$32 Million Damages Award Against Web Hosts Reduced by One-Third—Contributory Infringement Limited to Single Award of Statutory Damages

In an appeal in an action for contributory copyright and trademark infringement, the U.S. Court of Appeals for the Ninth Circuit held that there may only be a single award of statutory damages for willful contributory copyright and willful contributory trademark infringement. Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., No. 10-15909 (9th Cir. Sept. 9, 2011) (Gould, J.).

In 2006, plaintiff Louis Vuitton discovered several websites selling goods that it believed infringed its copyrights and trademarks. The plaintiff later learned that these websites were using IP addresses assigned to web hosting companies MSG and Akanoc. MSG leased servers, bandwidth and some IP addresses to Akanoc, which in turn leased packages of server space, bandwidth and IP addresses to Akanoc’s customers. The plaintiff claimed that Akanoc’s customers directly infringed the plaintiff’s copyrights and trademarks. The defendants did not respond to any of the 18 Notices of Infringement that the plaintiff sent pursuant to the Digital Millennium Copyright Act. The plaintiff then sued the web hosting companies MSG and Akanoc, along with Steven Chen, who managed both companies. The plaintiff claimed that the defendants used their hosting websites to list the e-mail addresses of Chinese companies that sold goods that infringed the plaintiff’s copyrights and trademarks.

The jury found each of the three defendants liable for willful contributory copyright and trademark infringement and awarded the plaintiff $31,500,000 on its trademark claim and $900,000 on its copyright claim. The jury’s damages verdict was divided equally among the three defendants, requiring each of them to pay $10,500,000 for the trademark infringement claim and $300,000 for the copyright infringement claim. After the verdict the district court granted judgment in favor of defendant MSG, finding that the plaintiff had presented no evidence that MSG did anything other than lease its servers to the other defendants Akanoc and Chen. This judgment reduced the plaintiff’s damage award to $21,000,000 on its trademark claim and $600,000 on its copyright claim.

On appeal, the 9th Circuit affirmed as to the liability issues, but reversed and vacated the damages award, finding that it was error to award the plaintiff separate damages awards against each of the defendants, instead of a single award. The 9th Circuit found sufficient evidence to support the verdicts against defendants Akanoc and Chen. Further, the 9th Circuit found no error with the trial court’s jury instruction concerning contributory trademark infringement. The court held that defendants Akanoc and Chen had control over the master switch that kept the websites online and available, satisfying the requirement for contributory liability that the defendants had direct control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s marks. Concerning the jury instruction regarding copyright infringement, the court held that to establish material contribution, the plaintiff merely needed to prove that defendants Akanoc and Chen substantially assisted direct infringement, of which the court found ample evidence.

The court overturned the damages verdict, however, because there may only be a single award of statutory damages for willful copyright and trademark infringement, and in this case the verdict form invited the jury to specify a separate statutory damage award against each defendant. Accordingly, the 9th Circuit reduced Plaintiff’s statutory damages award to $10,500,000 for contributory trademark infringement and $300,000 for contributory copyright infringement.

Practice Note: It is risky for any web host to ignore or improperly respond to a Notice of Infringement concerning either copyright or trademark. Given the substantial size of the damages award in this case, it is likely that more actions for contributory copyright and trademark infringement will be brought against web hosts located in the United States where the direct infringers are based overseas, making direct enforcement impracticable.