## Facts

- Fonovisa, Inc. owned copyrights and trademarks in Latin/Hispanic music recordings.
- Cherry Auction, Inc. operated a swap meet in Fresno, California, renting booth space to vendors for a daily fee.
- Cherry Auction provided services and controls associated with the swap meet, including advertising, parking, customer entrance access, and the right to exclude vendors at any time for any reason.
- Cherry Auction collected booth rental fees from vendors and an entrance fee from customers.
- Law enforcement seized more than 38,000 counterfeit recordings at the swap meet during a 1991 raid.
- After further investigation, the Sheriff notified Cherry Auction that vendors continued selling counterfeit recordings and referenced Cherry Auction’s agreement to provide vendor identifying information.
- In 1993, Fonovisa’s investigator observed ongoing sales of counterfeit recordings.
- For purposes of the appeal, it was treated as undisputed that Cherry Auction knew vendors were selling counterfeit recordings infringing Fonovisa’s copyrights and trademarks.

## Issues

1. Whether a swap meet operator’s provision of space and services, with knowledge of infringement by vendors, can constitute material contribution supporting contributory copyright infringement.
2. Whether allegations that the operator could police vendors and profited from swap meet traffic suffice to plead vicarious copyright infringement (right and ability to supervise plus direct financial interest).
3. Whether continuing to supply marketplace services to vendors known (or reasonably known) to be selling counterfeit goods can support contributory trademark infringement.

## Decision

- The Ninth Circuit reversed the Rule 12(b)(6) dismissal.
- The court held the complaint adequately stated claims for contributory copyright infringement, vicarious copyright infringement, and contributory trademark infringement against the swap meet operator.
- The case was allowed to proceed beyond the pleadings on these secondary-liability theories.

## Legal Principles

- Contributory copyright infringement may be stated where a defendant, with knowledge of infringement, induces, causes, or materially contributes to another’s infringing conduct; providing the site and operational support for known infringing sales can qualify as material contribution.
- Vicarious copyright infringement may be stated when a defendant (1) has the right and ability to supervise the infringing activity and (2) has a direct financial interest in the infringement; direct financial benefit may be shown by revenues tied to vendor participation and customer attendance allegedly drawn by infringing sales.
- Contributory trademark infringement may be stated when a defendant intentionally induces infringement or continues to supply a product or service to a party it knows or has reason to know is engaging in trademark infringement; supplying marketplace space and services after notice can satisfy this standard.
- At the pleading stage, allegations of repeated infringement, actual notice, operational control over vendors, and revenue connected to the marketplace’s draw are sufficient to state secondary-liability claims.

## Conclusion

The Ninth Circuit held that a swap meet operator may be secondarily liable when it knowingly provides and maintains the marketplace and services enabling counterfeit sales, has contractual and practical power to stop vendors, and profits from the customer and vendor traffic allegedly attracted by the infringing activity.


Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996)