<i>Tiffany v. eBay</i>

The recent decision in Tiffany v. eBay, No. 04 Civ. 4607 (RJS), represents a thorough and well-considered exploration of the basis for finding secondary liability in the electronic marketplace for those who facilitate the sale of infringing goods without even selling a product and, conversely, the way for the maker of the marketplace to avoid liability for infringements by those who sell on its site.

The issue of direct liability is tied to the scope of the defense of nominative fair use: the rights to advertise the availability of trademarked goods by the use of the trademark, whether or not some of the offered goods are counterfeit, and whether or not some or all of the trademarked goods have been diverted from the manufacturer/trademark user's authorized channels of distribution.

The issue of secondary liability is tied to whether or not it sufficed for eBay to be aware that Tiffany counterfeits were being sold on eBay. Tiffany argued that it should suffice that eBay was aware that counterfeit merchandise was being sold for eBay to be obligated to take affirmative pro-active measures to stop the listing of counterfeit products. The determining factor for the court in discounting this argument was the Supreme Court's decision in Inwood Labs, Inc. v. Ives Labs, Inc., 456 U.S. 844, 854 (1982). Simply put, generalized knowledge that counterfeiting was taking place did not suffice to impose any obligation, or liability, on eBay. Specific knowledge about which items are infringing, and which seller is listing the items, is required to be shown before any obligation to act could properly be imposed on eBay.

Tiffany Says eBay Should Act

The genesis of Tiffany v. eBay is the insistence of Tiffany that eBay take more affirmative steps, at eBay's expense, to eliminate counterfeit and diverted product than eBay was willing to undertake. It is worth noting that Tiffany's initial demand would have precluded eBay from permitting sellers to offer legitimate Tiffany product on eBay as well as counterfeit and infringing products.

It is also worth noting that Tiffany's subsequent demands would have put the burden and risk on eBay to determine what merchandise offered as Tiffany product was legitimate, with presumptions against finding goods to be legitimate Tiffany product.

The court's determination that Tiffany should be responsible for identifying counterfeits and notifying eBay of them appears wholly reasonable. While some items were said to be obvious fakes, in other instances, a determination as to whether or not the goods were genuine required a physical inspection and 'some degree of expertise' by the examiner. Tiffany, clearly, would have such expertise, and eBay would not.

Tiffany's Efforts 'Lacking'

What was significant was that Tiffany had not itself taken all the steps it might have done to impede the sale of infringing items on eBay. Tiffany's efforts, in fact, were characterized by the court as relatively sporadic and lacking vigor. Tiffany did not bring suit against individuals selling infringing merchandise when it identified them, although it demanded ' and was given ' the information necessary for further action to be taken.

By contrast, eBay was found to have developed and continuously improved, at significant expense, programs to detect and combat the sale of counterfeit merchandise by its sellers. Further, unlike Tiffany, eBay took action against the sellers of counterfeit products as identified, including Tiffany products.

eBay, in fact, did take a number of steps to avoid infringement by suspending sellers who were the subject of multiple Notices of Claimed Infringement by mark holders. Tiffany had pushed for a rule suspending sellers who where the subject of one such Notice. However, that position was viewed, not unreasonably, as over-reaching; a Notice of Claimed Infringement is not proof of infringement, since legitimate good faith error was possible in deeming or claiming something was or was not counterfeit.

Conclusion

What then is the take-away for trademark owners confronting the sale of counterfeit goods in the electronic marketplace and for the companies which operate the sites through which multiple vendors and buyers conduct business?

For the trademark owner:

1. Cooperate with the marketplace. Do not coerce.
2. Anti-diversion activity begins at home, before the goods are in the secondary market.
3. Maintain a policing program app- ropriate to the extent of the problem.

For the operator in the marketplace:

1. Don't wait to be told there is a problem. Deal with it.
2. Don't suggest authorization, approval or even consent when that is not there.
3. Be alert to changes in available technology that may reasonably be employed to assist in detecting and eliminating counterfeit merchandise.

The recent decision in Tiffany v. eBay, No. 04 Civ. 4607 (RJS), represents a thorough and well-considered exploration of the basis for finding secondary liability in the electronic marketplace for those who facilitate the sale of infringing goods without even selling a product and, conversely, the way for the maker of the marketplace to avoid liability for infringements by those who sell on its site.

The issue of direct liability is tied to the scope of the defense of nominative fair use: the rights to advertise the availability of trademarked goods by the use of the trademark, whether or not some of the offered goods are counterfeit, and whether or not some or all of the trademarked goods have been diverted from the manufacturer/trademark user's authorized channels of distribution.

The issue of secondary liability is tied to whether or not it sufficed for eBay to be aware that Tiffany counterfeits were being sold on eBay. Tiffany argued that it should suffice that eBay was aware that counterfeit merchandise was being sold for eBay to be obligated to take affirmative pro-active measures to stop the listing of counterfeit products. The determining factor for the court in discounting this argument was the Supreme Court's decision in Inwood Labs, Inc. v. Ives Labs, Inc. , 456 U.S. 844, 854 (1982). Simply put, generalized knowledge that counterfeiting was taking place did not suffice to impose any obligation, or liability, on eBay. Specific knowledge about which items are infringing, and which seller is listing the items, is required to be shown before any obligation to act could properly be imposed on eBay.

Tiffany Says eBay Should Act

The genesis of Tiffany v. eBay is the insistence of Tiffany that eBay take more affirmative steps, at eBay's expense, to eliminate counterfeit and diverted product than eBay was willing to undertake. It is worth noting that Tiffany's initial demand would have precluded eBay from permitting sellers to offer legitimate Tiffany product on eBay as well as counterfeit and infringing products.

It is also worth noting that Tiffany's subsequent demands would have put the burden and risk on eBay to determine what merchandise offered as Tiffany product was legitimate, with presumptions against finding goods to be legitimate Tiffany product.

The court's determination that Tiffany should be responsible for identifying counterfeits and notifying eBay of them appears wholly reasonable. While some items were said to be obvious fakes, in other instances, a determination as to whether or not the goods were genuine required a physical inspection and 'some degree of expertise' by the examiner. Tiffany, clearly, would have such expertise, and eBay would not.

Tiffany's Efforts 'Lacking'

What was significant was that Tiffany had not itself taken all the steps it might have done to impede the sale of infringing items on eBay. Tiffany's efforts, in fact, were characterized by the court as relatively sporadic and lacking vigor. Tiffany did not bring suit against individuals selling infringing merchandise when it identified them, although it demanded ' and was given ' the information necessary for further action to be taken.

By contrast, eBay was found to have developed and continuously improved, at significant expense, programs to detect and combat the sale of counterfeit merchandise by its sellers. Further, unlike Tiffany, eBay took action against the sellers of counterfeit products as identified, including Tiffany products.

eBay, in fact, did take a number of steps to avoid infringement by suspending sellers who were the subject of multiple Notices of Claimed Infringement by mark holders. Tiffany had pushed for a rule suspending sellers who where the subject of one such Notice. However, that position was viewed, not unreasonably, as over-reaching; a Notice of Claimed Infringement is not proof of infringement, since legitimate good faith error was possible in deeming or claiming something was or was not counterfeit.

Conclusion

What then is the take-away for trademark owners confronting the sale of counterfeit goods in the electronic marketplace and for the companies which operate the sites through which multiple vendors and buyers conduct business?

For the trademark owner:

1. Cooperate with the marketplace. Do not coerce.
2. Anti-diversion activity begins at home, before the goods are in the secondary market.
3. Maintain a policing program app- ropriate to the extent of the problem.

For the operator in the marketplace:

1. Don't wait to be told there is a problem. Deal with it.
2. Don't suggest authorization, approval or even consent when that is not there.
3. Be alert to changes in available technology that may reasonably be employed to assist in detecting and eliminating counterfeit merchandise.