory trademark infringement, three-judges dismissed Frederick Goodfellow’s appeal against a decision in favour of luxury brand owner Coach.

The Memphis market operator was sued in 2010 at the US District Court for the Western District of Tennessee, after Coach had detected and notified him about the sale of counterfeit goods.

Before and after the litigation began, the market was raided several times, before being shut down by the authorities in 2011.

Goodfellow admitted to knowing that vendors continued selling counterfeit goods after he was notified about them, and said he had tried to tell the vendors that the practice was prohibited.

But in a 2011 ruling, Goodfellow was found guilty of contributory trademark infringement, a form of secondary liability, and was later fined $5 million.

On appeal, he argued that the Lanham Act, under which he was sued, does not provide for contributory liability by third parties.

In a unanimous ruling, on May 31, the court relied on Inwood v Ives Laboratories – a 1982 Supreme Court decision that found liability for trademark infringement can be imposed when a party “continues to supply its product to a person whom it knows, or has reason to know, is engaging in trademark infringement”.

The US Court of Appeals for the Seventh and Ninth Circuits have also cited Inwood in similar cases.

The sixth circuit’s ruling added: “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.”

Though Goodfellow did not dispute being liable, the judge considered his liability in considerable detail.

“This is probably because the court wanted to show that even if he had denied liability, he would have lost anyway,” said Peter Berger, partner at Levisohn Berger LLP in New York.

He noted that the ruling will encourage brand owners to sue flea market owners in the future because “if they can stop a flea market operator from allowing anyone on the premises, they could be very successful”.

But whether or not Goodfellow actually has money to pay “is yet another question”, said Berger.

“Market operators are clever at hiding money.”

Goodfellow could appeal to the Supreme Court, but Berger said it would be very unlikely to take the case.