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District Court Clarifies Scope of Liability of Open Market Sites for Trademark Infringement

Issued: November 01 2009

A recent decision of the Seoul Central District Court, Adidas v. Interpark, decided on September 9, 2009, clarifed the scope and limitation of liability of operators of internet open market websites (i.e., websites providing networks for individuals to sell or purchase goods) for trademark infringement.

 

Previously, in S.J. Kim v. Interpark G-Market, decided on August 5, 2008, the Seoul Central District Court found that operators of open market websites have a legal obligation to prevent and stop trademark infringing activities of individual sellers, holding that the defendants in that case failed to exercise their duty of care because they did not take additional necessary measures to search, identify, remove and block access to postings of trademark infringing goods.

 

However, in another case, K2 Korea and Y.H. Chung v. Interpark, decided on November 20, 2008, the same court held that liability of open market operators can be found only where the operator i) knew or could have known of the occurrence of such infringing acts and ii) has concrete means to prevent the occurrence or eliminate the risk of such acts, and thereby denied the liability of the defendant on the basis that the defendant did not have any specific means to prevent individual sellers from posting product information with the plaintiff's mark and could not have known that the sale of alleged counterfeit products constituted an act of unfair competition.

 

In the recent Adidas case, the court found that the open market operator has a duty of care to take appropriate measures for preventing trademark infringement on its website since the operator earns revenue by providing individual sellers with the opportunity to sell the products at issue. However, the court also held that the scope of such duty of care should be decided after consideration of the totality of the circumstances, such as differences between open markets and off-line markets, impact on operation of open markets, level of current technology, etc. As to the specifics of such duty of care, the court stated that open market operators should take appropriate measures such as i) removing a product listing once the product is confirmed as infringing, ii) establishing a system which discourages and reduces trademark infringement, and iii) establishing a mechanism for management and administration of individual sellers’ personal information (especially for those sellers who are selling large quantities of counterfeit goods, and providing the sellers’ personal information when the trademark owner or other lawful holder of a right requests such information).

 

In this regard, the court held that open market operators can prevent and restrict the sales of counterfeit products through a system to determine the product’s authenticity prior to listing or block search terms for a specific trademark; however, these last two measures should be considered only where it is impossible to control the sales of counterfeits with other appropriate measures as stated above.

 

Considering the above standard on scope and limitation of liability of open market operators, the court held the plaintiff’s claims to be groundless for the following reasons. First, as to the claim for prohibition of sales and display of products bearing the trademarks at issue, the court found that in an open market, not only counterfeits but also genuine products, parallel imports and secondhand products are actively sold, and thus in order to prohibit posting of all the products bearing a specific trademark, special circumstances must exist since such prohibition will deprive open market operators of the right to engage in business.

 

Such special circumstances include where it is impossible to control sales of counterfeits with other appropriate measures; however, in the instant case, evidence to show such circumstances exist was not sufficient.

 

Furthermore, as to the claim for full pre-inspection or deletion of products bearing a specific trademark, the court held that in an open market, it is difficult to confirm as to whether the posted products are genuine and in case of well-made counterfeits, it is hard to determine whether the product is counterfeit or not, even after the operator receives the actual product and examines it. In addition, the court found that pre-inspection may incapacitate the significance of an open market where free trade is done between individual sellers and purchasers, and full pre-inspection of the vast amounts of posted goods is close to impossible in reality, and thus it exceeds the scope of general duty of care by open market operators for the protection of trademark rights. Therefore, the court rejected an injunction against the open market operator.


 

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About the Author

Kyoung-Sun Lee joined Kim & Chang in 1999 and is a trademark attorney in the firm’s trademark/design practice group. She received her BA in Japanese Language and Literature (1999) from Korea University and was admitted to the Korean Patent Bar in 1999. She studied in Japan from August to December 2008 and in the United States (Georgia Tech) from January to June 2009. Her practice mainly focuses on the areas of trademark and design prosecution, opposition, administrative trial, and litigation. Lee has significant experience of handling enforcement cases, providing anti-counterfeiting strategies, giving analysis of trademark/design portfolios, and counseling on general IP matters.

 

Gavin Healy is a foreign attorney in Kim & Chang’s intellectual property practice group and entertainment practice group and has been involved in counseling foreign and domestic corporate clients in matters concerning copyright and trademark infringement and licensing. He practiced for several years in the firm’s capital markets practice group and was previously with a large New York firm. He has extensive experience in a wide range of domestic and cross-border transactions, including ship financing, loan sales, issuance of commercial paper, general corporate finance, and general corporate and commercial law matters.