Gucci Allowed To Sue Credit Card Processors For Contributory Infringement Over Counterfeit Goods
from the third-party-liability dept
We're always a little skeptical of third-party liability claims, because allowing those types of lawsuits can often create serious chilling effects on various services. It seems that any reasonable standard of liability would apply liability to the parties actually involved in breaking the law, rather than the service providers they use. Of course, supporters of third party liability point to cases where those third parties have to be aware of what's being done, how it breaks the law... and then do nothing to stop it. The question is usually where do you draw the line. Michael Scott points us a recent court decision where the judge is allowing Gucci to sue three companies involved in processing credit cards for a website (which it already shut down through lawsuit) that was selling counterfeit Gucci products. No one denies that the website sold counterfeit Gucci products, the question is whether or not these three companies are liable (and also if the jurisdiction is proper, but we'll skip that part of the lawsuit):I can see how the court decided the way it did with the middleman who advertised itself as working with merchants who sell "replicas" (though "high risk merchants" could be borderline -- since a brand new, but completely legitimate, merchant could be seen as "high risk.") Even so, however, it seems weird to put liability on someone who is effectively a matchmaker for business done later. As for the argument against the financial institutions, it gets much trickier. Gucci will probably win the lawsuit, given what the judge says, but it does get a little worrisome when courts start effectively demanding that third parties have detailed knowledge and understanding of their partners' business practices.
Eric Goldman notes numerous problems with the ruling, such as the fact that "the payment processor is charged with the knowledge of a third party entity's salesperson." That's always the problem with third party liability rulings. They're effectively claiming that a third party is somehow responsible for the actions of someone entirely different. Goldman's conclusions:
This is a terrible ruling on both a doctrinal and normative level. On a doctrinal level, the court bypassed the main holdings of Tiffany v. eBay (binding on the court), Perfect 10 v. ccBill and Perfect 10 v. Visa. Instead, the court stitched together crappy dicta from the Tiffany v. eBay case with Kozinski's dissent in Perfect 10 v. Visa to come up with an expansive secondary trademark liability rule applicable to vendors to counterfeit websites. I expect payment service providers to become the latest defendant-du-jour among trademark plaintiffs looking for deep pockets in web infringement cases. Something to look forward to.Separately, I do want to make one point that struck me in reading this ruling (along with the recent eBay/Tiffany ruling. Trademark law is in this weird vortex where it does not have an official safe harbor protection for third parties, a la copyright (DMCA 512) and defamation/other things (CDA Section 230). Both Section 230 and the DMCA provide rules (though, some would argue, not very clear ones) for how a third party can avoid liability. There is no such safe harbor for trademark law. And yet, the courts have effectively created a very similar safe harbor just by looking at the facts of the cases: if you don't have specific knowledge and agree to take stuff down when alerted to it (eBay ruling) then you avoid liability. That's just like the DMCA -- even if this particular case seems to stretch the understanding a bit.
Normatively, this ruling raises the specter that payment service providers will attempt to exercise even more business control over the businesses they service, effectively deputizing the payment service providers into cops on the Internet beat. As I mention in my notes about the OECD efforts on Internet intermediaries (which I will post soon), this deputization of private vendors into content cops has numerous disadvantages. I'm hoping this ruling gets fixed by the judge or on appeal so that we don't suffer the logical consequences of this bad ruling.
This highlights the idea that the DMCA safe harbors aren't some ridiculous extension beyond common sense, as some copyright maximalists contend. Instead, it shows that the DMCA safe harbors do, in fact, match up with basic common sense in making sure that liability is applied directly to those who actually have the most knowledge of the situation... not just those with the biggest bank accounts.
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Filed Under: contributory infringement, merchant accounts, trademark
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Knowledge
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Re: Knowledge
further, mike is sort of failing to accept the idea that a credit card processor is not just an innocent service. before you can get 'high risk' processing, these companies are suppose to look at what your business is (at least what is purports to be). they are not suppose to sign people up blindly. heck, they are required by visa rules to actually qualify and quantify what the business does, at minimum for statistical purposes. the level of risk changes if a company is in fact delivering goods via ups, example, which can require a signature at delivery. that would change the level of risk for the processor.
in mikes world, everyone except the seller is suppose to work hard to be as ignorant as possible. in the real world, third parties are often not disconnected from the sitution, and rather are well informed co-conspirators. section 230 would reward them for being intentionally ignorant, which should never be the intent of the law.
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Suit
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BTW, don't the guys that print our know that cash is used for (and in many cases regarded as the best choice for) these and other kinds of purchases? I would think they might be just a little bit more nervous today. Isn't the absence of having taken any steps to control the use cash, combined with knowledge of its illegal uses, sufficient to be "willfully shutting one's eyes"?
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Another missed point
The two merchants specifically eithre reviewed the websites or chargebacks. With these procedures in place at least SOMEONE was made aware that they were fake goods, either before approval of the account or during the normal day to day usage of the account.
The Middleman advertising that he works with High Risk Vendors is another subject, and he should pretty easily be able to get dismissed from the case once the industry standard definition is given to any reasonable judge.
I work with Jails, Sheriff's Offices and Police Departments, yet my Merchant account is labeled High Risk due to the size of my company, and the size and type of the charges.
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Re: Another missed point
So you agree that the hurt locker lawyers are just as guilty as the other downloaders since they are not issuing takedown notices.
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Regardless, card processors will NOT pay a dime...
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Easy one...
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Crazy
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Good for Gucci
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michael kors outlet
Article resource: http://www.michaelkorsoutletsfree.com/
super2012rjy02
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