A federal appeals court ruling earlier this month has laid down the law for how far e-commerce businesses must go to enforce trademark protections—and the victory goes to the e-commerce shops.
The closely watched ruling, Tiffany v. eBay, is the first to address trademark law in the world of virtual retailers. Tiffany & Co., the iconic maker of luxury jewelry, accused online auction house eBay of contributing to trademark infringement by turning a blind eye to scads of online sellers peddling counterfeit Tiffany goods. Specifically, Tiffany said, it had eBay terminate more than 19,000 auctions in 2003 and 2004 that were selling bogus Tiffany products.
A federal district court ruled against Tiffany in 2008, and on April 1 the New York-based 2nd Circuit Court of Appeals upheld the ruling. The court essentially said that eBay is not liable for trademark infringement for selling counterfeit goods because it did not have specific knowledge that any one item was counterfeit. The burden of seeking out and preventing counterfeits in an online marketplace, the court said, rests with the trademark owners themselves.
Boudett
In the world of physical stores, swap meets, and flea markets, retailers traditionally have much less protection against complaints about counterfeit goods, because they should know the legitimacy of the products sitting on their own shelves. Online auctioneers like eBay, however, never have possession of the goods and can’t inspect them like traditional sellers, says Michael Boudett, a trademark lawyer with law firm Foley Hoag. “It’s really an issue of communication with the brand owner as opposed to inspection,” he says.
Tiffany CEO Michael Kowalski said in a statement that he is disappointed with the decision. “As an e-commerce leader, eBay has a responsibility to protect consumers and promote trust in its marketplace,” he said. “eBay knew that counterfeit merchandise was being sold on its site—and eBay took no effective steps to stop it.”
The appeals court, however, found that eBay has demonstrated a serious, good-faith effort to combat counterfeiters on its site. For example, eBay has established a “trust and safety” department with 4,000 employees “devoted to trust and safety issues,” the court noted in its opinion, including more than 200 who focus exclusively on combating infringement.
eBay also has a “fraud engine” specifically designed to identify counterfeit items. In addition to general filters, the fraud engine incorporates “Tiffany-specific filters,” including scores of 90 keywords designed to help distinguish between genuine and counterfeit Tiffany goods, the court said. And eBay has operated a “Verified Rights Owner Program” for years, which allows owners of intellectual property rights to alert eBay about any listing offering potentially infringing items, so that eBay can remove such reported listings.
Baum
The court’s basic decision to put the burden of proof on trademark owners might sound like good news for online retailers, but they should not interpret the ruling as “a free pass getting them off the hook” in similar cases, warns Andrew Baum, a trademark lawyer with law firm Foley & Lardner. He points to the many substantive steps eBay takes to police against counterfeits as examples of what the court expects for good-faith efforts.
COUNTERFEIT MEASURES
The following excerpt from Tiffany v. eBay explains anti-fraud measures Tiffany and eBay had in place:
Tiffany, not eBay, maintains the Tiffany “About Me” page. With the headline “BUYER BEWARE,” the page begins: “Most of the purported TIFFANY & CO. silver jewelry and packaging available on eBay is counterfeit.” It also says, inter alia:
The only way you can be certain that you are purchasing a genuine TIFFANY & CO. product is to purchase it from a Tiffany & Co. retail store, via our Website (www.tiffany.com) or through a Tiffany & Co. catalogue. Tiffany & Co. stores do not authenticate merchandise. A good jeweler or appraiser may be able to do this for you.
In 2003 or early 2004, eBay began to use “special warning messages when a seller attempted to list a Tiffany item.” These messages “instructed the seller to make sure that the item was authentic Tiffany merchandise and informed the seller that eBay ‘does not tolerate the listing of replica, counterfeit, or otherwise unauthorized
items’ and that violation of this policy ‘could result in suspension of [the seller’s] account.’” The messages also provided a link to Tiffany’s “About Me” page with its “buyer beware” disclaimer. If the seller “continued to list an item despite the warning, the listing was flagged for review.”
In addition to cancelling particular suspicious transactions, eBay has also suspended from its Website “‘hundreds of thousands of sellers every year,’ tens of thousands of whom were suspected [of] having engaged in infringing conduct.” eBay primarily employed a “three strikes rule” for suspensions, but would suspend sellers after the first violation if it was clear that “the seller ‘listed a number of infringing items,’ and ‘[selling counterfeit merchandise] appears to be the only thing they’ve come to eBay to do.’” But if “a seller listed a potentially infringing item but appeared overall to be a legitimate seller, the ‘infringing items [were] taken down, and the seller [would] be sent a warning on the first offense and given the educational information, [and] told that … if they do this again, they will be suspended from eBay.’”
By late 2006, eBay had implemented additional anti-fraud measures: delaying the ability of buyers to view listings of certain brand names, including Tiffany’s, for 6 to 12 hours so as to give rights-holders such as Tiffany more time to review
those listings; developing the ability to assess the number of items listed in a given listing; and restricting one-day and three-day auctions and cross-border trading for some brand-name items.
The district court concluded that “eBay consistently took steps to improve its technology and develop anti-fraud measures as such measures became technologically feasible and reasonably available.”
Source
Lawsuit: Tiffany v. eBay (April 1, 2010.)
“They have to make a real effort, and they have to be immediately responsive when they become aware of infringements,” Baum says. “If they do, this decision should give them a safe harbor.”
Many Websites don’t make the effort that eBay does, Baum says, which increases their chances of being held liable for contributory trademark infringement. Smaller online auction sites are particularly vulnerable, because they can’t afford to have 200 employees devoted to trademark infringement like eBay, Boudett adds.
Casagrande
Thomas Casagrande, an intellectual property lawyer with law firm Locke Lord Bissell & Liddell, says the eBay case does offer a roadmap to other online auction houses for what actions they need to take to feel reasonably safe from liability. “The overarching principle is that you’re going to be safest if you take quick and responsive steps to address known instances of counterfeiting and trademark infringement,” he says.
False Advertising Claim
Despite that victory, the appeals court did send the case back to lower courts to reconsider a related point: whether eBay’s advertising of Tiffany jewelry implied that all Tiffany goods sold on eBay were legitimate products—and therefore would be false advertising, since at least some of them in fact were bogus.
The appeals court affirmed the lower court’s ruling that the advertisements were not false on their face, because some genuine Tiffany products were sold on eBay. But it did raise the question of whether eBay might need to include some sort of disclaimer on its ads.
“The law requires us to hold eBay accountable for the words that it chose insofar as they misled or confused consumers,” the appellate panel wrote. “The law prohibits an advertisement that implies that all of the goods offered on a defendant’s Website are genuine when, in fact, as here, a sizable proportion of them are not.”
eBay General Counsel Michael Jacobson said in a statement that the company is “confident” the court will decide in its favor.
Trademark lawyers generally agree. Because the court said that eBay’s advertising was not false on its face, Tiffany would have to present the lower court with evidence that consumers were misled, which will be difficult to prove, Baum says.
Casagrande says he suspects the lower court will find the eBay ad to be nothing more than a “very bland, plain vanilla statement,” informing consumers that Tiffany goods are available on eBay. If so, making a false advertising claim out of that will be difficult, he says.
Tiffany did say it might appeal to the U.S. Supreme Court. Legal experts say that’s unlikely to happen any time soon, however, since the high court prefers to take cases where splits in opinion have emerged at the appellate level and that hasn’t happened yet.
That doesn’t mean the precedent won’t be challenged in the future, though—especially if the decisions begin to play out anything like they have in French courts. In June 2008, a French court ordered eBay to pay $61 million to luxury goods maker LVMH, parent of Louis Vuitton and Dior, for selling counterfeit goods on its site.
The ruling came just one month after another French court ordered eBay to pay roughly $30,000 to handbag maker Hermes for similar claims. In addition, L’Oreal has pressed counterfeit claims against eBay for years, but it hasn’t won any lawsuits yet.
“Because this is such a significant legal issue and one that gets a lot of attention, it might get the Supreme Court’s attention, too,” Casagrande says.
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