What Harley Davidson's $19.2M Throttling Of Sunfrog REALLY Means... And It's Not The Money

When it comes to motorcycles, Harley Davidson Motor Company is an American motorcycle icon. With over 100 years of motorcycle design and manufacture under its belt, Harley Davidson has become arguably one of the most (if not THE most) recognizable motorcycle brand in the world. What many people may not know, however, is that Harley Davidson has a very extensive merchandising business built off of their brand, selling almost $300 million dollars worth of merchandise in 2017 alone (and that does not include parts and accessories incorporating such logos and designs).  Needless to say, Harley Davidson places a great deal of pride and effort in its brand, and has the intellectual property portfolio worldwide to prove it.  So it came as no surprise when Harley Davidson sued Sunfrog Shirts (one of the largest online printed T-shirt distributors in the world) for the unauthorized printing of Harley Davidson designs through its platform.  What is surprising, however, is the $19.2 million dollars for trademark infringement awarded to Harley Davidson just this past week (and that amount doesn’t even include additional damages for copyright infringement yet to be awarded). Many practitioners rightly view this award as a big “win”  for Harley Davidson; however, the most telling thing about this record award for Harley Davidson is not what you may think, and companies should take notice.

First, some background is helpful.  Unlike more traditional T-shirt and related product printing businesses, Sunfrog’s platform is focused upon the customer’s ability to design their own T-shirts on-demand, either with their own designs or by using ones made by others that are available through the Sunfrog website — Sunfrog does not have its own designs, images, or other graphics available on its website. Instead, Sunfrog provides a platform for designers to upload their designs to Sunfrog’s All Sunfrog Art Online Database for the designer or others to apply to T-shirts, as well as permitting individuals and sellers to create accounts, upload their images, and make a commission off of them (which may be as much as 50%).  It appears that this capability is at least part of the reason Sunfrog grew its business so rapidly. By the same token, however, this capability permitted designers to upload designs without Harley Davidson’s permission, permitting reproduction of those designs on T-shirts that ultimately infringed on Harley Davidson’s trademarks and copyrights.

It is this rapid growth that may have ultimately created a “perfect storm” for intellectual property infringement of Harley Davidson’s trademarks and copyrights.  Judge Joseph Stadtmueller’s April 12th ruling made this point as well, stating “[Sunfrog] has grown from making a million dollars in its first year to making over $150 million in 2017. It has become the largest maker of printed T-shirts in the country and one of the most popular websites in the world.”  According to documents submitted in the proceedings, as of May 2017, the Sunfrog website harbored more than 100 designs that infringed upon Harley Davidson’s trademarks, such as the company’s iconic “Bar & Shield” logo. Further support for this nexus between growth and the infringement is the fact that Sunfrog still had infringing designs present on its website in June of 2017 — 93 of them — after a preliminary injunction issued in favor of Harley Davidson.

As they say, hindsight is 20-20; however, that saying obscures the fact that Sunfrog’s vision should not have been hampered by its success.  Given the nature of Sunfrog’s business model and its reliance on third-party designs, it should have planned for and implemented practices and procedures to vet designs and avoid potentially infringing activity.  When your business model relies upon third-party works being made available for customers to use (with commissions being paid when customers actually do so), the possibility for posting unauthorized works is self-evident.  According to Judge Stadtmeuller’s order, Sunfrog was receiving approximately 150,000 design uploads per day at its peak — a significant amount of works by any measure.  In fairness to Sunfrog, it seems that they attempted to put internal policies and procedures in place to address this risk; however, it seems they miscalculated the degree of success for this aspect of their business (as well as the technologies that could take advantage of the platform, such as using bots for the uploads) and simply couldn’t keep pace with the amount of designs being uploaded and copied onto T-shirts by customers.

The point here is that rapid growth and success makes being proactive even more essential to the business.   Rather than follow-through with significant steps to stop the printing of infringing products, something got lost in the process and Sunfrog simply couldn’t get its arms around the scope of the problem.  In effect, Sunfrog’s failure to effectively address this problem  made Sunfrog a counterfeiter — it permitted the printing of infringing designs on T-shirts sold through its website, making Sunfrog a nice profit in the process. Of course, this was never Sunfrog’s intent — it set out to create a highly successful platform for printing custom T-shirts online, and in fact, succeeded in doing so.  That said, it also underestimated the extent to which a sizable part of its business model required intellectual property oversight — an oversight that is now costing them in both monetary and reputation damages.

Ultimately, the Sunfrog case is highly instructive on a number of levels, but the failure to appreciate the scope and extent of intellectual property oversight by Sunfrog is telling.  Whether your company or client is a startup or an already successful going concern, the use of intellectual property can never be taken for granted. When it comes to intellectual property rights, companies ignoring their impact do so at their own risk.  The good news is that warning signs usually present themselves at some point.  The bad news is that such signs can be ignored or otherwise under-appreciated.  That is the real point here, and a risk that your company (or client) shouldn’t take — just ask Sunfrog.