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Client Alerts

Tiffany v. eBay: Appellate Court Affirms That eBay Is Not Liable for Infringement

April 5, 2010

Client Alerts

Tiffany v. eBay: Appellate Court Affirms That eBay Is Not Liable for Infringement

April 5, 2010

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Tiffany v. eBay: Appellate Court Affirms That eBay Is Not Liable for Infringement
Tiffany v. eBay: Appellate Court Affirms That eBay Is Not Liable for Infringement

Brand owners bear the burden to develop counterfeit enforcement plans and fight aggressively against counterfeits.  But does that burden change when a high volume of infringement occurs in one outlet?  The recent decision by the Second Circuit Court of Appeals in Tiffany v. eBay confirms that brand owners bear the ultimate responsibility to stop counterfeits.  According to the Second Circuit Court of Appeals, a service provider like eBay becomes liable for contributing to infringement only when it continues to provide services to a specific individual whom it knows, or has reason to know, is selling counterfeit merchandise.

eBay is a vast electronic marketplace that, at any given time, contains some 100 million listings of products.  Among the listings on eBay’s website are listings for “Tiffany” jewelry, some of which are genuine and – according to the court – a “significant portion” of which are counterfeit.  Tiffany argued that up to 75 percent of the purported “Tiffany” jewelry available on the eBay website was counterfeit, according to its own research.  Tiffany alleged that eBay’s facilitating and advertising the sale of “Tiffany” goods that turned out to be counterfeits constituted direct and contributory trademark infringement, trademark dilution, and false advertising.

After a bench trial in 2008, the district court ruled in favor of eBay on all claims.  The Second Circuit Court of Appeals agreed with the lower court’s holding on all claims but one, including the claim for contributory infringement.

Contributory Infringement:  General Knowledge Is Not Enough

The central issue in the case is whether eBay is liable for contributory infringement – that is, for contributing to the infringement caused by sellers of the counterfeit merchandise.  The Supreme Court provided a test for contributory infringement in the context of manufacturers and distributors of products in its 1982 ruling Inwood Labs v. Ives Labs.  The Inwood test provides that “[i]f a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit.”

Recognizing that it is the first appellate court to consider the application of contributory trademark infringement to “an online marketplace,” the Second Circuit applied the Inwood test for contributory infringement to a provider of a service:  “[W]hen applying Inwood to service providers, there are two ways in which a defendant may become contributorially liable for the infringing conduct of another:  first, if the service provider ‘intentionally induces another to infringe a trademark,’ and second, if the service provider ‘continues to supply its [service] to one whom it knows or has reason to know is engaging in trademark infringement.”  The second part of this test – whether eBay continued to supply its services to sellers whom it knows or has reason to know are selling counterfeit Tiffany goods – was a key issue on appeal.

Tiffany – and the court – recognized that when Tiffany alerted eBay to specific infringements, eBay acted promptly and removed the listings.  The Second Circuit’s decision highlights eBay’s anti-counterfeiting measures, including its notice-and-take-down procedure (known as the VeRO program), whereby it is eBay’s practice to remove allegedly infringing listings within 24 hours of receiving a complaint.

However, Tiffany argued that “eBay knew, or at least had reason to know, that counterfeit Tiffany goods were being sold ubiquitously on its website,” and that eBay should be liable because, despite its knowledge of the widespread sale of counterfeit Tiffany merchandise on the eBay site, it continued to make its services available to infringing sellers.

The Second Circuit agreed with the district court that a generalized knowledge of infringement is not sufficient to find contributory infringement.  “For contributory infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods.  Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.”

The court emphasized language from the Inwood test in concluding that eBay must have knowledge about specific sellers, and thereafter fail to act, in order for liability to arise.  “[T]he particular phrasing that the [Supreme] Court used – that a defendant will be liable if it ‘continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement’ – supports the district court’s interpretation of Inwood, not Tiffany’s.”  Because the evidence showed that eBay’s practice was to promptly remove challenged listings upon receiving notice, the Second Circuit affirmed that “Tiffany failed to demonstrate that eBay was supplying its service to individuals who it know or had reason to know were selling counterfeit Tiffany goods.”

The court was not persuaded by policy arguments that trademark owners should not be forced to monitor eBay’s website “24 hours a day and 365 days a year.”  The court recognized that its task is to interpret the law and apply it to the facts, not to allocate the burden of policing trademarks.  It noted, however, that eBay has an incentive to minimize the sale of counterfeit goods in the interest of satisfying its customers.

No Direct Infringement

With respect to direct infringement, Tiffany argued that eBay’s purchase of internet advertisements that included the Tiffany trademark constituted infringement.  Pointing to the fact that Tiffany may not control the secondary market for genuine Tiffany products, the appellate court held that “eBay’s use of Tiffany’s mark on its website and in sponsored links was lawful.  eBay used the mark to describe accurately that genuine goods offered on its website.”  The court was not willing to impose liability for direct infringement merely because eBay knew that counterfeit products also were being sold on eBay’s site:  “To impose liability because eBay cannot guarantee the genuineness of all the purported Tiffany products offered on its website would unduly inhibit the lawful resale of genuine Tiffany goods.”

No Trademark Dilution

The appellate court affirmed the district court’s holding of no trademark dilution.  The Second Circuit agreed that eBay did not use the Tiffany trademark to refer to its own product or service, and thus the federal and state claims for dilution must fail.

False Advertising Claim Remanded

Tiffany argued that eBay’s advertising that Tiffany jewelry was available on the eBay site constituted false advertising.  The Second Circuit agreed with the district court that eBay’s advertisements were not literally false because genuine Tiffany products were available through eBay’s website.  However, an advertisement may be false if it is literally false or if it is “likely to mislead or confuse consumers.”  The Second Circuit remanded the false advertising claim to the district court for further consideration because the district court did not properly consider whether eBay’s advertisements were misleading – in particular, whether the advertisements implied that all the goods sold through the eBay site that were held out as Tiffany jewelry were in fact genuine Tiffany jewelry.

Conclusion

While an appeal to the Supreme Court is predicted by many, for now eBay is not liable under U.S. trademark law for infringement solely on the basis that infringing products are sold via the eBay website.  To be liable for contributory infringement, a service provider must continue to provide its services to a specific individual whom it knows, or has reason to know, is engaging in infringement.  The case leaves open the issue of whether eBay’s advertisements that Tiffany jewelry is available on the eBay site falsely suggest that all “Tiffany” product on eBay is in fact genuine Tiffany brand product.

© Copyright 2010 Fish & Richardson P.C. These materials may be considered advertising for legal services under the laws and rules of professional conduct of the jurisdictions in which we practice. The material contained in this newsletter has been gathered by the lawyers at Fish & Richardson P.C. for informational purposes only and is not intended to be legal advice. Transmission is not intended to create and receipt does not establish an attorney-client relationship. Legal advice of any nature should be sought from legal counsel. For more information about Fish & Richardson P.C. and our practices, please visit www.fr.com.

 

 

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