In a much-watched case, U.S. Judge Richard J. Sullivan in the Southern District of New York ruled on Monday that “Tiffany, the famous jeweler with the coveted blue boxes,” not eBay, must suffer the burden of apparently rampant sales of counterfeit Tiffany silver on the popular website, which serves sellers (and buyers) of both genuine and counterfeit Tiffany silver jewelry. Tiffany v. eBay, 04 Civ. 4607. July 14, 2008. Tiffany left no stone unturned, asserting claims for direct and indirect (contributory): trademark infringement; false designation of origin (Section 43(a)); New York/common law unfair competition; dilution by both blurring and tarnishment, federal and state; and false advertising (43(a) again). eBay won on all claims for two reasons.
1. eBay’s use of Tiffany on its own website and in sponsored links on the Yahoo! and Google search engines was nominative fair use of the Tiffany trademark to describe genuine Tiffany merchandise on the eBay website. Such use was considered not to describe the considerable amount of counterfeit Tiffany merchandise also offered and sold on the eBay website because eBay prohibits the sale of counterfeit merchandise, and it isn’t eBay’s fault if counterfeiters flout the rules.
2. eBay, while it knows as a generalized matter that it may be hosting sellers of counterfeit Tiffany goods, has no specific knowledge of which of its sellers those may be, and as soon as Tiffany (or some other source) identifies them, it takes them down. Ultimately, this reason turns on the Court’s adoption of the test whether eBay knew of or had reason to know that it was offering specific facilities to Tiffany counterfeiters; in accepting that test, the Court rejected the common law test of whether eBay could “reasonably anticipate” such infringement – a test under which Tiffany seemingly would have won.
Very early in the decision is the following curious passage: “The result of the application under this legal standard [point 2 above] is that Tiffany must ultimately bear the burden of protecting its trademark. Policymakers may yet decide that the law as it stands in inadequate to protect rights owners in light of the increasing scope of Internet commerce and the concomitant rise in potential trademark infringement. Nevertheless, under the law as it currently stands, it does not matter whether eBay of Tiffany could more effectively bear the burden of policing the eBay website for Tiffany counterfeits – an open question left unresolved by this trial. . . .”
The decision seems likely to be appealed, and is philosophically contrary to the recent Vuitton decision in France (see below).
LVMH v. eBay (Commercial Court of Paris, June 30, 2008)
The French eBay decisions delivered on June 30, 2008 are probably not the end of eBay’s business model in Europe, but seriously question its profitability. If approved at higher instances, they would mean eBay would have to spend much more money on preventing illegal auctions and would have to close down many of them before the first bid. From a legal perspective, the decisions were landmark rulings under two aspects:
1. The Commercial Court of Paris accepted an obligation of eBay to proactively prevent the sale of counterfeit goods on its web site, holding that the “notice and take down” procedure offered by eBay to right holders was not enough. As eBay could not show sufficient measures in this regard (the court suggested, i.e., to ask for sales receipts or for certificates of authenticity), the judges found eBay guilty of a grossly negligent trademark infringement and awarded damages of about 35 million Euros for the sale of counterfeit “Louis Vuitton” handbags and “Dior” clothes.
2. The court approved an obligation of eBay to proactively prevent the sale of grey market goods, approving the selective distribution systems of several perfume producers who had brought action against the sale of their genuine products on eBay. As eBay had no measures in place at all in this regard, the court found eBay guilty of a grossly negligent impairment of several selective distribution systems, awarding damages of about 3 million Euros for the sale of, i.e., genuine “Dior,” “Guerlain,” “Kenzo,” and “Givenchy” perfumes on eBay’s platform. The court held in all cases that eBay was not a mere platform provider, but rather a broker which benefits from the sales on its platform. The judges reproached eBay with having ignored in many cases clear indications of counterfeits (“nice imitation”) or of grey market goods (including notes on the products saying that they should only be distributed by licensed dealers). Besides, they accused eBay of not having checked the registration of power sellers in the commercial registers and with not having immediately and permanently closed affected auctions and seller accounts.