Posted December 9th, 2010
This article originally appeared on LAW.COM. Re-posted with permission by the author.
Supremes Say: ‘You’re On Your Own’ — Analyzing Supreme Court’s Decision Not to Review Tiffany v. eBay
by Janet Satterthwaite
December 08, 2010
In Tiffany v. eBay, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s ruling in favor of eBay Inc. on the key issue of contributory trademark infringement, as well as direct infringement and dilution, but remanded on the issue of false advertising.
On Nov. 29, the Supreme Court declined to review the case, in effect leaving brand names unprotected against the sale of counterfeited goods bearing their names on eBay.
The upshot of the holding is that despite a general knowledge that a significant percentage of Tiffany & Co. goods sold on eBay were counterfeit, eBay did not have a duty to prevent any such sales unless and until a specific instance of fraud was brought to its attention. The fact that eBay did take prompt action after reports of counterfeits and invested in quality control influenced the court to find that eBay was not willfully blind to the existence of counterfeits.
At trial eBay avoided liability for contributory trademark infringement for eBay’s facilitation of the marketplace for the sale of counterfeit Tiffany jewelry, despite the fact that the court acknowledged that a significant percentage of TIFFANY goods sold on eBay are counterfeit.
The trial found that more than 6 million new listings appear on eBay every day, and at any given time, 100 million listings appear on the web site. eBay’s revenue is based on listings and a percentage of the eventual sale. The court found that eBay made $4 million over three years from the sale of Tiffany goods. Tiffany’s research indicated that the percentage of this which was counterfeit was 73 percent; eBay’s expert conceded it might be 30 percent.
The court found that while eBay had “generalized notice” that some portion of Tiffany goods sold on its web site were counterfeit, this did not translate into knowledge of specific infringers. The court also found that eBay’s use of the term TIFFANY to advertise sales of Tiffany jewelry, such as via sponsored search engine ads, was fair use.
Tiffany appealed to the United States Court of Appeals for the Second Circuit. Amicus Curiae briefs were filed in support of Tiffany by Coty Inc., the International Anticounterfieting Coalition, and Council of Fashion Designers. Amicus Curiae briefs were filed in support of eBay by Yahoo (on the false advertising issue), Electronic Frontier Foundation et al., and Amazon, Google, et al. (The author was one of the writers of the briefs filed by Coty Inc.)
The court noted that a substantial percentage of Tiffany goods were counterfeit and that eBay made revenues from those sales, but the author believes that the court ignored a critical factual finding in the case — the admission by eBay’s expert that 30 percent of the purported “Tiffany” goods sold on eBay likely were counterfeit.
There were a number of theories of potential liability, but the key issue in the case was whether eBay was contributorially liable for the counterfeit sales by third parties on eBay. The court noted that it was the first U.S. court to apply the test to an online marketplace, referring to some of the European cases which have already addressed eBay’s liability. (The court referred to cases including Lancome v. eBay, Brussels Commercial Court (Aug. 12, 2008); S.A. Louis Vuitton Malletier v. eBay, Inc., Tribunal de Commerce de Paris, Premiere Chambre B. (Paris Commercial Court) (June 30, 2008); and Hermes v. eBay, Troyes High Court (June 4, 2008).)
The court agreed that eBay had only “generalized” knowledge of counterfeiting and held that, under the governing precedents, “generalized” knowledge was insufficient to impose a duty to remedy the problem. In reaching this conclusion, the court was heavily influenced by the extent of eBay’s actions to respond to specific notification of violations.
The critical language from the most relevant Supreme Court opinion (Inwood) is “a manufacturer or distributor (who) continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement” is contributorially liable for the harm done by the deceit.
The court found that the “knew or should have known” test was undefined, and refused to apply it to a scenario in which there was statistical evidence that the service provider knew that a substantial percentage of the goods sold through its facility were counterfeit. The court rejected reliance on evidence of probability and insisted that liability for contributory trademark infringement could be imposed only upon proof that an offer of specific product by a specific seller was fraudulent.
The court interpreted the impersonal pronoun “one” in Inwood as requiring that the service provider must have the required knowledge about each separate individual infringer (thus placing the burden back on brand owners to monitor, detect, and report fraud.)
Tiffany and Coty also argued that eBay’s willful blindness to widespread counterfeiting was in fact actual knowledge and not just reason to suspect counterfeiting. The court declined to expand the law to reach this point.
The court also concluded that market forces already give eBay an incentive to minimize the sale of counterfeit goods on its site. The court implied that if eBay were “intentionally shielding itself” from discovering the offending listings, then it might have “known or had reason to know” under Inwood. (Id., at 33.)
Tiffany asked the Supreme Court to review the decision of the Court of Appeals. The high court has discretion to accept or reject such petitions, and the rate of acceptance is very low. Tiffany argued that the decision of the court of appeals was inconsistent with older case law from the Ninth Circuit, and that the court needed to update the 1982 case law that could not have contemplated the Internet marketplace.
Amicus briefs in support of Tiffany’s petition were filed by Venable on behalf of Coty, Inc., Debevoise and Plimpton on behalf of The International Trademark Association, and Fross Zelnick on behalf of the International Anticounterfeiting Coalition. Tiffany questioned whether eBay had a right to do business if it could not prevent the counterfeiting problem.
The court’s failure to take up the case means that eBay enjoys the status quo for now in the U.S. It also leaves a dichotomy between U.S. and European case law on whether eBay has a duty to take some effort to filter out counterfeits. It also, in this author’s opinion, weakens the integrity of the online marketplace.
If another brand owner challenges eBay in a different judicial circuit and wins, then there might be a direct conflict among the circuits and the Supreme Court may then decide to take up the case. This would take several years. Alternatively, brand owners may need to pursue legislation. Retailers recently pursued a legislative solution to eBay’s duty to prevent the sale of stolen goods.
For now, brand owners must devote substantial resources to policing eBay and other online auction sites in the U.S. for counterfeits. Some smaller companies may need to hire college interns as the only affordable way to keep on top of this problem. Companies need to learn how to use eBay’s VeRo program to provide notice and takedown information, and to monitor eBay to ensure that repeat offenders don’t keep showing up under new aliases.
Janet Satterthwaite, an intellectual property partner with Venable in Washington, D.C., advises clients on the selection, registration, licensing and enforcement of trademarks in the U.S. and internationally. She directs Venable’s Domain Name and Cyberpiracy group and regularly counsels clients on domain name disputes. She can be reached at email@example.com.