April 2010 Issue
Civil Cases
Tiffany (NJ) Inc. v. eBay Inc.,
2010 WL 1236315 (2d Cir. Apr. 1, 2010)
ABSTRACT
The Second Circuit handed down this much-anticipated decision affirming the district court’s ruling that eBay is not liable for contributory trademark infringement for the sale of counterfeit Tiffany products on eBay’s website. The decision is the first by a U.S. appeals court to squarely address contributory trademark infringement in the online marketplace. Although the Second Circuit remanded the case with respect to Tiffany’s false advertising claim, the decision represents a significant victory for eBay and other online marketplace sites.
CASE SUMMARY
FACTS
In 2004, Tiffany (NJ) Inc. and Tiffany & Co. (collectively “Tiffany”), makers of high-end jewelry and other items, sued eBay Inc. (“eBay”), the operator of the well-known online marketplace website, for direct and contributory trademark infringement, trademark dilution, and false advertising. Tiffany alleged that eBay facilitated and advertised the sale of “Tiffany” goods on eBay’s website, which turned out to be counterfeit.
In 2008, the Southern District of New York ruled in favor of eBay after a week-long bench trial and held that eBay was not liable for contributory trademark infringement despite having general knowledge that counterfeit Tiffany products were being sold on its website. The district court held that under the Supreme Court’s decision in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982), the operator of an online marketplace can be held liable for contributory trademark infringement only if it has specific knowledge of particular infringing acts and allows that infringing activity to continue. The district court found that eBay promptly removed every infringing listing of which it had specific notice (and cancelled any fees earned from such listings), and therefore concluded that eBay’s existing anticounterfeiting measures were adequate to avoid a finding of contributory liability.
ANALYSIS
The Second Circuit agreed with the district court’s finding that eBay’s activities, including use of the TIFFANY trademark on its website and in sponsored advertisements on the Google and Yahoo! search engines, did not constitute direct trademark infringement. While the appeals court did not decide whether the Ninth Circuit’s New Kids nominative fair-use test was viable in the Second Circuit, it held that a defendant can lawfully use a plaintiff’s trademark where doing so is necessary to describe the plaintiff's product, and does not imply a false affiliation or endorsement by the plaintiff of the defendant. Because eBay used Tiffany’s trademark to accurately describe the genuine Tiffany goods that were offered for sale on its website, and did not use the mark in a manner that suggested that Tiffany was affiliated with eBay or that it had endorsed the sale of its products through eBay’s website, eBay’s actions did not constitute direct trademark infringement.
Turning to the contributory trademark infringement claim, the Second Circuit largely agreed with the lower court’s analysis. Under Inwood, the test was whether eBay continued to allow sellers of counterfeit Tiffany products to operate on its website despite “knowing or having reason to know” that they were offering counterfeit products. On appeal, Tiffany argued that eBay clearly knew that counterfeit Tiffany goods were being sold ubiquitously on its site. Indeed, the district court had found that “a significant portion” of the Tiffany sterling silver jewelry listed on eBay was counterfeit, and that eBay knew that “some portion” of the Tiffany goods sold on its website might be counterfeit. Nonetheless, the Second Circuit agreed with the district court that such generalized knowledge was insufficient to provide a basis for contributory liability. To be liable for contributory trademark infringement, the proprietor of an online marketplace must have “more than a general knowledge” that its service is being used to sell counterfeit goods. Rather, it must have knowledge of specific instances of infringement.
Tiffany argued that, as a matter of policy, holding eBay liable only when specific instances of infringement are brought to its attention would effectively require brand owners to police eBay and other online marketplace websites “24 hours a day, 365 days a year”—a burden that most trademark owners would not be able to afford. In the court’s opinion, however, private market forces provide “a strong incentive” for online marketplace sites to minimize sales of counterfeit products so as to not alienate their own users. The appeals court added that, to the extent owners of online marketplace sites have reason to suspect that counterfeit products are being sold on their sites and intentionally shield themselves from discovering such activity, such inaction would amount to willful blindness and could give rise to contributory liability. Willful blindness, the court acknowledged, is tantamount to actual knowledge under the Lanham Act.
In addition to contributory trademark infringement, Tiffany had also alleged that various eBay advertisements marketing the availability of Tiffany products on eBay’s site constituted false advertising, because eBay knew that a significant proportion of the Tiffany products offered for sale on its site were not genuine. The record showed that eBay advertised the availability of Tiffany products at low prices on its website to drive demand for its “jewelry and watches” category. For instance, one link on eBay’s website read “Tiffany & Co. under $50.” eBay also purchased sponsored link advertisements on various search engines. For instance, the evidence showed that a search for “tiffany” on the Yahoo! search engine produced a sponsored link that read “Tiffany on eBay. Find tiffany items at low prices.”
The Second Circuit held that such advertisements could constitute false advertising to the extent (1) they implied the genuineness of all Tiffany goods on eBay’s site, and (2) consumers were likely to be misled by such advertisements. An advertisement is unlawful, the appeals court noted, when it implies that all of the goods advertised for sale are genuine, when in fact, as here, “a sizeable proportion of them are not.”
In considering Tiffany’s false advertising claim, the appeals court looked at whether Tiffany had put forward any empirical evidence showing that consumers were likely to be misled by eBay’s advertisements. Because the district court’s opinion did not reflect whether Tiffany had submitted such evidence, the appeals court remanded Tiffany’s false advertising claim for further consideration based on the record evidence.
In its defense, eBay argued that prohibiting such advertisements would create a deterrent effect against online advertisers generally, because they would need to confirm the authenticity of all products they advertise for sale. The Second Circuit rejected this argument, however, noting that a simple disclaimer might be sufficient to avoid such liability.
CONCLUSION
The Second Circuit’s decision represents a significant victory for eBay and other online marketplace websites, at least in the Second Circuit where online marketplace websites may be shielded from contributory liability for the sale of counterfeit goods on their websites if there are reasonable anticounterfeiting measures in place, and they take action with regard to specific instances of infringement once they are brought to their attention.
