By: Avni Chari
The U.S. Supreme Court on Monday (29th November, 2010) dismissed the appeal of Tiffany & Co. in a dispute over eBay’s liability for trademark infringement for selling counterfeit goods on its website. The concept of trademark infringement applies on its face to manufacturers and distributors of goods and providers of services. Although this is not the first U.S. case to extend the application of this traditional concept to the Internet, it is the first to consider its applicability to an online marketplace.
Tiffany instituted a suit against eBay in 2004 before the U.S. District Court for the Southern District of New York. Judge Richard J. Sullivan concluded that eBay, the proprietor of a website through which counterfeit Tiffany merchandise was sold, engaged neither in trademark infringement nor trademark dilution. This judgment was affirmed on appeal by the U.S. Court of Appeals for the Second Circuit.
eBay is the proprietor of www.ebay.com, an Internet based marketplace that allows those who register with it to purchase goods from and sell goods to one another. eBay generates revenue by charging sellers to use its listing services. Tiffany is a famous purveyor of, among other things, branded jewelry. eBay spends as much as $20 million each year on tools to promote trust and safety on its website. In addition, eBay has allowed rights owners such as Tiffany to create an “About Me” webpage on eBay’s website “to inform eBay users about their products, intellectual property rights, and legal positions.” The “About Me” webpage maintained by Tiffany presents a caveat that “Most of the purported Tiffany & Co. silver jewelry and packaging available on eBay is counterfeit.”
The cardinal issue before the Court was whether eBay is liable for contributory trademark infringement for culpably facilitating the infringing conduct of the counterfeiting vendors. In order for eBay to be liable for contributory trademark infringement, it would have to satisfy the Inwood test [conceived in Inwood Laboratories Inc. v. Ives Laboratories Inc., 456 U.S. 844 (1982)]. When applying the Inwood test to service providers, there are two ways in which a defendant may become liable for the infringing conduct of another: first, if the service provider, “intentionally induces another to infringe a trademark” and second, if the service provider, “continues to supply its service to one whom it knows or has reason to know is engaging in trademark infringement”. Tiffany argued the second.
The Court rejected the argument of the appellant, Tiffany & Co. eBay discontinued listings once it learned that they were specious. The Court found that eBay’s practice was promptly, “to remove the challenged listing from its website, warn sellers and buyers, cancel fees it earned from that listing, and direct buyers not to consummate the sale of the disputed item.” Tiffany demonstrated that eBay continued listings despite having a “generalized notice” that some portion of the Tiffany goods sold on its website might be counterfeit. However, the Court found this “generalized knowledge” insufficient to meet the “knowledge or reason to know” requirement of the Inwood test. eBay would have to have specific knowledge of identifiable infringing activity.
Another issue raised before the Court was whether eBay is liable for trademark dilution by its use of Tiffany’s famous trademark on its website. According to U.S. law [15 U.S.C. § 1125 (c) (2)(B)], “Dilution by Blurring” is, “an association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark.” It can occur, “regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.” The Court, however, rejected Tiffany’s dilution by blurring claim on the ground that, “eBay never used the TIFFANY Marks in an effort to create an association with its own product, but instead, used the marks directly to advertise and identify the availability of authentic Tiffany merchandise on the eBay website.” There is no second mark or product at issue to blur with “Tiffany”.
The U.S. Supreme Court’s refusal to hear Tiffany’s appeal lays bare the onerous challenge faced by luxury retailers all over the world in the wake of bourgeoning Internet Service Providers and online marketplaces. As Judge Richard J. Sullivan of the District Court put very bluntly, trademark proprietors such as Tiffany, “must ultimately bear the burden of protecting [their] trademark.”
This is not the first time a luxury brand has initiated legal action against eBay for hosting the sale of counterfeit goods. Both German and UK Courts, in 2009, held in favour of eBay (the suits were filed by Rolex and L’Oréal respectively). However, a French Court, in 2008, ordered eBay to pay damages to Louis Vuitton to the tune of €40 million as compensation for allowing the sale of counterfeit goods.
