When Tenants Sell Counterfeit Goods, Landlords Pay
Courts have made it very clear that a landlord who allows a tenant to sell counterfeit goods on its property can be liable for “contributory infringement.” Not satisfied with prosecuting small-fry retailers, Louis Vuitton, Coach, and the makers of Ray Bans and Omega watches have gone after the landlords of properties where tenants sold counterfeits of their luxury goods—and each walked away with seven-figure awards. So even if you have no direct involvement in a tenant’s illicit sales, you could end up paying millions of dollars in damages.
Getting the right lease protections is the key to insulating yourself against risk of contributory infringement liability. Specifically, you need provisions both to prevent tenants from selling counterfeit goods to begin with and to limit your own liability in the event prevention fails. At a minimum, your leases should:
1. Include Counterfeit Sales in Use Restriction
Most commercial leases have a “Use Restriction” clause dictating what the premises can and can’t be used for. And typically, the non-permissible uses listed in that clause include illegal activities. Just be sure that list includes the sale and storage of counterfeit goods.
Model Lease Language
Tenant shall not conduct or permit to be conducted any activity on the Premises that involves or results in the sale or storage of counterfeit goods or merchandise.
2. Make Tenant Confirm Its Right to Sell Trademark Goods
Counterfeiting is a problem only when tenants don’t have a valid license to sell trademark goods (assuming, of course, the tenant isn’t the trademark owner). So, if tenants do intend to sell such goods, require them to state in the lease that they have the appropriate legal authority and provide you a copy of the licensing agreement before engaging in sales.
Model Lease Language
Representation. Tenant hereby represents and covenants that it currently has, and at all times throughout the term of Lease will have, full legal authority to sell all of the goods and merchandise it sells and that the sale of such goods and merchandise will in no way violate any other person’s trademark, copyright, or other intellectual property rights. Tenant shall provide Landlord a copy of its licensing agreement to sell such goods and merchandise before engaging in sales on the Premises.
3. Obligate Tenant to Maintain Its Right to Sell Trademark Goods
Require the tenant to take all steps necessary to maintain its licensing rights or authority to sell trademark goods and stop such sales when and if its authority ends.
Model Lease Language
Tenant, at its sole expense, shall take all immediate actions necessary to protect its authority to sell all goods and merchandise subject to trademark, copyright, or other intellectual property rights throughout the term of the Lease and hereby covenants to stop such sales in the event that authority ends during the Lease term.
For four more protections to put in your leases, along with Model Lease Language, see “How to Avoid Liability for Retail Tenant's Sale of Counterfeit Goods,” available to subscribers here.