Is Gallery Liable for Artist Infringement?

Dear Rich: I am on the jury committee of a small art gallery in Michigan. We have had an artist submit several items of clothing for jury. The artist is using name brand (in this case, JCPenny's Sag Harbor) blazers with the labels still in them which she then gussies up the plain blazer with sequins, cuff frills, attached scarves, or similar and wants to sell them in the gallery. We are balking at the moment concerning the labeling of a name brand, whether this use violates any copyright or trademark laws. A second, similar question, is if the gallery does display a "work of art" that an artist has plagerized or infringed on copyright without our knowledge, can the gallery responsible in a suit if the artist gets called on it? As to your first question --  whether it's an infringement to modify and sell name brand clothing -- the answer is "probably not." There's definitely no copyright infringement as clothing designs are not protected under copyright law and resale is permitted under the first sale doctrine. As for trademark infringement, that would only be an issue if consumers believe that JC Penney was the source of the modified jackets -- a situation that can be avoided by placing a prominent disclaimer or statement near the clothing, "JC Penney Sag Harbor jackets modified by artist [Name]."
Can a gallery be liable? Yes, galleries, museums, flea markets, swap meets or any other venue where infringing goods are sold can be liable for what is known as either vicarious, contributory or indirect infringement. Although each of these has different standards, the major principle in cases like this and this is that if the venue had knowledge of the infringement and benefited, the owner of venue can be brought to trial.