<i>Tiffany v. eBay </i>

The issue of direct liability is tied to the scope of the defense of nominative fair use: the right 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 owner'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 the site by some number of unidentified vendors. The determining factor for the court in discounting Tiffany's argument that eBay's knowledge of the sale of counterfeit goods should obligate them to take affirmative proactive measures beyond those it was taking on a voluntary basis, was the Supreme Court's decision in Inwood Labs, Inc. v. Ives Labs, Inc., 456 U.S. 844, 854 (1982). Generalized knowledge that counterfeiting was taking place did not impose any obligation or liability on eBay. What was required to be shown was specific knowledge about which items are infringing and which seller is listing the items, before any obligation to act could properly be imposed on eBay.

Case History

The genesis of Tiffany v. eBay arose when Tiffany insisted that eBay take more affirmative steps, at it's own 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 the same 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.

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 Notice of Claimed Infringement, however that position was viewed, not unreasonably, as over-reaching, particularly since a Notice of Claimed Infringement is not proof of infringement and legitimate good faith error was possible in deeming or claiming something was or was not counterfeit.

Tiffany Lacked 'Vigor'

What was significant was that Tiffany had not itself taken all the steps it might have done to impede the sale of infringing and counterfeit 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 those individuals were identified, 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.

Tellingly, others in Tiffany's position have brought suits against counterfeiters using eBay, achieving successful results. See, e.g., Tommy Bahama Group, Inc. v. Richard Sexton, No. 07-06360, 2009 U.S. Dist. LEXIS 112452 (N.D. Cal. Dec. 3, 2009). The Sexton case is of interest because the defendant counterclaimed for defamation and interference with prospective advantage based on the plaintiff's sending to eBay Notices of Claimed Infringement in accordance with eBay's policy. The court accepted the contention that eBay and plaintiff shared an interest in preventing counterfeiting and trademark infringement and the challenged claims of counterfeiting were made in furtherance of this interest and thus were privileged.

The district court, confronted with the issue of secondary liability for facilitating or filing to prevent the sale of counterfeit merchandise, recently made clear in that jurisdiction that a willfully blind service provider could face a significant damages award, and the individual who directs and controls the relevant activity could be personally liable as a joint tortfeasor, irrespective of the defendant's corporate form. See, Louis Vuitton Malletier S.A. v. Akanoc Solutions, Inc., No. 5:07-cv-03952, (N.D. Cal. Mar. 19, 2010). The jury award of $10,500,000 per defendant for contributory infringement of 13 trademarks was upheld by the court, along with the finding of liability where no proactive action was taken to address the sale of counterfeit/replica product:

The evidence was sufficient to show that the operator Defendants knew of the direct infringement occurring on Web sites hosted on their servers. The evidence also established that Defendants were in a position to directly control and monitor the instrumentality (the servers) used by the third party direct infringers. Specifically, Defendants had numerous tools at their disposal for monitoring their servers and terminating abusive users. For example, Defendants had the ability to suspend a particular user, disable IP addresses used by a particular Web site or, if necessary, unplug a server that contained the date for a particular Web site. Under this evidence, along with the evidence of direct infringement, the jury found for Plaintiff on the issue of contributory trademark infringement. The [c]ourt finds that the evidence was sufficient to support the jury's verdict on this issue (citations omitted).

Lessons Learned

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

For the trademark owner:

• Cooperate with the marketplace, do not coerce;
• Anti-diversion activity begins at home before the goods are in the secondary market; and
• Maintain a policing program appropriate to the extent of the problem.

For the operator in the marketplace:

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

Conclusion

Beyond the obvious consequence noted by the court that if too many buyers are disappointed in their purchases they will desert the marketplace, whether or not eBay provides a refund or some other redress, what is the lesson for the trademark owner and for the marketplace provider who elects, as eBay has, to advertise the availability on its site of trademark product to attract buyers and to encourage transactions? What more might eBay do, assuming it will continue to advertise the availability of bonded product without knowing the provenance of it?

There are a number of measures, some of which are likely to modify the actions of companies like Tiffany that seek to control the secondary market and attack counterfeiting.

There is the disclaimer approach. These might also be a warning notice to “Beware of Fakes” with a link to pages such as Tiffany's which state that some “Tiffany” product to be found on the site might not be authentic. Online sellers can also make more of an effort to advise buyers to heed seller ratings by past customers and comments from prior buyers.

It would be possible, and might be advisable, for the electronic marketplace and trademark owners each to actually conduct research to ascertain consumer adherence to disclaimers, warnings, and to learn of consumer expectations.

Until additional case law develops, the law will remain unsettled for marketplace and trademark owners who must seek creative solutions to curb counterfeiting. But in the meantime, one maxim remains true: Let the buyer beware.

The recent decision of the Second Circuit in connection with the appeal in Tiffany (NJ) Inc. and Tiffany & Company v. eBay, Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008), 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 ever selling the goods and, conversely, the way for the maker of the marketplace to avoid liability for infringements by those who sell on its site.

The district court had absolved eBay from liability for false advertising, since it was in fact providing a venue for sale of legitimate Tiffany product. The Second Circuit remanded for reconsideration of the false advertising claim in light of its concern that the advertising might be misleading, granted eBay's general knowledge that counterfeit product was being sold by vendors through the site. In remanding, the court accepted the position of the lower court that there was no literal falsity, legitimate Tiffany product being available, but the promotion of product as Tiffany product might be misleading granted the volume of counterfeit product, suggesting that a disclaimer might become adequate. Suffice to say, the court's language augers little comfort for Tiffany in this partial, potentially pyrrhic, victory.

Direct and Secondary Liability

The issue of direct liability is tied to the scope of the defense of nominative fair use: the right 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 owner'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 the site by some number of unidentified vendors. The determining factor for the court in discounting Tiffany's argument that eBay's knowledge of the sale of counterfeit goods should obligate them to take affirmative proactive measures beyond those it was taking on a voluntary basis, was the Supreme Court's decision in Inwood Labs, Inc. v. Ives Labs, Inc. , 456 U.S. 844, 854 (1982). Generalized knowledge that counterfeiting was taking place did not impose any obligation or liability on eBay. What was required to be shown was specific knowledge about which items are infringing and which seller is listing the items, before any obligation to act could properly be imposed on eBay.

Case History

The genesis of Tiffany v. eBay arose when Tiffany insisted that eBay take more affirmative steps, at it's own 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 the same 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.

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 Notice of Claimed Infringement, however that position was viewed, not unreasonably, as over-reaching, particularly since a Notice of Claimed Infringement is not proof of infringement and legitimate good faith error was possible in deeming or claiming something was or was not counterfeit.

Tiffany Lacked 'Vigor'

What was significant was that Tiffany had not itself taken all the steps it might have done to impede the sale of infringing and counterfeit 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 those individuals were identified, 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.

Tellingly, others in Tiffany's position have brought suits against counterfeiters using eBay, achieving successful results. See, e.g., Tommy Bahama Group, Inc. v. Richard Sexton, No. 07-06360, 2009 U.S. Dist. LEXIS 112452 (N.D. Cal. Dec. 3, 2009). The Sexton case is of interest because the defendant counterclaimed for defamation and interference with prospective advantage based on the plaintiff's sending to eBay Notices of Claimed Infringement in accordance with eBay's policy. The court accepted the contention that eBay and plaintiff shared an interest in preventing counterfeiting and trademark infringement and the challenged claims of counterfeiting were made in furtherance of this interest and thus were privileged.

The district court, confronted with the issue of secondary liability for facilitating or filing to prevent the sale of counterfeit merchandise, recently made clear in that jurisdiction that a willfully blind service provider could face a significant damages award, and the individual who directs and controls the relevant activity could be personally liable as a joint tortfeasor, irrespective of the defendant's corporate form. See, Louis Vuitton Malletier S.A. v. Akanoc Solutions, Inc., No. 5:07-cv-03952, (N.D. Cal. Mar. 19, 2010). The jury award of $10,500,000 per defendant for contributory infringement of 13 trademarks was upheld by the court, along with the finding of liability where no proactive action was taken to address the sale of counterfeit/replica product:

The evidence was sufficient to show that the operator Defendants knew of the direct infringement occurring on Web sites hosted on their servers. The evidence also established that Defendants were in a position to directly control and monitor the instrumentality (the servers) used by the third party direct infringers. Specifically, Defendants had numerous tools at their disposal for monitoring their servers and terminating abusive users. For example, Defendants had the ability to suspend a particular user, disable IP addresses used by a particular Web site or, if necessary, unplug a server that contained the date for a particular Web site. Under this evidence, along with the evidence of direct infringement, the jury found for Plaintiff on the issue of contributory trademark infringement. The [c]ourt finds that the evidence was sufficient to support the jury's verdict on this issue (citations omitted).

Lessons Learned

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

For the trademark owner:

• Cooperate with the marketplace, do not coerce;
• Anti-diversion activity begins at home before the goods are in the secondary market; and
• Maintain a policing program appropriate to the extent of the problem.

For the operator in the marketplace:

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

Conclusion

Beyond the obvious consequence noted by the court that if too many buyers are disappointed in their purchases they will desert the marketplace, whether or not eBay provides a refund or some other redress, what is the lesson for the trademark owner and for the marketplace provider who elects, as eBay has, to advertise the availability on its site of trademark product to attract buyers and to encourage transactions? What more might eBay do, assuming it will continue to advertise the availability of bonded product without knowing the provenance of it?

There are a number of measures, some of which are likely to modify the actions of companies like Tiffany that seek to control the secondary market and attack counterfeiting.

There is the disclaimer approach. These might also be a warning notice to “Beware of Fakes” with a link to pages such as Tiffany's which state that some “Tiffany” product to be found on the site might not be authentic. Online sellers can also make more of an effort to advise buyers to heed seller ratings by past customers and comments from prior buyers.

It would be possible, and might be advisable, for the electronic marketplace and trademark owners each to actually conduct research to ascertain consumer adherence to disclaimers, warnings, and to learn of consumer expectations.

Until additional case law develops, the law will remain unsettled for marketplace and trademark owners who must seek creative solutions to curb counterfeiting. But in the meantime, one maxim remains true: Let the buyer beware.