Challenges For Brand Owners and Marketplace Sites in the Wake of Tiffany v. eBay

The Second Circuit's April 1, 2010 opinion in Tiffany v. eBay, both affirmed and remanded portions of the decision of the U.S. District Court for the Southern District of New York that addressed whether the online marketplace site eBay may be liable under theories of trademark infringement or dilution for sales of counterfeit goods made through its website. The case also addresses whether eBay may be liable for false advertising under these circumstances.

The appellate court's ruling gave both trademark owners and online marketplace websites their own discrete victories. While the Second Circuit affirmed the district court's holdings that eBay is not liable for direct or contributory trademark infringement or trademark dilution, the appellate court remanded the question of whether eBay engaged in false advertising when it advertised the goods sold through its site as "Tiffany" merchandise, when a portion of the goods could be fake.

eBay's website hosts upwards of 100 million items for auction or sale at any given time. Amongst those items are listings by third party sellers purporting to offer merchandise under Tiffany's trademarks - most legitimate, but some possibly counterfeit. eBay advertised the availability of Tiffany goods on its website and elsewhere online. The appellate court remanded the issue for further consideration of whether eBay should be held accountable for the words it chooses to use to the extent that they may be deemed to mislead or confuse consumers.

Tiffany & Co., like many luxury retailers, expends resources on curtailing the sale of counterfeit jewelry under its trademarks. As part of its anti -counterfeiting program, Tiffany brought suit against eBay in 2006, alleging that the marketplace site engaged in trademark infringement, trademark dilution, and false advertising by facilitating and advertising the sale of counterfeit Tiffany goods. After a bench trial, in July 2008, the district court concluded that eBay was not liable for facilitating the sale of counterfeit items on its website under any of the alleged claims.

On Tiffany's first direct infringement claim, the Second Circuit stopped short of adopting the "nominative fair use" doctrine applied by the district court. Instead, it held that eBay's advertisement of Tiffany brand products was a lawful use of Tiffany's trademark in a situation necessary to describe Tiffany's product.

On Tiffany's second claim, the Second Circuit affirmed in favor of eBay, holding that the significant measures taken by eBay to curtail and prevent counterfeit activities, including eBay's fraud engine to check listings for counterfeits and eBay's policy of removing counterfeit material identify by rights holders under its Verified Rights Owner program, prevented a finding that eBay failed to act on knowledge about specific counterfeit sellers, which was necessary for a finding of contributory infringement. Likewise, the Second Circuit affirmed the district court's finding that no trademark dilution had taken place because eBay did not use the Tiffany trademark to refer to its own products and services.

The Second Circuit's adoption of the district court findings stopped there. Despite agreeing that eBay's advertisement of the availability of Tiffany goods was not literally false, the Second Circuit held that the advertisements could indeed be misleading.

The appellate court reasoned that eBay, by advertising Tiffany jewelry on its own site and buying the term "Tiffany" as a sponsored link on search sites, may have misled consumers. There were dueling experts at trial concerning the precise amount of the Tiffany jewelry sold on eBay that was counterfeit, with Tiffany claiming about 75% of the jewelry was fake and eBay's expert demonstrating otherwise. The Second Circuit remanded the issue of false advertising to the district court for a determination of whether the advertisements falsely suggested that the Tiffany-branded products on eBay were genuine or not.

This decision comes in the wake of the recent European Court of Justice ruling that, while Google is probably not liable for selling trademarked terms like "Vuitton" as AdWords, those advertisers who buy others' trademarks as sponsored links and use them for questionable purposes could be found liable.

The Tiffany decision confirms that advertisers in the U.S. could possibly be subject to similar liability for purchasing deliberately misleading links. While awaiting a ruling on this issue from the district court, the challenge remains for e-commerce retail sites to determine how to advertise the presence of trademarked goods on their websites when the possibility exists that the goods may be counterfeit.