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One is not liable for copyright infringement unless it distributes copies of the copyrighted work to the public by sale or other transfer of ownership. 17 U.S.C.S. § 106(3).
Milo & Gabby designs and sells a line of "Cozy Companion" pillowcases. The Cozy Companion pillowcase line includes animal-shaped pillowcases for children that turn a child's pillowcase into a stuffed animal. Milo & Gabby owns five U.S. design patents for the designs on its pillowcases that are relevant to this case. The company also holds copyrights for its pillowcases, its website, and various other marketing images, including pictures of the founders' children holding the pillowcases. Amazon operates a website that offers an online marketplace for customers. Aside from its website hosting services to third-party sellers, Amazon also offers to them a service called "Fulfillment by Amazon," which allows third-party sellers to take advantage of Amazon's logistical network. When using this service, a third-party seller sends its product to an Amazon fulfillment center, where Amazon stores the product. If a customer buys the product from the third-party seller, Amazon pulls the product off the shelf, packages it, and ships it to the customer on behalf of the seller. A third-party seller even can use this service when selling products outside of Amazon's online marketplace; for example, a third-party seller can use the service when selling the product on another website, such as eBay. Third-party sellers using the Fulfillment by Amazon service maintain full ownership of the products stored by Amazon. The third-party seller using this service can remove its stock at any time by requesting that Amazon return the product to the third-party seller.
When Milo & Gabby began selling their pillowcases, Karen and Steven Keller, the owners of Milo & Gabby, used pictures of their children with the pillowcases to promote the products. In 2013, Milo & Gabby discovered pillowcases selling on Amazon's website that were knockoffs of Milo & Gabby's Cozy Companion pillowcases. The depictions of the pillowcases for sale actually were of Milo & Gabby products, including depictions of the products being used by the Kellers' children. But Amazon did not directly sell any of the knock-off pillowcases offered on Amazon's website. The product-detail pages for the knock-off pillowcases identified ten different entities as third-party sellers. Out of the ten third-party sellers selling the knock-off pillowcases, only one, FAC System, used the Fulfillment by Amazon service. Milo & Gabby filed a complaint against Amazon on October 24, 2013. Upon notice of the lawsuit, Amazon removed the product listings and suspended the third-party sellers from Amazon's online marketplace. Some of the third-party sellers tried to relist the knock-off pillowcases on Amazon's online marketplace by changing the product name, but Amazon removed the new listings and new sellers as soon as it learned of them.
At the initial stages of the court proceedings, the district court granted Amazon’s motion for summary judgment in relation to direct copyright infringement and Lanham Act claims. However, it denied the same motion in relation to Amazon’s liability for direct patent infringement. As trial approached, the parties agreed that the remaining question, whether Amazon offered the products for sale, was a question of law for the district court to decide. The district court empaneled an advisory jury to answer underlying factual questions. After trial, the jury found in favor of Amazon on all of the factual questions. Based on the jury's findings and the evidence presented at trial, the district court determined that Amazon did not offer to sell the products at issue.
Did the district court err in not finding Amazon liable for copyright infringement as a “seller” of the accused products?
Milo & Gabby has failed to show that Amazon was a "seller" under 17 U.S.C. § 106 based on its actions in this case. Turning to case law, the appellate court has considered the ordinary meaning of "sale" when addressing the term under § 271 and related patent-law provisions. The court has determined the ordinary meaning of "sale" by looking to dictionaries and the U.C.C. as persuasive authority. Section 2-106 of the U.C.C. defines a "sale" as consisting of "passing of title from the seller to the buyer for a price." U.C.C. § 2-106(1). Section 2-103 defines "seller" as "a person who sells or contracts to sell goods." U.C.C. § 2-103(1)(d). After considering dictionary definitions from Black's Law Dictionary and Webster's Dictionary, the court has also explained that "the common or usual meaning of the term sale includes those situations in which a contract has been made between two parties who agree to transfer title and possession of specific property for a price." While it has been made clear that the court’s reference to the U.C.C. is a guide only and have explained that, at least in the context of the term "sale" under 35 U.S.C. § 102(b), passage of title is not of "talismanic" significance, the court has found the presence or absence of passage of title to be a significant indicator of whether a sale has occurred in the patent law context.
Milo & Gabby concedes that, if direct passage of title from Amazon to the purchasers of the "Cozy Companion" knockoffs is a predicate to Amazon's liability, then, in most instances, Amazon would not qualify as a seller. But Milo & Gabby points to the one entity—FAC System—that used the Fulfillment by Amazon service and argues that Amazon is a seller in that circumstance. Milo & Gabby also argues that the U.C.C. recognizes that sales can occur in some instances where the seller does not hold title. Turning first to FAC System's use of Amazon's fulfillment service, there is no difference in Amazon's status in that context. Though FAC System shipped its product to an Amazon warehouse for storage and Amazon boxed up and shipped the product when a sale was consummated on the website, Amazon never held title to the accused products. Amazon therefore could not sell the product on its own, even if done on behalf of the third-party seller. The third-party seller also could request that Amazon return the product to the third-party seller at any time. Amazon, moreover, did not control what information or pictures were put on the product-detail page, nor did it control the price for which the product was sold. FAC System, or other third-party sellers as applicable to their products, controlled these details at all times. Amazon, therefore, was not responsible for the actual listing of the product for sale, consummating the sale, or transferring title. Instead, Amazon merely provided an online marketplace that third-party sellers could use to sell their products and then, in some instances when the third-party sellers used the additional Amazon services, shipped the products to the final destination. Thus, while Amazon's services made it easier for third parties to consummate a sale, the third parties remained the sellers.
Lastly, Milo & Gabby's argument that Amazon is engaged in consignment sales under § 9-319 of the U.C.C. fails on its face. Although § 9-319 would only apply if Amazon had a consignment relationship with the third-party sellers that meets the definition of § 9-102(a)(20), Milo & Gabby does not explain how Amazon's actions meet that definition. Instead, Milo & Gabby merely asserts that the "sales by Amazon of the accused products are essentially consignment sales." Even Amazon's connection with FAC System through the Fulfillment by Amazon relationship has not been shown to meet the definition of a consignment sale. Among other possible reasons: (1) FAC System did not deliver the products to Amazon "for the purpose of sale" but instead for the purpose of logistics and shipping after a sale had been made through the website; and (2) there is no allegation that the aggregate value of the products would have been $1,000 or more at the time of delivery. The commentary for this section also notes that an intermediary company shipping the products, as Amazon did here, would not be involved in a consignment agreement. Section 9-319 simply does not apply to this case.