Tiffany v. eBay: General Awareness of Mass Infringement Not Enough to Establish Contributory infringement

The Second Circuit U.S. Court of Appeals has affirmed that brand owners are ultimately responsible for policing and fighting counterfeits, even when a high volume of infringement occurs in one outlet. In Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93 (2nd Cir. 2010), the Second Circuit held that a service provider like eBay only becomes liable for contributory infringement if it continues to provide its services to a specific individual who it knows, or has reason to know, is selling counterfeit goods. The Circuit Court remanded the false advertising claims of the case for the district court to determine whether eBay’s ads falsely implied that all of the goods offered on its site were genuine.

BACKGROUND

eBay is a massive electronic marketplace with hundreds of millions of listings of products for sale. Among them are listings for “Tiffany” jewelry and items, many of which are genuine, but, as the Court acknowledged, a “significant portion” of them are counterfeit. Tiffany claimed that 75% of the “Tiffany” items listed for sale on eBay at any given time are counterfeit.

Tiffany sued eBay, arguing that eBay’s facilitating and advertising the sale of “Tiffany” goods constituted direct and contributory trademark infringement, trademark dilution, and false advertising. The District Court ruled in favor of eBay on all claims after a 2008 bench trial.  (See Tiffany v. eBay: A Trademark Owner Must Police Its Own Marks on the Internet)

Tiffany appealed.

eBay was not liable for direct trademark infringement

Tiffany argued that eBay’s purchase of Internet ads that included the use of the Tiffany trademark as an example of goods for sale on eBay constituted direct trademark infringement. But the Circuit Court held that eBay’s use of Tiffany’s brand was not infringement and was protected under the nominative fair use doctrine. 600 F.3d at 102-103. Nominative fair use allows suppliers to use a trademark holder’s mark for the purpose of describing the supplier’s own product so long as the use does not create a likelihood of confusion as to the source of the product or the trademark holder’s sponsorship or affiliation. Id. The Court found that eBay’s use of Tiffany’s trademark was necessary to describe its product and did not imply a false affiliation or endorsement. Id. at 103. Accordingly, there was no direct infringement.

eBay was not liable for contributory infringement

The real crux of the case was Tiffany’s argument that because eBay continued to supply its service to individuals selling counterfeit goods, eBay should be liable for contributory infringement.

The Circuit Court applied the test for contributory infringement set forth by the U.S. Supreme Court in Inwood Labs, Inc. v. Ives Labs. Inc., 456 U.S. 844 (1982). Under the Inwood test, a manufacturer/distributor may be liable for contributory infringement if it 1) “intentionally induces another to infringe on a trademark,” or 2) “if it continues to supply its product to one whom it knows or has reason to know is engaging in the infringement.” Id. at 845.  The Circuit Court agreed with other circuits that Inwood applies to services providers like eBay. 600 F.3d at 105 – 106. Tiffany did not argue inducement, so the Court focused on the second prong of Inwood.

The Circuit Court noted that whenever Tiffany alerted eBay to a specific instance of infringement, eBay promptly removed the listing pursuant to its anti-counterfeiting notice-and-takedown procedure, under which it removed an allegedly infringing listing within 24 hours of receiving a complaint. But Tiffany argued that this was not enough – it asserted that because “eBay knew, or at least had reason to know, that counterfeit Tiffany goods were being sold ubiquitously on its website,” that eBay should be liable because it continued to make its services available to infringing sellers. Id. at 106.

The Court disagreed. “For contributory infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.” Id. at 107.

The Court pointed to the specific language used by the Inwood court to justify its ruling: “[T]he particular phrasing that the [Supreme] Court used – that a defendant will be liable if it ‘continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement’ – supports the district court’s interpretation of Inwood, not Tiffany’s.” Id. at 108 (emphasis in original).

The Court noted that while eBay has its own incentive – ensuring satisfied consumers—to minimize the sale of counterfeit goods, it is not charged with policing its site “24 hours a day, and 365 days a year” for counterfeits. Id. at 109. That policing ultimately falls to the trademark holder.

No secondary mark exists to dilute the Tiffany brand

On Tiffany’s dilution argument, the Circuit Court easily agreed with the District Court that because eBay only used Tiffany’s trademark “to advertise and identify the availability of authentic Tiffany merchandise” on eBay, “[t]here is no second mark or product at issue here to blur or to tarnish ‘Tiffany.’” Id. at 112. Accordingly, there was no valid dilution claim.

The false advertising claim was remanded

Tiffany argued that eBay’s advertising that Tiffany products were available on eBay constituted false advertising because it may mislead consumers to believe that all products labeled “Tiffany” on the site were authentic. The Circuit Court agreed with the District Court that eBay’s ads “were not literally false inasmuch as genuine Tiffany merchandise was offered for sale through eBay’s website.” Id. at 113.

The Circuit Court asked, however, whether those ads might be misleading to the extent that they may suggest that all goods labeled “Tiffany” on the website were genuine Tiffany goods. The Court noted that “the law prohibits an advertisement that implies that all of the goods offered on a defendant’s website are genuine when in fact, as here, a sizable proportion of them are not.” Id. at 114. The Circuit Court rejected the District Court’s finding that nominative fair use was a categorical defense to false advertising. Id. at 113-114.

The Circuit Court did state that a disclaimer might be sufficient to correct any possibly misleading advertisements, and it remanded the issue to the District Court to re-examine the issue, stating that the available record was insufficient to decide the matter. Id. at 114.

CONCLUSION

The Tiffany decision is important because it clearly rejects the argument that the “knowledge” requirement of Inwood can be met by general knowledge or awareness of infringement, even if the infringement is widespread. Rather, to be liable for contributory infringement, a service provider must continue to provide services to an infringer despite specific knowledge of the infringement.

The Second Circuit reached the opposite opinion as European courts have on the same subject. In 2008, a French court found eBay liable for enabling the sale of counterfeit Hermes bags, ordering eBay to pay damages to Hermes of about $30,000. Less than a month later, a Paris court decided against eBay in a similar suit brought by the parent company of Louis Vuitton, Dior, and other high-end brands. The court determined that about 90% of the Dior and Louis Vuitton items auctioned on eBay were fakes and awarded the plaintiffs more than $63 million for “culpable negligence” and for “failing to act within [eBay’s] powers to prevent reprehensible use of the site.”

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Jeff Zuber

Yuri Mikulka

Also See:

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Louis Vuitton Malletier S.A., v. Ly USA: Second Circuit Splits, Allows Attorney’s Fees Under § 1117(c) Trademark Infringement

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