A case pending before the Federal Circuit highlights the challenges in attempting to stop online sales of counterfeit products. It also raises interesting questions about whether online marketplaces, including eBay and Amazon, are legally responsible for sales of counterfeit products sold through their marketplaces but not “sold by” those companies. It began with the family pets, Milo & Gabby. Using them as inspiration, a husband-and-wife team came up the designs for cartoon-like pillowcases for kids. Sold under the name Milo & Gabby, the pillowcases were a commercial success. The small business obtained design patents and took additional steps to secure their intellectual property.

But then came trouble. They began noticing counterfeit products being sold on Amazon. They received poor online reviews after customers received counterfeit, low-quality products and thought they were genuine. Unable to stop the sales, they ultimately decided to sue Amazon. At trial, however, the court decided that Amazon was not liable because it didn’t actually “sell” the counterfeit products — other companies, primarily from outside the US, were simply using the Amazon Marketplace to sell the counterfeit products. Amazon, the court concluded, could not be deemed the actual seller because there was not a transfer of legal title of the infringing products from Amazon to purchasers. And since Amazon was not the seller, Milo & Gabby could not hold it liable for the infringement of their design patents.

Now the Federal Circuit Court of Appeals has the opportunity to consider whether the trial court got it wrong. In reaching its decision, the Federal Circuit could give more guidance on what it actually means to “sell” or “offer to sell” products. Milo & Gabby have argued that the trial court’s ruling is too narrow and creates an unintended safe harbor for infringers that operate online. They argue the analogy of a consignment shop, where someone else owns the products, but the store can still sell them. Amazon, on the other hand, argues that its marketplace is simply a service or platform used by other sellers, so their only obligation is to take reasonable steps to stop a particular counterfeit seller once they receive notice.

Regardless of the outcome of this particular case, the dispute is a cautionary tale for online marketplaces and IP owners attempting to stop online counterfeiting. As the trial court judge stated, the law may not have fully caught up to the new world of online marketplaces. The legal definitions of a “sale” or “offer for sale” were written long before this business model became prevalent. It is possible that the Milo & Gabby case could result in more guidance about the potential liability for counterfeit sales. But in the meantime, online marketplaces need a robust and defensible set of practices for addressing counterfeit sales, and intellectual property owners need to recognize that simply suing the marketplace may not be enough to stop such sales.

For more information on this topic, please visit our eCommerce Agreements service page, which is part of our Internet & eCommerce Practice.

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution.Additional information about the eCommerce law firm and its eCommerce attorneys may be found at www.klemchuk.com.

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