No Breakfast at Tiffany's
June, 2010
FEDERAL COURT UPDATE: how eBay avoided liability for sales of counterfeit goods on its site.
You might think that eBay had much to fear when it was sued in federal court by Tiffany & Company, famed purveyor of luxury jewelry. After all, eBay promoted the availability of Tiffany goods on its extremely popular site even though it knew that many of the available items were counterfeit. For its part, Tiffany guarded its trademarked good name with zeal. New Tiffany merchandise was sold only through Tiffany itself and never through any third party. What Tiffany could not control, however, were sales of second-hand Tiffany merchandise, including sales of such goods through eBay. While Tiffany could not attack the mere fact of such sales, it came to court armed with what it thought was a winning hand: the wide availability on eBay of Tiffany merchandise known to be counterfeit.
Tiffany charged eBay with a panoply of infringements on the Tiffany trademark: direct infringement, contributory infringement and false advertising. According to Tiffany, eBay knew that significant counterfeit Tiffany merchandise was available on its site, yet both tolerated and promoted these sales, and even did so using the Tiffany name. Tiffany maintained that eBay had a duty to monitor all sales of Tiffany-branded merchandise on its site and to rid the site of any merchandise discovered to be counterfeit. According to Tiffany, its only responsibility was to make sure all of this happened.
eBay, of course, disagreed. It introduced evidence of the extraordinary steps it already took to rid its site of counterfeit merchandise. For example, any trademark owner could alert eBay of a suspected counterfeit merchandise offer, and eBay would then deploy an array of responses depending on the circumstance of the sales offer. These included prompt investigation by eBay, immediate termination of any online offer to sell counterfeit goods, and even permanent termination of a seller's right to ever sell on eBay again. eBay was even able to show that it had 4,000 employees exclusively focused on fraud prevention, including removal of counterfeit goods sales.
What The Court Said
In a sixty-page opinion, the federal district court ruled that eBay's measures were both exceptional and exonerating. The court instead placed the burden on companies like Tiffany - owners of valuable trademarks whose interest should lie in policing marketplaces for counterfeit sales of its goods. According to the court, policing was the job of the trademark owner, not the entity (like eBay) that merely facilitated someone else's sale - unless, of course, the seller had specific knowledge of a counterfeit merchandise offer and failed to act.
eBay had not failed to act, said the court. Rather, it developed and consistently implemented an entire program dedicated to counterfeit sales prevention, a program so complete that it took the court many pages just to summarize it. This provided eBay with a complete defense to Tiffany's core trademark infringement charges. The United States Court of Appeals for the Second Circuit affirmed (with an exception not relevant to the trademark infringement causes of action).
What You Can Do
In the wake of the Tiffany decision, owners of trademarks whose branded goods are sold on third-party websites should monitor the sites for a variety of reasons. The sites themselves may be ready to assist, as eBay was (to its great benefit in the Tiffany case), by providing simple online ways for rights owners to warn site users of counterfeit goods. Tiffany also demonstrates the persuasive power of proactive advance measures in face of a known problem. The measures may not entirely eliminate the problem, but they allow litigants like eBay to establish that upon learning of the problem, it developed sensible and comprehensive protocols, and then employed them consistently. Because eBay did so, you can still purchase second-hand Tiffany merchandise on its site - and many other branded goods as well.
Bullivant attorneys can assist you with your intellectual property litigation and transactional needs across the United States. For more information concerning the Tiffany case, trademarks generally (including development of eBay style preventive measures), or other intellectual property matters, please contact Chris Bakes or Kelly Gaide.