First published in Managing Intellectual Property
In December 2021, a noteworthy counterfeiting case against Amazon came to an end. While the case settled before trial, the plaintiff Maglula (represented by Finnegan) achieved a major legal victory when it defeated Amazon’s motion for summary judgment. That decision offers valuable lessons on proving patent infringement using representative products as well as holding online marketplaces like Amazon accountable for trademark counterfeiting and infringement for products offered through its ‘third-party’ marketplaces.
Maglula, the maker of the popular Uplula universal pistol magazine loader, filed suit against Amazon in 2019, accusing it of patent infringement, trademark counterfeiting, trademark infringement, and copyright infringement based on Amazon’s offers for sale and sales of counterfeit and knockoff magazine loaders.
Amazon mounted a vigorous defence, which began with its failed motions to dismiss the case, to transfer the case from the Eastern District of Virginia (the so-called ‘rocket docket’) to the Western District of Washington, and to compel arbitration. Maglula prevailed on all three motions, and the case proceeded in the Eastern District of Virginia.
Following discovery during the pandemic, which included a first-of-its-kind order permitting Maglula to inspect Amazon facilities for counterfeits, Amazon moved for summary judgment on several patent and trademark claims.
But the court denied Amazon’s motion and explained that it was a “straightforward counterfeit case” and “simply not a case where Amazon can deflect liability.” The court was clear that Amazon’s chances of prevailing at trial were slim when it indicated that not “even the most persuasive presentation of Amazon’s evidence would make one iota of difference to a jury” and again stated that this “is simply not a case where Amazon can avoid liability.”
The court ordered the parties to mediation, and they eventually reached a settlement. The court’s order on Amazon’s motion for summary judgment was a key legal victory for Maglula and is instructive to others affected by counterfeit sales in e-commerce.
Patents and Representative Products
One of the most fiercely litigated issues in the case was Maglula’s use of representative products to prove infringement. US Court of Appeals for the Federal Circuit precedent allows patentees to prove infringement through representative products. In TiVo v EchoStar (2008), the court said: “There is nothing improper about an expert testifying in detail about a particular device and then stating that the same analysis applies to other allegedly infringing devices that operate similarly, without discussing each type of device in detail.”
Nevertheless, Amazon insisted throughout the litigation that Maglula could not rely on representative products and instead needed to prove infringement of every single individual accused product separately. This position was particularly egregious when the products at issue were counterfeits and knockoffs (copies) of the genuine Uplula loader and thus the same as one another.
Early in discovery, Amazon moved to compel Maglula to provide an infringement claim chart for each and every accused product. Maglula opposed and explained why representative charting was routinely permitted and appropriate in this case. Following a hearing on the motion to compel, the court agreed with Maglula and did not require Maglula to provide an infringement chart for each accused product.
In the meantime, Maglula and its expert inspected thousands of accused products, including products that Maglula was able to obtain from Amazon customers and products that Maglula was permitted to inspect in Amazon fulfilment centres around the US. Maglula’s expert grouped the products into nine classes of accused products based on certain criteria. Four of the classes were counterfeit products bearing the ‘Uplula’ name and five were knockoff products with names like ‘Magload’, ‘UpLood’, ‘QBLoader’, and ‘Castellan’, or had no name at all. Maglula’s expert provided a claim-by-claim and limitation-by-limitation patent infringement analysis of one product in each class and further opined that, except for the ‘Castellan’ products, all accused goods in the other eight classes were structurally and functionally the same, both within and across classes, and infringed in the same way as the inspected representative products.
Amazon, for its part, was unable to identify any material differences between the products Maglula inspected and the uninspected products. During fact discovery, Maglula served an interrogatory seeking Amazon’s non-infringement contentions and twice moved to compel a complete response. Maglula’s second motion to compel requested Amazon’s full factual basis for its contention that the accused products were not structurally and operationally the same for purposes of infringement. But, other than a minor difference with the ‘Castellan’ product, Amazon and its expert never identified any structural or operational differences between the accused products that mattered for the purposes of patent infringement.
Despite all the evidence that the accused products were the same for the purposes of infringement, Amazon moved for summary judgment of non-infringement of the goods that Maglula had not been able to inspect. Maglula opposed and explained that it had properly relied on representative products and proven infringement of the uninspected ones through representativeness. In its opposition, Maglula also relied on information that appeared on Amazon’s website to show that products having the same Amazon Standard Identification Number are the same. Finally, Maglula noted that it did not have the opportunity to inspect some of the accused products because Amazon destroyed them.
In the end, the court denied Amazon’s motion for summary judgment and ruled that Maglula was not required to show on a product-by-product basis that every single product had been infringed and instead may “show that a representative sample has been infringed upon.”
With this battle over, the representativeness issue offers valuable lessons for patent owners facing counterfeiting in e-commerce. To reduce their liability by obscuring the true scale of infringement, online marketplaces may argue that each individual product must be inspected and requires a separate proof of infringement. This argument may have superficial appeal if there are different ‘types’ of counterfeits or knockoffs with different branding from different manufacturers. It will almost always be impossible for patent owners to inspect each and every product, especially those that have already been sold. But if, like here, the accused goods are structurally and operationally the same for the purposes of patent infringement, patent owners should be reassured that the court validated the use of representative products to prove infringement.
Historically, Amazon and other online marketplaces have argued (mostly successfully) that they should not be directly or secondarily liable for the sales of counterfeit or infringing goods by third parties on their platforms. Much of the case law in this area contemplates antiquated trading venues like flea markets and in-person auctions – not the sophisticated machinery and virtually endless resources behind Amazon’s online marketplace and back-end operations. It has long been time for the law to catch up, and Maglula presented a compelling opportunity for it to do so.
In its summary judgment motion, Amazon argued that it could not be secondarily liable for trademark infringement or counterfeiting for sales by ‘third-party’ sellers through its Fulfillment by Amazon or Merchant Fulfilled Network programmes. In opposition, Maglula put forth ample evidence that Amazon is not an uninvolved middleman simply offering a platform for third party sellers, but rather “controls all aspects of the advertising and sales process” with its selling partners. For example:
- Amazon has sole discretion to determine the content, appearance, design, functionality, labelling, and all other aspects of its listings.
- Amazon can redesign, modify, remove, or restrict access to any listing.
- Amazon controls the fulfilment and distribution process by, for example, determining which selling partners appear on Amazon’s website (and, accordingly, which selling partner receives payment for an order) at any given time.
- Amazon controls communications between its selling partners and customers.
- Amazon collects fees from its selling partners and may also, at any time, in its sole discretion and without notice, suspend, prohibit, or remove product listings associated with Amazon and its selling partners.
- Amazon also controls aspects of processing payments, order cancellations, returns, and refunds for products sold on Amazon.com.
For these reasons, and others, Maglula argued that there were genuine disputes of material fact as to whether Amazon was secondarily liable for trademark counterfeiting and infringement.
The court concluded that Maglula had raised genuine issues of material fact as to whether Amazon and its ‘third-party’ sellers have a relationship that allows for Amazon to be secondarily liable for their sales of counterfeit or infringing products, meaning that Maglula could proceed to trial on that theory.
Intellectual property law is not the only area where courts may consider holding online marketplaces liable for the sales of ‘third-party’ sellers. In products liability cases (for example, Bolger v Amazon, 2020, and State Farm Fire & Casualty v Amazon,2019), courts have begun to hold online marketplaces responsible for such conduct. IP owners should take note of these developments in other areas of the law because courts may find the principles underlying these product liability cases persuasive in IP cases.
This case marks an important step forward in holding online marketplaces like Amazon accountable for counterfeit and infringing products offered and sold through their channels. The underlying facts of each case are critical, but as Maglula demonstrated in this instance, online marketplaces are vulnerable. At the same time, legislation and consumer awareness are critical to protecting brand owners like Maglula and consumers from marketplaces that are not doing enough to rid their channels of counterfeit products and those known to sell them.
Originally printed in Managing Intellectual Property on February 11, 2022. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.