Pursuing landlords for infringement – wishful thinking or worthwhile remedy?

Counterfeiting is a growing problem everywhere in the world and Latin America is no exception. Rights holders continue to suffer from the import, local production and sale of counterfeit goods, and are constantly looking for cost-effective remedies to counter this illegal trade.

One notorious example of this increasing trend is La Salada market in the province of Buenos Aires, Argentina – the biggest black market in South America – which has been operating for years and where counterfeit products are sold openly and on a massive scale. According to recent estimates, commercial activity at La Salada is nothing short of overwhelming: three warehouses accommodate over 30,000 vending stands, most of them wholesalers. La Salada is open three days a week and attracts approximately 250,000 shoppers every week, generally low-income consumers.

Informal fairs or markets based on the same model, although smaller in size, are known as ‘little Saladas’ or ‘Saladitas’, and have spread throughout the country. According to a survey published by the Argentine Confederation of Small and Medium-sized Enterprises, in August 2015 560 illegal fairs were held and over 26,000 street vendors were operating in Argentina.

Creative solutions

Brand owners have been exploring more efficient and creative tools, as standard approaches to combating counterfeiting in illegal fairs or markets are not working as expected. Where possible, they are trying to prosecute other crimes associated with the trafficking of counterfeit goods, such as tax evasion, money laundering and exploitation of child labour.

Another strategy that is often considered – although not pursued much in practice – relates to the role of the landlord in facilitating the sale of counterfeits by third parties. An international debate has been ongoing in recent years as to whether landlords can be held liable for the illegal acts of their tenants. Several legal theories have been discussed to that end (eg, vicarious and contributory liability), and a few specific laws and regulations have been passed in some jurisdictions, prompting some interesting judicial decisions.

However, this issue is still at a nascent stage in Latin America. No laws provide for specific landlord liability in cases of counterfeiting. Trademark laws are generally silent on liability for indirect infringers and do not include explicit provisions covering intermediary activities. The lack of legislation has made it difficult for brand owners and practitioners to impose liability on third-party contributors such as financiers, key input suppliers and brick-and-mortar landlords.

However, in two court decisions – one in Brazil and the other in Argentina – the issue was considered and the landlord or organiser was held liable for trademark infringement.

Shopping 25 de Março

Shopping 25 de Março is a popular shopping mall located in the central region of Sao Paulo, Brazil, with over 1,000 stores and kiosks selling a wide range of goods.

Several years ago the owners of the trademarks LOUIS VUITTON, OAKLEY and NIKE verified that counterfeit products bearing their logos were being sold in this mall and organised a raid to secure evidence of infringement. Following the raid, over 500 stalls inside the mall were found to be selling counterfeits and a significant number of illegal products were seized.

The brand owners then filed suit against the shopping mall manager, a company called Calinda Administration, Participação e Comércio Ltda, seeking damages plus a decision ordering it to prevent the sale of counterfeit Louis Vuitton, Oakley and Nike products. They also requested that a fine be applied for each day that counterfeit products continued to be sold at the mall.

The Sao Paulo State Court of Justice court ruled in favour of the brand owners, which argued that Calinda had a duty to prevent the sale of counterfeit goods at the mall, and sentenced it to pay damages.

Both parties appealed. Calinda’s main argument was that it was merely a shopping mall manager and could not be held liable for tenants’ criminal activities. It further argued that the action should be redirected away from it to the actual infringers.

In a split decision (three votes to two), the Brazilian Superior Court of Justice in Nike do Brasil Comercio e Participaçoes Ltda v Calinda Administração Participação e Comercio Limitada, Recurso Especial (1.125.739 (2009/0093832-6)) confirmed the ruling on the merits, although it reduced the amount of the daily fine.

Judge Beneti, who drafted the decision, noted that a shopping mall must not infringe the rights of trademark holders by selling counterfeits, and that when such illegal practice is widely known and reported by the press, it constitutes an undisputed fact which gives rise to liability.

Thus, based on the available evidence, the judge concluded that Calinda was guilty of omission and lack of compliance in its duty to monitor activities taking place inside the shopping mall. In addition, it had failed to enforce its contractual right to terminate its tenants’ leases when the leased space was used for any purpose contrary to the law. In other words, Calinda’s passivity in the face of blatant trademark violations resulted in its liability.

Although this case was decided in 2012, it has not been followed by similar rulings in other Latin American jurisdictions and thus remains an isolated precedent.

Galería La Morocha

In a case addressing criminal landlord liability in connection with an illegal organisation of street vendors in Buenos Aires, the owner of the building used for the activities was charged as an accessory to the illegal organisation.

In a decision centred on a mall in the Shopping 25 de Março district, the court found that the mall’s owner had a duty to prevent the sale of counterfeit goods. The case remains a rather isolated precedent

Picture: Frazao Production/shutterstock

The accusation was brought by the Complex Investigations Unit of the City of Buenos Aires Public Ministry (CIU) after its investigations uncovered an illegal organisation of street vendors which occupied public spaces on major avenues throughout Buenos Aires. Onsite surveillance showed that a nearby shopping centre – Galería La Morocha – was used by street vendors for overnight storage. The owners of the individual stores within the shopping centre charged a storage fee; they in turn paid the shopping centre manager a percentage of those fees. The manager did not own the building, but rented it from a third party.

The illegal street vendors, store owners and shopping centre manager were all charged as principals to the illegal organisation of unauthorised activities in a public space, an offence under the city’s Code of Misdemeanours. In addition, the CIU charged the owner of the building as an accessory to the illegal organisation.

The building owner did not take part in the shopping centre management or day-to-day business; he simply rented out the building. However, the CIU included him on the grounds that he knew or should have known that his tenants were engaged in illegal activity and that the rent payments derived, at least in part, from this.

The acting prosecutor considered that the landlord had a direct and personal relationship with the retail store owners (his tenants), and that he personally collected the rent at the stores where the illegal activities were taking place. Therefore, the prosecutor concluded that the owner knew or could not ignore the extent of his tenants’ activities at Galeria La Morocha and had the necessary tools to prevent these activities from taking place as provided for in the lease agreement. Thus, continuing with the lease agreement while being aware of his tenants’ illegal activities constituted essential cooperation with the infringement.

The precedent set by this case opens the possibility for trademark owners to include brick-and-mortar landlords as targets of their criminal anti-counterfeiting actions in Argentina.

A case addressing criminal landlord liability in connection with street vendors in Buenos Aires opens the possibility for trademark owners to include brick-and-mortar landlords as targets of their criminal anti-counterfeiting actions in Argentina

Picture: Anibal Trejo/shutterstock

Outlook

Although only local laws apply in Latin American countries, making it difficult to draw general conclusions which can be applied across the region, these cases allow us to make some general comments.

Actions against landlords may be brought in a civil court (as in the Brazil case) or in a criminal court (as in the Argentine case). Pursuing the civil option may be easier because standards of evidence are less strict and some Latin American jurisdictions do not provide for corporate criminal liability.

Landlord liability can be based on general laws or nuisance laws. As the Argentine case demonstrates, applying laws other than specific trademark regulations may also lead to a positive outcome.

Actions against landlords are most appropriate when the scale of counterfeiting in a market is severe, counterfeit products are sold openly, the affected brand owner suffers significant harm and the landlord remains passive or inactive regarding the problem.

Suing a landlord for trademark infringement could be an attractive alternative, as landlords do not enjoy the same anonymity as their clients or tenants and – at least in theory – it is easier to trace their assets.

The knowledge requirement is vital to ensure a successful action. The standard set in both of these cases appears similar: the landlord knew or should have known that the sale of counterfeit products was taking place and did nothing to prevent it.

The participation of law enforcement agencies and the judiciary in the fact-gathering process is key to ensuring the admissibility of evidence in subsequent proceedings on the merits.

Trademark enforcement is not a top priority in most Latin American countries. This is mainly due to a general perception that criminal courts should focus on fighting violent crimes, whereas IP violations are usually regarded as being victimless. In this context, the primary responsibility for taking measures to protect trademarks lies with the rights holders themselves. Indeed, even if trademark crimes can be prosecuted ex officio in some countries, the de facto prerequisite for government intervention is that companies step up to protect their own IP assets.

It is critical that rights holders show dedicated commitment to enforcement proceedings (ie, assisting with expert examinations; appearing at raids, seizures and destructions; appearing as private complainants in criminal cases). This is usually well received by judicial and law enforcement agencies and prompts them to act more proactively than they would otherwise.