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Trademark plaintiffs bear a high burden in establishing knowledge of contributory infringement. The determination of knowledge under Inwood is a contextual and fact-specific test, such that a district court should consider the nature and extent of the communication, whether the defendant explicitly or implicitly encouraged the trademark violations, the extent and nature of the violations being committed, and whether there was a bad faith refusal to exercise a clear contractual power to halt the infringing activities.
Tiffany, the famous jeweler with the coveted blue boxes, brings this action against eBay, the prominent online marketplace, for the sale of counterfeit Tiffany silver jewelry on its website. Specifically, Tiffany alleged that hundreds of thousands of counterfeit silver jewelry items were offered for sale on eBay's website from 2003 to 2006. Tiffany sought to hold eBay liable for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution, on the grounds that eBay facilitated and allowed these counterfeit items to be sold on its website. Tiffany acknowledged that individual sellers, rather than eBay, are responsible for listing and selling counterfeit Tiffany items. Nevertheless, Tiffany argued that eBay was on notice that a problem existed and accordingly, that eBay had the obligation to investigate and control the illegal activities of these sellers -- specifically, by preemptively refusing to post any listing offering five or more Tiffany items and by immediately suspending sellers upon learning of Tiffany's belief that the seller had engaged in potentially infringing activity. In response, eBay contended that it is Tiffany's burden, not eBay's, to monitor the eBay website for counterfeits and to bring counterfeits to eBay's attention. eBay claims that in practice, when potentially infringing listings were reported to eBay, eBay immediately removed the offending listings. It is clear that Tiffany and eBay alike have an interest in eliminating counterfeit Tiffany merchandise from eBay -- Tiffany to protect its famous brand name, and eBay to preserve the reputation of its website as a safe place to do business.
Should Tiffany’s bear the burden of policing its valuable trademarks in Internet commerce?
The court was not unsympathetic to Tiffany's who invested enormous resources in developing its brand, only to see them illicitly and efficiently exploited by others on the Internet. Nevertheless, the law was clear: it was the trademark owner's burden to police its mark, and companies like the marketplace could not be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their websites.