Contributory Trademark Infringement: What is it and What are its Implications on the Insurance Industry?

Contributory Trademark Infringement can Effect Carriers Issuing everything from the Standard Commercial General Liability Policy all the way to an Intellectual Property Trademark Abatement Policy 

It may be common knowledge that you cannot directly use someone’s trademark without first seeking permission. However, many carriers may not realize that a party can also be pulled into a trademark infringement lawsuit if it is determined they assisted or facilitated in a third-party infringing on someone else’s trademark. The purpose of this article is to help educate carriers on what contributory trademark infringement is and the effects it may have on a variety of policies. For example, the potential risks that may come with issuing a commercial general liability (“CGL”) policy to a flea market[1] or writing a trademark abatement policy for a well-known software program.[2]      

 Contributory trademark infringement occurs when a party either 1) intentionally induces a trademark infringement or 2) knows or should have known that it was supplying products or services to a party infringing on another’s trademark.[3] While the concept of contributory trademark infringement has been around since 1924[4], it was not defined into the above two-part test until 1982 when the United States Supreme Court made its ruling in Inwood Labs. v. Ives Labs.[5] This is the same two-part test which is applied by courts today.[6]  

Those holding a trademark are no longer limited to pursuing only the parties who are counterfeiting their products. Instead, they can now go after the, theoretically, far fewer market places or suppliers that are making this infringement profitable on a wide-scale basis. This includes the flea market that is renting space to a vendor dealing in counterfeit purses[7] all the way to the internet search engine that is allowing third-parties to link advertisements to a trademarked name.[8] While plaintiffs still need to prove the underlying infringement in order to pursue their contributory claim,[9] those parties who had historically been benefiting indirectly from the infringement can no longer claim ignorance as a defense.[10]

The implications for the carriers issuing the standard CGL policies are that they are now potentially on-the-hook for an insured that had previously been able to benefit from the underlying trademark infringement without the risk of being pulled into a potential lawsuit. These risks are not just limited to carriers issuing policies to brick-and-mortar store fronts. This threat has now expanded into the policies in place for companies selling advertising[11] and contractors making construction bids.[12] Contributory trademark infringement claims open a wide variety of potential defendants not previously at risk for these trademark infringement lawsuits.

For carriers issuing trademark abatement policies, they now have the ability to pursue the most cost effective means of bringing and litigating a trademark infringement lawsuit. Instead of targeting the countless counterfeiters, they can now focus on the companies and individuals facilitating the infringement on a large scale basis. Historically, one of the greatest difficulties in enforcing a trademark was the cost associated in bringing an infringement action. The question that would be asked was “is it worth spending a few hundred thousand dollars to bring down a mom and pop operation?” With the use of contributory claims, trademark holders are now being able to get more “bang for their buck” by going after parties with deeper pockets.

There is no clear answer for what the future holds for contributory trademark infringement claims. For now, it appears that courts are holding companies accountable for maintaining some form of safeguards to protect the rights of the trademark holder, even if they are minimal. For example, an insured leasing retail space can no longer turn a blind eye to the vendor selling a $300.00 designer purse for only $20.00.[13] Carriers who are at risk of being brought into a contributory trademark infringement claim need to consider trying to educate their insureds about the risk associated with allowing a third-party to use someone else’s trademark. They need to also discuss reasonable safeguards insureds should have in place to identify if such infringement is occurring. Carriers benefitting from the ability to bring a contributory trademark claim need to consider evaluating on a case-by-case basis with their insured who the primary target of an infringement lawsuit should be, the counterfeiter or their facilitator, because it may turn out that you need the assistance of one to make your case against the other.[14]