New York Real Property Owners at Risk for Exposure to Joint and Several Liability in Connection with Trademark Counterfeiting Taking Place on Their Property
Brand owners are increasingly asserting claims against owners of real property where alleged trademark counterfeiting is taking place. Three recent actions filed in the Southern District of New York, styled Michael Kors, LLC v. Mulberry Street Properties Corp., et. al., 15-cv-5504 (S.D.N.Y.); Michael Kors, LLC v. Canal Venture, Inc. et. al., 15-cv-5788 (S.D.N.Y.); and Michael Kors, LLC v. Mid Center Equities Associates, et. al., 15-cv-5856 (S.D.N.Y.), raise the question of when property owners/lessors can be held jointly and severally liable for damages resulting from the sale of counterfeit goods on their properties.
The Michael Kors LLC (MK) complaints assert various claims against tenants accused of selling counterfeit goods. The complaints further assert a private right of action under N.Y. Real Prop. L. § 231 against the owners of property where these sales have allegedly taken place. MK alleges that the property owners are jointly and severally liable for damages resulting from the sale of allegedly counterfeit goods on these properties. Under section 231 and interpretive case law, property owners may be liable for damages resulting from unlawful activities on their property where they “knowingly” lease or grant possession of space to be used or occupied, in part or in whole, for the manufacture, distribution, sale, or offer for sale of counterfeit goods. Joint and several liability means that these property owners can be found independently liable for the full extent of damages stemming from illicit sales, even where they did not actually sell or participate in any such sales.
N.Y. Real Prop. L. § 231 has been relied upon by brand owners in the past. For example, in a 2013 motion to dismiss brought by a property owner/lessor in a trademark counterfeiting action filed by Omega SA and Swatch SA, the district court confirmed that the New York law prohibits the use of property for the sale and storage of counterfeit goods but noted that the law requires the lessor to “know of the unlawful activity.” The court denied the lessor’s motion to dismiss the section 231 claim in that case and the case remains pending in the Southern District of New York.
As we wait for more law to be developed in this area, there are some steps that property owners can take now to minimize their risk of exposure. For example, property owners should confirm that their lease forms include language prohibiting illegal activities on the premises and requiring tenants to comply with all applicable laws. Property owners can also draft provisions in leasing documents specifically prohibiting the use of the premises for the “sale of counterfeit products” and reserving their right to immediately terminate or take other action if there is a seizure on the premises. They may also consider monitoring tenant activities and, responding immediately upon receipt of a cease and desist letter or notice of product seizure on the property. The 2015 MK complaints detail MK’s correspondence with the property owner defendants following seizures on the premises, which may support “knowledge” within the meaning of section 231.
Gibbons P.C. will continue to monitor trademark counterfeiting cases, including actions seeking to hold non-sellers (such as property owners) liable for the sale of allegedly counterfeit goods.