FREE DOWNLOAD: Gilson LaLonde on Tiffany Ultimately Responsible for Protecting its Marks, So No Contributory Infringement by eBay

FREE DOWNLOAD: Gilson LaLonde on Tiffany Ultimately Responsible for Protecting its Marks, So No Contributory Infringement by eBay

 

Enormous online marketplace eBay is not liable for contributory trademark infringement, though listings on its site offer counterfeit silver Tiffany jewelry for sale, according to a judge in the Southern District of New York. eBay had refused to preemptively remove certain listings of silver Tiffany jewelry before the listings were available to the public, though it did immediately remove listings when Tiffany notified it that Tiffany believed the listings offered infringing goods. After a bench trial, the district court concluded in its 66-page opinion that there was no liability for contributory infringement, despite the fact that eBay may have generally known that counterfeit Tiffany goods were being sold on its site. Tiffany, Inc. v. eBay, Inc., 2008 U.S. Dist. LEXIS 53359 (S.D.N.Y. 2008).
 
The bottom line of this decision is that trademark owners assume the ultimate burden of monitoring third-party use of their marks. Or as the district court put it, “rights holders bear the principal responsibility to police their trademarks.” While a third party may be contributorily liable for offering a service that facilitates the sale of infringing goods, if that party does not exercise direct control over those sales and does not know or have reason to know about specific infringing activity, it is the trademark owner that must ferret out and stop those sales.
 
Note that, on August 11, 2008, Tiffany filed a notice of appeal of the district court’s ruling.
 
eBay, its Business Model, and its Anti-Counterfeiting Procedures
 
Individual sellers post listings at www.ebay.com of goods they offer for sale and buyers either place bids for those goods or purchase them outright at a given price. The parties then arrange between themselves for payment and delivery. No one at eBay ever takes physical possession of the items offered for sale; the site instead facilitates transactions between third parties. There are over 100 million live listings worldwide on eBay at any given time and sellers add approximately 6 million listings daily.
 
eBay receives a fee from sellers for listing their products, as well as a percentage of the final price of a sold item. It actively works with its sellers to increase sales, and did so with sellers of Tiffany goods, advising them to take advantage of buyer demand for those goods. Between April 2000 and August 2005, eBay earned $4.1 million from listings with “Tiffany” in the title in the Jewelry & Watches category.
 
Four thousand eBay employees work in its trust and safety area, and, of those, over 200 focus exclusively on preventing infringement in its listings. In addition, 70 eBay employees work exclusively with law enforcement. eBay also has a “fraud engine” that automatically searches for counterfeit or infringing listings. The fraud engine would, for example, result in a removal of listings that offer “knock-off,” “counterfeit,” “replica,” or “pirated” goods, as well as listings in which the seller stated that it “cannot guarantee the authenticity” of the goods. The fraud engine flags listings and eBay’s customer service representatives evaluate them to determine if they violate eBay policies. If they do, the representative could remove the listing, issue a warning to the seller, restrict the seller’s account or refer the seller to law enforcement.
 
If a manufacturer believes that a particular listing offers counterfeit or infringing goods for sale, it can complete and send to eBay a Notice of Claimed Infringement (NOCI), available at http://pages.ebay.com/help/community/NOCI1.pdf. The NOCI declares that the mark owner has “a good faith belief that the listings identified (by item number) . . . offer items or contain materials that are not authorized by the IP Owner, its agent, or the law, and therefore infringe the IP Owner’s rights.” As the court in the Tiffany case put it, the NOCI “is not a determination of counterfeiting, but instead, is a good-faith assertion on the part of a rights holder that an item is counterfeit or otherwise infringing.” Upon receipt of a NOCI, eBay removes the potentially offending listings within 24 hours. When eBay received a NOCI from Tiffany – and it received a total of 284,149 from 2003 to 2007 – it removed the listing from its site, told the seller the reason for removal, provided educational material about intellectual property rights, and refunded all fees associated with the transaction.
 
Many rights owners, including Tiffany, also establish an “About Me” page on the eBay website to inform eBay buyers and sellers about their products and their intellectual property rights. Those whose listings are cancelled for sale of counterfeit goods may be directed to the mark owner’s page.
 
eBay also sent warning messages to sellers attempting to list a Tiffany item, directing the seller to be sure the item was authentic, informing the seller of the possibility of suspension from eBay for selling counterfeit items, and providing a link to Tiffany’s “About Me” page. In addition, eBay added filters specific to Tiffany in its fraud engine, such as “counterfeit tiffany,” “faux tiffany,” “tiffany style” and “inspired by tiffany.” By late 2006, eBay delayed publication of listings using certain brand names, including Tiffany, for 6 to 12 hours so that its representatives could review those listings.
 
The district court was impressed by eBay’s anti-counterfeiting initiatives and its prompt response to Tiffany’s notices of potentially infringing goods, noting that eBay “made significant efforts to protect its website from counterfeiters.”
 
Tiffany and its Efforts to Stop Counterfeiting of Its Products on eBay
 
Tiffany’s famous name and blue boxes and its expensive, desirable products make it a prime target for counterfeiters. Here, the court found that a significant amount of the alleged “Tiffany” sterling silver jewelry listed on eBay’s web site during the time period covered by the lawsuit was in fact counterfeit. Further, a large number of consumers complained to both eBay and Tiffany about Tiffany counterfeits on the site.
 
Tiffany sells its new silver Tiffany jewelry in the United States only in its retail stores or through its catalogs, web site or Corporate Sales Department; the court referred to its distribution chain as “tightly controlled.” It never sells overstock merchandise or puts its products on sale at lower prices.
 
Before 2003, Tiffany had sued several individuals who had sold counterfeit Tiffany goods on eBay and contacted sellers to demand that they stop selling counterfeit Tiffany products. By May 2003, however, Tiffany stopped pursuing direct legal action against such individuals and instead opted to “address the problem with eBay directly,” as the court put it.
 
At that time, Tiffany’s outside counsel wrote to eBay regarding the “deluge of counterfeit Tiffany merchandise” sold through eBay. Counsel advised eBay that, because there were no authorized third-party sellers of authentic Tiffany merchandise, any seller of five pieces or more of alleged Tiffany jewelry is “almost certainly” selling counterfeit goods. A later letter demanded that eBay bar any seller from listing five or more pieces of Tiffany jewelry at a time, as well as asking it to bar the sale of silver Tiffany jewelry altogether.
 
eBay responded by encouraging Tiffany to report any counterfeits it saw on the site and informed Tiffany that it removed listings that appeared on their face to offer counterfeit goods. However, it did not agree to Tiffany’s request that it automatically remove listings that did not appear on their face to offer counterfeit Tiffany goods, unless Tiffany notified the site that it believed the goods to be infringing. In particular, eBay refused to prospectively reject listings offering multiple Tiffany items for sale.
 
The court found little factual support for Tiffany’s allegation that a seller listing five pieces or more of Tiffany jewelry is “presumptively trafficking in counterfeit goods.” It also found that Tiffany had failed to show that eBay continued to serve sellers that eBay knew sold counterfeit Tiffany goods.
 
While the court sympathized with Tiffany’s position, it was also distinctly unimpressed by the amount of resources Tiffany had dedicated to fighting the sale of counterfeit Tiffany goods on eBay. It noted that, “[n]otwithstanding the significance of the online counterfeiting problem, it is clear that Tiffany invested relatively modest resources to combat the problem.” Tiffany had budgeted $14 million to anti-counterfeiting efforts over five years, $3 to 5 million of which was spent in its litigation against eBay. In addition, “Tiffany’s time dedicated to monitoring the eBay website and preparing NOCIs was limited.” It did not report violations to eBay on a daily basis until 2006, and it had rejected the use of additional technology that had been suggested by eBay to help monitor and report violations.
 
The court concluded that, “[g]iven the limited technology and staff Tiffany chose to employ to pursue reporting . . . , the sheer volume of Tiffany items available on eBay made it difficult for Tiffany to comprehensively review all of the Tiffany listings on eBay.” Ultimately, the court declared, “Tiffany could have invested additional resources in monitoring the eBay website and reporting NOCIs through the VeRO Program. Had Tiffany done so, Tiffany could have captured more of the infringing listings on eBay.”
 
In addition, the court noted that, starting in 2005, Tiffany’s NOCIs routinely asked eBay to suspend the offending seller, but that Tiffany did not bring any actions for direct infringement against these sellers, including repeat offenders, after it sent its demand letter to eBay in May 2003. While stating that trademark owners need not run to the courthouse to sue all possible infringers, the court went on to note that “it seems likely that aggressive pursuit of direct infringement actions against the sellers of counterfeit goods might have had a significant deterrent effect on potential future infringers on eBay and other websites.”
 
The Doctrine of Contributory Infringement
 
The doctrine of contributory infringement imposes liability on parties other than the immediate infringer in two situations: for intentionally inducing the other party’s infringement or for continuing to supply a product to a party it knows or has reason to know is using that product to infringe. Inwood Labs. v. Ives Labs., 456 U.S. 844, 854 (1982) (laying out this test and declaring that “liability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another”); Gilson on Trademarks § 11.02[2][h]. Here, Tiffany did not claim that eBay intentionally induced its sellers to infringe its marks, but instead argued that eBay continued to supply its services to parties that it knew or had reason to know were using that service to infringe.
 
Analogous Application of Doctrine to Flea Market Operators and Landlords. While manufacturers and distributors are the parties that are most commonly held liable for contributory infringement, courts have found flea market operators to be contributorily liable when its vendors sold counterfeit goods. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996); Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143 (7th Cir. 1992). Similarly, a court refused to dismiss the claim that a landlord was contributorily liable for the sale of counterfeit goods by its tenants. Polo Ralph Lauren Corp. v. Chinatown Gift Shop, 855 F. Supp. 648 (S.D.N.Y. 1994).
 
These cases prove only that it is legally possible for flea market operators and landlords and the owners of online marketplaces such as eBay to be held contributorily liable for trademark infringement. As one case noted, “the effect of the relevant decisions is that a landlord is neither automatically liable for the counterfeiting of a tenant, nor is the landlord automatically shielded from liability.” Id.
 
In order to show that a defendant was a contributory infringer under the “supply and knowledge” theory, the plaintiff must show, first, that the defendant continued to supply a product to the direct infringers and, second, that it actually knew or had reason to know of the infringement. Procter & Gamble Co. v. Haugen, 317 F.3d 1121, 1128 (10th Cir. 2003); AT&T Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1432 (3d Cir. 1994).
 
Supplying a Service to the Infringer. Supplying a service to an infringer rather than a physical product, as stated in the Inwood formulation, may still lead to liability for contributory infringement. In order for there to be liability for supplying a service, the Ninth Circuit has held that there must have been “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark.” Perfect 10, Inc. v. Visa Int’l Svc. Ass’n, 494 F.3d 788, 807 (9th Cir. 2007), quoting Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999). Other courts have also relied on this test. See Habeeba’s Dance of the Arts, Ltd. v. Knoblauch, 430 F. Supp. 2d 709, 714 (S.D. Ohio 2006) (adopting the standard when considering the contributory liability of a party that rented space for an allegedly infringing event); SB Designs v. Reebok Int’l, Ltd., 338 F. Supp. 2d 904, 913 (N.D. Ill. 2004) (finding no contributory liability under the standard for sales on a third party web site not controlled by the defendant); Fare Deals, Ltd. v. World Choice Travel.com, Inc., 180 F. Supp. 2d 678, 689 (D. Md. 2001) (licensing of mark to another web site does not create contributory liability for infringements on that web site). The district court in the Tiffany case concluded that the “direct control and monitoring” standard is the “relevant inquiry” where the defendant performs a service that is the direct infringer’s means of infringement.
 
When relying on this test, the Ninth Circuit found that the operator of a flea market exercised sufficient control over its vendors to be contributorily liable. In the Fonovisa case, individual vendors paid rental fees to the flea market operator, who had the right to exclude any vendor at any time and for any reason, including trademark infringement. Fonovisa, Inc., 76 F.3d 259. In that case, it was undisputed that the defendant was aware that vendors in its market were selling counterfeit goods. The court noted that, while the defendant is not alleged to be supplying the counterfeit goods, “it is supplying the necessary marketplace for their sale in substantial quantities.” Id. at 265.
 
The district court here determined that eBay did exercise sufficient control over its members and actively monitored its web site such that it could be liable for contributory liability for supplying a service to counterfeiters. It attracts customers for its sellers and facilitates transactions between them, it promoted the sale of Tiffany jewelry through advertising and working with its sellers to increase their business, and it profits from listings and completed sales. In addition, eBay has “significant control” over its listings: It bars entire categories of items, such as firearms and alcohol; it screens listings for terms suggesting counterfeiting; and it is able to cancel listings and suspend sellers who violate its policies.
 
Actual Knowledge or Reason to Know of the Infringement. But the court found that eBay prevailed on the second prong, that it did not have actual knowledge or reason to know of the specific infringements on its site. While eBay did have generalized knowledge that a large percentage of the Tiffany goods sold on its web site were counterfeit, it lacked specific knowledge about individual instances of infringing sales. This generalized knowledge, the court found, is insufficient to impose liability on eBay for refusing to preemptively take down listings. It held that the “law demands more specific knowledge as to which items are infringing and which seller is listing those items before requiring eBay to take action.”
 
When eBay did know or have reason to know that specific sellers were using the site to sell counterfeit Tiffany goods, it removed those listings and appropriately acted to educate or suspend the sellers. Therefore, it was not contributorily liable for trafficking in those counterfeit goods. While there were likely counterfeit Tiffany goods that eBay did not know or have reason to know were being offered for sale, it was not contributorily liable for those sales because it lacked the requisite knowledge. Further, it was not under an affirmative duty to hunt for additional infringements, though it was taking significant steps to halt the sale of counterfeits.
 
The court affirmed that the doctrine of contributory infringement “should not be used to require defendants to refuse to provide a product or service to those who merely might infringe the trademark.” eBay’s general knowledge that some sellers sold counterfeit Tiffany goods did not require it to discontinue its services to all sellers of Tiffany goods or to all sellers of five or more Tiffany goods, held the court.
 
The Trademark Owner’s Duty to Police its Marks
 
Tiffany argued to the court that eBay should be held liable for contributory infringement because it had failed to make sufficient efforts to stop infringement on its site. It maintained that there were “simply too many listings of ‘Tiffany’ silver jewelry for Tiffany to be able to review them all” and that the NOCI program was objectionable because it required Tiffany to expend significant time and money to determine whether or not each Tiffany jewelry listing contained counterfeit goods.
 
While sympathetic to Tiffany’s frustration from the substantial counterfeiting of its goods, the court instructed Tiffany that it was ultimately its responsibility to police its own marks. This conclusion did not mean that eBay had no responsibility to prevent counterfeiting on its site. In fact, eBay did have a legal obligation, once it knew of specific instances of counterfeiting, to stop those sales. But the court’s message was that Tiffany could not abdicate its responsibility to alert eBay to potentially infringing listings. Once eBay had made sufficient efforts to eliminate listings that it knew or had reason to know offered counterfeits, Tiffany bore the burden to stop the sales of any other, more non-obvious counterfeits, those that eBay could not otherwise know or have reason to know were infringing.
 
Under the facts of this case, eBay appeared to have worked hard to make its marketplace less hospitable to counterfeiters and Tiffany did not appear to have invested the same amount of energy in protecting its own mark that eBay did. One point that was obviously important to the court was the parties’ relative commitment of resources to stemming the tide of counterfeit goods. It noted that “Tiffany’s commitment to reporting infringing listings [to eBay] has been sporadic and relatively meager,” while eBay “made significant efforts to protect its website from counterfeiters.” eBay demonstrated to the court that it was appropriately responsive and proactive when it came to infringement of Tiffany jewelry. In fact, eBay went beyond its legal responsibility when it investigated its listings to find counterfeits.
 
The court’s conclusion on this point is in line with other contributory infringement case law. The standard for contributory infringement does not require investigation into potential violations. In one of the flea market cases, for example, the Seventh Circuit declared that the flea market operator “has no affirmative duty to take precautions against the sale of counterfeits” and has no “duty to seek out and prevent violations.” Hard Rock Café, 955 F.2d at 1149. Similarly, the publisher of a telephone directory need not investigate the legal rights of those placing advertisements, but if it has reason to believe that the prospective advertiser has no authority to use a trademark, it could be disqualified from being protected as an “innocent infringer” under the Lanham Act. See Gilson on Trademarks § 11.02[2][h][i][C][III].
 
Who Could Best Stop the Counterfeiting?
 
Interestingly, the court did not decide whether either eBay or Tiffany could more efficiently bear the burden of stopping the sale of counterfeit goods on the site, calling it “an open question left unresolved by this trial.” It remarked that, even if eBay were better situated to stop counterfeiting of Tiffany goods, it was, in the end, still up to Tiffany to take charge of its own anti-counterfeiting efforts. In addition, even if eBay were better situated, that is not the standard for contributory counterfeiting.
 
Each party was, in fact, better positioned to take certain actions to stem the counterfeiting tide. It appears that Tiffany was in the best position to know if specific listings offered counterfeit goods because its employees have the expertise to determine whether listed goods were counterfeit and eBay was in the best position to warn its sellers not to counterfeit, to educate them on counterfeiting and its consequences, and to delete listings and suspend sellers. The court ultimately concluded that eBay had done its share, while Tiffany did not.
 
For more on contributory infringement, see Gilson on Trademarks § 11.02[2][h].
 
For more on counterfeiting, see Gilson on Trademarks § 5.19.
 
For a comprehensive discussion of U.S. trademark law, see Gilson on Trademarks.
 
For a comprehensive discussion of international trademark Law, see World Trademark Law and Practice.
 
For a comprehensive discussion of domain names, see McGrady on Domain Names.
 
To search federal and state trademark cases on lexis.com, see Federal & State Cases, Combined.
 
For information on litigating a trademark case, see Intellectual Property Counseling; and Total Litigator.
 
To search trademark law resources on lexis.com, see Trademark Law Area of Law Page.
 
 
To search domain names on lexis.com, see Combined Domain Name Disputes and Decisions.