In a recent court decision out of the Western District of Washington, Amazon scored a huge victory on home court for itself and other e-commerce vendors in which a the Court found that Amazon is not liable for patent infringement (as an “offer to sell”) when goods that infringe patents are sold on Amazon.com.

In the case of Milo & Gabby, LLC v. Amazon.com, the issue of core importance decided by the Court (with the help of an advisory jury) was whether Amazon made an “offer to sell” within the scope of 35 U.S.C. § 271(a) (which defines the types of acts that constitute patent infringement), when a seller placed an infringing product for sale on Amazon.com. In other words, the question was whether Amazon itself could be held liable for patent infringement when a seller placed an infringing product for sale on Amazon.com.

To reach its decision, the Court submitted a series of questions to an advisory jury for factual determinations, reproduced here, with the advisory jury’s responses:

Do you find that Amazon, through its website, communicated a description of the allegedly infringing products? No.
Do you find that Amazon, through its website, communicated the price at which the allegedly infringing product could be purchased? No.
Do you find that Amazon provided the descriptions of the allegedly infringing products? No.
Do you find that Amazon set the price at which the allegedly infringing products could be purchased? No.
Do you find that Amazon set the quantity(ies) of the allegedly infringing product(s) for sale on its website? No.
Do you find that Amazon, through its website, communicated that it was willing to enter into a bargain to sell the allegedly infringing products? No.

. . .

Have Plaintiffs proven that it is more likely than not that Amazon offered to sell the alleged infringing products? No.

The Court then stated the following:

Based on these findings, and having reviewed the evidence and testimony presented in this matter, the Court can only conclude that Amazon did not offer to sell the alleged infringing products because there was no manifestation of the willingness of Amazon to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

However, the Court is troubled by its conclusion and the impact it may have on the many small retail sellers in circumstances similar to the Plaintiffs. There is no doubt that we now live in a time where the law lags behind technology. This case illustrates that point (emphasis added).

The Court, referring to testimony given by a representative of Amazon, then stated:

Amazon’s representative, Christopher Poad, testified that Amazon completely changed the online market place by creating a platform where any seller can offer products to Amazon’s customers. He further testified that Amazon allows sellers to offer their products with minimal effort, by simply filling out an online information form, clicking on an agreement to Amazon’s terms and conditions, and providing certain banking information. Amazon then offers those sellers both payment processing and fulfillment services, all with an asserted interest in providing the best service to their customers. Mr. Poad also testified that when customers cannot resolve problems with a particular seller, Amazon will often step in to make things right.

The Court then opined:

As a result, Amazon enables and fosters a market place reaching millions of customers, where anyone can sell anything, while at the same time taking little responsibility for “offering to sell” or “selling” the products. [Footnote 1 in Court Opinion - The Court recognizes that Amazon asserts and embraces an interest in preventing counterfeit and dangerous products from being sold through its Amazon.com website, that it reserves the right to unilaterally remove such products from the website, and has created a mechanism by which intellectual property owners can complain about violations of property rights. The Court also acknowledges that Amazon removed the alleged infringing products in this case from the Amazon.com website, continued to monitor and remove those product pages throughout the litigation, and barred the other Defendant sellers from selling at all on Amazon.com.]

The Court then concluded:

Indeed, under the current case law, Amazon has been able to disavow itself from any responsibility for “offering to sell” the products at all. As noted above, the purpose of “adding ‘offer [ ] to sell’ to section 271(a) was to prevent . . . generating interest in a potential infringing product to the commercial detriment of the rightful patentee.” MEMC Elec. Materials, Inc., 420 F.3d at 1376. In this instance, the Court is not convinced that such purpose has been fulfilled. However, that is a subject which must be addressed to Congress and not the courts.

For the reasons above, the Court adopts the verdict of the Jury and finds that Amazon is not liable for “offering to sell” the alleged infringing products at issue in this matter. Judgment shall be entered in favor of Amazon. All Plaintiffs’ claims against Amazon are dismissed.

Now, the importance of the issued raised by this case cannot be understated. It is in all likelihood undeniable that many infringing, counterfeit, knockoff-type products are sold on Amazon, and that number will likely increase as Amazon becomes still more popular. I am not saying that Amazon knows that all, some, or even any of such products are infringing, but I am simply stating that infringing products are most likely sold on Amazon.

Yet, it was extremely difficult, and now even more so based on this case, to hold Amazon responsible for sales of patent infringing products on Amazon.com because, according to this Court’s ruling, the mere fact that an infringing product is being offered for sale (and sold) on Amazon.com does not constitute an “offer for sale” by Amazon, and is not an act of infringement under 35 U.S.C. § 271(a).

The Court noted that it was “troubled by its conclusion.” Perhaps it seems unfair or incongruous for a company that profits from sales and shipping of products sold in its marketplace, including infringing products, to completely escape liability for sales of infringing products. That, however, appears to be the current law, like it or not.

Yet, in settings such as swap meets, contributory or vicarious liability for copyright and trademark infringement can be imposed on the swap meet operator when it facilitates and turns a blind eye to infringement, and financial benefits from the infringements, even indirectly (via entrance fees, concession sales, and the like). Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996).

The Court appears to be right that the law has lagged behind technology. The Court also appeared to not want to stick its neck out and effectuate what it said was the purpose of the “offer to sell” language in 35 U.S.C. § 271(a), but rather, the Court deferred to Congress. On the one hand, a non-activist judge is a good thing. On the other hand, this is a huge issue that will not be addressed by Congress anytime soon given the current climate there. So, Amazon has more insulation from patent infringement liability than before this ruling.

So, how can the harm to the patent owner by sales of infringing products on Amazon (or another e-commerce vendor) be stopped or ameliorated in light of this court ruling? There are hurdles to overcome in this regard.

One major issue in enforcing patent rights against sellers on Amazon or eBay is that they are often known by a simple user name and are otherwise difficult to identify. Thus, it is usually necessary to engage Amazon (or eBay) to obtain information.

If one seeks to enlist the help of Amazon (or eBay), the amount of help obtained seems to vary. Amazon and eBay have procedures in place to quickly and efficiently address copyright and trademark infringement issues, which are often quite efficient.

With respect to patents, however, Amazon and other e-commerce vendors, at times, take the position that a product infringing a patent will not be removed from the site unless a court order with a finding of infringement is provided. This, however, is highly problematic.

By the time a court order is obtained, more damage will likely be done to the patent owner by ongoing sales and erosion of market share, as well the substantial cost of litigation, if the seller can even be identified. This means of addressing patent issues is not very useful or helpful to the patent owner.

It would seem to be more useful and helpful to the patent owner if procedures similar to those under the DMCA can be created for online patent infringements, including a set of standardized procedures for addressing patent infringement in online sales.

Such procedures could include an initial notification step in which the patent owner is required to provide some type of reasonably detailed infringement chart to Amazon. Upon receipt and review of the chart by Amazon, Amazon would take down the infringing listing(s), unless the infringement chart was clearly wrong or bogus.

The required contents of the chart could be set forth in the standardized procedures, and the standard for the required showing to have the infringing listing taken down could be set as something like, “a clearly articulated, reasonably detailed, and colorable claim for patent infringement” or something to that effect.

After a legitimate notice, the seller would then have a short period of time (e.g., 14 days) to prepare a counter-notice, much like under the DMCA, to attempt to refute the patent owner’s notice of infringement. If a legitimate counter-notice is provided, Amazon, in its discretion, would be free to put the accused product back up for sale, and leave the patent owner and the accused seller free to fight things out in court. If no counter-notice is provided, the product would remain unavailable on Amazon.com.

Amazon’s likely response to this proposal would be administrative burden and cost. These are easily overcome. Patent attorneys or paralegals could be hired to review the notices and counter-notices. Amazon is already hiring thousands of people, so a few more should not be an issue. Furthermore, Amazon could charge a modest administrative fee for processing the patent infringement notices (e.g., $50 per patent per product). Amazon could limit the number of pages in a submission to minimize its administrative burden, as well.

One potentially significant benefit to Amazon would be a safe harbor under the proposed notification procedures, much like under the DMCA. If Amazon were to implement a formal notification procedure, as proposed, and enjoy a safe harbor, Amazon would likely be named in fewer lawsuits for patent infringement.

At the end of the day, this ruling may cause Amazon to conclude that what it is doing is sufficient, and that no changes are warranted. This would be the wrong response by Amazon for a number of reasons.

First, there are probably patent owners out there who have been dissatisfied with Amazon’s response to a notice of patent infringement for items on Amazon.com, either in terms of a lack of action or the requirement for a court order before any action is taken.

Second, given the Court’s statement that the law lags behind technology, this ruling may not remain the law in perpetuity, and Amazon should (and likely is) considering contingency plans for when, if ever, that time comes.

Third, as noted, a streamlined set of procedures regarding patent infringement allegations could result in fewer patent infringement lawsuits being filed against Amazon.

Fourth, patent owners would obtain quicker results to mitigate potential damages suffered by ongoing sales of an infringing product.

Accordingly, a DMCA-like approach to patent infringement allegations could be a viable solution for both patent owners and Amazon (and other e-commerce vendors).