SunFrog is a marketplace that provides its users with creative tools to produce graphics to be printed on clothing. The platform is nourished by creations deposited by the users on a bank of images called All Art Database. SunFrog provides the software, supports communication and marketing (mainly on Facebook), sells the clothes, prints them and sends them to the buyers. SunFrog receives between 54.5% and 60% of the sale price. In these circumstances, SunFrog’s active role is hardly debatable.
This ingenious print-on-demand model was a quick success. By its second year, its turnover exceeded $ 100 million. However, since third-party users feed the database, it was essential to integrate anti-counterfeiting tools into the platform. Nevertheless, SunFrog did not consider the importance of intellectual property rights in its business model. It was a wrong move.
Motorcycle manufacturer Harley Davidson (HD) found that its brands were available in the All Art Database. They were also used on the clothing sales platform. What’s more, HD brands were sometimes associated with religious or denigrating terms or symbols evoking violence or vulgarity. As of April 2017, HD had detected 2575 unauthorized uses of its brands on SunFrog. HD conducted test purchases that turned out to be positive. Then, HD demanded the removal of logos and goods. Counterfeits were removed, but partially and temporarily. In fact, as SunFrog had not invested in the necessary human and technical resources, the platform, a victim of its success, did not have a satisfactory protocol to deal with the situation. These are the circumstances in which HD has sued SunFrog for trademark infringement.
SunFrog’s defense relied on Tiffany (NJ) Inc. v. eBay, Inc., (600 F.3d 93, 2d Cir 2010. As a reminder, the court ruled as follows:
“eBay never saw or inspected the merchandise sold on its website, since transactions on eBay are consummated directly between seller and buyer; thus, its ability to assess whether an item was infringing and to stop it in transit was difficult (…). Moreover, eBay implemented a robust anti-counterfeiting scheme (…). As a result, the Second Circuit concluded that eBay was not contributorily liable for the infringing acts of its users. (…). Moreover, there was insufficient evidence that eBay was being willfully blind to the counterfeit sales on its site”.
In its defense, SunFrog identified itself with eBay. In doing so, SunFrog intended to benefit from the immunity granted to the Internet intermediaries. However, this defense system has been swept aside by the court. Indeed, the court noted that SunFrog advertised and sold counterfeit goods, printed them itself, packaged them, shipped them, and processed the payments. The court added that SunFrog was unquestionably involved in the creation of counterfeit graphics works, their hosting in the All Art Database and marketing campaigns described as “aggressive.” The court concluded that SunFrog was not a mere intermediary but a counterfeiter.
That’s not all. SunFrog’s attitude and defense exasperated Judge Stadtmueller:
“SunFrog pleads ignorance while sitting atop a mountain of resources that could be deployed to develop effective technology, review procedures, or training that would help combat infringement. Instead, it chooses to rest upon incongruous legal defenses”.
Moreover, the judge added:
“In law, as in business, cleverness and technicality are poor substitutes for hard work and honesty. SunFrog willfully counterfeited Harley-Davidson’s marks.“
Remained to evaluate the damages. The Lanham Act provides statutory damages, the amount of which may be much higher if the intentional nature of the infringement is demonstrated. On this point, the decision recalls that the defendant’s behavior may be taken into account, in particular in cases where the defendant the “defendant ignored the plaintiff’s notices (…) did not seek advice of an attorney and passed the matter off as a nuisance.” The assessment of the remedy must also take into account the value of counterfeit marks and the efforts made to protect them. In this case, the court recognizes damage to the reputation of the brand, given the poor quality of counterfeits and the association with terms or graphics that are incompatible with the image of HD brands. Finally, where appropriate, the amount of the remedy can be determined with a view of sending a dissuasive message. The court recalled the following principle:
“the Lanham Act allows statutory damages to be large even when actual damages are small, for the very reason that deterring counterfeiting is important. Gabbanelli, 575 F.3d at 698. This is especially critical when the infringer utilizes the capacity of the internet to effect enormous, rapid distribution of counterfeit goods”
Given the circumstances, the court considered that SunFrog deserved a firm sanction. However, the judge also had to be careful not to “instantaneously shutter SunFrog’s operations”. Thus, the court estimated that fair compensation should amount to $ 19,200,000.
The dissuasive nature of the decision is explicit:
“to serve as a warning to those who operate businesses over the internet that with the hope of skyrocketing success should come the awareness that rights holders need not await the end of corporate growing pains.”
IP Twins monitors the use of brands on social networks and market platforms. We perform shopping tests, remove counterfeits and keep the evidence. Do not hesitate to contact us.