No High Score for Atari in IP Trial against E-Commerce Marketplace

ByRobert E. Freeman, Jonathan Mollod, and Peter Cramer, of Proskauer

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In the dramatic conclusion to a copyright and trademark infringement multiplayer contest that went into the final round between online print-on-demand marketplace Redbubble Ltd. ("Redbubble") and videogame studio Atari Interactive, Inc. ("Atari"), a California federal jury burst the game company's bubble when it gave Redbubble the win.  (Atari Interactive Inc. v. Redbubble Inc., No. 18-03451 (N.D. Cal. Nov. 4, 2021)).  In 2018, Atari brought direct and vicarious counterfeiting and infringement claims against Redbubble stemming from the alleged presence and sale of unlicensed Atari-branded goods on Redbubble's site.  It took over three years for the case to wind its way to trial but, for now at least, it appears that Redbubble has escaped the "Pitfall" of infringement liability and statutory damages.

Redbubble, an Australian company founded in 2006, is an online marketplace that utilizes a print-on-demand model. This means that, unlike traditional retailers, the company does not order or manufacture a stock of ready-to-sell inventory. Instead, it creates individualized items, printing designs previously uploaded by independent artists/sellers onto generic goods like t-shirts and mugs when a customer places a custom order. Importantly for this suit, Redbubble also does not create the designs itself, but instead relies on files uploaded by third-party creators. Moreover, Redbubbble lets the creators set the ultimate retail price for each item and, upon each sale, forwards the purchase order to a third-party manufacturer (or fulfiller), which creates the final product based on the customer's specifications and ships it via pre-approved carriers.

Atari was born more than a generation earlier than Redbubble, in California in 1972. That year, it released Pong, the world's first massively successful videogame. Atari developed hundreds of games over the next decade, including iconic titles like Adventure, Missile Command and Centipede, before being split up and sold following the video game industry's 1983 crash. After changing corporate hands multiple times in the 1980s and 1990s, the current iteration of Atari Interactive was formed in 2001 when French publisher Infogrames Entertainment, SA (later renamed Atari, SA) acquired the brand. Today, Atari continues to develop and market new games and gaming hardware, but it is also focused on nostalgia, reselling its classic titles and licensing its IP for merchandise.

The presence of unauthorized, user-uploaded designs on print-on-demand sites has been a concern both for platforms like Redbubble and IP owners like Atari and the subject of much litigation in recent years, as courts have wrestled with who is responsible for infringing products displayed on and sold through such digital marketplaces. As with other online marketplaces that host user-uploaded content, it is a risk of Redbubble's business that some of its independent artists will upload copyrighted images or trademarked designs for merchandise without authorization, and that consumers might complete a transaction to receive such infringing products. However, the ultimate issue of copyright and trademark liability depends on the circumstances of each case and particularly on a platform's precise role in managing its marketplace.

Beginning in 2018, Atari launched a series of lawsuits targeting online merchandizers it claimed were menacing its licensing operation (like "Space Invaders" descending upon Earth) and improperly profiting off of its iconic IP, including the Atari logo and imagery from its classic games. Most of these suits were eventually resolved, but Redbubble apparently refused to play ball (or Pong) and opted for "Combat" in court.

In June 2018, Atari filed a complaint in the U.S. District Court for the Northern District of California, alleging that Redbubble is "powered by a substantial quantity of counterfeit goods." It accused Redbubble of direct, secondary and vicarious trademark infringement, trademark counterfeiting, and copyright infringement, and even included screen grabs from Redbubble's site showing t-shirts for sale featuring the USPTO-registered logos for Atari and Pong, among others. Upon receiving the complaint, Redbubble immediately removed the listings identified in Atari's complaint, and also began to proactively police for Atari-related designs. Redbubble also contended that, generally speaking, it did not create the designs and was merely a "transactional intermediary" and not a seller of the merchandise on the site.

Grappling with cross-motions for summary judgment this past January, the California court acknowledged the unique position of print-on-demand businesses, noting that "Redbubble does not fit neatly into the category of either an 'auction house' on the one hand, that will generally be free from liability for direct infringement, or a company that itself manufactures and ships products on the other, on which liability for direct infringement can be readily imposed."  On January 28, 2021, the court granted Redbubble's summary judgment motion on contributory and vicarious copyright infringement and willful copyright and trademark infringement, noting that "Atari provides no evidence that Redbubble knew of 'specific infringing material' and failed to act." The court further noted: "Redbubble's Marketplace Integrity Team proactively screens for infringing content based on information it receives from content owners [and] searches Redbubble's site for potentially infringing listings." However, the marketplace was not able to "Breakout" from the suit entirely, as the court left the questions of direct copyright infringement, as well as all forms of (non-willful) trademark counterfeiting and infringement, for a jury. Notably, the court also rejected Redbubble's 17 U.S.C. § 512(c) (DMCA "safe harbor") defense, noting, "Redbubble actively participates in modifying the files uploaded by users to display the designs on Redbubble-selected physical products" and thus fails the DMCA requirement that infringing images be stored "at the direction of the [third-party] user."

At the trial in November 2021, allegations careened through the courtroom like "Asteroids" in deep space. The game studio called the website's infringement "out of control," but Redbubble countered by pointing out that despite offering a form through which content owners can report infringing products, Atari hadn't flagged any merchandise as infringing on the site since 2011, leaving the Redbubble's "Marketplace Integrity Team" in the dark.

Since Redbubble's business model involves independent third parties marketing and selling their designs on its platform and a third party fulfilling the orders, Atari's best chance for victory was perhaps its vicarious liability claim. Generally speaking, a defendant commits vicarious copyright infringement when it profits from direct infringement while declining to exercise its right to stop or limit it. On this point, however, the jury was apparently swayed by Redbubble's argument that, despite its automated anti-fraud system and Marketplace Integrity Team, it cannot police its platform effectively without assistance from IP owners in the form of takedown requests. As the court stated in its prior January 2021 opinion in dismissing the vicarious copyright claims, "[F]inding infringement would be like 'searching for a needle in a haystack' where Redbubble lacks knowledge of [the] needles' appearance." In other words, by going straight to litigation without first attempting to work with Redbubble's piracy team and inform them of specific instances of infringement, Atari attempted to use a cheat code to skip to the final level. This argument pressed the right buttons for the jury, who needed less than a day to deliberate before exonerating Redbubble from infringement claims. A judgment from the court dismissing all claims soon followed.

After the verdict, it appeared to be game over. However, Atari inserted additional tokens for extended play and filed an appeal to the Ninth Circuit. Stay tuned.