Court Partially Grants MSJs in Atari v. Red Bubble Dispute

BIG PICTURE

An MSJ ruling in Atari’s latest lawsuit against Redbubble (funded by Legalist) presents some useful things for an IP owner to consider when it encounters infringement on an online platform.

BACKGROUND

Atari was originally founded in 1972 in in Sunnyvale, California by Nolan Bushnell and Ted Dabney. These days, it is partnering with a litigation finance firm, “Legalist,” to fund litigation against online retailers like Redbubble and Target (as well as against Nestle). Atari seeks to capitalize on its “retro” video game brand by licensing official merchandise, often featuring classic Atari game IP.

Redbubble provides a “global online marketplace where independent artists upload their designs and creative works for sale on a range of products.” In other words, “personalized on-demand retail.” When customers buy products on the Redbubble platform, Redbubble processes the payment and informs the customer with an estimated delivery date. It then sends the order to a third-party manufacturer called a “fulfiller” who creates the final product based on the customer’s order. Redbubble claims that it doesn’t actually have any express agreements with these fulfillers, although it chooses them based on quality standards, proximity to the customer and product type.

After the fulfiller creates the product that the customer ordered, Redbubble tracks the order for the customer. The product arrives in Redbubble packaging, with a Redbubble tag and with a return address of “An Artist on Redbubble.” Redbubble handles customer service, including issues with replacement for damaged good and it handles all returns and refunds.

Redbubble product packaging and tag

In short, Redbubble: (1) manages the order; (2) coordinates the creation of the goods; (3) arranges for delivery; and (4) handles all customer service issues, returns, and refunds. The only thing it doesn’t do is provide the art to be used on the product — that is supplied by the “artist.”

Redbubble’s explanation of how it works

THE DISPUTE

Atari located 114 Atari trademarks, 18 Pong trademarks, and 61 copyrighted Atari designs on Redbubble’s platform. Atari did not notify Redbubble of these infringing products before filing a complaint. Both parties filed motions for summary judgment on Atari’s trademark and copyright infringement claims. Redbubble also sought to preclude Atari from offering a damages case.

DIRECT TRADEMARK INFRINGEMENT

Atari claimed that Redbubble “uses” the Atari trademarks in commerce by selling merch displaying those marks. Redbubble disputed this claim, instead arguing that the artists — not Redbubble — perform the actual sales. Redbubble relied on a 2019 district court decision from Ohio that found Redbubble was not a “seller.” Ohio State University v. Redbubble, Inc., 369 F. Supp. 3d 840 (S.D. Ohio 2019) (analogizing Redbubble to Amazon Marketplace, which courts have found to be a facilitator of sales between other parties rather than a seller itself). The reasoning here is that Amazon doesn’t hold legal title to goods sold through its website and shipped through its warehouses and a sale requires a transfer of legal title from the seller to the buyer. Amazon also doesn’t control what information or pictures get put on the product-detail page or the price for which a product is sold.

The district court disagreed with Redbubble’s position for three reasons.

First, the court found that the evidence before the court did not show that the artists who upload their designs to Redbubble own the goods being sold. It pointed to Redbubble’s user agreement which says artists “may offer their art for sale on a physical product,” but that doesn’t mean the artist owns the physical product bearing the art. Even though the user agreement states that “title and risk of loss” pass from the artist to the customer “without passing through Redbubble” the court saw no evidence that the “artists exercise any indicia of ownership over the physical products.”

Second, the court explained how the law of sales works. Since the products don’t exist at the time the customer places an order, there is no “sale” yet under the Uniform Commercial Code, but rather, a “contract to sell.” Atari’s evidence showed that customers contract to purchase from Redbubble — not the artists. Redbubble itself advertises that the products are “designed by” the artist, not “sold by” the artist and Redbubble’s software accepts orders and forms a contract without any input from the artist. Redbubble confirms the order and describes the artist as a “mere beneficiary” that receives “kudos” and a portion of the proceeds. And, of course, the products arrive in Redbubble packaging with Redbubble tags, reinforcing the notion that they are Redbubble’s products.

Third, the court found Redbubble’s practices similar to those involving a case where Harley Davidson successfully sued a print-on-demand vendor for using Harley Davidson marks on merch. H-D U.S.A., LLC v. SunFrog, LLC, 311 F. Supp. 3d 1000 (E.D. Wis. 2018) (granting summary judgment against a print-on-demand business that made goods based on customer-uploaded designs). While there were some distinctions, such as the platform’s employees operating the printers that placed the designers onto the physical product and shipping the finished products to customers, the similarities outweighed such distinctions.

On this basis, the court denied Redbubble’s motion for summary judgment on Atari’s trademark infringement claim.

However, the court nevertheless concluded that a “reasonable jury could conclude that Redbubble is merely a ‘transactional intermediary’ and not a seller.” It denied Atari’s motion for summary judgment because while there was something much more than “no evidence” that Redbubble acts as a seller, Atari hadn’t yet established that Redbubble is a seller as a matter of law.

Next, the court looked at “use in commerce” from both an “offers to sell” perspective and an advertising perspective. As to the former, the court concluded that a jury could conclude “that either Redbubble or the artist was the offeror for the same reasons that they could conclude that either was the seller.” As to the latter, the court found that Atari hadn’t produced sufficient evidence for summary judgment to show that Atari had a “protectable interest” in the marks that appeared in Redbubble advertisements on advertising platforms like Google.

INDIRECT TRADEMARK INFRINGEMENT

Vicarious liability occurs where the defendant and the infringer (1) have an actual or apparent partnership; (2) have authority to bind one another in transactions with third parties (i.e. agency); or (3) exercise joint ownership or control over the infringing product.

To my surprise, Atari introduced no direct evidence of a relationship between Redbubble and its fulfillers. (Having litigated this issue in preparation for MSJs, previously, I would have expected at least deposition testimony on this issue.) On the other hand, the court recognized that Redbubble failed to establish that a reasonably jury couldn’t find it vicariously liable based on Atari’s circumstantial evidence, so hope for this claim at trial remains alive.

Atari’s contributory liability trademark infringement claim is also interesting. Atari alleged “that Redbubble fails to take any action to prevent infringement until after it receives notice from a rights holder, even though it has reason to know that widespread trademark infringement is occurring on its website.” However, the court pointed to Redbubble’s evidence of its “Marketplace Integrity Team” proactively screening for infringing content based on information it receives from content owners. The takeaway here is obvious: If you want to establish contributory liability, you should let the platform know of the infringement that’s occurring. Finally, Atari introduced evidence of repeat infringers, but the court punted and sent this question to the jury also, with little explanation as to the insufficiency of Atari’s evidence.

DIRECT COPYRIGHT INFRINGEMENT CLAIMS

On Atari’s direct copyright infringement claim, the court accepted that Atari had met the first two requirements, i.e., (1) that Atari owned the allegedly infringed material; and (2) Redbubble violated at least one of the exclusive rights in the Copyright Act. However, on the third requirement of causation (also referred to as “volitional conduct”) the court drew a distinction between display and distribution rights. On the former, it found that Redbubble “does not ‘exercise control (other than by general operation of its website)’ for display rights.” (Emphasis added.) The court found that Redbubble doesn’t “select any material for upload, download, transmission, or storage,” but rather, those acts are performed by the website’s users. On the latter, though, the court found that “since Redbubble actively instigates and exercises control over the sales on its website, a reasonable jury could find that Redbubble is liable for direct infringement of Atari’s copyright distribution rights.” (Emphasis added.)

Redbubble offered DMCA safe-harbor as a defense. The court rejected this defense on the grounds that Redbubble doesn’t just passively store images on its platform at the direction of useers, but rather, it “actively participates in modifying the files uploaded by users to display the designs on Redbubble-selected physical products.”

INDIRECT COPYRIGHT INFRINGEMENT CLAIMS

The court rejected Atari’s claims for vicarious and contributory trademark infringement. Here again, we have the same obvious takeaway from above. The court observes that “Redbubble introduces evidence that it promptly removed any allegedly infringing listings identified by Atari upon receiving notice.” The court again faults Atari for not providing notice of the other allegedly infringing items on the site. Tl;dr - you should consider giving notice to the platform of infringing items before filing suit. Similarly, when the court gets the analysis of “willfulness” later in the opinion, it decides that “Redbubble’s systems overall appear to be designed in a ‘copyright protective’ way and again observes that Redbubble “promptly removed infringing listings and began to police for Atari’s content.”

DAMAGES

Lastly, the court addressed Redbubble’s motion to preclude Atari from offering a damages case because Atari allegedly failed to disclose damages calculations in discovery. The court recognized that “Atari broadly disclosed a statutory damages range ‘per infringed work’ and ‘per type of counterfeit good’” but decided that the briefing on this topic was too light and asked the parties to further discuss it at an upcoming case management conference.

FINAL THOUGHTS

There are at least two takeaways from the opinion. First, if you see infringement as an IP owner on a platform like Redbubble, you should consider notifying the platform and diligently working with them to police your rights. Not all courts find this necessary; but some courts, like this one, count that as a useful fact for IP owners. Second, the facts of how the platform works with third parties (e.g., fulfillers) matters a lot. Before getting to the MSJ stage, every effort should be made to establish facts that will support a theory of agency or partnership that demonstrate exactly how decisions get made and who calls the shots.