Tenant Trademark Infringement: Prevention & Response

February 19, 2020

If a retail tenant uses leased property to sell counterfeit goods, like knockoff Rolex watches, the brand owner can sue not only the tenant but also the landlord, which is often a preferable option considering that the landlord usually has deeper pockets. And landlords who know about but turn a blind eye to such illegal sales can be liable for millions of dollars in trademark infringement damages.

If a retail tenant uses leased property to sell counterfeit goods, like knockoff Rolex watches, the brand owner can sue not only the tenant but also the landlord, which is often a preferable option considering that the landlord usually has deeper pockets. And landlords who know about but turn a blind eye to such illegal sales can be liable for millions of dollars in trademark infringement damages. In “How to Avoid Liability for Retail Tenant’s Sale of Counterfeit Goods,” we discussed lease protections you can use to manage the risks of liability for so-called “contributory infringement.” But securing the right lease language is only part of the solution. You also must take actions before and after the lease is signed.

Proactive Steps: Preventing Counterfeit Sales

The most surefire way to avoid liability for a tenant’s counterfeit sales is to prevent them from ever happening. The first step is carefully screening prospective retail tenants, especially if they’re “less established.” That’s not meant to be a knock against new and small retailers. But the fact is that small, transient businesses account for a disproportionate volume of counterfeit sales. Just as significantly, smaller tenants have fewer assets. As a result, if they do engage in illegal sales, trademark owners are more likely to go after the landlord.

Other proactive measures you can take to prevent tenant counterfeit sales:

  • Keeping an eye on smaller tenants that sell brand-name merchandise;
  • Looking out for suspicious activity like brand-name products selling at too-good-to-be-true discounts; and
  • Posting signs indicating that counterfeit sales are illegal.

Reactive Measures: What to Do When Prevention Fails

If you’re aware or should be aware that a tenant is or may be selling counterfeit goods (for example, if the trademark owner sends you notice of such sales), you’re considered to have knowledge of the action and must act immediately to stop it. But before investigating the tenant, get all the relevant information from the trademark owner, including details about:

  • The alleged illegal sales;
  • The evidence they actually occurred; and
  • The relief the trademark owner is looking for.

Post-Investigation Follow-Up

If the initial investigation is inconclusive, you may have to do a more thorough follow-up, preferably in consultation with an attorney to ensure the results are privileged. When and if you’re satisfied that the tenant is guilty, you have two choices:

  • Give the tenant proper notice to cure; or
  • Proceed to eviction.

If the tenant agrees to stop the counterfeit sales and you’re okay with that:

  • Put the settlement terms into a written agreement;
  • Confirm that any further violations will result in immediate eviction; and
  • Send a copy of the settlement to the trademark owner.

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