Sellify v. Amazon.com

Citation
Sellify, Inc. v. Amazon.com, Inc., 2010 WL 4455830 (S.D.N.Y. Nov. 4, 2010).

Factual Background
OneQuality, LLC, which was purchased by Sellify, Inc. in 2009, purchases used electronics and resells them online on eBay and their its website, www.onequality.com. Amazon, in addition to having an extensive online storefront, maintains an Associate Program, wherein Associates provide links to Amazon’s website in exchange for a percentage of the proceeds generated by visitors who clicked on the link.

Until May 2009, Associates could purchase “keywords” from search engines to advertise their Associate links. Using this process, one of Amazon’s Associates, Cutting Edge Design (CED), bought the keyword “onequality.com” as well as several variants, and posted ads stating “Don’t Buy from Scammers” and “ Beware the SCAM Artists.”

After contacting Amazon directly regarding these ads, Sellify brought this action for violation of the Lanham Act, false advertising, unfair competition, and unfair trade practices in violation of state law. The district court granted Amazon’s motion for summary judgment and dismissed the case with prejudice.

While CED’s ads appeared to be posted by Amazon, and linked directly to the Amazon website, Amazon had no actual ability to edit or remove the content of the ads. After receiving notice from Sellify, Amazon did threaten to close CED’s Associate account and withhold accrued earnings, and subsequently did so after CED failed to remove the ads in question.

Trial Court Proceedings
In deciding Amazon’s motion for summary judgment, the court addressed the issues of direct liability, vicarious liability, and contributory infringement.

Direct liability
Direct liability exists under the Lanham Act only where the defendant itself unlawfully uses in commerce another’s trademark. 11 U.S.C. §1125 (a). In the present case, it is undisputed that Amazon had not purchased the relevant keywords or created or post the associated ads. As such, Amazon could not be subject to direct liability.

Vicarious liability
Vicarious liability under the Lanham Act was a novel issue in the Southern District of New York prior to this case. As applied by other courts, vicarious liability can be established by a showing of either actual or apparent authority.

• Actual authority: “An agent acts with actual authority when, inter alia, a principal has manifested its intent for the agent to act on the principal’s behalf, the agent has the authority to legally bind the principal, and the agent is subject to the principal’s actual control.” See, e.g., Ahn v. Roone, Pace, Inc., 624 F. Supp. 368, 370-71 (S.D.N.Y. 1985); Mouawad Nat’l Co. v. Lazare Kaplan Int’l Inc., 476 F. Supp. 2d 414, 422-23 (S.D.N.Y. 2002). In the present case, not only does the Associates Agreement disclaim such a relationship between Amazon and CED, there were no facts presented to evidence such a relationship or to show any measure o control exerted by Amazon over CED’s conduct. While Amazon’s closure of the CED Associates account ultimately led to CED removing the subject advertisements, there was clearly no direct control.

• Apparent Authority: Apparent authority exists when “a principal, either intentionally or by lack of ordinary care, induces [a third party] to believe that an individual has been authorized to act on its behalf.” Highland Capital Mgmt. v. Schneider, 607 F.3d 322, 328 (2d Cir. 2010). The only arguable inducement by Amazon that there was an affiliation between Amazon and CED was the allowance to link to Amazon’s website. The court briefly acknowledged the extreme expansion to agency law that would be created by holding that allowing a party to link to your site creates apparent authority under the law and rejected this basis for liability.

Contributory infringement
In Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 884 (1982), the Supreme Court held that a plaintiff alleging contributory infringement must prove either that the “manufacturer or distributor intentionally induce[d] another to infringe a trademark,” or that it “continue[d] to supply its products to one whome it lear[ned] or ha[d] reason to know [was] engaging in trademark infringement.” Id. at 854. In order for Amazon to be liable under this theory, there would have to have been more particularized knowledge of the specific content of CED’s ads. (See Tiffany (NJ), Inc. v. eBay, Inc., 600 F.3d 93 (2d Cir. 2010).)

All of Sellify’s state law claims were rejected because there could be no finding that Amazon had either directly posted the infringing content or that CED had acted as Amazon’s agent.

Finally, before dismissing the case with prejudice, the court noted that even if Sellify’s liability claims were viable, Sellify’s claim for damages was far too speculative to survive summary judgment. According to Sellify, the company earned profits of $635.935 in 2006 and $317,181 in 2007. Following a dispute between the owners, operations continued at a minimal level until 2009 when Sellify purchased the rights to OneQuality. In setting its estimate for damages, Sellify ignored the drop in revenue between 2006 and 2007, which had nothing to do with CED, as well as the substantial decrease in profits between 2007 and 2009, and used the following calculation: estimated profits from 2009 subtracted from the profits in 2007 multiplied by a factor of 9. Without giving any support for this calculation, or addressing the additional factors relating to the profitability of the company, the court rejected the calculations as a whole.