A U.S. federal court has ruled that a non-vessel-operating common carrier is not strictly liable for direct trademark infringement by counterfeit goods whose transportation it arranged but could be liable for contributory infringement.
NVOCCs do not operate ships directly but arrange for the shipment of goods with vessel carriers. In this case a foreign NVOCC was contacted by a company in China to arrange for five shipments from China to the U.S. that were purportedly on behalf of a company in Hong Kong. The house bill of lading for the shipments listed a Chinese lighting factory as the shipper and yet another company as the U.S. consignee. The contents of each shipment were falsely listed as lamps.
The shipments were transported by two different carriers. One issued a master bill of lading identifying as the consignee a U.S.-licensed NVOCC that acts as the foreign NVOCC’s receiving agent for some shipments. The second issued an MBL listing as the consignee a third NVOCC to which the foreign NVOCC had subcontracted the shipments.
For each shipment the U.S. NVOCC contracted with a customs broker to handle the entry paperwork in the U.S. A customs power of attorney was obtained from the putative president of the U.S. company designated as the consignee on the HBLs, but it was returned under a slightly different name. The broker then filed customs paperwork for the shipments under yet another company name. The plaintiff alleged that the power of attorney form likely used a stolen federal tax ID and that when the broker used that ID in filing the entry it automatically filled in the corporate information for the legitimate holder of the ID.
U.S. Customs and Border Protection seized one of the shipments after it was found to contain counterfeit shoes. The plaintiff argued that the foreign NVOCC should be held liable for direct infringement under the Lanham Act because arranging for the transportation of the counterfeit goods meets the law’s requirement that an infringer use a counterfeit good in commerce.
However, the court said the law makes clear that the infringer must have some intention to sell, advertise, or distribute the infringing product or service for strict liability to attach, and it is undisputed that in this case the foreign NVOCC had no intention of selling, distributing, or advertising the counterfeit goods. “Mere unwitting transportation of another’s goods is not enough” the court said.
On the other hand, the court held that the foreign NVOCC could be liable for contributory infringement if it knew or should have known that its customer was shipping counterfeit goods. Courts have held that this knowledge requirement is satisfied when the defendant has reason to suspect that counterfeit goods are being sold using its service and intentionally shields itself from discovering the identity of customers engaged in counterfeiting. More recently the courts have expanded on this test, stating that if a defendant undertakes bona fide efforts to root out infringement when it knows or should know about it, that will support a finding no liability even if the defendant was not fully successful in stopping the infringement. If the defendant decides to take no or little action, however, it will support a finding of liability.
In this case, the foreign NVOCC said it did not know the shipment contained counterfeit goods until after the seizure and did not know that the names of the shipper and consignee it had been provided by its customer was inaccurate at the time of the shipment. The plaintiff countered that the foreign NVOCC knew or should have known of potential problems with the companies it was dealing with due to, among other things, anomalies in the paperwork. The court said these competing allegations raise a genuine dispute of material fact and that further proceedings are needed to resolve it.
For more information on this case and its impact, please contact attorney Jason Kenner at (212) 549-0137 or via email.
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