Legal teams for luxury brand goods have devoted much of their energy to fighting counterfeit goods, both in the brick-and-mortar world and in cyberspace.  The internet has made this battle difficult as access to consumers has grown easier.  Courts, still, have maneuvered through technological advances and “digital Fonovisa” type cases, developing and applying the doctrine of contributory infringement to online counterfeiters. In a recent U.S. Ninth Circuit Court of Appeals ruling in Louis Vuitton Malletier SA v. Akanoc Solutions Inc., appellate Judge Ronald M. Gould affirmed the district court finding for Louis Vuitton, holding the online web host, Akanoc Solutions, MSG, and Steven Chen liable for contributory infringement of 13 of the plaintiff’s trademarks and two of its copyrights. The appellate court remanded the case with instructions that its reduced damage award be put in effect — $10.5 million for contributory trademark infringement and $300,000 for contributory copyright infringement.

In late 2006, Louis Vuitton discovered a number of websites selling goods it believed infringed its copyrights and trademarks.  After investigation, plaintiff determined the websites were hosted by Akanoc and MSG. Steven Chen managed the web hosting businesses. Its structure was such that MSG would lease servers, bandwidth and some IP addresses to Akanoc, which, in turn, operated the servers and otherwise ran the business.  Akanoc leased packages of server space, bandwidth and IP addresses to customers, some of which were outside the United States.  Louis Vuitton said customers who directly infringed the trademarks and copyrights were based in China.  After 18 notices of infringement, Louis Vuitton sued the defendants, alleging contributory copyright and trademark infringement.

So who was liable for contributory infringement? The Ninth Circuit took MSG off the hook, saying it lacked reasonable means to withdraw services to the direct infringers; Akanoc and Steven Chen were held liable because web hosts have more means, and, therefore, obligations to stop direct infringers (as opposed to domain-name registrars). The appellate judges did scrutinize the penalties imposed by the district court and found error in jurors attempt to double the fine, charging Akanoc and Chen each a total of $10.8 million; the appellate court said that sum should be levied all together with the parties held jointly and severally liable.

Meantime, a U.S. District Court in New Jersey — considering a lawsuit by Compagnie Financière Richemont asserting Concept Designs Unlimited Inc. sold counterfeit Cartier and Van Cleef & Arpels jewelry at retail price — has entered a default judgment against the defendant for $37.4 million.

So when it comes to direct and contributory infringement, one thing is clear: Whether you’re an online or brick and mortar retailer, the gray market can prove to be black and white for courts.