Trademarks – Attorney Evan Brown

April 10, 2024 Artificial Intelligence, Trademarks

Key Takeaways From the USPTO’s Guidance on AI Use

uspto ai

On April 10, 2024, the United States Patent and Trademark Office (“USPTO”) issued guidance to attorneys about using AI in matters before the USPTO. While there are no new rules implemented to address the use of AI, the guidance seeks to remind practitioners of the existing rules, inform of risks, and provide suggestions for mitigating those risks. The notice acknowledges that it is an effort to address AI considerations at the intersection of innovation, creativity and intellectual property, consistent with the President’s recent executive order that calls upon the federal government to enact and enforce protections against AI-related harms.

The guidance tends to address patent prosecution and examination more than trademark practice and prosecution, but there are still critically important ideas relevant to the practice of trademark law.

The USPTO takes a generally positive approach toward the use of AI, recognizing that tools using large language models can lower the barriers and costs for practicing before the USPTO and help practitioners serve clients better and more efficiently. But it recognizes potential downsides from misuse – some of which is not exclusive to intellectual property practice, e.g., using AI generated non-existent case citations in briefs filed before the USPTO and inadvertently disclosing confidential information via a prompt.

Key Reminders in the Guidance

The USPTO’s guidance reminds practitioners of some specific ways that they must adhere to USPTO rules and policies when using AI assistance in submissions – particularly because of the need for full, fair, and accurate disclosure and the protection of clients’ interests.

Candor and Good Faith: Practitioners involved in USPTO proceedings (including prosecution and matters such as oppositions and cancellation proceedings before the Trademark Trial and Appeal Board (TTAB)) are reminded of the duties of candor and good faith. This entails the disclosure of all material information known to be relevant to a matter. Though the guidance is patent-heavy in its examples (e.g., discussing communications with patent examiners), it is not limited to patent prosecution but applies to trademark prosecution as well. The guidance details the broader duty of candor and good faith, which prohibits fraudulent conduct and emphasizes the integrity of USPTO proceedings and the reliability of registration certificates issued.

Signature Requirements: The guidance outlines the signature requirement for correspondence with the USPTO, ensuring that documents drafted with AI assistance are reviewed and believed to be true by the signer.

Confidentiality: The confidentiality of client information is of key importance, with practitioners being required to prevent unauthorized disclosure, which could be exacerbated by the use of AI in drafting applications or conducting clearance searches.

International Practice: Foreign filing and compliance with export regulations are also highlighted, especially in the context of using AI for drafting applications or doing clearance searches. Again, while the posture in the guidance tends to be patent heavy, the guidance is relevant to trademark practitioners working with foreign associates and otherwise seeking protection of marks in other countries. Practitioners are reminded of their responsibilities to prevent improper data export.

USPTO Electronic Systems: The guidance further addresses the use of USPTO electronic systems, emphasizing that access is governed by terms and conditions to prevent unauthorized actions.

Staying Up-to-date: The guidance reiterates the duties owed to clients, including competent and diligent representation, stressing the need for practitioners to stay informed about the technologies they use in representing clients, including AI tools.

More Practical Guidance for Use of Tools

The guidance next moves to a discussion of particular use of AI tools in light of the nature of the practice and the rules of which readers have been reminded. Key takeaways in this second half of the guidance include the following:

Text creation:

Word processing tools have evolved to incorporate generative AI capabilities, enabling the automation of complex tasks such as responding to office actions. While the use of such AI-enhanced tools in preparing documents for submission to the USPTO is not prohibited or subject to mandatory disclosure, users are reminded to adhere to USPTO policies and their duties of candor and good faith towards the USPTO and their clients when employing these technologies.

Likely motivated by court cases that have gotten a lot of attention because lawyers used ChatGPT to generate fake case cites, the USPTO addressed the importance of human-review of AI generated content. All USPTO submissions, regardless of AI involvement in their drafting, must be signed by the presenting party, who attests to the truthfulness of the content and the adequacy of their inquiry into its accuracy. Human review is crucial to uphold the duty of candor and good faith, requiring the correction of any errors or omissions before submission. While there is no general duty to disclose AI’s use in drafting unless specifically asked, practitioners must ensure their submissions are legally sound and factually accurate and consult with their clients about the representation methods used.

More specifically, submissions to the TTAB and trademark applications that utilize AI tools require meticulous review to ensure accuracy and compliance with the applicable rules. This is vital for all documents, including evidence for trademark applications, responses to office actions, and legal briefs, to ensure they reflect genuine marketplace usage and are supported by factual evidence. Special attention must be given to avoid the inclusion of AI-generated specimens or evidence that misrepresents actual use or existence in commerce. Materials produced by AI that distort facts, include irrelevant content, or are unduly repetitive risk being deemed as submitted with improper intent, potentially leading to unnecessary delays or increased costs in the proceedings.

Filling out Forms:

AI tools can enhance the efficiency of filing documents with the USPTO by automating tasks such as form completion and document uploads. But users must ensure their use aligns with USPTO rules, particularly regarding signatures, which must be made by a person and not delegated to AI. Users are reminded that USPTO.gov accounts are limited to use by natural persons. AI systems cannot hold such accounts, emphasizing the importance of human oversight in submissions to ensure adherence to USPTO regulations and policies.

Automated Access to USPTO IT Systems:

The guidance notes that when utilizing AI tools to interact with USPTO IT systems, it is crucial to adhere to legal and regulatory requirements, ensuring authorized use only. Users must have proper authorization, such as being an applicant, registrant, or practitioner, to file documents or access information. AI systems cannot be considered “users” and thus are ineligible for USPTO.gov accounts. Individuals employing AI assistance must ensure the tool does not overstep access permissions, risking potential revocation of the applicable USPTO.gov account or face other legal risk for unauthorized access. Additionally, the USPTO advises against excessive data mining from USPTO databases with AI tools. The USPTO reminds readers that it provides bulk data products that could assist in these efforts.

April 8, 2024 Cybersquatting, Trademarks

Sprint puts an end to entrepreneurs’ efforts to revive NEXTEL brand

abandonment — This house is abandoned but the NEXTEL mark is not.

Plaintiff Sprint (owner of the NEXTEL brand) sued defendant business owners, asserting claims for trademark infringement, cybersquatting and counterfeiting. Beginning in 2016, defendants – apparently believing that Sprint had abandoned the NEXTEL mark – began selling cheap cell phones branded as Nextel devices, and operating websites lauding the brand’s “revival”.

The question of defendants’ liability for infringement of the NEXTEL word mark went to a jury, which found in favor of plaintiff. The jury rejected defendants’ argument that Sprint had abandoned the NEXTEL mark.

Defendants sought review of the jury’s finding of no abandonment with the Eleventh Circuit Court of Appeals. On appeal, the court affirmed the lower court’s judgment.

The court examined how abandonment is a defense in trademark infringement cases, requiring discontinuation of a mark’s use with no intent to resume. Trademarks must be used genuinely, and the Lanham Act provides that three years of nonuse is prima facie evidence of abandonment.

The court concluded that the evidence showed Sprint’s continuous use of the NEXTEL word mark. For the three year period that defendants claimed Sprint had not used the mark, Sprint had provided evidence that the mark was used on at least two products. This continuous use also undermined defendants’ arguments against the cybersquatting claim.

Sprint Communications, Inc. v. Calabrese, 2024 WL 1463416 (11th Cir., April 4, 2024)

April 2, 2024 Cybersquatting, Trademarks, Unfair Competition

Redirecting URL was unlawful but did not cause damages

url redirect trademark

In the months leading up to the FDA shutting down plaintiff’s business, one of the co-owners of the business left and set up a competing enterprise. For a few weeks, the former co-owner set plaintiff’s domain name to forward to the new company’s website.

Plaintiff sued and the court held that redirecting the URL was a violation of the Lanham Act (the federal law relating to trademarks and unfair competition). But plaintiff was not entitled to any damages because it failed to show that the redirection caused any lost sales. During that time, 133 users who tried to access plaintiff’s website were redirected to the new company’s website, and of those 133 visitors, only two submitted inquiries and neither customer who submitted an inquiry placed an order.

ABH Nature’s Products, Inc. v. Supplement Manufacturing Partner, Inc., 2024 WL 13452228 (E.D.N.Y., March 29, 2024)

Can the owner of a company be personally liable for what the company does?

personally liable

One of the major benefits of forming a corporation or limited liability company is the shield from personal liability the business entity provides to its owners. But that shield does not protect against all of the company’s officers’ conduct.

In a recent trademark infringement case in federal court in California, a court evaluated whether a company’s officer could face liability for trademark infringement and cybersquatting. Plaintiff sued the company and the owner individually, asserting that that the owner should be personally liable because he controlled and was involved in all significant corporate decisions regarding the alleged infringement.

Citing to Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058 (9th Cir. 2016), the court observed that a corporate officer can be personally liable when he or she is the “guiding spirit” behind the wrongful conduct, or the “central figure” in the challenged corporate activity.

In this case, the court declined to dismiss the individual defendant from the lawsuit. With respect to the alleged trademark infringement and cybersquatting, the court focused on the fact that the individual defendant:

was the founder and central figure of the company,
personally participated in all major business strategy, branding and marketing decisions and actions,
ran the company from his home,
was the only officer of the company and was simultaneously the CEO, CFO and Secretary,
promoted the company’s brand from his personal social media account, and
directly negotiated with the plaintiff’s founder to see whether the parties could “find a more peaceful resolution.”

Simply stated, the individual defendant was not merely a board member that “final say,” but was substantially involved in every aspect of the conduct of the business giving rise to the alleged intellectual property infringement.

Playground AI LLC v. Mighty Computing, Inc. et al., 2024 WL 1123214 (N.D. Cal., March 14, 2024)

See also:

March 18, 2024 Blockchain, Trademarks

MetaBirkins defendant denied of opportunity to exhibit NFT artwork in Swedish museum

metabirkins museum
In February 2023, Sonny Estival, known by his pseudonym “Mason Rothschild,” was found liable by a jury on a number of claims, including intentional trademark infringement, trademark dilution, and cybersquatting against luxury brand Hermès. The court ordered Estival to pay $133,000 in damages to Hermès and issued a comprehensive permanent injunction against him and his associates. This injunction specifically prohibited the production, distribution, and promotion of “MetaBirkins” non-fungible tokens (NFTs) and related merchandise, aiming to prevent any association or confusion with Hermès’s “Birkin” trademark.

In January 2024, Estival sought clarification from the court regarding the scope of the permanent injunction, particularly whether it would prevent him from allowing a Swedish museum to exhibit his MetaBirkins artworks as part of an exhibition on Andy Warhol and Business Art. Despite his claims that the museum’s display would not imply any association with Hermès and would even include mention of the lawsuit and its outcome, Hermès opposed this motion. The court held an evidentiary hearing, and after considering submissions from both parties and testimony from museum representatives, denied Estival’s motion. The court could not conclude that the proposed exhibition would comply with the injunction’s terms, given the lack of detailed information about the nature of the permission Estival would be granting to the museum, especially concerning the promotion of the exhibit and potential merchandising.

The court’s decision was heavily influenced by the context of Estival’s previous actions and the jury’s findings, which characterized him as intentionally misleading the public to associate his NFTs with Hermès’s Birkin brand. Despite the museum’s assurance that the exhibit would not suggest any affiliation with Hermès, the court remained unconvinced, especially given discrepancies in the museum representatives’ testimonies regarding how the lawsuit and Estival’s infringement would be presented to the public.

Hermès Int’l v. Rothschild, 2024 WL 1089427 (S.D.N.Y. March 13, 2024)

See also:

February 20, 2024 Trademarks

Peloton did not infringe trademark rights of fitness app maker

Plaintiff used the mark BIKE+ in connection with a fitness tracking app and obtained a federal registration for the mark. It sued defendant Peloton for trademark infringement over Peloton’s adoption and use of the mark PELOTON BIKE+. Defendant moved for summary judgment arguing, among other things, that there was no likelihood of confusion. The court granted defendant’s motion for summary judgment.

Sitting in the Ninth Circuit, the court embarked on an analysis under AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979) to assess the likelihood of consumer confusion. It considered several factors, including the strength of the mark, the similarity of the products, marketing channels used, and the intent behind the choice of mark, among others. The court determined that plaintiff’s BIKE+ mark, being descriptive of the app’s functionality to enhance biking experiences, did not possess the inherent distinctiveness that warrants a broad scope of protection. This was compounded by the existence of similar marks in the app marketplace, further reducing the strength of plaintiff’s mark.

The court then looked to the relatedness of the goods offered by both parties, the similarity of the marks in appearance, sound, and meaning, and the absence of evidence of actual consumer confusion. Despite the complementary nature of the defendant’s physical product and the plaintiff’s app, and some similarities in the marks, the lack of actual confusion evidence, along with divergent marketing channels and the sophistication of the consumers, weighed against the likelihood of confusion. The defendant’s intent in selecting its mark did not suggest a deliberate attempt to create confusion, further diminishing the plaintiff’s stance.

Ultimately, the court concluded that the descriptive nature of the plaintiff’s mark, the lack of significant commercial strength, and the minimal impact of relatively recent development activity made confusion unlikely. Defendant’s commercial prominence and extensive marketing efforts did not overshadow the plaintiff’s app to a degree that would cause confusion among consumers. Given all the circumstances and the specific context of each factor considered, the court found confusion to be possible but not probable, leading to the grant of summary judgment in favor of defendant.

World Champ Tech LLC v. Peloton Interactive, Inc., 2024 WL 665181 (N.D. California, February 16, 2024)

Who owns the trademark rights in the name of a user-created community?

trademarks social platforms

In the realm of online communities, where does the ownership of trademark rights lie – with the platform hosting the community or the individual user who creates and develops it?

The intriguing case involving Reddit and the founder of the well-known r/WallStreetBets subreddit presents a scenario that addresses this question concerning online communities and intellectual property rights. The case deals with the ownership and alleged infringement of two trademarks: WALLSTREETBETS and WSB.

Reddit and WallStreetBets

Reddit is a widely-used social media platform that enables users to create, manage, and participate in communities known as subreddits, centered around various interests. Plaintiff Rogozinski launched r/WallStreetBets in January 2012 to establish a forum for discussions and information exchange about the financial industry. While preparing for the launch, plaintiff invested considerable time and effort in developing the subreddit’s unique identity. This included creating the WALLSTREETBETS logo, designing the site using CSS to modify Reddit’s template. Later he set up related online channels, including an Internet Relay Chat (IRC) chatroom, a Discord channel, and a Twitter account under the WALLSTREETBETS name. By 2020, the r/WallStreetBets subreddit had amassed over a million followers.

Reddit Got Mad

The conflict took shape when plaintiff filed an application to register the WALLSTREETBETS trademark with the USPTO in March 2020. Reddit subsequently suspended plaintiff’s account for a week, citing his attempt to monetize the community, and barred him from moderating on the platform. In January 2022, plaintiff filed to register the mark WSB, and the USPTO granted this registration in June 2022.

Then There Was Litigation

Plaintiff sought a declaratory judgment – which in this case was a request for the court to acknowledge his ownership of the WALLSTREETBETS and WSB trademarks. He also made a claim against Reddit for infringing these trademarks, together with various other claims arising under state law. On the infringement issue, his theory was that he did not give Reddit permission to use the WALLSTREETBETS trademark following his ban as a moderator of the r/WallStreetBets subreddit he created.

The court dismissed Plaintiff’s first complaint, which he filed in February 2023. That dismissal, however, came with the opportunity for plaintiff to amend his complaint to address these issues. Despite his efforts to fix the identified shortcomings in his amended complaint, Reddit argued that he had still failed to meet the necessary legal standards. The court agreed and dismissed the case again.

Court Says the Rights are Reddit’s

The Court’s placed significant emphasis on the principle of “first use in commerce,” a critical element in establishing trademark ownership. In his amended complaint, plaintiff attempted to demonstrate his early and significant involvement in the development and use of the trademarks in question. He detailed his efforts in creating the logo, designing the subreddit, and establishing associated online channels. However, the court remained unconvinced by these assertions, noting that plaintiff’s actions did not meet the threshold of “use in commerce” as required by trademark law. The Court also scrutinized the timing and nature of plaintiff’s activities in relation to the establishment and popularity of the subreddit, ultimately finding that these actions did not suffice to establish his ownership of the trademarks.

And the case addresses the interesting issue of who owns trademark rights in a user-generated community – the platform or the moderator/creator? Reddit asserted that it owned the trademark rights in the community. Specifically, citing a case from the USPTO’s Trademark Trial and Appeal board, In re Florists’ Transworld Delivery Inc., 2016 WL 3998062 (T.T.A.B. May 11, 2016), Reddit had argued that account holders like plaintiff “generally will not be able to rely on use of [their] social media account to support an application for registration of a mark for such service.” Reddit argued that “[j]ust as the applicant in In re Florists’ Transworld could not claim rights in connection with ‘creating an online community’ based on use of Twitter, Plaintiff cannot rely on his use of Reddit’s platform to support alleged service mark rights in connection with a ‘web based community'”.

Regarding the state law claims, the court looked to 47 U.S.C. 230, which provides immunity to providers of interactive computer services from liability for content posted by others. The court found that these claims, as presented, did not get around Reddit’s Section 230 immunity.

Rogozinski v. Reddit, Inc., 2024 WL 150727 (N.D. California January 12, 2024)

Read Franklin’s post at Creator Economy Law.

See also:

January 10, 2024 Cybersquatting, Trademarks

No ACPA injunction because mark was not distinctive when domain name first registered

ACPA

This case had a bit of a weird result – even though the brand owner had a mark that was 20 years old, and the alleged cybersquatter in the meantime acquired a domain name on the open market identical to that mark, because the domain name was first registered (by an unrelated party) before the brand owner’s trademark rights arose, there was no relief under federal trademark law. One may question whether such a result creates a loophole for bad faith actors.

History of registration and rights

Someone – no one seems to know who – first registered the disputed domain name <trx.com> back in 1999. In 2003, plaintiff’s successor in interest (via bankruptcy) began using the trademark TRX, thereby acquiring rights in the mark. Defendant bought the domain name in 2022.

Plaintiff sued defendant under the Anticybersquatting Consumer Protection Act (ACPA), a part of U.S. trademark law that deals with bad faith domain name registration. Plaintiff sought a preliminary injunction ordering the transfer of the disputed domain name pending resolution of the lawsuit. The court denied the motion because it found that plaintiff had not established that plaintiff would likely succeed on the merits of the cybersquatting claim.

Outcome up for critique

The legal holding is potentially problematic, however, and represents a point on which different federal courts sitting in different parts of the country handle cybersquatting claims differently under the ACPA.

In this case, the court held that plaintiff’s cybersquatting claim depended on when the disputed domain name was first registered. Citing to a 2023 case from the same district, Blair v. Automobili Lamborghini SpA, which in turn relied on the Ninth Circuit’s opinion in GoPets Ltd. v. Hise, 657 F.3d 1024 (9th Cir. 2011), the court explained that liability for cybersquatting is possible “only when a person other than the trademark owner registers a domain name that is confusingly similar to a trademark that is distinctive at the time of the domain name’s registration.” It went on to note that “[i]n other words, if a domain name is registered before a particular trademark exists, the trademark owner cannot assert a viable cybersquatting claim against the domain name owner.”

So under this logic, because the domain name was registered prior to 2003 (when the rights in the TRX mark came into existence), there is no way plaintiff’s TRX mark could have been distinctive at the time of the domain name’s registration. The court came to this conclusion even though the record demonstrated that some unknown person, other than defendant, first registered the disputed domain name, and that defendant first acquired the domain name on the market many years after the TRX mark had become distinctive.

It is interesting to note that this outcome conflicts with decisions in other circuits that hold “re-registration” by a new owner counts as the time for evaluating whether a mark with which a domain name may be confusingly similar, is distinctive. See, e.g., Instructure, Inc. v. Canvas Technologies, Inc., 2022 WL 43829 (D. Utah, January 5, 2022). One could argue it is bad policy for the ACPA system to essentially absolve a bad faith actor who acquires a domain name that contains a protectible mark but was first registered by someone else not acting in bad faith, prior to the time the mark became strong.

JFXD TRX ACQ LLC, v. trx.com, 2024 WL 98424 (D. Ariz., January 9, 2023)

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cPanel gets injunction to shut down sophisticated counterfeiting enterprise

The purveyor of cPanel – the well-known hosting automation software – has successfully obtained an injunction against an overseas enterprise accused of engaging in an elaborate scheme to sell unauthorized access to the cPanel software. A federal court in Oregon has issued a wide-ranging injunction against the defendants’ unauthorized activities.

The sophistication of defendants’ actions

Plaintiff’s evidence showed that defendants – under the brand “Licenseman” – changed the cPanel software in several ways. Defendants allegedly made it so that any requests for licensing or technical help from cPanel went to Licenseman’s servers instead. The modified software hid messages about trial licenses expiring and would delete itself if cPanel’s tech team tried to access a server with this altered software. The changes involved “wrapped binaries” in the software, which tricked the system into using licenses meant for other cPanel systems. This meant many people could use the same cPanel license illegally.

cPanel’s legal claims

cPanel sued for:

copyright infringement;
the trafficking of circumvention devices in violation of the DMCA, 17 U.S.C. § 1201(a)(2);
trademark infringement and unfair competition under 15 U.S.C. § 1114, 1125(a);
trademark counterfeiting under 15 U.S.C. § 1114; and
cybersquatting under ACPA, 15 U.S.C. § 1125(d).

cPanel asked the court to enter a preliminary injunction to stop the unlawful activity. The court granted the motion. In reaching its decision, it found that plaintiff was likely to succeed on all five of its claims, in light of the overwhelming evidence indicating that defendants were behind the actions of the Licenseman entity.

The court’s decision

On the copyright infringement claim, the court found that plaintiffs had shown ownership of the allegedly infringed material by presenting evidence of its registered copyright claims. Plaintiffs presented evidence that defendants had infringed on plaintiff’s exclusive right to prepare derivative works of the software by altering cPanel software to permit access via illicit licenses.

As for the DMCA circumvention claim, the court found that defendants sold re-engineered, illicit cPanel licenses that, as advertised, manipulated the binary of the cPanel software so that people could use the cPanel software without purchasing a subscription from plaintiff. And defendants trafficked—that is, sold—such licenses via their websites. Thus, every element of DMCA trafficking liability had been met.

Concerning trademark infringement and unfair competition, the court likewise found that plaintiff had established a likelihood of success on the merits of its claims. Plaintiff submitted evidence that it owns a registration for the CPANEL mark, which served as prima facie evidence of exclusive rights to use the mark. And defendant’s actions were “highly” likely to confuse customers. The fact that illicit license users had sought plaintiff’s customer service suggested that users had actually been confused and not exercised a great deal of care in pursuing cPanel licenses.

Finding that plaintiff had shown likelihood of success on its counterfeiting claim, the court noted that plaintiff’s CPANEL mark identifies computer software facilitating the management and configuration of internet web servers, and defendants were using that exact mark to sell illicit licenses to plaintiff’s software.

Finally, on the cybersquatting claim, the court found plaintiffs to be likely to succeed on the merits where the disputed domain names incorporated the CPANEL mark and were used to sell infringing items “which itself prove[d] bad faith.”

Because plaintiff also showed irreparable harm from the alleged activity, that defendants’ loss of business if enjoined was not an unfair tipping of the equities, and that the public interest would benefit from the prohibition of the alleged conduct, the court granted the injunction.

cPanel, LLC v. Asli, 2024 WL 35674 (D.Or. January 3, 2024)

NB: Great work on the case by Venkat and team.

Online platforms will have to answer for sales of alleged counterfeit products

A federal court in New York has denied the motion to dismiss filed by Chinese online platforms Alibaba and AliExpress in a lawsuit brought by a toymaker alleging that these companies’ merchant customers were engaged in contributory trademark and copyright infringement through the online sale of counterfeit products.

Background of the Case

Plaintiff toymaker accused the Alibaba defendants of facilitating the sale of counterfeit products on their platforms. The lawsuit stemmed from the activities of around 90 e-commerce merchants who were reportedly using the platforms to sell to sell fake goods.

The Court’s Rationale

The court’s decision to deny the motion to dismiss turned on several allegations that suggest the Alibaba defendants played a more complicit role than that of a passive service provider. These allegations included:

Specific Awareness of Infringement: The Alibaba defendants were allegedly well-informed about the infringing activities of several merchants, including some named in the lawsuit. The Alibaba defendants should have known of these instances from orders in six separate lawsuits against sellers on the platforms.
Continued Proliferation of Infringing Listings: Despite this awareness, the platforms reportedly allowed the continued presence and proliferation of infringing listings. This included listings from merchants already flagged under Alibaba’s “three-strike policy” for repeat offenders.
Promotion of Infringing Listings: Plaintiff alleged the Alibaba defendants actively promoted infringing listings. The Alibaba defendants reportedly granted “Gold Supplier” and “Verified” statuses to infringing merchants, sold related keywords, and even promoted these listings through Google and promotional emails.
Financial Gains from Infringements: Crucially, plaintiff argued that the Alibaba defendants financially benefited from these activities by attracting more customers, encouraging merchants to purchase additional services, and earning commissions on transactions involving counterfeit goods.

DMCA Safe Harbor Provisions Not Applicable

The court rejected the Alibaba defendants’ argument that safe harbor provisions under the Digital Millennium Copyright Act (DMCA) applied at this stage of the litigation. The DMCA safe harbor is typically an affirmative defense to liability, and for it to apply at the motion to dismiss stage, such defense must be evident on the face of the complaint. The court found that in this case, it was not.

Implications of the Ruling

This decision is relevant to purveyors of online products who face the persistent challenges of online enforcement of intellectual property rights. Remedies against overseas companies in situations such as this are often elusive. The case provides a roadmap of sorts concerning the types of facts that must be asserted to support a claim against an online provider in the position of the Alibaba defendants.

Kelly Toys Holdings, LLC v. 19885566 Store et al., 2023 WL 8936307 (S.D.N.Y. December 27, 2023)