Client Alert

On April 1, 2010, the Court of Appeals for the Second Circuit issued its decision in Tiffany (NJ) Inc. v. eBay Inc. The District Court for the Southern District of New York had found that eBay, an online marketplace, did not engage in trademark infringement, trademark dilution or false advertising with respect to counterfeit Tiffany jewelry that was sold through eBay’s website. The Second Circuit affirmed the judgment as to Tiffany’s claims of trademark infringement and dilution, but remanded the case for further proceedings on the false advertising claim.

eBay’s Service and Anti-Counterfeiting Procedures
eBay’s procedures and anti-counterfeiting efforts were important factors in the District Court and Second Circuit decisions. eBay does not itself sell items listed for sale, does not take possession of those goods, and does not know whether or when an item is delivered to the purchaser. Slip op. at 4. eBay spent $20 million every year on anti-counterfeiting tools to promote safety on its website. Some of these measures included a Trust and Safety internal department; a fraud engine dedicated to discovering illegal listings; and a Verified Rights Owner Program, or VeRO, allowing intellectual property owners to report violations. Id. at 8-11. eBay also cancelled suspicious transactions and suspended thousands of sellers every year for engaging in infringing conduct. Id. at 12.

In addition, eBay allowed intellectual property owners to create web pages on the eBay website detailing their products and intellectual property legal positions. Slip op. at 11. Tiffany provided such a page, on which it stated, among other things: “BUYER BEWARE ... Most of the purported TIFFANY & CO. silver jewelry and packaging available on eBay is counterfeit.” Id.

Direct Trademark Infringement and Nominative Fair Use
Tiffany argued that eBay directly infringed its mark by using the Tiffany mark in advertisements on the eBay website promoting the sale of Tiffany merchandise, and by purchasing sponsored links containing the mark on search engines Google and Yahoo! Slip op. at 16. The Second Circuit held that eBay’s use of Tiffany’s mark was lawful, although the court declined to expressly apply the nominative fair use doctrine, which had been applied by the District Court. Id. at 16-19. The court explained that eBay accurately described the genuine Tiffany goods offered for sale on its website, and that eBay’s use did not imply affiliation between eBay and Tiffany. Id. The Second Circuit further noted that to impose liability because eBay could not guarantee the genuineness of all Tiffany products offered on its website would unduly inhibit the lawful resale of genuine Tiffany goods. Id. at 20.

Contributory Trademark Infringement and Willful Blindness
The Second Circuit then considered application of the Supreme Court’s Inwood test for contributory trademark infringement. In Inwood, the Supreme Court had held that a manufacturer or distributor is liable for contributory trademark infringement if it intentionally induces another to infringe or if it continues to supply its product to one whom it knows or has reason to know is engaging in infringement. Slip op. at 20-21. The Second Circuit concluded that eBay was not liable under the Inwood test because:

1. eBay terminated listings once it learned they contained counterfeit goods, warned sellers and buyers, cancelled fees it earned from those particular listings, and directed buyers not to consummate the sale of the disputed items, and
2. while eBay possessed general knowledge regarding counterfeiting on its website, such generalized knowledge was insufficient under Inwood to impose an affirmative duty on eBay. Slip op. at 25-32.

In order to establish eBay’s contributory liability, Tiffany would have had to show that eBay knew or had reason to know of specific instances of actual infringement beyond those that eBay addressed after learning of them. Slip op. at 28.

Tiffany argued there was sufficient direct and circumstantial evidence to show that eBay knew or should have known that its service was being used to further counterfeiting activity, pointing to evidence that eBay was aware generally of counterfeit Tiffany sales. Slip op. at 28-29. The Second Circuit disagreed, holding that Inwood requires knowledge of specific instances of infringement. Id. at 30. The Second Circuit also observed that the Supreme Court, in a later copyright case, had described Inwood’s “narrow standard” for contributory trademark infringement as requiring knowledge of “identified individuals” engaging in infringing conduct. Id. at 30-31.

The Second Circuit agreed with Tiffany that a service provider may not act with willful blindness to knowledge of particular infringing transactions. Slip op. at 33-34. However, the court found that eBay had not ignored the general information it received about counterfeit sales. Id. at 35.

Trademark Dilution
The Second Circuit affirmed the District Court’s rejection of Tiffany’s dilution by blurring and dilution by tarnishment claims. eBay did not itself sell the goods at issue and therefore did not engage in dilution. Slip op. at 37-38. The Second Circuit also held that, even if a cause of action for contributory dilution exists, as Tiffany had claimed and the court did not decide, such a claim would fail for the same reasons that the court rejected the contributory infringement claim. Id. at 38-39.

False Advertising
eBay advertised the sale of Tiffany goods by providing hyperlinks on its website and by purchasing advertising space on search engines, among other things. Slip op. at 41. The Second Circuit agreed with the District Court that these advertisements were not literally false because authentic Tiffany merchandise is sold on eBay’s website. Id. However, the Second Circuit rejected the District Court’s reasons for finding that the advertisements were not misleading. For example, the Second Circuit noted that an advertisement might make a permissible nominative use of another’s trademark, in a comparison, but that the comparison might be false. Id. at 41-43. The Second Circuit remanded the case, directing the District Court to reconsider the false advertising claim in light of the decision. Id. at 44.

David S. Fleming, Meredith Martin Addy and Howard S. Michael of Brinks Hofer Gilson & Lione filed an Amicus Curiae brief on behalf of Yahoo! Inc. in the case, in support of eBay’s position.

This Client Alert is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. Brinks Hofer Gilson & Lione does not intend to create an attorney-client relationship by offering this information and review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention.