On July 14, 2008, the US District Court for the Southern District of New York ruled against high-end jeweler Tiffany, holding that eBay’s general knowledge that it frequently offers for sale counterfeit goods on its online auction site did not render it liable for contributory trademark infringement. Tiffany (NJ) Inc. v. eBay Inc., No. 04-4607 (SDNY July 14, 2008). Tiffany had sued the online auctioneer in 2004 for the sale of counterfeit Tiffany silver jewelry on eBay’s site.  While Tiffany argued that eBay had the duty to investigate and control the sale of illegal counterfeit goods on its site, eBay contended that its notice-and-takedown procedures and other anti-fraud efforts were sufficient, and that it was Tiffany’s burden to police its own trademarks. For additional background on this case, please click here to see Arent Fox’s previous alert. 

Specific Knowledge of Trademark Infringement Required for Contributory Liability

In finding that eBay was not liable for contributory trademark infringement, the court applied the standard set forth in Inwood Labs. Inc. v. Ives Labs. Inc., 456 U.S. 844, 854 (1982), which holds liable one who continues to supply its services “to one whom it knows or has reason to know is engaging in trademark infringement.” Under the Inwood test, the court held that eBay’s general knowledge of counterfeiting on its site was insufficient to impose on it an affirmative duty to remedy the problem. Instead, the court required specific knowledge, and found that, where Tiffany gave eBay specific notice of listings allegedly containing infringing merchandise, eBay promptly investigated and removed those listings, and suspended sellers’ accounts when appropriate.

The court’s holding explicitly places the burden of policing trademarks on trademark owners, rather than on online marketplaces such as eBay or Amazon.com. The court commended the anti-fraud efforts eBay has taken, such as its fraud search engine and Verified Rights Owner (VeRO) program, but emphasized that trademark holders bear the principal responsibility for monitoring their trademarks, and found that “Tiffany’s commitment to reporting infringing listings through the VeRO program has been sporadic and relatively meager.” Tiffany’s argument that eBay’s notice-and-takedown procedures were too time-consuming did not sway the court.

Although Tiffany is expected to appeal, the court’s decision is a victory for both eBay and online marketplaces in general, since a ruling for Tiffany could have lead to efforts to force companies like eBay and Amazon.com to police the hundreds of millions of items offered for sale on their sites. Nevertheless, it is not all good news for eBay since, in marked contrast to the Tiffany ruling, a French court recently ordered the company to pay $61 million to LVMH Moët Hennessy Louis Vuitton for eBay’s online auctioning of counterfeit merchandise. eBay is appealing that ruling. 

EBay’s Use of Tiffany’s Trademark in Visible Text Sponsored Links Is Nominative Fair Use

In a separate part of the Tiffany opinion, the court held that eBay’s purchase of the keyword “Tiffany” as a sponsored link on search engines run by Yahoo! and Google, a practice which eBay ceased in 2003 in response to Tiffany’s complaints, was permissible nominative fair use of Tiffany’s trademark, not direct trademark infringement. Unlike in 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir. 2005), where defendant’s use of plaintiff’s mark to trigger pop-up advertising was held not to be trademark “use” under the Lanham Act because such use was merely internal, and many other keyword advertising cases, eBay’s purchased sponsored links displayed the TIFFANY mark in ad text that was visible to Internet searchers. Nevertheless, the district court states that “even if this type of activity were to constitute trademark ‘use’ under the Lanham Act . . . such use is protected under the ‘nominative fair use’ doctrine.” eBay’s use of Tiffany’s marks in sponsored links was merely to describe the legitimate Tiffany jewelry available on eBay’s site, which was not identifiable without the use of the TIFFANY mark, and did not imply sponsorship or endorsement by Tiffany.

It is worth noting that although the Tiffany court followed the rulings of other district courts within the Second Circuit in stating that the purchase of another’s trademark as a keyword to trigger sponsored advertisements does not constitute trademark “use” where the ads do not display the trademark to Internet searchers, the majority of federal trial courts outside the Second Circuit, including a recent decision in Los Angeles, Finance Express LLC v. Nowcom Corp., 2008 WL 2477430 (C.D. Cal. June 18, 2008), have held just the opposite, i.e., that keyword-triggered advertisements do constitute “use” under the Lanham Act. A case currently on appeal to the Second Circuit may clarify, or perhaps reconcile, this split in opinion. Although this area of the law remains uncertain, the majority trend (outside the Second Circuit) remains positive for trademark owners seeking to enforce their rights against competitors and others using the owners’ marks in keyword-triggered advertising.

For more information, please contact:

Anthony V. Lupo
lupo.anthony@arentfox.com
202.857.6353

Sarah L. Bruno
bruno.sarah@arentfox.com
202.775.5760

Loni J. Sherwin
sherwin.loni@arentfox.com
202.775.8581