Tiffany v. eBay: A trademark owner must police its own marks on the Internet

Background

Tiffany & Co., the world-renowned jeweler, has spent 170 years building its famous trademarked brand, synonymous with luxury and high quality. eBay is a well-known online marketplace where people can sell their stuff to eBay buyers.

Tiffany had discovered, as have many other brand/trademark owners, that many counterfeit “Tiffany” items were being advertised and sold on eBay, falsely identified on the site as genuine articles (though many genuine Tiffany articles were also advertised and sold on the site). eBay has in place numerous mechanisms to minimize counterfeit trades, including a process by which trademark owners can notify eBay of a counterfeit listing and in response, eBay pulls the listing – this latter is often referred to as a “notice-and-takedown” scheme.

But after hundreds of thousands of these takedown notices over several years, Tiffany contended that eBay had sufficient notice of such rampant counterfeiting of Tiffany products on its site that it should be more proactive about policing for those counterfeit items. It filed suit against eBay in the Southern District of New York, seeking to hold eBay liable primarily for direct and contributory trademark infringement, among other related claims.

The Court sided with eBay on all of Tiffany’s claims, finding that, under current law, eBay’s actions do not subject it to liability under either direct or contributory theories. Tiffany v. eBay, ___ F. Supp. 2d ___, 2008 WL 2755787 (No. 04 Civ. 4607) (S.D.N.Y. , July 14, 2008). The court stated: “The heart of this dispute is not whether counterfeit Tiffany jewelry should flourish on eBay, but rather, who should bear the burden of policing Tiffany’s valuable trademarks in Internet commerce.” 2008 WL 2755787, *1.The court determined that Tiffany, not eBay bore that burden.

eBay’s nominative fair use of the trademark does not constitute direct infringement

In order to establish direct trademark infringement, a plaintiff must establish

that “(1) it has a valid mark that is entitled to protection under the Lanham Act; and that (2) the defendant used the mark, (3) in commerce, (4) ‘in connection with the sale . . .

or advertising of goods or services,’ (5) without the plaintiff’s consent.” 1-800Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400, 406-07 (2d Cir. 2005).

Tiffany argued that eBay directly infringed on its “Tiffany” trademark in three ways: 1) by advertising the availability of Tiffany items on eBay and by deriving revenue from the sale of Tiffany products on the site; 2) by purchasing “sponsored links” on Google and Yahoo! advertising eBay’s sale of Tiffany products; and 3) through joint and several liability with the infringing eBay seller, since eBay advises and helps the seller. 2008 WL 2755787, *25.

eBay defended against the claims of direct infringement with the defense of nominative fair use, claiming that it was entitled to make minimal use of the trademark to inform third parties of the availability of Tiffany products on eBay. Id.It also contended that because it does not directly sell anything on the site, and instead merely offers a service to sellers, it cannot be jointly or severally liable for the sellers’ infringement. Id.

The Court agreed with eBay, holding that the doctrine of nominative fair use enables resale of authentic, trademarked goods, so long as the reseller’s use is not likely to confuse consumers about the source of the product or the trademark owner’s sponsorship or affiliation with the reseller. 2008 WL 2755787, *26.

In order to establish nominative fair use, eBay had to show: 1) that the product in question cannot be readily identified without use of the trademark; 2) only as much of the mark is used as necessary to identify the product, and 3) eBay did not do anything to suggest sponsorship or endorsement by Tiffany[1]. 2008 WL 2755787, *27.The Court found that eBay met all of these elements to prove nominative fair use, which served as a defense to all of Tiffany’s direct infringement claims. Id. at **27-28.

eBay’s generalized notice of infringement does not shift the legal burden to eBay

Tiffany argued that eBay should be held contributorily liable for trademark infringement because eBay was put on notice that counterfeit sales were rampant on the site, and it did not do enough to prevent them. 2008 WL 2755787, *1.

To assess Tiffany’s contributory trademark infringement claim, the court relied heavily upon the decision in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982). In Inwood, the U.S. Supreme Court held that: “if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as result of the deceit.” 456 U.S. at 854 (citations deleted) (emphasis added). The Tiffany court determined that the Inwood test is appropriately applied to service providers beyond traditional “manufacturers and distributors” and thus could be applied to eBay. 2008 WL 2755787, *36.

Tiffany tried to argue that eBay should be held to the “reasonable anticipation” test articulated in the Restatement (Third) of Unfair Competition, section 27 (1995). Under the Restatement articulation, a party can be found contributorily liable for infringement when it fails to take precautions against a third party’s infringement if that infringement can be “reasonably anticipated.” 2008 WL 2755787, *33. Tiffany argued that eBay could reasonably anticipate the infringement due to the numerous previous instances of it, and should reasonably be expected to take precautions against it. Id. The Court upheld the Inwood “knows or has reason to know” standard, citing a multitude of courts who have similarly upheld the Inwood standard over that of the Restatement. Id.

The court held that although evidence showed that although eBay had generalized knowledge that some of the alleged “Tiffany” goods sold on eBay might be counterfeit, that generalized notice was not sufficient to impose upon eBay “an affirmative duty to remedy the problem.” 2008 WL 2755787, *38. The fact that many of the “Tiffany” products sold on eBay were authentic Tiffany products highlighted the fact that eBay only knew that some of the “Tiffany” items listed for sale on its site might infringe, and that was not enough to shift the policing obligation to eBay. The court stated: “Such general knowledge … does not require eBay to take action to discontinue supplying its service to all those who might be engaged in counterfeiting.” 2008 WL 2755787, *40.

Moreover, the court lauded the extensive anti-fraud measures and investments eBay had made to minimize the risk of fraudulent sales. The court also noted that eBay had been extremely responsive whenever a trademark holder like Tiffany notified eBay of a specific instance of infringement or fraud, taking appropriate steps to take down the offending sale and, often, discontinue the rights of the offending seller. The court noted: “Courts have routinely declined to impose liability where a defendant, once it possesses sufficient knowledge, takes ‘appropriate steps’ to cut off the supply of its

product or service to the infringer.” 2008 WL 2755787, *46.

Similarly, in this case, the court declined to hold eBay contributorily liable. Its generalized notice was insufficient to require it to take preemptive action to prevent any infringement from occurring. Moreover, when it received specific notice of infringement, it took appropriate responsive action, which is all that the current law requires of eBay.

The court summed up its opinion by stating, “The result of the application of this legal standard is that Tiffany must ultimately bear the burden of protecting its trademark. Policymakers may yet decide that the law as it stands is inadequate to protect rights owners in light of the increasing scope of Internet commerce and the concomitant rise in potential trademark infringement. Nevertheless, under the law as it currently stands, it does not matter whether eBay or Tiffany could more efficiently bear the burden of policing the eBay website for Tiffany counterfeits — an open question left unresolved by this trial.” 2008 WL 2755787, *2.

CONCLUSION

In its opinion, the court alluded to potential future acts of lawmakers to address trademark protection in the ever-changing world of Internet commerce. Indeed, if Tiffany loses its pending appeal (which seems likely, given the comprehensive, well-researched and reasoned opinion of the District Court), the battle may move to Congress, where advocates of trademark holders will lobby to increase their protections online in light of this ruling.

However, those advocates will face opposition from free speech advocates and representatives of online intermediaries, who hail the Tiffany ruling as a victory. Tiffany protects service providers from the illegal acts of their users, unless they have specific knowledge or notice of those acts. If online service providers can be held liable for the alleged infringement of their users, their reaction will ultimately be to remove anything that might possibly constitute infringement. That slippery slope will turn service providers into censors, potentially leading to removal of creative and lawful online conduct and speech.

[1] Compare this case with the recently-decided Standard Process Inc. v. Total Health Discount Inc., 559 F. Supp. 2d 932 (E.D. Wisc. 2008). There, a company sued an online reseller of its products for resale without authorization. Like eBay, the reseller had purchased keyword advertisements containing the trademarked terms. However, unlike the eBay, the reseller included terms like “we” and “our” in its online product descriptions, potential confusing consumers about the sponsorship or affiliation of the trademark owner with the reseller, precluding the nominative fair use defense.  559 F. Supp. 2d at 938-939.