The vendors are out on Canal Street, New York City’s notorious hub of counterfeit trafficking. In the heat of the summer shopping season, they are eagerly shouting names like Michael Kors and Louis Vuitton to the commuters walking by. Stores are wide open, showing clothing and bags and jewelry and all manner of accessories. And landlords are huddling nervously with their attorneys, watching for the city or trademark owners to come for their wallets.
Last month, I was privy to a settlement between a landlord and Canal Street tenants who were selling counterfeit goods. This was the second such stipulation between the parties following the termination of their lease in early 2009, which came on the heels of four separate seizures of counterfeit goods on the premises. In each of the settlements, the tenants agreed to cease selling counterfeit products and to pay use and occupancy. In return, a stay was placed on a warrant of eviction. This time, the stay was placed on the warrant only until September 30, giving the tenants the opportunity to continue to make money through the summer, their most profitable season, and then vacate the premises before the execution of the warrant.
The landlord’s attorney’s affirmation shows a balancing of two concerns: On the one hand, they do not want to lose a rent-paying tenant, but on the other, they are concerned about exposure to vicarious infringement liability. In New York, landlords are jointly and severally liable with their tenants for illegal activities that they are knowingly permissive of. As far as infringement is concerned, the state law provides a modest expansion of the federal rule established by the U.S. Supreme Court in 1982. The high court established that a distributor has contributory liability if it “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.” The assistance of knowing landlords, in offering spaces in which to securely proceed with counterfeit operations, are perhaps less direct, but they are similarly contributory to the infringement process.
The U.S. Copyright Office distinguishes vicarious liability and contributory liability as two separate types of secondary liability. The factors of vicarious liability are (1) a right and ability to control the infringement, and (2) direct financial interest in the infringement. The contributory liability factors are (1) knowledge of the infringement, and (2) material contribution to the infringement.
Landlords are faced with clear conflicting interests, as illustrated in the opposition papers filed by K/K Associates. Tenants who can reliably pay rent are appealing prospects, and the landlord’s reluctance is evident in the fact that it held off on getting the stay on eviction lifted until after it had received Lanham Act notices from several trademark holders, including Michael Kors, Abercrombie & Fitch Co., and Chloe, Inc. The landlord sought affirmative proof that counterfeit goods were being sold at the premises, which it received from an investigative services agency. Only then did the landlord contact a marshal to execute the warrant for eviction.
Vicarious and contributory liability can encourage landlords to be honest and vigilant about the conduct of their tenants on their properties, but it might not successfully combat the landlords’ instinct to bury their heads in the sand and keep taking the rent payments. This seems to be what happened with the first stipulation between the parties in this case, which allowed the tenants to remain in return for an evidently unenforced promise to refrain from selling counterfeit goods. Even in the second stipulation, the tenants are still being allowed to stay and make (and pay) money through Canal Street’s most profitable season. This instinct may suit trademark owners just fine, as it enables them to sue landlords who can afford to pay greater damages than the tenant merchants can, but it does little to really reduce infringement.