DMCA Upset: ISP Liable for Infringement

LOS ANGELES — In a stunning twist of trademark infringement litigation, a federal jury in California has found two web hosting companies and their owner liable for contributing to trademark and copyright infringement for hosting sites selling counterfeit goods.

Last week a jury found Fremont, Calif.-based hosting companies Akanoc Solutions Inc., and Managed Solutions Group, Inc., and their owner Steven Chen, liable for knowingly allowing multiple websites they hosted to sell products that infringed upon Louis Vuitton copyrights and trademarks. The jury assessed damages equaling more than $32 million.

In accordance with the jury's decision, the U.S. District Court for the Northern District of California is expected to issue a permanent injunction banning the hosting companies from hosting the sites that were allegedly selling fake Louis Vuitton goods now and in the future.

Attorneys for Louis Vuitton stated that the case is the first successful application on the Internet of the theory of contributory liability for trademark infringement. Farmington Hills, MI-based, adult industry attorney, Corey Silverstein, agreed that this verdict may be the first of its kind. Silverstein who holds the positions of Chief Operating Officer and General Counsel for MojoHost found the decision "concerning, and a preview of things to come for the adult industry."

"In summation, what happened here was that the jury found that the Defendant hosting companies knew or should have known that they were enabling illegal activities and were duty bound to stop the activities," Silverstein said.

The Defendants' attempts to utilize the protections granted to Internet Service Providers ("ISP") by the Digital Millennium Copyright Act ("DMCA") were unsuccessful in this case.

"The DMCA provides certain safeguards from liability for copyright infringement for an ISP, as long as the ISP implements certain policies and procedures and the ISP adequately responds to properly formatted copyright infringement notices," Silverstein told XBIZ. "Apparently in this case the Defendants' arguments that they could not be held responsible for the actions of the sites, did not sit well with the jury."

While Silverstein indicates that he has not seen the evidence that was presented at trial, he believes that the Plaintiff was able to successfully demonstrate that the Defendants had become aware of the unlawful activities of the sites but failed to take sufficient measures to stop the illegal activities of the sites.

Silverstein noted that he fully anticipates that the Defendants will appeal the jury's finding and that this particular case is far from over. However, Silverstein stated that no matter what the final result of this case may be after the appeals process has run its course, this decision should not be taken lightly by ISPs.

"Every ISP should not be taking notices of copyright and or trademark infringement lightly," Silverstein said. "Each ISP should have strict procedures for responding to such notices and maintain all documentation to and from the alleged infringer."

MojoHost CEO, Brad Mitchell, also learned of this decision, and while troubled was not surprised.

"While MojoHost is completely against copyright infringement and has a strict policy that includes the removal of alleged infringing content when the alleged infringer fails to properly respond, we believe that all of the other hosts who do not utilize similar strict policies are making life much more difficult for copyright holders," Mitchell said.

The question of intellectual property rights is especially important to Mitchell, who takes great pride in MojoHost's specialty of hosting high traffic media outlets who publish original content for the rest of the world to enjoy.

Silverstein also found the jury's decision to hold Steven Chen, jointly liable troubling.

"Although I am unfamiliar with the specifics of this case and the actions or inactions or Mr. Chen, generally for an individual to lose the corporate protections granted to him, would require the showing of willful participation in the illegal activity or some type of gross negligence," Silverstein offered.

Silverstein also believes that ISP's should be on high alert.

"The DMCA is one of the most controversial pieces of legislation in the adult industry and while it provides safeguards to an ISP, an ISP cannot be excused from willful participation in copyright infringement," Silverstein concluded. "This case may give copyright holders the ammunition they have been waiting for to combat any ISP that does not conform to the guidelines of the DMCA and utilize proper policies and procedures for dealing with allegations of copyright infringement."