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Supremes' 'No' on Tiffany Review Keeps Status Quo
In Tiffany v. eBay, the U.S. Court of Appeals for the Second Circuit affirmed in November the District Court's ruling in favor of eBay on the key issue of contributory trademark infringement, as well as direct infringement and dilution, but remanded on the issue of false advertising.
And on November 29, the U.S. Supreme Court, without comment, denied certiorari in Tiffany's appeal.
The upshot of the Second Circuit holding ' and the Supreme Court's denial to hear the appeal ' is that despite a general knowledge that a significant percentage of Tiffany goods sold on eBay were counterfeit, eBay did not have a duty to prevent any such sales, unless and until a specific instance of fraud was brought to its attention.
The fact that eBay took prompt action after reports and invested in quality control influenced the court to find that eBay was not willfully blind to the existence of counterfeits.
The Supreme Court's denial to hear the case means that companies are largely on their own to ensure that counterfeit iterations of their products aren't being sold online, and that e-commerce entities must take some reasonable steps to ensure they are not knowingly selling specific and particular counterfeit items or items without the rights-holders' consent, on their Web sites and through other sales mechanisms.
Background
At trial, eBay avoided liability for contributory trademark infringement for eBay's facilitation of marketplace for the sale of counterfeit Tiffany jewelry, despite the fact that the court acknowledged that a significant percentage of Tiffany goods sold on eBay are counterfeit. The trial court found that more than 6 million new listings appear on eBay every day, and at any given time, 100 million listings are on the Web site.
eBay's revenue is based on listings and a percentage of the eventual sale of items listed. The court found that eBay made $4 million over three years from the sale of Tiffany goods. Tiffany's research indicated that the percentage of counterfeit items was 73%; eBay's expert conceded it might be 30%.
The court found that while eBay had “generalized notice” that some portion of Tiffany goods sold on its Web site was counterfeit, this did not translate into knowledge of specific infringers. The court also found that eBay's use of the term Tiffany to advertise sales of Tiffany jewelry, such as via sponsored search-engine ads, was fair use.
The Appeal
Tiffany appealed to the U.S. Court of Appeals for the Second Circuit. Amicus curiae briefs were filed in support of Tiffany by Coty Inc., the International Anticounterfeiting Coalition, and the Council of Fashion Designers. Amicus curiae briefs were also filed in support of eBay by Yahoo (on the false-advertising issue), the Electronic Frontier Foundation et al., Amazon and Google et al.
The court noted that a substantial percentage of Tiffany goods were counterfeit and that eBay made revenues from those sales, but this author believes that the court ignored a critical factual finding in the case ' the admission by eBay's expert that 30% of the purported “Tiffany” goods sold on eBay likely were counterfeit.
Contributory Infringement
A number of theories of potential liability surfaced, but the key issue in the case was whether eBay was contributorially liable for the counterfeit sales by third parties on eBay. The court noted that it was the first U.S. Court to apply the test to an online marketplace, referring to some of the European cases that have already addressed eBay's liability. (E.g., Lancome v. eBay, Brussels Commercial Court (Aug. 12, 2008), Docket No. A/07/06032; S.A. Louis Vuitton Malletier v. eBay, Inc., Tribunal de Commerce de Paris, Premiere Chambre B. (Paris Commercial Court), Case No. 200677799 (June 30, 2008); and Hermes v. eBay, Troyes High Court (June 4, 2008), Docket No. 06/0264.)
The court agreed that eBay had only “generalized” knowledge of counterfeiting and held that, under the governing precedents, “generalized” knowledge was insufficient to impose a duty to remedy the problem. In reaching this conclusion, the court was heavily influenced by the extent of eBay's actions to respond to specific notification of violations.
The critical language from the most relevant U.S. Supreme Court opinion (Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 102 S.Ct. 2182 (1982)), is “a manufacturer or distributor (who) continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement” is contributorially liable for the harm done by the deceit. (Emphasis added.) (See, Id. at 854.) (In Inwood, the plaintiffs alleged that Ives induced pharmacists to mislabel generic drugs, substituting an Ives product for what consumers believed was an Inwood product. Courts have extended and used Inwood's test for contributory trademark infringement of a product to services.)
The court found that the so-called “knew or should have known” test was undefined, and refused to apply it to a scenario in which there was statistical evidence that the service provider knew that a substantial percentage of the goods sold through its facility were counterfeit.
The court rejected reliance on evidence of probability and insisted that liability for contributory trademark infringement could be imposed only upon proof that an offer of specific product by a specific seller was fraudulent. The court interpreted the impersonal pronoun “one” in Inwood as requiring that the service provider must have the required knowledge about each separate individual infringer (thus placing the burden back on brand owners to monitor, detect and report fraud).
Willful Blindness
Tiffany and Coty also argued that eBay's willful blindness to widespread counterfeiting was actual knowledge and not just reason to suspect counterfeiting. The court declined to expand the law to reach this point. The court also concluded that market forces already give eBay an incentive to minimize the sale of counterfeit goods on its Web site. The court also implied that if eBay were “intentionally shielding itself” from discovering the offending listings, then it might have “known or had reason to know” under Inwood. Id. at 33.
The Supreme Court
Tiffany asked the Supreme Court to review the decision of the Court of Appeals. Tiffany argued that the decision of the appeals court was inconsistent with older case law from the Ninth Circuit, and that the Court needed to update the 1982 case law that could not have contemplated the Internet marketplace. Amicus briefs supporting Tiffany's petition were filed by Venable on behalf of Coty, Inc. [Editor's note: The author was one of the writers of briefs filed by Coty Inc.], by Debevoise and Plimpton on behalf of The International Trademark Association, and by Fross Zelnick on behalf of the International Anticounterfeiting Coalition. Tiffany questioned whether eBay had a right to do business if it could not prevent this problem.
Consequences
The Supreme Court's failure to take up the case means that eBay enjoys the status quo for now in the United States. It also leaves a dichotomy between U.S. and European case law on whether eBay has a duty to filter counterfeits from its listings. It also, in this author's opinion, weakens the integrity of the online marketplace.
If another brand owner challenges eBay in a different judicial circuit and wins, then there might be a direct conflict among the circuits and the Supreme Court may then decide to take up the case. This would take several years. Alternatively, brand owners may need to pursue legislation. Retailers recently pursued a legislative solution to eBay's duty to prevent the sale of stolen goods.
As such, for now, brand owners must devote substantial resources to policing eBay and other online auction sites in the United States for counterfeits. Some smaller companies may need to hire college interns as the only affordable way to keep on top of this problem. Companies must learn how to use eBay's VeRo program to provide notice and takedown information, and to monitor eBay to ensure that repeat offenders don't keep showing up under new aliases.
Janet Satterthwaite, an intellectual-property partner with Venable LLP in Washington, DC, advises clients on the selection, registration, licensing and enforcement of trademarks in the United States and other countries. She directs Venable's Domain Name and Cyberpiracy Group and regularly counsels clients on domain-name disputes. She can be reached at [email protected].
In Tiffany v. eBay, the U.S. Court of Appeals for the Second Circuit affirmed in November the District Court's ruling in favor of eBay on the key issue of contributory trademark infringement, as well as direct infringement and dilution, but remanded on the issue of false advertising.
And on November 29, the U.S. Supreme Court, without comment, denied certiorari in Tiffany's appeal.
The upshot of the Second Circuit holding ' and the Supreme Court's denial to hear the appeal ' is that despite a general knowledge that a significant percentage of Tiffany goods sold on eBay were counterfeit, eBay did not have a duty to prevent any such sales, unless and until a specific instance of fraud was brought to its attention.
The fact that eBay took prompt action after reports and invested in quality control influenced the court to find that eBay was not willfully blind to the existence of counterfeits.
The Supreme Court's denial to hear the case means that companies are largely on their own to ensure that counterfeit iterations of their products aren't being sold online, and that e-commerce entities must take some reasonable steps to ensure they are not knowingly selling specific and particular counterfeit items or items without the rights-holders' consent, on their Web sites and through other sales mechanisms.
Background
At trial, eBay avoided liability for contributory trademark infringement for eBay's facilitation of marketplace for the sale of counterfeit Tiffany jewelry, despite the fact that the court acknowledged that a significant percentage of Tiffany goods sold on eBay are counterfeit. The trial court found that more than 6 million new listings appear on eBay every day, and at any given time, 100 million listings are on the Web site.
eBay's revenue is based on listings and a percentage of the eventual sale of items listed. The court found that eBay made $4 million over three years from the sale of Tiffany goods. Tiffany's research indicated that the percentage of counterfeit items was 73%; eBay's expert conceded it might be 30%.
The court found that while eBay had “generalized notice” that some portion of Tiffany goods sold on its Web site was counterfeit, this did not translate into knowledge of specific infringers. The court also found that eBay's use of the term Tiffany to advertise sales of Tiffany jewelry, such as via sponsored search-engine ads, was fair use.
The Appeal
Tiffany appealed to the U.S. Court of Appeals for the Second Circuit. Amicus curiae briefs were filed in support of Tiffany by
The court noted that a substantial percentage of Tiffany goods were counterfeit and that eBay made revenues from those sales, but this author believes that the court ignored a critical factual finding in the case ' the admission by eBay's expert that 30% of the purported “Tiffany” goods sold on eBay likely were counterfeit.
Contributory Infringement
A number of theories of potential liability surfaced, but the key issue in the case was whether eBay was contributorially liable for the counterfeit sales by third parties on eBay. The court noted that it was the first U.S. Court to apply the test to an online marketplace, referring to some of the European cases that have already addressed eBay's liability. (E.g., Lancome v. eBay, Brussels Commercial Court (Aug. 12, 2008), Docket No. A/07/06032; S.A. Louis Vuitton Malletier v. eBay, Inc., Tribunal de Commerce de Paris, Premiere Chambre B. (Paris Commercial Court), Case No. 200677799 (June 30, 2008); and Hermes v. eBay, Troyes High Court (June 4, 2008), Docket No. 06/0264.)
The court agreed that eBay had only “generalized” knowledge of counterfeiting and held that, under the governing precedents, “generalized” knowledge was insufficient to impose a duty to remedy the problem. In reaching this conclusion, the court was heavily influenced by the extent of eBay's actions to respond to specific notification of violations.
The critical language from the most relevant U.S. Supreme Court opinion (
The court found that the so-called “knew or should have known” test was undefined, and refused to apply it to a scenario in which there was statistical evidence that the service provider knew that a substantial percentage of the goods sold through its facility were counterfeit.
The court rejected reliance on evidence of probability and insisted that liability for contributory trademark infringement could be imposed only upon proof that an offer of specific product by a specific seller was fraudulent. The court interpreted the impersonal pronoun “one” in Inwood as requiring that the service provider must have the required knowledge about each separate individual infringer (thus placing the burden back on brand owners to monitor, detect and report fraud).
Willful Blindness
Tiffany and Coty also argued that eBay's willful blindness to widespread counterfeiting was actual knowledge and not just reason to suspect counterfeiting. The court declined to expand the law to reach this point. The court also concluded that market forces already give eBay an incentive to minimize the sale of counterfeit goods on its Web site. The court also implied that if eBay were “intentionally shielding itself” from discovering the offending listings, then it might have “known or had reason to know” under Inwood. Id. at 33.
The Supreme Court
Tiffany asked the Supreme Court to review the decision of the Court of Appeals. Tiffany argued that the decision of the appeals court was inconsistent with older case law from the Ninth Circuit, and that the Court needed to update the 1982 case law that could not have contemplated the Internet marketplace. Amicus briefs supporting Tiffany's petition were filed by
Consequences
The Supreme Court's failure to take up the case means that eBay enjoys the status quo for now in the United States. It also leaves a dichotomy between U.S. and European case law on whether eBay has a duty to filter counterfeits from its listings. It also, in this author's opinion, weakens the integrity of the online marketplace.
If another brand owner challenges eBay in a different judicial circuit and wins, then there might be a direct conflict among the circuits and the Supreme Court may then decide to take up the case. This would take several years. Alternatively, brand owners may need to pursue legislation. Retailers recently pursued a legislative solution to eBay's duty to prevent the sale of stolen goods.
As such, for now, brand owners must devote substantial resources to policing eBay and other online auction sites in the United States for counterfeits. Some smaller companies may need to hire college interns as the only affordable way to keep on top of this problem. Companies must learn how to use eBay's VeRo program to provide notice and takedown information, and to monitor eBay to ensure that repeat offenders don't keep showing up under new aliases.
Janet Satterthwaite, an intellectual-property partner with
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