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From Intellectual Property Law Daily, May 23, 2017

Amazon is not liable for infringing products sold by third-party vendors

By Cheryl Beise, J.D.

The federal district court in Seattle did not err in dismissing copyright, patent, and trademark infringement claims filed by Milo & Gabby LLC against Amazon.com, Inc., for providing an online marketplace where third-party sellers sold knock-off imitations of Milo & Gabby’s animal-shaped pillow cases, the U.S. Court of Appeals for the Federal Circuit has held. Amazon was not a "seller" for the purposes of the Copyright Act because the third-party vendors retained title to the infringing pillowcases at all times and Amazon merely provided an online marketplace and in some cases, shipping services. Milo & Gabby waived its argument that Amazon was a seller for purposes of the Patent Act and it failed to develop its argument that Amazon committed palming off in violation of the Lanham Act (Milo & Gabby, LLC v. Amazon.com, Inc., May 23, 2017, O’Malley, K.).

Milo & Gabby LLC and its principals (collectively, "Milo & Gabby") owned various U.S. copyrights, U.S. design patents, and a design mark registration in connection with animal-shaped pillow cases. In 2013, Milo & Gabby discovered knock-offs of its pillowcases offered for sale by 10 third-party sellers on Amazon’s website. The third-parties used Milo & Gabby’s copyrighted images on their Amazon product-pages. One entity (FAC System) used Amazon’s "Fulfillment by Amazon" shipping service. Amazon immediately.

In October 2013, Milo & Gabby filed suit against Amazon, asserting claims for copyright infringement, design patent infringement, and trademark counterfeiting and false designation of origin under the Lanham Act. Amazon removed the infringing product listings and suspended the third-party sellers. On July 16, 2015, the district court granted summary judgment to Amazon on the copyright and Lanham Act claims, but found that factual issues persisted regarding patent infringement. In September 2015, the court found that Milo & Gabby’s Lanham Act claims were baseless and awarded attorney fees and costs to Amazon. The court later dismissed the remaining patent infringement claims after an advisory jury resolved all factual questions in favor of Amazon.

Milo & Gabby appealed, arguing that the district court erred in its analysis of the copyright, patent, and trademark issues and abused its discretion in awarding attorney fees under the Lanham Act. The Federal Circuit addressed each argument in turn.

Patent infringement. On appeal, Milo & Gabby contended that Amazon, as a "seller" of the knock-off pillowcases, directly infringed Milo & Gabby’s design patents. The Federal Circuit, however, held that Milo & Gabby had forfeited this argument below and could not raise it now. In its summary judgment motion, Amazon insisted that it had neither "sold" nor "offered to sell" the accused products. In response, Milo & Gabby argued only that Amazon was liable because it "offered to sell" the infringing products. Milo & Gabby’s failure to address the "seller" theory of liability constituted abandonment of that theory.

Furthermore, because Milo & Gabby did not argue on appeal that Amazon was directly liable for patent infringement based on the "offer to sell" theory, it waived any argument as to that theory as well. Milo & Gabby did not appeal any claims based on contributory or induced infringement. The appeals court accordingly affirmed the district court’s judgment in favor of Amazon on the patent infringement claims.

Copyright infringement. Milo & Gabby argued that the district court erred in exonerating Amazon from copyright infringement liability because, in its view, Amazon was liable under as both a "seller" and a "distributor" of the accused products. Milo & Gabby asserted that the term "sale" under Section 106(3) of the Copyright Act should be given the same meaning as the term "sale" under Section 271(a) of the Patent Act.

The Federal Circuit agreed that there were "clear parallels between the legal standards" for what constitutes "a sale" in the patent and copyright contexts. The court pointed to its prior decisions adopting the ordinary meaning of "sale" in patent cases and looking to dictionaries and the Uniform Commercial Code ("U.C.C.") as persuasive authority. The court noted that it has deemed the presence or absence of passage of title to be a significant indicator of whether a sale has occurred in the patent law context.

Milo & Gabby asserted that a sale can occur in some instances where the seller does not hold title. According to Milo & Gabby, Amazon should be considered a seller for sales of infringing products by one third-party entity (FAC System) that used Amazon’s "Fulfillment by Amazon" service. The Federal Circuit disagreed. Amazon merely held FAC System’s accused goods in its warehouse and shipped them when a sale took place.

Milo & Gabby additionally argued that Amazon’s sales of the accused products qualified as "consignment sales." However, Amazon’s fulfillment service did not meet the definition of a consignment sale under Article 9 of the U.C.C. Milo & Gabby’s other arguments were equally unpersuasive. The Federal Circuit found no reason in this case to deviate from the general rule that a party must transfer title in a product to a buyer in order to be considered a seller.

Moreover, the term "sale" under Section 106(3) of the Copyright Act "appears to unequivocally require a transfer of ownership from the seller to the buyer," the court said. The court observed that the text combines the term "sale" with "other transfer of ownership" between commas, indicating that the latter phrase modifies the term "sale." The court concluded that Amazon was not a seller for the purposes of copyright infringement because the third-party sellers retained title to the infringing pillowcases at all times and Amazon merely provided an online marketplace, followed by logistical and shipping services. Because the third-party sellers were not parties to the action the court declined to consider whether Amazon could be secondarily liable for their direct infringement.

The court also rejected Milo & Gabby’s argument that Amazon was liable for copyright infringement because it acted "as a distributor of the infringing products and physical images." Section 106(3) of the Copyright Act recognizes a copyright owner’s exclusive right to distribute copies of the copyrighted work by "sale" or "other transfer of ownership" under 17 U.S.C. § 106(3). Milo & Gabby failed to explain why Amazon’s conduct qualified as "other transfer of ownership."

Lanham Act palming off and attorney fees. Milo & Gabby argued that the district court erred in granting summary judgment on the palming off claim under Section 43 of the Lanham Act. The Federal Circuit, however, affirmed the district court’s dismissal of Milo & Gabby’s palming off claim because Milo & Gabby’s general allegations in its complaint regarding its broader claim for false designation of origin failed to put Amazon on notice of its intent to pursue a palming off claim.

In addition, because the district court did not err in dismissing Milo & Gabby’s palming off claim, Milo & Gabby could not be considered the "prevailing party" for purposes of the Lanham Act’s fee shifting provision. Milo & Gabby made no additional argument regarding the attorney fee award. The appeals court affirmed the district award of attorney fees.

The case is No. 2016-1290.

Attorneys: Philip P. Mann (Mann Law Group) for Milo & Gabby LLC and Karen Keller. John Hughes (Bartlit Beck Herman Palenchar & Scott LLP) for Amazon.com, Inc.

Companies: Amazon.com, Inc.; Milo & Gabby LLC

MainStory: TopStory Copyright Patent Trademark TechnologyInternet FedCirNews

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