Tiffany-Ebay Second Circuit Decision

TI and Tiffany and Company (collectively "TI") sued eBay for trademark infringement and related claims. After a bench trial, the lower court concluded that eBay had not engaged in trademark infringement, dilution, or false advertising. The 2nd Circuit affirmed the judgment with respect to TI's claims of trademark infringement and dilution, but remanded for further proceedings with respect to TI's claim of false advertising.

EBay operates an Internetbased marketplace that allows users to purchase and/or sell goods to one another. EBay generates revenue by charging sellers to use its listing services, charging final value sales fees, and processing purchases (via PayPal). TI sells jewelry exclusively through its retail stores, catalogs, and website. Sometime before 2004, TI became aware that counterfeit "Tiffany" merchandise was being sold on eBay's site. In two separate buying programs, Tiffany found that 7375% of the Tiffany items it bough through eBay were counterfeit. Although the district court found the samplings to be unreliable, it did determine that a significant portion of the sterling silver Tiffany items listed on eBay were counterfeit and that eBay knew that some portion of the Tiffany products sold on its site were counterfeit.

The District Court also found that although eBay made money through the sale of counterfeit Tiffany items, it also had an interest in eliminating the sale of counterfeit items because the buyer of fake items might fault eBay. It also found that because eBay never saw the merchandise, its ability to determine whether a particular listing was for fake goods was limited. EBay, did, however take steps including a buyer protection program that allowed buyers of fake items to be reimbursed. It was also noted that eBay had 200 employees devoted to combating infringement including 70 who did nothing but work with law enforcement. EBay also implemented a fraud engine to weed out fake goods and also implemented a Verified Rights Owner Program which allowed owners of intellectual property rights to report listings which they believed violated their rights. EBay would act on those reports by removing the report listing. EBay employs a "fraud engine," which is principally dedicated to ferreting out illegal listings, including listings for counterfeit goods. In 2003 or 2004, eBay began using a special warning message when a seller attempted to list a "Tiffany" item. This message instructed the seller to ensure that the item was authentic and warned that a violation could result in suspension of the seller's account. EBay also uses other antifraud measures; including delaying the ability of buyers to view listings of certain brands so that rights holders can verify the listings. At the same time, eBay had advised its sellers to take advantage of the demand for "Tiffany" merchandise as part of a broader effort to grow its "Jewelry & Watches" category. Prior to 2003, eBay advertised the availability of "Tiffany" merchandise on its site.

TI argued eBay should be found liable for contributory trademark infringement based on several cases decided in recent years around the country that held the operators of fleamarket operations liable for contributory trademark infringement. The Second Circuit, like the lower court, refused to extend the fleamarket cases to this situation noting that the fleamarket cases all involve situations where the flea market operators had direct knowledge that trademarks were being infringed and took absolutely no action, let alone good faith action, to do anything about it.

TI argued eBay had directly infringed its mark by using it on eBay's site and by purchasing sponsored links containing the mark on search engines. The 2nd Circuit agreed with the trial court's conclusion that such uses were lawful. EBay had used the "Tiffany" mark to describe accurately the genuine TI goods offered for sale on its site. None of eBay's uses of the mark suggested TI had affiliated itself with eBay or had endorsed the sale of its products on eBay's site. As to the issue of contributory infringement, TI argued eBay was liable for culpably facilitating the infringing conduct of the counterfeiting vendors. TI contended eBay continued to supply its services to the sellers of counterfeit "Tiffany" goods while knowing, or having reason to know, such sellers were infringing TI's mark. While eBay had generalized notice that some portion of the "Tiffany" goods sold on its site might be counterfeit, it was insufficient to impose upon eBay an affirmative duty to remedy the problem. What was necessary was some contemporary knowledge of particular listings that were infringing. TI's general allegations of counterfeiting failed to provide eBay with the requisite knowledge.

The bottom line of this decision from a trademark perspective is that eBay, as a reseller, did not have any liability for the fact that even a significant portion of the items sold on the site were fake. This was because of the confluence of three factors: (1) it did not know and had no real way of knowing which of the items were fake; (2) it took serious, good faith actions to prevent the sale of fake items on its site and (3) it provided a mechanism for trademark owners to complain and actively followed up on those complaints by removing the items complained of. Trademark enforcement remains primarily the trademark owner s responsibility.