By Jeffrey Pietsch

eBay let out a sigh of relief last month when a New York Federal Court ruled that eBay’s efforts to remove sellers of counterfeit goods was sufficient to combat the sale of fake Tiffany & Co. products. In fact, the court held that trademark holders, such as Tiffany & Co., are the ones responsible for policing the online market place for counterfeit products, not online “swap meets” such as eBay.


The jeweler Tiffany & Co filed a lawsuit against eBay in the U.S. District Court of Manhattan four years ago for trademark infringement. According to Tiffany’s CEO, Michael Kowalski, the “crux of Tiffany’s argument was that there must be a way ‘to stop the counterfeiting before the fact, not after the fact.’” However, the court endorsed eBay’s, perhaps limited, but clearly proactive steps to combat the sale of counterfeit Tiffany products. 


As an electronic marketplace, not a retailer, eBay never takes possession of the products sold on its website. However, it does retain some control over its users by requiring all users to register with eBay and sign an agreement. eBay also prohibits the sale of particular goods such as drugs or firearms. Therefore, in response to concerns over the sale of counterfeit goods, eBay took a number of anti-fraud efforts.


In May 2002, eBay began using a fraud engine to search for activity, including counterfeit listings that violate eBay’s policies. In addition, eBay has been employing a set of procedures known as the Verified Rights Owner Program (VeRO) for over a decade. Under this program, a trademark owner who found a potentially infringing item on eBay’s website could report the listing directly to eBay if it had a good faith belief that the item was in fact infringing. Once eBay received notice from the trademark owner, eBay removed the listing within twenty-four hours. Additionally, eBay encouraged trademark owners to establish an “About Me” page to educate eBay users about its products, intellectual property rights and legal positions.


Despite all these protections, Tiffany did not believe eBay had done enough to combat the sale of counterfeit Tiffany goods. Tiffany argued that eBay directly infringed its trademark by advertising Tiffany jewelry and should be liable just as “an officer or employee of a store selling infringing merchandise is jointly and severally liable” for the infringing sale.


In response, the court held that eBay was protected by the defense of nominative fair use. The court concluded that the “Tiffany” name is what gives its product the “cachet” it holds. In addition, eBay did not use Tiffany’s trademark in such a manner or degree that lead its customers to believe that Tiffany & Co. was affiliated with eBay or sponsored or endorsed the sale of its products on eBay’s website.


Tiffany also argued that eBay was liable for contributory trademark infringement based on the test set forth in the Restatement; that a party is liable if the actions by the third party (seller) can be “reasonably anticipated” to be infringing conduct. However, the court rejected this argument and applied the standard set forth in the Supreme Court case Inwood Laboratories v. Ives Laboratories. The Court specifically rejected the Restatement’s test and articulated the doctrine that a manufacturer or distributor is liable for contributory infringement if he supplies a product that he “knows or has reason to know is engaging in trademark infringement.”


Using this standard, the district court ruled that Tiffany did not meet its burden of proving that eBay continued to supply its services to a user it knew or had reason to know was engaging in trademark infringement. While eBay may have had a generalized knowledge that some of the Tiffany goods sold on its website were counterfeit, this knowledge did not require eBay to preemptively remedy the problem.


In addition, eBay could not be liable based on a claim of willful blindness for taking steps to avoid learning of the sale of counterfeit Tiffany products on its website. Rather, in stark contrast, eBay took particular steps to prevent the sale of counterfeit Tiffany products and took “reasonable steps to investigate and stop the wrongdoing through general anti-fraud measures.”

This decision clearly gives a boost of assurance to eBay and other online businesses in operating an online marketplace. Trademark owners, such as Tiffany & Co., cannot rely on the online operators for protection, but will need to rely on their own measures to protect the value of their marks.