In a weeklong bench trial that ended on November 20, 2007 in the U.S. District Court for the Southern District of New York, lawyers for high-end jeweler Tiffany & Company argued that eBay should be held liable for contributory trademark infringement based on the popular online auction site’s general knowledge that it frequently offers counterfeit goods for sale. In contrast, eBay disclaimed contributory liability, arguing that it did not have specific knowledge of individual counterfeit listings of Tiffany merchandise and fail to act on that knowledge. With parties having filed post-trial memoranda December 7, the court’s decision is likely to come soon.

If Tiffany prevails in this high-stakes litigation, eBay can expect a flood of similar trademark and copyright lawsuits by other retailers whose counterfeit goods are sold on the site. Such litigation could threaten eBay’s very business model because it would force the company, in a highly expensive endeavor, to police the approximately 102 million items offered for sale on eBay at any given time. Katie Hafner, Tiffany and eBay in Fight Over Fakes, N.Y. Times, Nov. 27, 2007, at C9.

General or Specific Knowledge of Trademark Infringement Required?
Both parties acknowledge that an online auction website operator is liable for contributory trademark infringement if it “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.” See Inwood Labs. Inc. v. Ives Labs. Inc., 456 U.S. 844 (1982). Yet Tiffany and eBay differ as to whether the facts of their case satisfy this knowledge standard.

In its claim for contributory trademark infringement, Tiffany argues that eBay had general knowledge of counterfeiting on its site because both Tiffany and eBay customers had complained to eBay about such problem. Tiffany claims to have filed thousands of notices of claimed infringement on the site through eBay’s Verified Rights Owner (VeRO) program and to have sent letters and reports to eBay notifying it of counterfeit goods—both Tiffany merchandise and non-Tiffany merchandise—sold on the site. Further, Tiffany argues that eBay had the ability to control the sale of such counterfeit goods, since it regularly restricts certain kinds of sales, namely firearms and liquor sales, on its site. Likening eBay to the flea market and swap meet operators in Hard Rock Cafe Licensing Corp. v. Concession Servs. Inc., 955 F.2d 1143 (7th Cir. 1992) and Fonovisa Inc. v. Cherry Auction, 76 F.3d 259 (9th Cir. 1996), respectively, Tiffany contends that eBay should be contributorily liable for trademark infringement because it controls sellers’ access to its online marketplace and earns a commission on the sale of counterfeit goods.

By contrast, eBay interprets Inwood more narrowly, disclaiming secondary liability (i) because it did not know of specific listings of counterfeit Tiffany products which eBay did not act to remove from its site and (ii) because it had only a general idea that counterfeiting was otherwise occurring. In support of its argument that specific knowledge is required to prove contributory trademark infringement, eBay analogizes to copyright law. Unlike Napster, the popular online music-sharing service found contributorily liable for copyright infringement for illegal user downloads, eBay did not “learn of specific infringing material on [its site] and fail[] to purge such material . . . .” A&M Records Inc. v. Napster Inc., 239 F.3d 1004, 1021 (9th Cir. 2001). Instead, eBay claims that it routinely removed specific listings containing infringing merchandise when third parties notified it, through VeRO or other means, of such infringements. As for the demand letters Tiffany sent eBay, eBay claims these constituted mere general notice, since they failed to identify specific listings or sellers of counterfeit goods.

Whose Burden Is It to Police Trademarks?
Tiffany and eBay also dispute which party bears responsibility for policing Tiffany’s trademark. eBay maintains that it is Tiffany’s sole burden to police its own trademark and protect its own name. Tiffany counters that its efforts to police its mark are irrelevant to a determination of eBay’s contributory trademark liability.

Arent Fox is currently monitoring this case in anticipation of the court’s decision. 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