IP News

Second Circuit Finds No Trademark Infringement for Good Faith Secondary Sales Of Counterfeit Goods

In Tiffany (NJ) Inc. v. eBay Inc., No. 08-3947-cv (2d Cir. Apr. 1, 2010), the Second Circuit affirmed a judgment of the U.S. District Court for the Southern District of New York holding that eBay did not infringe Tiffany's trademarks by facilitating sales of counterfeit Tiffany goods, where eBay had only general, but not specific, knowledge of the counterfeit Tiffany goods and had programs to combat the sales of counterfeit goods.

Tiffany, the well-known maker of high-end jewelry, has historically exercised very tight control over its brand. It sells its jewelry exclusively through its own retail stores, catalogs, Web site, and corporate sales department; it does not use liquidators, sell overstock merchandise, or sell its jewelry at discount prices. eBay, the popular online auction site, hosted many listings for secondhand Tiffany jewelry from April 2000 to the present day. Tiffany conducted two surveys of these listed items in 2004 and 2005, and concluded that over 70% of purported Tiffany items sold on eBay were counterfeit.

eBay, meanwhile, maintained programs to combat counterfeiting through their site. These programs included a “fraud engine” that used special algorithms to search for probable infringing listings, and a Verified Rights Owner program to allow IP owners to issue Notices of Claimed Infringement to eBay, upon which eBay would take down the listing and possibly reimburse the buyer's money if the buyer had already paid for a counterfeit item. eBay also hosted a Web page designed by Tiffany warning buyers that Tiffany cannot guarantee the authenticity of secondhand Tiffany jewelry sold on the site, and directing customers to Tiffany's Web site for authentic Tiffany jewelry. eBay does not, however, inspect goods listed by sellers to determine whether they are authentic. eBay also released advertisements claiming that genuine secondhand Tiffany jewelry was sold on its Web site.

Tiffany filed its lawsuit against eBay in July 2004, alleging direct and contributory trademark infringement, trademark dilution and false advertising. On July 14, 2008, the district court issued a verdict for eBay on all counts after a bench trial. The Second Circuit affirmed on all claims except for the false advertising claim, remanding that claim for further consideration.

The Second Circuit held that eBay's use of Tiffany's mark in its advertising was protected as nominative fair use. Tiffany had argued that while eBay was describing Tiffany products, eBay's advertisements should not have been protected because eBay knew that a substantial proportion of purported Tiffany products sold on its site were counterfeit. The court rejected this theory, holding that eBay did take action to limit the sale of counterfeit Tiffany goods, and so could not be held liable for direct infringement because it could not guarantee that all Tiffany goods sold on its site were authentic.

More interestingly, the Second Circuit held that eBay's general awareness of its sellers' trademark infringement was not sufficient knowledge to result in liability for contributory trademark infringement. The parties did not dispute that eBay had general knowledge that some of its sellers were selling counterfeit Tiffany merchandise, but eBay did take proper action against each specific seller of counterfeit jewelry brought to its attention. The court held that such general knowledge, namely that some fraction of its sellers were counterfeiters, could not result in liability for contributory infringement. A service provider like eBay could be found liable if it was willfully blind to such infringement, but eBay's actions to fight counterfeiting showed that it had taken reasonable steps to stop any incident of counterfeiting through its service that eBay knew about.

The court did, however, remand on the issue of false advertising for the district court to determine whether eBay's ads misleadingly implied that all of the Tiffany jewelry sold through its site was authentic. While eBay's advertisements were not literally false, the court held that there wasn't sufficient evidence in the record to find that eBay's advertisements weren't misleading.

In Astrazeneca AB v. Dr. Reddy's Laboratories, Ltd., No. 07 Civ. 6790 (S.D.N.Y. Mar. 30, 2010), the Southern District of New York granted attorneys' fees to the defendant. The court found that not only did Astrazeneca's patent not read on Dr. Reddy's process for creating omeprazole magnesium, but Dr. Reddy's process was in key respects the exact opposite of the claimed process.

Astrazeneca markets omeprazole magnesium, a drug used to treat various stomach disorders, under many brand names; one of its formulations is sold under the brand name Prilosec'. It had two patents for its omeprazole product and for its manufacturing processes, U.S. Patents Nos. 4,900,424 (“the '424 patent”) and 5,690,960 (“the '960 patent”). Dr. Reddy's, a generic pharmaceutical corporation with its U.S. branch headquartered in NJ, filed an ANDA for an omeprazole magnesium formulation in 2007. Astrazeneca filed a complaint against Dr. Reddy's alleging patent infringement in July 2007, without knowing the details of Dr. Reddy's manufacturing process or omeprazole formulation.

Astrazeneca's patents covered omeprazole formulations with a degree of crystallinity higher than 70%, and processes for making such a formulation requiring the addition of water to precipitate the omeprazole crystals. For example, claim 1 of the '424 patent is very simply and clearly written: “An omeprazole magnesium salt having a degree of crystallinity which is higher than 70% as determined by x-ray powder diffraction.” Dr. Reddy's presented evidence that its formulations were nowhere near 70% crystalline, and that its manufacturing process did not involve the addition of water

The court granted summary judgment of non-infringement for Dr. Reddy's on March 10, 2009, noting that Astrazeneca not only had failed to present substantial evidence of infringement, but that such evidence should have been easily acquired if Astrazeneca's lawsuit were not frivolous. For example, in determining whether claim 1 of the '424 patent, listed above, was infringed, Astrazeneca could perform x-ray powder diffraction on a sample of Dr. Reddy's product to determine its degree of crystallinity; if Dr. Reddy's product was significantly less than 70% crystalline, it could not infringe. In fact, Astrazeneca's testing in November 2007 determined that Dr. Reddy's product was less than 1% crystalline. Astrazeneca continued to request further discovery after that testing, prolonging the case nearly a year and a half. After the court granted summary judgment, Astrazeneca appealed, and the Federal Circuit affirmed per curiam in December 2009.

After three years from the filing of the complaint and an ineffective appeal, Judge McMahon of the Southern District found that Astrazeneca's case was “exceptional” under 35 U.S.C. ' 285 as a frivolous case. The court noted that it had, “ben[t] over backwards to ensure that Astra had every reasonable opportunity to present some justification for accusing DRL of patent infringement,” and that Astrazeneca had never even explained how the additional discovery it requested would be likely to produce evidence of infringement. The court also noted that Astrazeneca's purpose in prolonging the lawsuit was to keep Dr. Reddy's generic product off the market as long as possible, and that its argument included a proposed claim construction that went against both the plain language of the claim and was barred by prosecution history estoppel.

Accordingly, and noting both the public's interest in quickly bringing non-infringing generic drugs to the market and the court's interest in preventing abusive and frivolous lawsuits, the court ordered Astrazeneca to pay Dr. Reddy's attorneys' fees.

Second Circuit Finds No Trademark Infringement for Good Faith Secondary Sales Of Counterfeit Goods

In Tiffany (NJ) Inc. v. eBay Inc., No. 08-3947-cv (2d Cir. Apr. 1, 2010), the Second Circuit affirmed a judgment of the U.S. District Court for the Southern District of New York holding that eBay did not infringe Tiffany's trademarks by facilitating sales of counterfeit Tiffany goods, where eBay had only general, but not specific, knowledge of the counterfeit Tiffany goods and had programs to combat the sales of counterfeit goods.

Tiffany, the well-known maker of high-end jewelry, has historically exercised very tight control over its brand. It sells its jewelry exclusively through its own retail stores, catalogs, Web site, and corporate sales department; it does not use liquidators, sell overstock merchandise, or sell its jewelry at discount prices. eBay, the popular online auction site, hosted many listings for secondhand Tiffany jewelry from April 2000 to the present day. Tiffany conducted two surveys of these listed items in 2004 and 2005, and concluded that over 70% of purported Tiffany items sold on eBay were counterfeit.

eBay, meanwhile, maintained programs to combat counterfeiting through their site. These programs included a “fraud engine” that used special algorithms to search for probable infringing listings, and a Verified Rights Owner program to allow IP owners to issue Notices of Claimed Infringement to eBay, upon which eBay would take down the listing and possibly reimburse the buyer's money if the buyer had already paid for a counterfeit item. eBay also hosted a Web page designed by Tiffany warning buyers that Tiffany cannot guarantee the authenticity of secondhand Tiffany jewelry sold on the site, and directing customers to Tiffany's Web site for authentic Tiffany jewelry. eBay does not, however, inspect goods listed by sellers to determine whether they are authentic. eBay also released advertisements claiming that genuine secondhand Tiffany jewelry was sold on its Web site.

Tiffany filed its lawsuit against eBay in July 2004, alleging direct and contributory trademark infringement, trademark dilution and false advertising. On July 14, 2008, the district court issued a verdict for eBay on all counts after a bench trial. The Second Circuit affirmed on all claims except for the false advertising claim, remanding that claim for further consideration.

The Second Circuit held that eBay's use of Tiffany's mark in its advertising was protected as nominative fair use. Tiffany had argued that while eBay was describing Tiffany products, eBay's advertisements should not have been protected because eBay knew that a substantial proportion of purported Tiffany products sold on its site were counterfeit. The court rejected this theory, holding that eBay did take action to limit the sale of counterfeit Tiffany goods, and so could not be held liable for direct infringement because it could not guarantee that all Tiffany goods sold on its site were authentic.

More interestingly, the Second Circuit held that eBay's general awareness of its sellers' trademark infringement was not sufficient knowledge to result in liability for contributory trademark infringement. The parties did not dispute that eBay had general knowledge that some of its sellers were selling counterfeit Tiffany merchandise, but eBay did take proper action against each specific seller of counterfeit jewelry brought to its attention. The court held that such general knowledge, namely that some fraction of its sellers were counterfeiters, could not result in liability for contributory infringement. A service provider like eBay could be found liable if it was willfully blind to such infringement, but eBay's actions to fight counterfeiting showed that it had taken reasonable steps to stop any incident of counterfeiting through its service that eBay knew about.

The court did, however, remand on the issue of false advertising for the district court to determine whether eBay's ads misleadingly implied that all of the Tiffany jewelry sold through its site was authentic. While eBay's advertisements were not literally false, the court held that there wasn't sufficient evidence in the record to find that eBay's advertisements weren't misleading.

In Astrazeneca AB v. Dr. Reddy's Laboratories, Ltd., No. 07 Civ. 6790 (S.D.N.Y. Mar. 30, 2010), the Southern District of New York granted attorneys' fees to the defendant. The court found that not only did Astrazeneca's patent not read on Dr. Reddy's process for creating omeprazole magnesium, but Dr. Reddy's process was in key respects the exact opposite of the claimed process.

Astrazeneca markets omeprazole magnesium, a drug used to treat various stomach disorders, under many brand names; one of its formulations is sold under the brand name Prilosec'. It had two patents for its omeprazole product and for its manufacturing processes, U.S. Patents Nos. 4,900,424 (“the '424 patent”) and 5,690,960 (“the '960 patent”). Dr. Reddy's, a generic pharmaceutical corporation with its U.S. branch headquartered in NJ, filed an ANDA for an omeprazole magnesium formulation in 2007. Astrazeneca filed a complaint against Dr. Reddy's alleging patent infringement in July 2007, without knowing the details of Dr. Reddy's manufacturing process or omeprazole formulation.

Astrazeneca's patents covered omeprazole formulations with a degree of crystallinity higher than 70%, and processes for making such a formulation requiring the addition of water to precipitate the omeprazole crystals. For example, claim 1 of the '424 patent is very simply and clearly written: “An omeprazole magnesium salt having a degree of crystallinity which is higher than 70% as determined by x-ray powder diffraction.” Dr. Reddy's presented evidence that its formulations were nowhere near 70% crystalline, and that its manufacturing process did not involve the addition of water

The court granted summary judgment of non-infringement for Dr. Reddy's on March 10, 2009, noting that Astrazeneca not only had failed to present substantial evidence of infringement, but that such evidence should have been easily acquired if Astrazeneca's lawsuit were not frivolous. For example, in determining whether claim 1 of the '424 patent, listed above, was infringed, Astrazeneca could perform x-ray powder diffraction on a sample of Dr. Reddy's product to determine its degree of crystallinity; if Dr. Reddy's product was significantly less than 70% crystalline, it could not infringe. In fact, Astrazeneca's testing in November 2007 determined that Dr. Reddy's product was less than 1% crystalline. Astrazeneca continued to request further discovery after that testing, prolonging the case nearly a year and a half. After the court granted summary judgment, Astrazeneca appealed, and the Federal Circuit affirmed per curiam in December 2009.

After three years from the filing of the complaint and an ineffective appeal, Judge McMahon of the Southern District found that Astrazeneca's case was “exceptional” under 35 U.S.C. ' 285 as a frivolous case. The court noted that it had, “ben[t] over backwards to ensure that Astra had every reasonable opportunity to present some justification for accusing DRL of patent infringement,” and that Astrazeneca had never even explained how the additional discovery it requested would be likely to produce evidence of infringement. The court also noted that Astrazeneca's purpose in prolonging the lawsuit was to keep Dr. Reddy's generic product off the market as long as possible, and that its argument included a proposed claim construction that went against both the plain language of the claim and was barred by prosecution history estoppel.

Accordingly, and noting both the public's interest in quickly bringing non-infringing generic drugs to the market and the court's interest in preventing abusive and frivolous lawsuits, the court ordered Astrazeneca to pay Dr. Reddy's attorneys' fees.