Landlords Can’t Wear Sunglasses at Night to Avoid Liability for Tenant’s Trademark Infringement

September 2019

Last month, in Luxottica Group, S.p.A. v. Airport Mini Mall, LLC, 932 F. 3d 1303 (11th Cir. 2019), the United States Court of Appeals for the Eleventh Circuit affirmed a district court ruling that held a landlord contributorily liable for trademark infringement committed by its tenants. This decision was based on a United States Supreme Court case recognizing that liability for trademark infringement can extend beyond those who actually commit the infringement. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 853 (1982) (holding manufacturer liable for supplying products that the retailer used for trademark infringement). The Supreme Court’s holding in that case was based on the application of basic tort liability concepts: by providing products to the direct infringer, the provider contributes to the commission of the infringement.

Based on the Inwood decision, the Eleventh Circuit in Luxottica set forth the requirements to find contributory liability for a trademark infringement cause of action: “(1) a person or entity commits direct trademark infringement under the Lanham Act; and (2) the defendant (a) ‘intentionally induces’ the direct infringer to commit infringement, (b) supplies a ‘product’ to the direct infringer whom it ‘knows’ is directly infringing (actual knowledge), or (c) supplies a ‘product’ to the direct infringer whom it ‘has reason to know’ is directly infringing (constructive knowledge).” Luxottica Group, S.p.A, 932 F. 3d at 1312. Multiple circuit courts agree that willful blindness—where one suspects wrongdoing and deliberately fails to investigate—is an acceptable method to show a party had constructive knowledge in this context.

The facts of the Luxottica case are as follows:  Yes Assets, LLC owned a shopping mall in Georgia, the entirety of which was leased to Airport Mini Mall, LLC, who then subleased the approximately 120 to 130 booths in the mall to various vendors (the “Subtenants”). Luxottica Group, S.p.A. and its subsidiary Oakley, Inc. (“Plaintiffs”) sued Yes Assets, LLC and Airport Mini Mall, LLC (“Defendants”) alleging infringement of Plaintiffs’ registered trademarks for their Ray-Ban and Oakley brands based on some of the Subtenants selling counterfeit Ray-Ban and Oakley eyewear at less than 10% of the normal retail price. During the period of time that Airport Mini Mall, LLC leased and operated the mall, law enforcement officials executed search warrants and conducted three separate raids, seizing various counterfeit merchandise and arresting certain Subtenants for selling counterfeit goods. The second raid resulted in the seizure of thousands of counterfeit Luxottica items, so many that law enforcement had to load the items onto a tractor-trailer. In addition, Luxottica sent two letters to Defendants, notifying them that the Subtenants were not authorized to sell Luxottica’s eyewear and identifying specific booths suspected of infringement.  Despite these warning signs, Defendants took no steps to investigate the allegations or evict the infringing Subtenants.  They even renewed leases with several of the Subtenants who were arrested in the raids.

During the trial, the Defendants conceded that some of their Subtenants committed trademark infringement, but contended that they did not have either actual or constructive knowledge of such infringement and therefore could not be held contributorily liable. However, the facts clearly showed that, given the raids and Luxottica’s letters, the Defendants did know about the allegations of trademark infringement and simply chose not to investigate. The court noted that by not conducting even a cursory inspection of the Subtenants for counterfeit Luxottica eyewear in response to the raids and letters, Defendants were willfully blind as to the infringement, constituting constructive knowledge.  Thus, the two prongs necessary to find contributory liability in a trademark infringement case were met (note that because the Defendants failed to contest the Plaintiffs’ cause of action being applied in the landlord-tenant context, the court assumed that the Defendants’ provision of common landlord services [e.g., lighting, water, maintenance, repairs, and parking] to the Subtenants constituted supplying “products” to the Subtenants).  The Court of Appeals for the Eleventh Circuit affirmed the jury verdict of $1,900,000 against both Defendants based on $100,000 per Luxottica trademark infringed upon by the Subtenants.

The Luxottica decision generally concurs with an earlier decision in the United States District Court for the Southern District of Florida holding property operators contributorily liable for infringement by their tenants. Coach, Inc. v. Swap Shop, Inc., 916 F. Supp. 2d 1271 (2012). Luxottica and Coach serve as cautionary tales to landlords and property operators across the country not to turn a blind eye to trademark infringement by their tenants, or risk substantial liability. This liability is best avoided by extensively vetting all tenants before entering into leases or licenses, ensuring there is a compliance with law provision in the lease that gives the landlord the necessary recourse in the event it becomes aware a tenant is committing trademark infringement, and swiftly investigating and taking appropriate action upon receipt of notice of such infringement. Considering landlords generally have significantly more assets to pursue than operators of small booths and kiosks, it is likely that this case will cause landlords to be targeted more than ever before for trademark infringement liability, with stark consequences for those held liable.