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Jury Exacts $32M Penalty From ISPs For Supporting Criminal Websites

'Landmark case' indicates that ISPs may be held liable if they know about criminal activity on their customers' Websites and fail to act
A federal jury in California this week levied a total of $32 million in damages from two Internet service providers that knowingly supported Websites that were running illegal operations.

In a lawsuit brought by fashion company Louis Vuitton, a jury ruled that two ISPs -- Akanoc Solutions and Managed Solutions Group -- knew about counterfeit Vuitton goods that were being sold on their customers' sites, but didn't act quickly to pull the plug on those sites. The decision was first reported on Tuesday.

The ruling has been called a landmark decision by some legal experts, who note that ISPs historically have been protected by the Digital Millennium Copyright Act, which limits service providers' liability for criminal actions that take place on their networks.

In the Louis Vuitton case, the jury took advantage of language in the DMCA that states ISPs' liability in criminal activity is limited only if the ISP doesn't know that the activity is occurring. Louis Vuitton's lawyers produced evidence that the ISPs in this case did know about the criminal activity and, in fact, had warned the site operators to stop what they were doing.

The jury sided with Louis Vuitton and levied damages of $10.5 million on each of the two ISPs and another $10.5 million on Steven Chen, who owns both of the ISPs.

Legal experts say the case could set an important precedent if companies can prove that an ISP knowingly supports criminal Websites -- such as those used to commit fraud or copyright infringement -- but does not take them offline.

"The takeaway for digital media companies that provide services to third-party sellers is that it is critical to set up and maintain a system for appropriately responding to notices of trademark and copyright infringement," says David Johnson, a lawyer for Jeffer, Mangels, Butler, and Marmaro, in his blog. "Ignoring this area of compliance could cost you your business."

It was not clear whether the decision would extend to other forms of crime, such as online fraud or distribution of malware. A number of ISPs have been shut down during the past year after carrying high volumes of malicious traffic.

Interestingly, the decision went the opposite way from an earlier decision in which Tiffany and Co. sued eBay for carrying knockoff versions of Tiffany products on its auction site. In that case, a judge ruled that although eBay had general knowledge of the fraud, it did not have specific knowledge of any specific auctions that were carrying counterfeit Tiffany merchandise.

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