2004 B.C. Intell. Prop. & Tech. F. 060802

I.  Introduction and Hypothetical Situation

Current trends in trademark law have not met the issue of deep linking with open arms. To date, there is a dearth of cases that touch on deep linking and trademark infringement. Cases such as Ticketmaster Corp. v. Tickets.com dismissed claims of deep linking as trademark infringement with little explanation, simply stating that deep linking itself is not a trademark violation absent "confusion of source."^[1] Yet, there is no case to set the boundaries at the other end of when deep linking would be trademark infringement; it can be implied then that the traditional tests of likelihood of confusion would most likely be applied to find an act of deep linking as trademark infringement.

However, the perils do not end for the website owner that is being deep linked from another website and having little means to stop this from occurring. Website owners that are being deep linked can also potentially face liability under the agency theory of apparent authority. Consider the following hypothetical.

CELL-X is a popular manufacturer and seller of cellular phones. In addition to distributing and also selling their products through authorized locations and CELL-X company stores, they operate and maintain a website. The website consists of a homepage and interior pages which contain information on the details of the different cellular phone models. Transactions of sales of cellular phones can also occur in the interior web pages of Cell-X’s website; Cell-X states in its purchase web page (and not on any other webpage such as the webpage of each specific model) that purchases via the internet will have an additional 90 days of warranty on top of the standard one year warranty. At the bottom of all the web pages, Cell-X has disclosed the statement, "CELL-X and its logo are registered trademarks."

InterABC is a cellular phone distributor and re-seller. This company sells various brands of cellular phones, including Cell-X, and cellular accessories to the public. However, InterABC is not endorsed, authorized, nor licensed by Cell-X to sell Cell-X brand products. InterABC also operates and maintains a website allowing the internet consumer to browse and purchase the cellular phones InterABC carries.  Specifically, InterABC deep links to Cell-X’s interior pages on all Cell-X cellular phone models and products.

Consumer Z is in the market to buy fifteen cellular phones for all his family members.  By scouring the internet, Z finds InterABC’s website advertising cellular phones for a reasonable price.  Z clicks on InterABC’s website hoping to find more information about Cell-X phones and clicks on the link to read more about Cell-X phone model 100A. This page lists the features of model 100A such as a four hour battery life, tri-band mode, a one inch color screen, and an additional one year warranty on top of the original warranty of one year.^[2]  There is another link that the Z can click on to read even more about model 100A;   Z clicks on the link and realizes that the web page he just clicked to open is deep linked to Cell-X’s interior web page for model 100A; this page offers even more technical details of the cell phone such as measurements and accessories. Z is under the belief that InterABC is an authorized reseller of Cell-X products. Z is now quite sure that he wants to purchase Cell-X 100A cellular phones; in addition to the reasonable price that InterABC is selling the phone at, Z notices that buying the phones online comes with an additional one year warranty. Through a secured server, Z inputs his credit card and shipping information, and the cellular phones are subsequently shipped to him.

After one and one half years of use, two of Z’s Cell-X 100A phones abruptly stop working. Recalling that since he bought the phones from the internet, he has an additional one-year warranty in order to get them repaired or replaced.  However, when trying to contact InterABC, he learns that they have since gone out of business. For Consumer Z, his next reasonable approach would be to contact Cell-X. However, Cell-X cannot honor Z’s warranty claim since it claims that it only offers an additional 90 day warranty. The statement that InterABC made on its website was false, and InterABC is not authorized by Cell-X.

The issue then becomes whether Consumer Z can hold Cell-X responsible for warranty claims under apparent authority. Since case law has never considered whether deep linking would ever constitute apparent authority, the next question to ask is whether the traditional cases of case law can shed any light on the issue.

II.  Traditional Approach to Apparent Authority

Under traditional agency theory or actual authority, an agent binds the principal to liability when an agent causes a tort or breach of duty to a third person because the principal has given the agent some authority to act on his behalf, usually either through express or implied authority.^[3]  Actual agency is created when the principal and agent form an agreement even though they did not intend so nor referred to their agreement as an agency.^[4]  Further, the principal does not have to manifest authority to the agent in contract form; this point can prove important by illustrating the ease of forming an agency relation between principal and agent.^[5]  For instance, A and B enter into an oral agreement whereby B will buy widgets on behalf of A at a maximum price of $100. Thus, A and B have formed an agency, and A has expressed to B that the limit to B’s authority is to buy widgets that cost no more than $100.

However, under apparent authority, the principal is liable for the agent’s tort or breach of duty not because of the principal’s manifestation of authority to the agent but the principal’s manifestation to the third party.^[6]  All that is required for apparent authority is for the third party to reasonably believe that the actor has authority to act on behalf of the principal and that the belief is traceable to the principal’s manifestation. Further, the party committing the tortious act or breach of duty to the third person does not even have to be an "agent" rather the party just needs to be an actor.^[7] It can be implied then that even though the principal and agent did not intend to form an agency, one would still be recognized.

The creation of apparent authority between the principal and the actor normally arises in the context of prior relationship in which the principal had expressed or implied some authority to the agent. However, this is not always the case; in fact, the actor may not even be a fiduciary to the principal or even have the privilege of authority from the principal.^[8] For instance, A expresses in writing to B that B is to sell A’s widgets. A also gives a copy of this writing to C.  However, A sends a revocation letter to B but not to C. B is no longer a fiduciary, but concerning C, B still has apparent authority to sell A’s widgets.

One of the areas left to interpretation of whether there is apparent authority is the requirement for manifestation from the principal.  Normally, the principal manifests to the third person an apparent authority to the agent by written or oral means of communication. Alternatively, the principal can also manifest to the community and public in general through signs and advertisements.^[9]  The manifestation can result in two ways:   from the principal’s intention for the third party to believe that the agent is authorized or from the principal’s conduct "that is likely to create such belief."^[10]  The latter manifestation places the principal in a position to not act carelessly or negligently to potential third parties. This is to limit the principal from taking acting through agents and later deciding that the agent’s actions are not to the principal’s advantage.^[11]  However, there is a limit to the principal’s manifestation that does not create apparent authority. Apparent authority is created up to the point of the conduct that the principal can be held responsible.^[12] While it would seem that the above manifestation is made to the public, the point at which apparent authority is created is only when a specific third party reasonably relies on the principal’s manifestation.

While the elements to establish apparent authority differ from state to state, most courts refer to some common elements. In many instances, courts refer to the Restatement (Second) of Agency as a basis for interpretation of agency and apparent authority. In Herbert Construction Company v. Continental Insurance Company, the Second Circuit Court of Appeals set the parameters under which apparent authority can be found.^[13]  The court stated that there were two extreme scenarios in which a party might try to apply the doctrine of apparent authority. At one extreme, an agent would try to pass himself off as having authority from the principal.  This would not fall under the scope of apparent authority because no manifestation can be "traceable" back to the principal.^[14]  At the other extreme, the agent does have actual authority from the principal thus making the principal liable to any tort or breach of duty detrimental to the third party.^[15]

The court stated that apparent authority fell in between the two extremes and set up a two-part test:   (1) the third party can trace the manifestation back to the principal, and (2) the third party reasonably relied on the agent’s apparent authority.^[16]  For the first part, the court referred to the decision in Ford v. Unity Hospital.^[17]  The Ford court concluded that to not have the manifestation traceable to the principal would "bind the principal without limitation."^[18]  To allow otherwise would be assigning liability to the principal for any and all actions that the agent does.  For the second part, the court emphasized that the third party’s reliance must be reasonable.  Although the court did not expound upon this, it did refer to Restatement (Second) of Agency §125 comment (b).^[19]  The Restatement suggests some examples of unreasonableness is if the principal revokes the authority, the agent withdraws the authority, or time has passed by enough that the agent no longer has authority.^[20]

In Mobil Oil Corporation v. Jeremy Bransford, The Supreme Court of Florida applied a three-part test for apparent authority:   (1) the principal’s manifestation, (2) the third party’s reliance on the manifestation, and (3) the third party’s detriment as a result of the reliance on the principal’s manifestation.^[21]  The only difference with the Florida three-part test as opposed to the New York two-part test is that the Florida test explicitly stated what was implied in the New York test, namely that the third party has relied to his detriment on the principal’s manifestation; the New York test combined parts 1 and 3 of Florida. The New York test clearly contemplates this, as is evidenced by the usage of the language of third party complaints such as "fraud" and "falsely represented."^[22] The general theme persistent through most court cases is also found in the Florida courts:   the creation of apparent authority is based on the manifestation of the principal and not that of the agent.

III. Can Deep Linking Create Apparent Authority?

Under apparent authority, the principle needs to be aware of the third party’s presence or constructively aware of the third party’s presence in order to create some sort of manifestation.^[23]  If the internet is a free-for-all,^[24] how can a web owner control who visits its website? The internet through its "web traditions and practices have given rise to an implied license" or right for anyone to access all pages;^[25] thus, anyone can visit any web page. This view becomes quite plausible and raises an important issue. If the internet is a free-for-all, then it becomes less reasonable for the principal to be liable.  Principals cannot make manifestations "to the world."^[26]  In a free-for-all, it is exactly the world that each website is open to for access.  However, if a website is perceived more as controlled property (such as a store), then apparent authority becomes more plausible.  The principal is more in control to make manifestations to third parties.

For instance, in the case of Hoddeson v. Koos Bros., the furniture store was held liable under apparent authority even though the actor was not an agent or had any relationship with them.^[27]  Hoddeson had entered the furniture store knowing exactly what type of furniture she wanted to purchase.  A man in a suit had introduced himself to Hoddeson and asked if he could help her.  Upon telling him what she wanted, the man had shown Hoddeson a furniture arrangement. Hoddeson told the man that she liked the furniture and wanted to purchase it; she handed the man a check and was told that it would be delivered to her about a month.  After waiting beyond the time her furniture was to be delivered to her, Hoddeson contacted the furniture store.  She learned, to her surprise, that there was no record of her transaction and that there was no man known to have worked there who helped her out.^[28]

The court ruled that liability could not be held under the traditional approach to apparent authority.  Perhaps, the court was struggling to find a manifestation on the part of the principal to the third party; it was all but absent.  There was no affirmative conduct or statement on the part of the furniture store that suggested to Hoddeson that the fraudulent salesman was authorized to sell furniture.  Instead, the court "[b]roadly stated" that businesses owed a duty of care to "protect the customer from loss occasioned by the deceptions of an apparent salesman."^[29]  This statement, though, is not far off the mark; in fact, the Restatement (Second) of Agency makes reference towards this point.  Historically, apparent authority was based initially in the objective theory of contracts; this was a distinction different from the theory of torts.^[30]  However, courts began to blur the distinction and apply apparent authority in a quasi-contracts/quasi-torts manner; estoppel became an accepted term in apparent authority.^[31]  In all fairness, The Hoddeson opinion was written one year ahead of the Restatement (Second) of Agency.^[32] Thus, the Hoddeson court was on the right track in applying liability to the furniture store.

Further support can be garnered by looking to the Restatement (Second) of Agency §27, comment (a) stating that a principal can create apparent authority when he intends "to cause the third person to believe that the agent is authorized to act for him, or he should realize that his conduct is likely to create such a belief."^[33]  The latter part of the phrase "should realize" is of more relevance; "should realize" sounds like language that can equally be used in a breach of duty or negligence claim, i.e., a torts claim.

If we assume then that the internet can be viewed as a virtual store and that companies have a duty to "protect the customer from loss occasioned by the deceptions of an apparent salesman,"^[34] then it might follow that the website owner has a duty to police its website and make sure that no fraudulent party is appearing as the website owner’s agent. This point raises the general concern to what degree a company should police its trademark.  This would require the company to actively pursue investigations such as for trademark infringement.^[35]  Under current standards, businesses, not trademark owners, which display a trademark are usually held liable; however, the customer expectation is that the trademark owner should be liable.^[36]  Thus, businesses that own trade marks might not feel an urgent need to protect its customers unless it is in a position of liability.^[37]  However, if trademark owners are assigned liability such as under apparent authority, the competing argument is that this will drive the costs of products and services higher and that customers will ultimately have to bear that burden because trade mark owners have to internalize these additional costs that were once externalized.^[38]

IV.  Application to the Hypothetical Scenario

The hypothetical scenario can be a potential headache for parties that transact business over the internet. However, there is little guidance in the area of case law on point. First, does Consumer Z satisfy the elements for apparent authority?^[39]  The first element is that of the manifestation of the principal to the third party.  Consumer Z would argue that the deep linking which contains Cell-X’s trademark and name would act as the manifestation to Consumer Z that Cell-X has authorized InterABC to sell its products, namely the cellular phones that Consumer Z bought. Deep linking can be thought of as a transparent process because often times the web surfer might not even realize that he has left the website of one web owner and surfed to another website, or if the web surfer does realize that he has left the original website, he could be under the belief that the other website is somehow affiliated or authorized with the first website. Further, framing and in-lining can complicate matters because the frames of the old website surround the deep linked web page creating the image that the deep linked web page is that of the old website, and not another website. The deep linked web page is also analogous to a document that has been handed over to InterABC or allowed InterABC to have access to, and this act would also create a manifestation to the third party.^[40]

One focus of deep linking as a manifestation would be on the prominent display of Cell-X’s trade mark on InterABC’s web page. The Mobil court specifically stated that trademarks alone could not be manifestations by the principal for liability under apparent authority.^[41]  Thus, a court can find that the trade marks in deep linking constitute nothing more than just the identification and indication of quality of products.^[42]

Another argument that Cell-X might make in order to refute the manifestation element is to claim that InterABC is not its agent; further, it has had no past relationships with InterABC and did not even know of InterABC’s existence.  While this might seem like a simple escape from liability, a court can delve into the matter in more detail.  Apparent authority turns on the belief by the third person, not between the principal and agent.^[43]  Thus, it turns on whether Consumer Z believed that this apparent authority existed or not.  Further, in the expectancy of consumer markets, it could be reasonable for Consumer Z to believe that InterABC had authority from Cell-X.

The second element of the Mobil three-part test is the third party’s reasonable reliance on the principal’s manifestation. Surely, this would be accomplished by Consumer Z in claiming that he bought the cellular phones from InterABC relying on the information listed on InterABC’s web page that the cellular phones would be covered by an additional one year warranty. Recall that in fact Cell-X is offering only a 90-day additional warranty via internet purchases; yet, Consumer Z might not be aware of this since he has not visited Cell-X’s purchase page and only has visited InterABC’s purchase page. To Consumer Z, InterABC is clothed in apparent authority from Cell-X to sell Cell-X products. Consumer Z has relied on this apparent authority in purchasing the cellular phones.

However, Cell-X would counter that it was not reasonable for Consumer Z to rely on this apparent authority.  Cell-X would argue that it is the job of the third party to determine the scope of the agent’s authority.  Thus, if Consumer Z had done his "homework" on InterABC’s background, he would have found out that InterABC was not an authorized agent of Cell-X. However, this is just another way of re-phrasing the reasonable reliance requirement; The court in Herbert Construction has answered this contention by stating that "a recovery based on the doctrine of apparent authority does not require that the third party have inquired into the scope of the agent’s authority."^[44]  The court further explains that if this was a requirement, then this would essentially quash apparent authority claims.^[45]

The third element required is that Consumer Z relied to his detriment in Cell-X’s manifestation. This is quite simple since Consumer Z would have to bear the cost and burden of either fixing his malfunctioning phones himself or replacing them altogether.  The time has expired for the original one-year factory warranty.  It is worth noting here that most trade mark owners only contract for a limited liability on their products or services; in this case, Cell-X has contracted for general liability in the time span of one year.

If we assume the hypothetical scenario to be similar to that of a virtual store, Hoddeson might offer some guidance. The analogy would be as follows. Cell-X’s website is perceived as a virtual store. InterABC, through deep linking, has dressed himself as Cell-X’s agent authorized to sell Cell-X’s products. Consumer Z is in the market to buy cellular phones, and has entered into Cell-X’s virtual store via deep linking.  InterABC has told that Consumer Z will receive an additional one-year warranty on top of the original factory one-year warranty. Thus, this seems like an enticing benefit and Consumer Z agrees to purchase the cellular phones. Hoddeson will hold that Cell-X now has a duty to protect its customers from "apparent salesman".  Thus, Cell-X should make sure that its virtual store does not have apparent salesmen such as InterABC.  If it fails to do so, then Cell-X is liable for Consumer Z’s complaints, e.g. the repair or replacement of defective cellular phones that were to be under an additional one-year warranty.

However, apparent authority might not be found under the view that the internet is a free-for-all.  Cell-X’s website is no longer that of a virtual store but solely a place of information in which anyone and everyone is free to come and go as they please. If this is no longer a virtual store, then Cell-X does not have a duty to "protect the customer from loss occasioned by the deceptions of an apparent salesman."^[46]  The deep linking might then be thought of as a brochure on detailing the Cell-X products, and InterABC is seen more as an independent reseller.

V.  Preventive and Active Measures

Cell-X is not left at the mercy of any would-be deep linkers; they can undergo preventive and active measures to stop deep linking, or at least make it more difficult. The difference in preventive and active measures is the degree of involvement that Cell-X has to take.  For preventive measures, it is a nominal amount of resources such as time and money that Cell-X has to invest.  For active measures, Cell-X would get better results at potentially higher costs and more time and effort.

A.  Preventive Measures

There are some preventive measures that Cell-X can undertake in order to thwart or at least delay would-be deep linkers. The first proposal would be to limit access to its website by making the website id/password protected.     However, this would lead to the undesirable effect of customers not being able to gather information and possibly not making a purchase.  Customers would be frustrated that they do not have readily easy and instantaneous access as they do with other websites.  Also, this would require some sort of maintenance for the lists of users and their passwords.  Website owners just might not have the capacity on their web servers and networks to handle this.

Another measure would be to program scripting in the interior web page such that if the interior page is accessed before going through the homepage, it will re-direct the web surfer back to the homepage.  This appears to be a simple solution to always redirect traffic to the website owner’s homepage. Yet, web surfers, especially impatient or rookie web surfers, might not want to deal with the time or might not know how to click to the interior page.^[47]  Moreover, skilled web programmers for other sites can circumvent this re-direct scripting given the motivation and the means to do so.

The third preventive measure that Cell-X can undertake is to put a highly visible disclaimer of liability, authorization, and licensing.  This would put web surfers and third parties on notice of Cell-X’s policies regarding such.  This might, however, detract from the overall appeal of the sight.  Further, many customers might not even understand the meaning behind the disclaimer.   It has also been argued that disclaimers about trademarks should not be permitted.^[48] These disclaimers can make it difficult for the consumer to figure out who then has liability; consumers might not be in the best position to be assigned this task. Further, disclaimers can also be confusing since they would go against the spirit of trademarks in the first place. After all, trade marks were designed to convey some message of quality;^[49] disclaimers would convey the underlying message that the products are not as "quality" as one might expect so one should know that the company is not always liable.^[50]

B.  Active Measures

Cell-X can also undertake some active measures to stop or impede deep linking.  First, Cell-X can try to police its website and block those IP addresses that are deep linking.^[51]  However, this raises issues with being inefficient and counterproductive; it can create "an endless game of hide-and-seek...and run a substantial risk of blocking requests from legitimate, desirable users...."^[52]  This would mean that Cell-X would have to constantly monitor who is accessing its website which can be time consuming and expensive. A second alternative would be to contact those sites that are deep linking and try to work out some licensing agreement. This would seem like the firs step before filing for a court injunction.  Under the licensing agreement, Cell-X would agree to let InterABC link to its interior pages on the condition that InterABC put a disclaimer on its website stating that Cell-X is not liable and that InterABC only has authorization to sell only the products, i.e., InterABC cannot make any express claims, warranties, or negotiations for or on behalf of Cell-X. The third, and perhaps the most drastic, measure is for Cell-X to get a court injunction.  However, this would require some legal cause of action. Several theories have been proposed for which Cell-X might be successful.

The first idea is a claim under the Lanham Act for unfair competition and trademark infringement. It would appear that InterABC is passing itself off as Cell-X or an agent of Cell-X. However, the court in Ticketmaster stated that deep linking itself is not unfair competition.^[53] However, the court does state that deep linking might constitute unfair competition if it was in combination with other complaints such as confusion of source; yet, the court does not expound upon that point.

The second cause of action would be under copyright infringement. In Kelly v. Arribasoft Corp., the Ninth Circuit answered the question that deep linking, to some extent, is allowed and not copyright violation; however, in some instances it does constitute copyright infringement.^[54]  Kelly was an artist and was suing Arribasoft for deeplinking to his website which contained his pictures.  Arribasoft had set up thumbnails of pictures and by clicking on particular thumbnails, the viewer would go to that picture. Basically, the use of thumbnails did not constitute copyright infringement.  However, the linking to the full-size pictures did violate copyright laws; this was the direct displaying of an individual’s work without permission.^[55]

Another cause of action that has been put forth is a trespass claim. This argument was brought forth in Ticketmaster; however the court ruled that the trespass claim was preempted by copyright law.^[56]  In Ebay, the court grappled with the issue of first whether to distinguish the trespass as trespass to chattel or trespass to real property.^[57]  Essentially, Bidder’s Edge was sending automated programs, known as robots, into Ebay’s servers.  Ebay claimed that these were unauthorized, thus amounting to trespass. Since the server is personal property, it initially falls under trespass to chattels. However, the court also considers that this might be more like trespass to real property if the analogy is drawn between the server being the auction house and the robots being people that take up seats in the auction house.^[58]  The court finally decides that it is more like trespass to property because there is never really any chance that conversion will result.^[59]  Second, the court decided that this claim was allowable since there was sufficient evidence to show that Ebay could suffer irreparable harm.^[60]

VI.  Conclusion

Internet law is still in its infancy in comparison to other areas of law.  Courts are thus continually tackling these problems and trying to relate older, established laws to this new field.  It remains to be seen whether we should create new internet laws altogether.^[61]  In particular, the courts have seldom dealt with deep linking. While frustrating to potential parties in a lawsuit, this leaves for much debate and speculation as to what devices parties might argue and what devices courts might use to decide.

Apparent authority seems as though it might be a useful tool for assigning liability.  Courts have had some degree of consistency in applying apparent authority. The wrinkle in the fabric of the doctrine of apparent authority is whether trade marks can be readily applied; there has been no majority on this point. Perhaps it is because Trademark law itself is relatively young. After all, some of its areas are still being developed such as the topic of trade mark dilution.  In the hypothetical above, it appears that deep linking perhaps does not create apparent authority. Cell-X does not know or should know of InterABC’s existence and actions.  Anyone that has access to the internet also has access to Cell-X’s website;   Cell-X would argue that there is then no specific act or representation that would pass as a manifestation from the principle to the third party that would make the principle liable. After all, in Hoddeson, the furniture store would not be responsible if ithad no control over who entered the store such as fraudulent salesman.  For now, a company might have a sigh of relief that generally deep linking does not create apparent authority and therefore more liability. Yet, this argument might be looming around the corner; the evolution of websites are slated with designs of being virtual stores having limited access and secured server transactions. This development of the internet surely could stretch the envelope of apparent authority to include deep linking.

Whatever the future outcome to this question is, it still poses as a potential headache for companies that transact business on the internet. On top of having another website potentially violate your rights, whether based in trademark, copyright, contract, or property law, you just might also be liable for the deep linker’s actions.