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Vuitton Verdict

January 14, 2010

Back in August of 2009, intellectual property lawyers sat up and took notice of a verdict entered in the Northern District of California, Judge James A. Ware presiding. In Vuitton v. Akanoc, Case No. 07-3952, the jury not only ordered over $30 Million in damages for trademark infringement, it also awarded a total of $1.8 Million against three ISPs for contributory copyright infringement, thus becoming the first breach of the DMCA’s trusty “Online Service Provide Safe Harbor.” In the interests of full disclosure, I will note that I also was a lawyer for Louis Vuitton back in 1989-1990 when I worked at Reboul, MacMurray, Hewitt, Maynard & Kristol, that was acquired by Ropes & Gray. I now have no relationship with them, but Vuitton has always been an aggressive force in intellectual property, so wherever they are litigating, I keep an eye

I recently logged into PACER to check the docket in Vuitton v. Akanoc, particularly to see if they had appealed the verdict. Surprise, surprise, not only has it not been appealed, it is still in post-trial proceedings, with Vuitton still trying to get a final injunction! A rather shocking situation, when you think about it, and one that suggested to me that we have two factors in play — a very stubborn and well heeled defendant named Steven Chen, with a very pugnacious attorney named David A. Gauntlett.

When I saw that name, David A. Gauntlett, it stirred a recollection. Back when I was just a young little viper learning to strike, three years out of law school, I worked at Mazursky, Schwartz & Angelo, a firm that handled exclusively contingent fee litigation, mostly personal injury, but also the occasional employment and complex commercial case. I remembered that shortly after I joined the firm in 1990, I asked about whether MS&A ever did hourly work, and my mentor Arnie Schwartz told that he had completely sworn off doing hourly work after going largely uncompensated for hundreds of hours of work MS&A did for a firm called Callahan & Gauntlett. As I recalled, Callahan & Gauntlett had been sued for insurance fraud by Truck Insurance, and retained MS&A to get their malpractice carrier to defend them against the claims. A quick bit of research showed that the attorney now representing Akanoc is in fact the same gentleman, David A. Gauntlett, whose attorney is cited as Arnold Schwartz in this Ninth Circuit opinion in Callahan & Gauntlett v. Truck Insurance, affirming District Judge Mariana Pfaelzer’s decision to dismiss their lawsuit against Truck for refusing to defend them against fraud claims.

Now you might of course wonder what kind of fraud claims those would be. I can’t be absolutely sure, but there was, around that time, a huge insurance scam orchestrated in the Southern California area that was called “The Alliance,” headed by former Finley, Kumble attorney Lynn Stites, who was ultimately sentenced to twelve years in prison after he pushed the wrong lawyer, Leonard Radomile, too far, and Radomile joined the Alliance as an undercover for the FBI. Click this link to read the transcript of a TV show featuring CBS anchor Mike Wallace interview Radomile, and this one, to read a series of LA Times articles about Stites and The Alliance.

If you read the CBS transcript, after saying that the Alliance hauled in around $200 Million bucks in fraudulent attorney fees, Wallace explains that the nature of the Alliance scam was in fact to use non-covered claims of fraud to demand insurance coverage:

Now, how did the Alliance get that kind of money from insurance companies? Well, if you own a business and you’re insured against personal liability, property damage, things like that, your insurance company has to defend you if you are sued. But in California, if your insurance company argues that you are being sued for something not covered in your policy, like fraud, then a judge can rule that you have the right to pick your own lawyer and that the insurance company still has to pay the bill. And that is where the Alliance saw a chance to make a lot of money. In order to get in on those big fees paid by your insurance company, Alliance attorneys would offer to represent you for nothing. In fact, they even paid you to let them take your case. And in some cases, they represented the people who were suing you in the first place.

And if you compare that to the contentions made by Callahan & Gauntlett in their lawsuit against Truck Insurance, you can see that this is very similar to what they were trying to do:

Callahan was sued by Truck Insurance Exchange (”Truck”) [alleging that] engaged in fraudulent billing practices and provision of unnecessary services. Callahan subsequently filed suit against Dearborn [their malpractice insurance carrier] on August 11, 1989, claiming breach of contract, breach of covenant of good faithand fair dealing, breach of fiduciary duty, and seeking declaratory relief. Callahan tendered these claims to Dearborn on June 19, 1989. Dearborn declined to defend, stating that none of the damages sought were defined as damages under the policy. Dearborn stated that although Callahan contended Truck might possibly seek damages covered by the policy, the amended pleadings did not suggest this possibility.

In other words, when Callahan & Gauntlett were sued by Truck Insurance for fraudulent billing, they tried to stick their own malpractice carrier, Dearborn, for the cost of defending them. But Dearborn said, “No, we didn’t insure you against fraud,” so pound sand. So Callahan & Gauntlett sued them for “bad faith,” which is exactly why, according to Mike Wallace, most insurance companies were paying the exhorbitant legal fees charged by Alliance lawyers in the first place:

Brad Miller represents an insurance company that has already paid tens of millions to the Alliance. He says that without absolute proof of fraud, insurance companies in California are reluctant to challenge defense attorney’s bills, for fear that the insurance companies will be sued for bad faith and will have to pay heavy damages.

However, let us note in the interests of fairness to Gauntlett, that it does not appear that he was ever charged criminally or in ethics proceedings in this matter, and that Radomile was actually convicted and disbarred. What is clear is that Gauntlett is a tough customer.

So what does this mean for Vuitton and DMCA law? They have found an opponent worthy of their commitment. They have thrown down the Gauntlett in their recent filings, among other things arguing that an ISP “can’t filter domain names, applying what I think most people with knowledge of the Internet will recognize as balderdash:

Defendants do not receive requests to access a particular website or domain name and are never given the domain name or any reference to a website. Instead, ISPs only receive requests to access an IP address. Once at that address, the domain name owner’s software re-directs the request. Because the Defendants are not registrars, they have no control over domain names.

This strikes me as ridiculous, since every domain name is nothing but an IP address, and a simple script will translate them. I will leave it to persons more technically capable than I to debug the technical content of the Akanoc Opposition to Vuitton’s Motion for A Permanent Injunction (click to download the 31 page pdf).

One of the interesting legal issues Akanoc raises for decision are whether U.S. Courts can enjoin ISPs from providing services to actors outside the United States, something Akanoc argues can’t be done:

But, contrary to [Vuitton's] wishes, [offshore] activity is not a violation of U.S. law and is therefore not an “illegal activity” that can justify a U.S. court issuing an injunction. Vuitton must go to China, or perhaps to Congress, for protection from the harm it imagines.

Another issue is whether websites that have sold infringing goods can be “blacklisted” and precluded from obtaining ISP services:

Vuitton also wrongly assumes that if a particular domain sold infringing goods in the past it must always in the future be presumed to be selling infringing goods.

The news that Akanoc has a vigorous advocate is not bad news for the law of intellectual property. Gauntlett seems likely to raise innumerable questions for decision by Judge Ware, who decided the trial court issues in the Kremen v. Cohen, the Sex.Com case about which is wrote my own book,The Sex.Com Chronicles. After that, we can be virtually certain that he will file a massive appeal of every issue that was raised at trial, and in a few years, we will have lots of new answers to these vexing questions. Meanwhile, ISPs will continue to consult their counsel as to the risks of suffering a verdict that looks like this one: