Tiffany Inc. v. eBay, Inc.

Tiffany Inc. v. eBay, Inc.
Court	United States Court of Appeals for the Second Circuit
Full case name	Tiffany Inc. v. eBay, Inc.
Decided	April 1, 2010
Citation(s)	600 F.3d 93
Case history
Prior action(s)	Tiffany Inc. v. eBay, Inc., 576 F. Supp.2d 463 (S.D.N.Y. 2008) (district court found no trademark infringement, unfair competition, false advertising, trademark dilution)
Subsequent action(s)	Tiffany Inc. v. eBay, Inc., 2010 WL 3733894 (S.D.N.Y. 2010) (district court found no evidence of false advertisement) Tiffany Inc. v. eBay, Inc., 131 S. Ct. 647 (writ of certiorari denied by Supreme Court)
Case opinions
eBay’s use of the Tiffany trademark is protected by the nominative fair use defense. Generalized knowledge of infringing activities by third parties is insufficient to attach contributory trademark infringement liability. Extrinsic evidence is necessary to determine customer confusion for Lanham Act false advertisement liability.
Court membership
Judge(s) sitting	Robert David Sack, Barrington Daniels Parker, Jr., Richard W. Goldberg
Keywords
counterfeiting, Lanham Act, trademark infringement, trademark dilution, nominative fair use

Tiffany Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010), established that trademark owners have the burden of policing for counterfeit items when their products are sold in an online marketplace. Tiffany sued eBay for trademark infringement, trademark dilution, and false advertising but eventually lost against eBay on all claims.

About the litigants

eBay is an online auction website founded in 1995.^[1] In 2010, eBay had more than 94 million users worldwide who collectively traded more than $2,000 worth of goods every second.^[1]

eBay addresses trademark owners’ concerns through their Verified Rights Owner (VeRO) program and "fraud engine". Through VeRO, owners of trademarks report potentially infringing listings to eBay by submitting a Notice of Claimed Infringement form (NOCI).^{[2]:463, 478} eBay staff review submitted NOCIs and remove the offending listings if the information is accurate.^{[2]:463, 478} The fraud engine is a collection of software rules and models that automatically find and remove listings that violate eBay policies.^[2]:477

Tiffany & Co. was founded in New York City in 1837 and has developed a reputation for selling high-quality jewelry, watches and various household items.^{[3][2]:463, 471–472} In 2009, Tiffany had worldwide net earnings of $368.4 million, 90% of which derived from jewelry sales.^[4][5]

Background to the litigation

In May 2003, Tiffany complained to eBay regarding the sale of counterfeit items on its website and eBay recommended Tiffany participate in VeRO.^{[2]:463, 481–482} In 2004 (and again in 2005 after litigation ensued), Tiffany conducted surveys to determine the extent of counterfeiting occurring on eBay.^[6] Tiffany hired a third party to purchase a random sample of items bought from eBay using the keywords "Tiffany" and "sterling" and then inspected these items for authenticity.^{[2]:463, 481–482} 136 pieces were purchased in 2004, 73.1% of which were counterfeit, 5% were authentic, and the remaining 21.9% were unverifiable.^{[2]:463, 481–482} 139 items were purchased in 2005, 75.5% of which were counterfeit.^{[2]:463, 481–482}

After counterfeit items continued to be sold on eBay, Tiffany made 5 different demands on eBay in June 2004 – (1.) Prevent sellers from listing 5 or more Tiffany jewelry items at once, (2.) Ban the sale of silver Tiffany jewelry, (3.) Ban the sale of items advertised as counterfeit Tiffany, (4.) Stop advertising the availability of Tiffany merchandise, and (5.) Remove ‘Tiffany’ sponsored link advertisements on search engines.^{[2]:463, 482} Although eBay continued to allow the sale of Tiffany jewelry and buy sponsored link advertisements through a third party, eBay’s refusal to categorically ban sellers listing more than 5 Tiffany items at a time triggered this lawsuit.^{[2]:480, 482}

On July 14, 2008 the district court ruled in favor of eBay on all issues.^[2]:463 Tiffany appealed and on April 1, 2010 the Second Circuit court ruled in favor of eBay on all issues, except the false advertising claim, which it remanded back to the district court.^[7]:93 On remand, the district court again ruled in favor of eBay on the last issue on Sept. 13, 2010.^[8] Tiffany applied for a writ of certiorari by the Supreme Court of the U.S., which was denied on Nov. 29, 2010.^[9]

The rulings

Direct trademark infringement

Tiffany alleged eBay violated the Lanham Act and New York state common law by directly infringing on its trademark in three ways.^{[2]:463, 493–494} First, eBay profited from the sales of Tiffany jewelry resulting from the Tiffany trademark.^[2]:494 Second, eBay bought sponsored links on Google and Yahoo! that advertised eBay listings for Tiffany items.^[2]:494 Lastly, eBay should be held liable jointly and severally with the offending sellers, even though eBay didn’t directly list counterfeit items.^[2]:494

The Second Circuit held that the nominative fair use defense protected eBay’s activities because eBay needed to reference the Tiffany name to identify the jewelry, eBay only used enough of the trademark as was "reasonably necessary" to make that identification, and eBay did not suggest endorsement or sponsorship by Tiffany.^{[7]:93, 103} Further, because eBay does not take possession of counterfeit goods, nor does eBay directly sell items, this issue would be more properly argued under contributory trademark infringement.^[7]:103

Contributory trademark infringement

Tiffany argued that eBay was liable for contributory infringement under the standard outlined in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., which held a manufacturer or distributor could be liable for supplying its product to a third party if it knows or has reason to know that the product is being used to infringe and yet continues to supply the product to the infringer.^{[2]:463, 502}

The Second Circuit held that eBay did not have the requisite level of knowledge to satisfy the Inwood standard.^{[7]:93, 107} "For contributory trademark infringement liability…, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods."^[7]:107 Here, Tiffany did not identify specific cases of infringement to eBay; and when NOCIs did identify specific sellers, eBay suspended them.^[7]:109 Therefore, eBay was not liable for contributory trademark infringement.^[7]:109

Finally, the Court considered whether eBay was willfully blind to the infringement.^{[7]:93, 109} The court concluded that eBay did not ignore the infringing activities and tried to prevent the sale of counterfeit items, as evidenced by the VeRO program and the "fraud engine".^{[7]:110[2]:463, 513} In addition, eBay had no affirmative duty to search for potentially infringing items without specific knowledge.^[2]:515

The appellate court also agreed with the district court’s ruling that eBay was not liable for contributory trademark infringement in specific cases where eBay received a NOCI from Tiffany and didn’t permanently ban the seller.^{[7]:93, 106} In these cases, Tiffany argued that the filing of the NOCI satisfied the Inwood "knowledge or reason to know of infringement" requirement for these specific infringing sales.^{[2]:463, 516} The district court concluded, however, that eBay needed only to take "appropriate steps" after receiving the NOCI.^{[2]:463, 516} A NOCI was not conclusive evidence of actual infringement; instead, it was a good-faith assertion by the trademark owner of infringement.^[2]:517 Therefore, permanently suspending the seller was unnecessary, and eBay’s prompt removal of potentially violating listings was appropriate.^{[2]:516–517} While eBay could have screened out potentially infringing listings more cost efficiently than Tiffany, the trademark right holder has the responsibility to police for infringement.^[2]:518

False advertising

Tiffany claimed Lanham Act violations based on eBay’s use of their trademark on the eBay homepage and eBay’s practice of buying sponsored links triggered by searches for "Tiffany" and referenced Tiffany in the ad copy.^{[2]:463, 519–520}

The district court found nothing literally false in eBay’s advertisements since eBay did sell authentic Tiffany products for sale, making eBay’s advertising practices a nominative fair use.^{[7]:93, 113} The Second Circuit reversed, holding that extrinsic evidence was necessary to determine if eBay’s advertisements were likely to mislead or confuse consumers.^{[7]:93, 113} Since the district court did not look at extrinsic evidence, the appellate court remanded this case to the district court.^[7]:114 On remand, the district court concluded that no extrinsic evidence indicated that the advertisement in question misled or confused any consumers.^[8]:2 Therefore, there was no Lanham Act false advertising violation.^[8]:2–3

Trademark dilution

Tiffany contended that eBay’s advertising practices constituted trademark dilution under the Lanham Act and New York state business law.^{[2]:463, 521} Tiffany argued that counterfeit items of inferior quality were sold, harming the distinctiveness, value, and reputation of the trademark.^{[2]:463, 521} In addition, Tiffany argued that eBay should be liable for contributory dilution for encouraging third parties to dilute its trademark.^[2]:526 The district court reasoned that eBay was not liable because eBay did not try to confuse the Tiffany trademark with its own product, an online auction website, but used the mark to advertise the availability of authentic Tiffany merchandise on its website.^{[7]:93, 112} There was "no second mark or product at issue here to blur with or to tarnish" the Tiffany trademark and therefore, no trademark dilution.^{[7]:93, 112}

Implications

The Second Circuit ruling has been lauded by organizations such as the Electronic Frontier Foundation (EFF), Public Citizen, and Public Knowledge.^[10] EFF argued that internet commerce would be stifled if the burden of policing for trademarks were placed on intermediaries, such as eBay, because any listing even remotely suspicious would be removed.^[10] Other commentators have noted that eBay’s investments in reducing the amount of counterfeit goods sold on its website helped it win in the lower courts^[11] and to cement the victory in the Circuit court.^[12]

Organizations such as the International Anti-Counterfeiting Coalition (IACC), however, accuse eBay of "turning a blind eye" to the amount of counterfeiting that occurs on its website.^[13] According to the IACC, 29% of online counterfeit sales occur through eBay.^[13] Others have pointed out that the burden to police for counterfeits may hit small businesses particularly hard.^[14] In addition, the Supreme Court’s denial of appeal leaves open the possibility that courts in different districts may come to a different conclusion in the future, leading to a conflict in case law.^[14] Others have decried the court's focus on eBay's "investment" in reducing counterfeiting without reference to the overall economics of either eBay's profitability or the contribution of sales of counterfeits to its success.^[15] More to the point, the court did make a finding that "eBay appears to concede that it knew as a general matter that counterfeit Tiffany products were listed and sold through its website," but this general knowledge was not sufficient to trigger liability. The liability appears to trigger only when specific individuals (i.e., sellers or stores) are engaged in the counterfeiting of goods, and can be notified to eBay.^[16]

French courts have disagreed with the Second Circuit decision. In 2008, Louis Vuitton Moet Hennessy (LVMH) sued eBay in France over the sales of counterfeit perfumes and handbags on its website.^[17] LVMH alleged eBay had not done enough to stop the sale of counterfeit goods, but eBay lost the lawsuit.^[18] In 2010, LVMH again sued eBay, this time for harming the reputation of the Louis Vuitton trademark and domain name.^[19] LVMH won and received 200,000 Euros in damages.^[19] The French tribunal put the onus on eBay to enforce adequate measures to prevent illicit goods from entering the market. For example, sellers could be asked to provide receipts of purchase or even certificates of authenticity. eBay could also be made to notify customers when the origin of a good appears doubtful. ^[20] Commentators have suggested that this disparity between French and U.S. law may "weaken the integrity of the online marketplace."^[14]

References