Although Tiffany & Co. had probably wished it was an April Fool's joke, on April 1, 2010, the Second Circuit upheld the Southern District of New York's determination that eBay, Inc. was not liable for direct or contributory trademark infringement, nor trademark dilution of Tiffany's indisputably famous trademarks, by facilitating and allowing counterfeit Tiffany items to be sold on eBay. The Second Circuit unanimously concluded that the burden of policing and protecting its trademarks in Internet commerce lay solely with Tiffany, not eBay. However, in handing less than complete victory to eBay, the second Circuit sent Tiffany's false advertising claim back to the district court for "reconsideration" of whether eBay's advertisements were misleading when they indicated Tiffany products were available on eBay's site.
At the heart of the case was the allegation that the majority of Tiffany products sold on eBay are counterfeit and that eBay profits from those sales. Tiffany conducted two separate surveys wherein it purchased various items on eBay and then inspected and evaluated them to determine whether they were counterfeit. Tiffany found that close to 75% of the items it purchased were counterfeit. Although the district court questioned the methodology of the surveys, it nonetheless decided that a significant portion of the sterling silver jewelry listed on eBay was counterfeit and that eBay knew that at least some portion of the Tiffany goods sold on the site were counterfeit. The district court found that eBay actively took steps to grow the sales of Tiffany items on its site and profited from it. eBay's business model is based upon revenue derived from postings, final value fees, as well as fees charged through its subsidiary, PayPal, to process transactions. Consequently, it is to eBay's advantage to help "boost" sellers' sales, which it did in the case of Tiffany products by educating its sellers on the use of descriptive and keywords incorporating the Tiffany trademarks, advertisements that hyperlinked back to Tiffany items for sale on the site, and purchasing sponsored-link advertisements with various search engines to promote the availability of Tiffany items on the site. eBay's Jewelry & Watches category manager estimated that between April 2000 and June 2004, eBay earned $4.1 million in revenue from completed listings with "Tiffany" in the listing title.
It appears that after years of pursuing actions against individual sellers, Tiffany had finally had enough and decided it would try to hold eBay accountable for the illegal activities of the sellers on its site and for encouraging the same. In 2004, Tiffany filed suit against eBay alleging direct and contributory trademark infringement (both federal and common law), direct and contributory trademark dilution (both federal and common law), unfair competition, and false advertising. In July 2008, the district court, after a bench trial, concluded in a rather lengthy opinion that Tiffany was unable to sustain its burden of proof of any of its claims. The court noted that although Tiffany had reported 284,149 listings to eBay through its VeRO Program, Tiffany had only invested modest resources (e.g. 1.15 to 1.6 full-time employees per month) to monitor the eBay website, which, between 2003 and 2006, had over 1,000 listings for "Tiffany" and "silver" daily. eBay, on the other hand, removed listings once it was notified of the infringement/counterfeit, took appropriate steps to warn and/or suspend sellers, used special warning messages to inform buyers products may not be authentic, and actively took steps to improve its technology and develop anti-fraud measures as they became technologically feasible and reasonably available. Given that eBay does not actually sell the good or ever obtain possession of it, the court found that any use of Tiffany's marks on the site was only a nominative fair use, which was not actionable. Although the district court sympathized with Tiffany and other similarly situated rights holders who invest substantial resources in their brands only to see them "illicitly and efficiently exploited by others on the Internet," the court concluded that "it is the trademark owner's burden to police its mark, and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their websites."
The Second Circuit agreed with the district court that eBay's use of Tiffany's trademarks on the eBay website and in sponsored links was lawful, concluding that eBay's use was essentially nominative and consequently not trademark infringement or dilution. Although, in what will be a seminal case applying the principle of contributory trademark infringement to the online marketplace, both the Second Circuit and the district court agreed that Inwood Laboratories v. Ives Laboratories, 456 U.S. 844 (1982), a case that attributes trademark infringement liability to one party based upon the actions of others in the chain of distribution, which traditionally had only been applied to manufacturers and distributors of goods, applied to a service provider like eBay. The court explained that a service provider is liable for the infringing conduct of another if (1) the service provider "intentionally induces another to infringe a trademark," or (2) if the service provider "continues to supply its [service] to one whom it knows or has reason to know is engaging in trademark infringement." Tiffany argued that eBay fell into the second category of culpable service providers because it had received thousands of complaints from Tiffany and buyers claiming they had purchased counterfeit items on eBay and, therefore, had knowledge of "widespread sale of counterfeit Tiffany products." The court rejected Tiffany's argument and held that a service provider must have more than a general knowledge that its service is being used to sell counterfeit goods - "contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary."
Where the district court absolved eBay of the false advertising claim on the basis that it was not the party actually selling the counterfeit merchandise, the Second Circuit took pause. The circuit was particularly concerned with whether eBay's advertisements of Tiffany goods on its site misled or confused consumers, directly or impliedly, as to the genuineness of those goods. The court indicated that a disclaimer might suffice, but cautioned that "the law prohibits an advertisement that implies that all of the goods offered on a defendant's web site are genuine when, in fact, as here, a sizable proportion of them are not." Given that the district court was in a much better position to evaluate the evidence given this standard, the Second Circuit sent the issue back for "reconsideration."
Tiffany (NJ) Inc. v. eBay Inc., No. 08-3947-cv,
Although Tiffany & Co. had probably wished it was an April Fool's joke, on April 1, 2010, the Second Circuit upheld the Southern District of New York's determination that eBay, Inc. was not liable for direct or contributory trademark infringement, nor trademark dilution of Tiffany's indisputably famous trademarks, by facilitating and allowing counterfeit Tiffany items to be sold on eBay. The circuit unanimously concluded that the burden of policing and protecting its trademarks in Internet commerce lay solely with Tiffany, not eBay. However, in handing less than complete victory to eBay, the circuit sent Tiffany's false advertising claim back to the district court for "reconsideration" of whether eBay's advertisements were misleading when they indicated Tiffany products were available on eBay's site.
At the heart of the case was the allegation that the majority of Tiffany products sold on eBay are counterfeit and that eBay profits from those sales. Tiffany conducted two separate surveys wherein it purchased various items on eBay and then inspected and evaluated them to determine whether they were counterfeit. Tiffany found that close to 75% of the items it purchased were counterfeit. Although the district court questioned the methodology of the surveys, it nonetheless decided that a significant portion of the sterling silver jewelry listed on eBay was counterfeit and that eBay knew that at least some portion of the Tiffany goods sold on the site were counterfeit. The district court found that eBay actively took steps to grow the sales of Tiffany items on its site profited from it. eBay's business model is based upon revenue derived from postings, final value fees, as well as fees charged through its subsidiary, PayPal, to process transactions. Consequently, it is to eBay's advantage to help "boost" sellers' sales, which it did in the case of Tiffany products by educating its sellers on the use of descriptive and keywords incorporating the Tiffany trademarks, advertisements that hyperlinked back to Tiffany items for sale on the site, and purchasing sponsored-link advertisements with various search engines to promote the availability of Tiffany items on the site. eBay's Jewelry & Watches category manager estimated that between April 2000 and June 2004, eBay earned $4.1 million in revenue from completed listings with "Tiffany" in the listing title.
It appears that after years of pursuing actions against individual sellers, Tiffany had finally had enough and decided it would try to hold eBay accountable for the illegal activities of the sellers on its site and for encouraging the same. In 2004, Tiffany filed suit against eBay alleging direct and contributory trademark infringement (both federal and common law), direct and contributory trademark dilution (both federal and common law), unfair competition, and false advertising. In July 2008, the district court, after a bench trial, concluded in a rather lengthy opinion that Tiffany was unable to sustain its burden of proof of any of its claims. The court noted that although Tiffany had reported 284,149 listings to eBay through its VeRO Program, Tiffany had only invested modest resources (e.g. 1.15 to 1.6 full-time employees per month) to monitor the eBay website, which, between 2003 and 2006, had over 1,000 listings for "Tiffany" and "silver" daily. eBay, on the other hand, removed listings once it was notified of the infringement/counterfeit, took appropriate steps to warn and/or suspend sellers, used special warning messages to inform buyers products may not be authentic, and actively took steps to improve its technology and develop anti-fraud measures as they became technologically feasible and reasonably available. Given that eBay does not actually sell the good or ever obtain possession of it, the court found that any use of Tiffany's marks on the site was only a nominative fair use, which was not actionable. Although the district court sympathized with Tiffany and other similarly situated rights holders who invest substantial resources in their brands only to see them "illicitly and efficiently exploited by others on the Internet," the court concluded that "it is the trademark owner's burden to police its mark, and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their websites."
The Second Circuit agreed with the district court that eBay's use of Tiffany's trademarks on the eBay website and in sponsored links was lawful, concluding that eBay's use was essentially nominative and consequently not trademark infringement or dilution. Although, in what will be a seminal case applying the principle of contributory trademark infringement to the online marketplace, both the Second Circuit and the district court agreed that Inwood Laboratories v. Ives Laboratories, 456 U.S. 844 (1982), a case that attributes trademark infringement liability to one party based upon the actions of others in the chain of distribution, which traditionally had only been applied to manufacturers and distributors of goods, applied to a service provider like eBay. The court explained that a service provider is liable for the infringing conduct of another if (1) the service provider "intentionally induces another to infringe a trademark," or (2) if the service provider "continues to supply its [service] to one whom it knows or has reason to know is engaging in trademark infringement." Tiffany argued that eBay fell into the second category of culpable service providers because it had received thousands of complaints from Tiffany and buyers claiming they had purchased counterfeit items on eBay and, therefore, had knowledge of "widespread sale of counterfeit Tiffany products." The court rejected Tiffany's argument and held that a service provider must have more than a general knowledge that its service is being used to sell counterfeit goods - "contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary."
Where the district court absolved eBay of the false advertising claim on the basis that it was not the party actually selling the counterfeit merchandise, the Second Circuit took pause. The circuit was particularly concerned whether eBay's advertisements of Tiffany goods on its site misled or confused consumers, directly or impliedly, as to the genuineness of those goods. The court indicated that a disclaimer might suffice, but cautioned that "the law prohibits an advertisement that implies that all of the goods offered on a defendant's web site are genuine when, in fact, as here, a sizable proportion of them are not." Given that the district court was in a much better position to evaluate the evidence given this standard, the Second Circuit sent the issue back for "reconsideration."
Tiffany (NJ) Inc. v. eBay Inc., No. 08-3947-cv (2d Cir. April 1, 2010)