Omega SA et al v. 375 Canal, LLC et al
Filing
22
OPINION & ORDER: re: 14 MOTION to Dismiss. Omega SA and Swatch SA (Plaintiffs) assert direct trademark counterfeiting, trademark infringement and false designation of origin claims pursuant to 15 U.S.C. 1114, 1125 against the three John Doe defenda nts for selling counterfeit Swatch and Omega watches at a store located at 375 Canal Street: John Doe 21 (Rahman), John Doe 22 (Kazijoynal), and John Doe 23. (Counts I and II). Plaintiffs assert a contributory infringement claim against 375 Canal LLC (375 Canal), the owner/lessor of the property at which the counterfeit goods werepurportedly sold. (Count III). Plaintiffs also allege that 375 Canal violated Section 231(2) of the New York Real Property Law by knowingly leasing its premises to be u sed for unlawful conduct. (Count IV). Defendant 375 Canal moves, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss Claims Three and Four, for failure to state a claim. For the foregoing reasons, Defendant's motion to dismiss is D ENIED. The Clerk of Court is directed to terminate the motion at Dkt. No. 14. The defendant shall answer the complaint.The parties are directed to confer and submit a civil case management plan to the Court by June 7, 2013. SO ORDERED. (Signed by Judge Paul A. Crotty on 5/20/2013) (rsh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
OMEGA SA and SWATCH SA,
:
:
Plaintiffs,
:
- against :
:
375 CANAL, LLC,
:
JOHN DOES 1 – 50 and
:
XYZ COMPANIES 1 – 50
:
Defendants.
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: May 20, 2013
12 Civ. 6979 (PAC)
OPINION & ORDER
HONORABLE PAUL A. CROTTY, United States District Judge:
Omega SA and Swatch SA (“Plaintiffs”) assert direct trademark counterfeiting, trademark
infringement and false designation of origin claims pursuant to 15 U.S.C. §§ 1114, 1125 against
the three “John Doe” defendants for selling counterfeit Swatch and Omega watches at a store
located at 375 Canal Street: John Doe 21 (“Rahman”), John Doe 22 (“Kazijoynal”), and John
Doe 23. (Counts I and II). Plaintiffs assert a contributory infringement claim against 375 Canal
LLC (“375 Canal”), the owner/lessor of the property at which the counterfeit goods were
purportedly sold. (Count III). Plaintiffs also allege that 375 Canal violated Section 231(2) of the
New York Real Property Law by knowingly leasing its premises to be used for unlawful
conduct. (Count IV).
Defendant 375 Canal moves, pursuant to Federal Rule of Civil Procedure 12(b)(6), to
dismiss Claims Three and Four, for failure to state a claim. The motion is DENIED.
BACKGROUND
Plaintiffs are Swiss manufacturers of watches that bear the trademarks OMEGA and
SWATCH. (Compl. ¶¶ 3, 4, 14, 20.) Defendant 375 Canal is the owner and landlord of a
commercial building located 375 Canal Street at the corner of Canal Street and West Broadway
1
in lower Manhattan. (Id. ¶ 26.) Plaintiffs contend that Defendant has permitted its property to be
used as a haven for the sale of counterfeit Omega and Swatch watches.
According to the well-pleaded allegations of the complaint, this is not the first time that 375
Canal has been charged with facilitating the distribution of counterfeit goods. For example, on
January 18, 2006, in a lawsuit that alleged that its tenants or subtenants were selling counterfeit
goods, 375 Canal consented to an entry of judgment enjoining it from infringing Louis Vuitton’s
trademarks and copyrights and directing Defendant to hang a sign at its property warning
customers that the purchase of counterfeit Louis Vuitton items was prohibited. (Id. ¶¶ 29-31.)
Also in 2006, the City brought a public nuisance action against 375 Canal for hosting persons
accused of selling counterfeit goods. 375 Canal consented to being enjoined from permitting its
property to be “used or occupied” by counterfeiters. (Id. ¶¶ 32-34.) The City brought a second
action in 2009. (Id. ¶¶ 35-36.) The parties’ Stipulation of Settlement was similar to the first,
with the supplement that 375 Canal was required to “dismantle and remove all hidden storage
facilities / structures inside the Premises to allow open access to all areas within the storefront,”
an increased fine of $10,000, and the directive to post signs informing customers that they were
prohibited from buying counterfeit goods. (Id. ¶ 36; Paul Dec. Ex. 3 ¶ 12.)
Concerning Plaintiffs’ goods, on two occasions, once on December 7, 2010 and again on
February 10, 2011, undercover officers from the New York Police Department seized Omega
and Swatch-marked watches from John Doe 21 a/k/a “Rahman” and John Doe 22 a/k/a
“Kazijoynal,” respectively. (Id. ¶¶ 37, 40.) They were selling the watches from 375 Canal’s
ground floor. (Id.) An inspection of the watches revealed that Plaintiffs did not manufacture
them. (Id. ¶ 38.) The John Does were charged with Trademark Counterfeiting in the Third
Degree. (Id. ¶¶ 37, 40.)
2
On September 28, 2011, representatives of the Plaintiffs sent a letter to 375 Canal notifying
it that NYPD arrested certain individuals for selling OMEGA and SWATCH branded watches at
the 375 Canal Street storefront. (Id. ¶ 44.) 375 Canal responded by email acknowledging that its
“tenant sublet the space to an entity that was selling [the] counterfeit goods” and informing
Plaintiffs that the “offending tenant” (subtenant) had been removed. (Id. ¶ 47; Delfin Dec. Ex.
B.) Notwithstanding this assurance, on May 19, 2012, Plaintiffs’ investigators bought a
counterfeit Omega-branded watch from John Doe 23, who was standing inside the store. (Id. ¶
49.) The seller had retrieved the watch from storage room located in the back of the store. (Id.)
ANALYSIS
I. Motion to Dismiss Standard
When considering a motion to dismiss for failure to state a claim under Fed. R. Civ. P.
12(b)(6), the Court “must accept as true all of the factual allegations contained in the complaint”
and construe the complaint in the light most favorable to the plaintiff. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 572 (2007) (internal quotation marks omitted). The Court only
“assess[es] the legal feasibility of the complaint”; it does not “assay the weight of the evidence
which might be offered in support thereof.” Lopez v. Jet Blue Airways, 662 F.3d 593, 596 (2d
Cir. 2011) (internal quotation marks omitted). To state a facially plausible claim, a plaintiff must
plead “factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A pleading
that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action
will not do.’”
3
II. Contributory Infringement
A.
Legal Standard
Defendants may be contributorially liable for the direct infringement of others: (1) if the
defendant “intentionally induces another to infringe a trademark,” or (2) if the defendant
“continues to supply its service to one whom it knows or has reason to know is engaging in
trademark infringement.” Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 106 (2d Cir. 2010)
(quoting Inwood Labs, Inc. v. Ives Labs Inc., 456 U.S. 844, 854 (1982)). Plaintiffs do not allege
that 375 Canal has intentionally induced infringement. Instead, they allege that 375 Canal has
contributorially infringed by continuing to supply services to a known infringer. Courts have
held that the doctrine of contributory liability applies with equal force to landlords.1 E.g., Hard
Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1149 (7th Cir. 1992)
(owner/operator of a flea market whose vendors were alleged to have sold infringing t-shirts);
Ralph Lauren Corp. v. Chinatown Gift Shop, 855 F. Supp. 648, 650 (S.D.N.Y. 1994) (lessor of
premises to retailers selling counterfeit goods in New York City’s Chinatown area). Defendant
375 Canal does not object to the applicability of this theory of landlord liability and so the Court
assumes that landlords can be contributorially liable.
There is a limiting principle, however, with regard to contributory liability in the context of
service providers: the “extent of control exercised by the defendant [service provider] over the
third party’s means of infringement.” E.g., Nomination Di Antonio E Paolo Gensini S.N.C. v.
H.E.R., 2010 U.S. Dist. LEXIS 130681, at *9-10 (S.D.N.Y. Dec. 6, 2010) (quoting Lockheed
Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999)); see also, Gucci Am, Inc.
v. Frontline Processing Corp., 721 F. Supp. 2d 228, 248 (S.D.N.Y. 2010) (“Gucci can proceed . .
. if it can show that [Defendants] knowingly supplied services to websites and had sufficient
1
In Tiffany, the Second Circuit assumed without deciding that service providers can be contributorially responsible.
4
control over infringing activity to merit liability.”); Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp.
463, 505 (S.D.N.Y. 2008).
To satisfy the knowledge requirement, “a service provider must have more than a general
knowledge or reason to know that its service is being used to sell counterfeit goods. Some
contemporary knowledge of which particular listings are infringing or will infringe in the future
is necessary.” Tiffany (NJ) Inc., 600 F.3d at 107. Applying this standard in Tiffany, the Second
Circuit held insufficient e-Bay’s general knowledge that counterfeit Tiffany products were listed
and sold on its website. Id. at 110.
B. Application
With regard to Plaintiffs’ theory of contributory liability, that 375 Canal “continues to
supply its [premises] to one whom it knows or has reason to know is engaging in trademark
infringement,” the Court concludes that Plaintiffs have pled facts sufficient to plausibly establish
that 375 Canal knew or at least had reason to know that it was renting its premises to be used to
sell counterfeit goods.
Plaintiffs have adequately alleged “direct control and monitoring of the instrumentality”
used by a third party for infringement. H.E.R., 2010 U.S. Dist. LEXIS, at *9-10. After the
City’s second nuisance suit, 375 Canal agreed to dismantle the backrooms and “hidden storage
facilities/structures [i]nside the [p]remises to allow open access to all areas without the
storefront.” (Compl. ¶ 36; Paul Dec. Ex. 3 ¶ 8.) Notwithstanding this undertaking by 375 Canal,
Plaintiffs’ investigators purchased an Omega-branded watch from someone who retrieved it from
a stockroom that 375 Canal agreed to dismantle. 375 Canal’s settlements with the City plainly
required it (and thus authorized it) to supervise and control operations at the property. The 2006
stipulation provided that the property “shall be enjoined from being used or occupied as a
5
nuisance by . . . permitting the sale and/or possession of trademark counterfeit merchandise . . .
within the subject premises.” (Paul Dec. Ex. 2 ¶ 2.) 375 Canal was also required to consent to
unannounced, warrantless inspections by Police to assess their compliance. (Id. at ¶ 4) The
2009 injunction similarly required 375 Canal to control its tenants—375 Canal agreed that “any
future tenant(s) and/or sub-tenant(s) of the Premises [would be] permanently and perpetually
enjoined from utilizing . . . the Premises . . . [to] sell[ ], facilitate[e] the sale [of] or possess[ ]
trademark counterfeit merchandise . . . .” (Paul Dec. Ex. 3 ¶ 6.) Any leases with tenants and/or
subtenants would have to permit enforcement of the injunction. (Id.) As owner, 375 Canal can
control the configuration of the shop, can screen the retailers that it allowed to occupy its
premises, or otherwise physically examine the premises. The injunctions and 375 Canal’s
ownership rights, as alleged in the Complaint, are sufficient to support the conclusion that
Defendant controlled the means of infringement.
With respect to the knowledge element, the Complaint alleges that since 2006, “375 Canal
has had actual, specific knowledge that tenants or subtenants at the Property have been using the
Property’s ground level store(s) as a base of operation from which to sell counterfeit trademarked
goods.” (Compl. ¶ 28.) This allegation is supported by sufficient factual allegations so that
knowledge may be inferred. The relevant knowledge or constructive knowledge relates to
infringement of Plaintiffs’ marked goods (the watches) by particular direct infringers (the John
Does). See Tiffany, 600 F.3d at 107. Prior litigation, which involved a private plaintiff as well
as two nuisance actions by the city, should have added substance to Plaintiffs’ notice dated
September 28, 2011 about Plaintiffs’ specific products. The notice informed 375 Canal that
certain individuals were arrested at their property for selling counterfeit Omega and Swatch
watches on December 7, 2010 and February 10, 2011. By then, 375 Canal should have known,
6
or at least strongly suspected, that the current tenant or subtenant was allowing individuals to
stand in their store while selling counterfeit Swatch and Omega watches.
375 Canal attempts to make much of the absence of allegations that 375 Canal “had notice
of prior infringement by the same individual”—that is, the same John Doe. 375 Canal’s
argument is that specific notice of counterfeit sales by an identified individual is required before
it can be cast into liability. That is not the law. While Tiffany required notice of specific
“listings” or “sellers,” that was in the factual context of an internet auction service, where that
information would be useful to eBay in identifying and reducing instances of infringement. 600
F.3d at 107, 109. At any given time, eBay had over 100 million listings with a high turnover rate
of more than six million new listings daily. Id. at 97. Aside from specific notices of claimed
infringement (“NOCIs”) that were not at issue,2 Tiffany’s research gave eBay “generalized
notice that some portion of . . . goods sold . . . might be counterfeit.” 600 F.3d at 97-98, 106-07.
The district court noted, however, that there were also a substantial number of authentic Tiffany
goods for sale on eBay. Id. at 98. Armed with this general knowledge, there was little that eBay
could do to distinguish between genuine and infringing products. The situation here is much
different. The complaint does not allege that the retailer at the property sold authentic Swatch
and Omega watches or that there were so many sellers that the names and identities of the John
Does would be essential to identifying the counterfeit goods. Notice as to the sale of a particular
type of good, by an (unnamed) individual, at a specific location is comparable to the “listings”
required in Tiffany.
375 Canal’s contention that they did not “continue” to make their property available for
infringement after receiving notice is not dispositive at the pleading stage. A few months after
2
eBay’s policy was to remove a listed item described in a NOCI within twenty-four hours, but in practice deleted
most of them within twelve hours of receiving notice. eBay never refused to remove a reported listing. On these
facts, the Second Circuit concluded that no liability attached for these listings. 600 F.3d at 99, 106.
7
375 Canal received notice of counterfeit Swatch and Omega watches at the 375 Canal Street
storefront, Plaintiffs’ investigators allegedly purchased yet another Omega watch at the same
location. After receiving notice, rather than remove the tenant, investigate or take other
measures to minimize the sale of counterfeit watches, 375 Canal’s only action was to report to
the Plaintiffs that the subtenant had been removed. Based on 375 Canal’s minimal response and
the continued sale of Omega’s counterfeit goods, the Court cannot conclude as a matter of law
that 375 Canal did not “continue” to supply its premises “knowing that the recipient is using the
[premises] to engage in trademark infringement.” Inwood, 456 U.S. at 854-55. In any event,
375 Canal’s argument is contradicted by the facts of the well-pleaded complaint, and accordingly
does not warrant dismissal.
III. New York Real Property Law Section 231(2)
“The owner of real property, knowingly leasing or giving possession of the same to be used
or occupied, wholly or partly, for any unlawful . . . business, or knowingly permitting the same
to be so used, is liable [jointly and] severally . . . for any damage resulting from such unlawful
use, occupancy, trade, manufacture or business.” N.Y. Real Prop. L. § 231(2). Section 231(2) is
applicable to premises used for the sale and storage of counterfeit goods. See 1165 Broadway
Corp. v. Dayana of N.Y. Sportswear, Inc., 633 N.Y.S.2d 724, 726 (1995) (construing the
virtually identical language in section 231(1) prohibiting use of the premises for any “illegal
trade, manufacture or other business”); Winter, McKinney’s Practice Commentary, Real
Property § 231 (2006). While the statute requires that the lessor know of the unlawful activity,
Alonso v. Branchinelli, 277 A.D.2d 408, 409 (N.Y. App. Div. 2d Dep’t 2000), Plaintiffs have
pled sufficient facts to raise a plausible inference that 375 Canal did know. 375 Canal denies
knowing, but at the pleading stage, the simple denial is insufficient to support the motion to
8
dismiss. Accordingly, with respect to this claim as well, Defendant's motion to dismiss is
denied .
CONCLUSION
For the foregoing reasons, Defendant' s motion to dismiss is DENIED. The Clerk of Court
is directed to tenninate the motion at Dkt. No. 14. The defendant shall answer the complaint.
The parties are directed to confer and submit a civil ca se management plan to the Court by June
7,2013.
Dated: New York, New York
May 20,2013
s°tZrA l~
PAUL A. CROTTY
United States Distlict Judge
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?