Is Litigation Threatening to Burst the [Red]bubble? Courts Weigh in On IP Implications of Redbubble’s Unique Online Marketplace

[Chewy_fox]

With brick-and-mortar stores closing at rapid paces and online sales surging, marketers are developing new models to facilitate sales through innovative online platforms. One of those new business models is Redbubble’s hybrid “print-on-demand” service. Two recent Court of Appeals decisions – from the Sixth and Ninth Circuits – consider important questions about when these new approaches to online sales gives rise to liability for trademark infringement, trademark counterfeiting, and right of publicity violations.

Who, or What, is Redbubble?

Redbubble operates a print-on-demand online marketplace through which independent artists can upload their artwork to Redbubble’s website and consumers can purchase products, such as t-shirts, mugs, phone cases, stickers, and bags, bearing the designs. Although Redbubble’s terms of use claim that the artists – not Redbubble – are the “sellers” of the products, Redbubble arranges for the both the manufacture and shipment of the products, compensating the artists for a portion of the sales. Even though Redbubble characterizes the artists as the sellers of the items, the products are shipped to consumers in packages bearing Redbubble’s logos. Redbubble also handles the logistics of any returns or refunds.

More than $100 million worth of sales have already been processed through the Redbubble website, and more than 600,000 artists have posted images onto the website.

Direct Liability for Infringement of Third-Party Trademarks

The question of whether Redbubble may be held directly liable for trademark infringement stemming from the products sold on its site was addressed two weeks ago by the Sixth Circuit in Ohio State University v. Redbubble. There, Ohio State University (OSU) sued Redbubble, alleging direct trademark infringement by Redbubble for the sale of apparel, stickers, phone cases and other products on the marketplace that allegedly infringed several of OSU’s trademarks, such as its “OSU” and “O” insignias and Brutus Buckeye mascot. OSU, as assignee of Urban Meyer’s right of publicity, also sued for violations of the Ohio right of publicity statute based on sale of products bearing Coach Meyer’s image.

Redbubble moved for summary judgment, arguing that it could not be held directly liable for trademark infringement because it did not actually “use” the allegedly infringed marks in commerce – the artists, not Redbubble, were the sellers of the products and Redbubble held no actual title to them. Ohio State University v. Redbubble, Inc., 2:17-cv-01092-ALM-CMV (S.D. Ohio March 29, 2019). The district court, narrowly interpreting the standard for direct infringement, agreed with Redbubble. It held that the marketplace was merely a transactional intermediary, not the seller of the products, and therefore Redbubble’s transactions did not meet the requirements for use in commerce, a requisite to direct infringement.

In its analysis, the court compared Redbubble to other online marketplaces, like Amazon and eBay, which simply facilitate transactions. In so ruling, the district court ignored the significant work (e.g., arranging for the manufacture and shipment of the products) that Redbubble actually performs to cause the products to be created and sold through its marketplace.

The Sixth Circuit reversed, holding that the district court’s interpretation of the Lanham Act test for direct infringement was too narrow. Rather, the Court of Appeals held, use in commerce may be found not only through “sales” of products to which the seller has title, but also through other activity, such as offering a product for sale or distributing or advertising it. See Ohio State University v. Redbubble, Inc., No. 19-3388, 6th Cir. Feb, 25, 2021.

In finding that Redbubble could be liable for direct infringement, the court noted that the products sold through the Redbubble website came into existence only after they were purchased by consumers through Redbubble. Moreover, the products appeared to be manufactured by third-party manufacturers at Redbubble’s direction; they appeared to be shipped by those manufacturers in Redbubble packaging and tags; and they appeared to be classified as “Redbubble Products” and “Redbubble Garments” on Redbubble’s website. These activities, the court held, might distinguish Redbubble from “passive” facilitators like Amazon and eBay, which only connect sellers with buyers to aid in the completion of a sale.

Whether these activities ultimately will be enough to show direct infringement remains to be seen. That is because, the court held, there are numerous questions of fact about the extent of Redbubble’s involvement in these activities. (In so holding, the court quoted directly from INTA’s amicus brief supporting reversal, which was authored by Debevoise). The Court thus remanded the case for reconsideration in light of this more liberal standard. Given the standard articulated by the court and the facts of Redbubble’s operations, the district court is likely to find direct infringement.

District courts in California that have considered the same question have been split. In January 2021, a Northern District of California ruling denied Redbubble’s request for summary judgment on the same grounds, holding that there were questions of fact as to whether Redbubble used Atari’s trademarks in manner that would establish direct trademark liability. Atari Interactive, Inc. v. Redbubble, Inc., Case No. 4:18-cv-03451-JST (N.D. Cal. Jan. 28, 2021). That court specifically rejected the district court’s decision in OSU that Redbubble’s business model meant that it was not using the trademarks in commerce; the court also noted that Redbubble may be contributorily liable for the artists’ infringement (an issue that was not presented in the OSU case because OSU relied only on direct infringement, not secondary infringement).

In an earlier case, however, the Central District of California agreed with Redbubble and rejected claims of direct infringement, relying in part on the OSU district court decision. In that case, Brandy Melville, a teen-favorite women’s fashion brand, sued Redbubble for direct, vicarious and contributory trademark infringement, counterfeiting, false designation of origin, and unfair competition, alleging Redbubble created, manufactured and distributed large quantities of counterfeit Brandy Melville apparel and products. Y.Y.G.M. SA d.b.a. Brandy Melville v. Redbubble, Inc., 2:19-cv-04618 (C.D. Cal). The court granted Redbubble’s motion for summary judgment with respect to direct infringement, citing the OSU decision, and with respect to vicarious liability (because Brandy Melville failed to provide sufficient evidence of the requisite partnership, agency, or substantial control to sustain such a claim). The court rejected Redbubble’s efforts to evade all liability, though. The court held that there was enough evidence to create a material dispute of fact about Redbubble’s knowledge of infringing activity its platform, which could give rise to contributory liability.

This trend towards allowing claims against new online platforms is continuing outside of the Redbubble sphere as well. For example, in March 2020, the Southern District of New York, in the Chanel Inc. v. TheRealReal Inc. case, indicated that it would be willing to consider whether new types of online marketplaces that play a role beyond being a mere intermediary should be held liable for direct infringement. In that case, Chanel alleged that TheRealReal, a marketplace for secondhand sales of third-party luxury goods, was directly liable for the sale of counterfeit Chanel bags on its website. The Court refused to dismiss the claims because Chanel had alleged plausible facts that TheRealReal, unlike an intermediary marketplace like eBay, takes a more active role in the sales of the luxury goods, such as through approving products before they are listed, setting prices, marketing the goods, and taking physical possession of the goods before they are sold. See 18-10626 (S.D.N.Y. Mar. 30, 2020).

Liability for Third-Party Trademarks Used in Non-Source Identifying Contexts

In another recent case involving Redbubble, the Ninth Circuit addressed the question of whether Redbubble can escape liability for infringement by claiming that the trademarks printed on its products are aesthetically functional. Even though Redbubble conceded that products bearing plaintiff’s LETTUCE TURNIP THE BEET trademark were sold through its site (in some cases in fonts and colors identical to plaintiff’s incontestable trademark registrations), the court held that the phrase was being used for its qualities as a pun, not as a trademark, and therefore Redbubble could not be liable for infringement or counterfeiting. LTTB, LLC v. Redbubble, Inc., No. 19-16464, 2021 WL 195024 (9th Cir. 2021).

In so holding, the court relied on the flawed, and largely discredited, Ninth Circuit decision in International Order of Job’s Daughters v. Lindeburg & Co., 633 F.2d 912 (9th Cir. 1980), which held that defendant’s use of a registered fraternity emblem on jewelry was not trademark infringement because it served an aesthetically functional purpose (instead of a source-identifying one). More specifically, the Job’s Daughters court found no liability attached because the plaintiff in that case failed to show that “a typical buyer of [the defendant’s] merchandize would think that the jewelry was produced, sponsored or endorsed by the [plaintiff] organization.”

Using the same reasoning, the LTTB district court concluded that use of the “LETTUCE TURNIP THE BEET” trademark on the products at issue were not infringing because, like in Job’s Daughters, the use was non-source identifying. Rather, the court held on summary judgment, consumers purchased the products only because they liked the pun, not because they thought the products came from LTTB. Further, the court held, there was no plausible evidence that “consumers might wish to express ‘allegiance’ [to LTTB] by purchasing the products displaying the pun.”   In order words, the court found, a finding of likelihood of confusion was precluded because the mere use of the pun on the face of various products cannot be source-identifying. As such, the court did not analyze likelihood of confusion at all, essentially ruling that if a trademark is used in a non-source identifying (or ornamental) manner it cannot constitute trademark infringement.

LTTB appealed and argued, with amicus support from INTA (a brief, once again, authored by Debevoise), that the district court applied the wrong legal standard for aesthetic functionality test. In particular, LTTB and INTA contended that Job’s Daughters had been abrogated and was no longer the relevant standard for aesthetic functionality; instead, the  more recent Au-Tomotive Gold, Inc. v. Volkswagen of Am., Inc., 457 F.3d 1062 (9th Cir. 2006) should control. Under that more recent test, courts should consider, first, whether the alleged non-trademark function is essential to the use or purpose of the item or affects its cost or quality and, second, whether protection of the feature would put competitors at a significant non-reputation related disadvantage. LTTB and INTA also argued that the court should have separately conducted a likelihood of confusion analysis to determine whether Redbubble’s use of LTTB’s mark was infringing under the Ninth Circuit’s Sleekcraft factors. Otherwise, as the Au-Tomotive Gold court recognized, the aesthetic functionality doctrine “would be the death knell for trademark protection. ? It would mean that simply because a consumer likes a trademark, or finds it aesthetically pleasing, a competitor could adopt and use the mark on its own products.”

Unfortunately, the Ninth Circuit rejected LTTB’s and INTA’s arguments. In a decision that reincarnates the Job’s Daughters standard for aesthetic functionality, the court held as a matter of law that the LETTUCE TURNIP THE BEET mark was aesthetically functional because it “improves the usefulness or appeal of the object it adorns” and exclusive use of the mark “would put competitors at a significant non-reputation-related disadvantage.” LTTB, LLC v. Redbubble, Inc., No. 19-16464, 2021 WL 195024 (9th Cir. 2021). Because LTTB’s mark as used in these circumstances was deemed aesthetically functional and therefore not protectable, the court never reached the disputed facts concerning the likelihood of confusion.

Like the Ninth Circuit’s recent decision in VIP Prods. LLC v. Jack Daniel’s Properties, Inc., No. 18-16012 (9th Cir. Mar. 31, 2020) (about which Debevoise blogged here), this decision has the potential to severely disrupt trademark law in that Circuit. The Ninth Circuit’s decision not only ignores the long history of precedent holding that use of another’s trademark, even in an ornamental context, may cause consumer confusion, but it also jeopardizes trademarks that are both aesthetically pleasing and source-identifying and threatens trademark owners’ ability to protect and enforce their marks. The end result leads to greater confusion both for consumers and with respect to the correct legal standard for aesthetic functionality. It is the authors’ hope that the Ninth Circuit on reconsideration, or the Supreme Court on certiorari, will intervene to articulate the limited circumstances in which the aesthetic functionality doctrine may be invoked, and to reiterate the Au-Tomotive Gold court’s teaching that the exact copying of a registered trademark on competing products constitutes trademark infringement, whether sold in traditional brick-and-mortar stores or through new online marketplaces.

Edited May 21, 2021 by Chewy_fox

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