Source: https://www.gw-law.com/blog/tiffany-vs-ebay
Timestamp: 2019-04-24 12:06:06+00:00

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Trademark rights holders are keeping close watch on the ongoing litigation between world-famous jeweler Tiffany[i] and the online auction site eBay, Inc. (“eBay”). This litigation arose as a result of the large volume of sales of counterfeit Tiffany goods on eBay’s website. The market for counterfeit merchandise has seen rapid growth over recent years, due in part to the increased availability of inexpensive goods from foreign manufacturers as well as the ease with which such goods can be sold and distributed over the Internet through sites such as eBay, which is the market leader in online auctions. Just as copyright-based industries such as music and film are struggling to adapt and protect their business while the marketplace continues to be shaped by technology, so too are holders of valuable trademarks seeking ways to staunch the swelling tide of counterfeit goods being sold online. Tiffany is one business which has struggled over recent years with the sale of counterfeit goods, especially the sale of counterfeit Tiffany goods through online marketplaces.
In 2003 and 2004, after working with eBay for many months to try to reduce the volume of counterfeit Tiffany goods being sold on eBay’s website, Tiffany grew frustrated with eBay’s refusal to comply with all of Tiffany’s demands and brought a suit for trademark infringement against eBay in the U.S. District Court for the Southern District of New York. Tiffany raised several state and federal claims against eBay, including counts for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution relating to the sale of counterfeit goods bearing Tiffany’s marks through the eBay website.
The District Court’s decision in Tiffany (NJ), Inc., et al v. eBay, Inc., 576 F.Supp.2d 463 (S.D.N.Y. 2008) is significant because of its treatment of the doctrine of contributory trademark infringement. The Court declined to hold website operators such as eBay liable under the contributory infringement doctrine where the operators do not have actual, specific knowledge of infringement. In doing so, the Court gave electronic commerce sites a significant defense against liability for sales of counterfeit goods by third parties through those sites. The decision also leaves trademark holders with an apparent increased obligation to police the use of their marks and play by the rules of each website operator, creating a potentially burdensome and unsatisfactory situation.
(3) the defendant’s use of the mark is likely to cause confusion as to the affiliation, connection, or association of defendant with plaintiff, or as to the origin, sponsorship, or approval of the defendant’s goods, services, or commercial activities by the plaintiff. 15 U.S.C. 1114(1); 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400, 406-07 (2nd Cir. 2005). Thus, a court’s focus in a direct trademark infringement action should be whether the plaintiff has a valid, protectable mark, and whether the defendant’s use of the mark is likely to cause confusion as to the origin of the goods.
If a manufacturer of distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially [sic] responsible for any harm done as a result of the deceit.
Id. at 502. The doctrine of contributory trademark infringement became the issue of primary significance in the Tiffany decision.
Tiffany is the exclusive licensee and user[ii] of the TIFFANY, TIFFANY & CO., and T & CO. trademarks, including several trademarks registered with the United States Patent & Trademark Office for use on jewelry, watches, and decorative arts objects. Tiffany at 472. Tiffany makes significant efforts, and spends considerable money, to control the sale and distribution of genuine Tiffany-branded goods, and sells its new jewelry only through its retail stores. Id. at 472-73, 484. Tiffany does not sell, or authorize the sale of, Tiffany merchandise on eBay or any other online marketplaces. Id. at 473. In addition, Tiffany has a general policy of refusing to sell more than five of the same new items to a single purchaser without the approval of a retail store manager. Id.
eBay is a global online marketplace most commonly used by businesses or individuals to sell goods through eBay’s online auction system. Id. at 474. eBay does not itself sell any items, and items sold on eBay are never in eBay’s physical possession. Id. at 475. eBay merely provides a marketplace for sales, and support and services for sales transactions, which are then consummated directly between eBay members. Id.
eBay has implemented a variety of anti-fraud measures as it confronts the problem of the sale of counterfeit goods through its website. Id. at 476. These anti-fraud measures include the creation of a “Trust and Safety Department” with a workforce of approximately 4,000 individuals, the development of “fraud engine” technology to automatically search for counterfeit goods, and the implementation of the Verified Rights Owner Program (“VeRO”). VeRO is a program developed by eBay in which eBay works directly with rights holders to address concerns relating to potentially infringing items posted for sale on eBay’s website. Id. at 476-79. VeRO consists of a procedure by which rights holders such as Tiffany can submit a Notice of Claimed Infringement (“NOCI”) to eBay if they see a potentially infringing item for sale on eBay’s website. Id. at 478. Upon receipt of a NOCI, eBay will then promptly remove the report listing from the website and refunded all fees associated with the listing. Id.
Tiffany discovered that a significant volume of counterfeit goods bearing Tiffany marks were sold through eBay’s website. Id. at 481, 485-86. Prior to 2003, Tiffany attempted to stop the counterfeiters through direct action. Id. at 481. Tiffany brought individual lawsuits against counterfeiters, pursued customs actions, worked with law enforcement agencies, and contacted individual eBay sellers to demand that they cease and desist from selling counterfeit Tiffany items. Id. Apparently, these efforts did not eliminate the existence of counterfeit Tiffany goods on eBay, though their actual impact is unclear. In any event, beginning in 2003, Tiffany decided that it would try to address the problem directly with eBay. Id.
In May 2003, Tiffany wrote to eBay to complain about the problem of counterfeit Tiffany jewelry being sold through eBay’s website. Id. Tiffany made several demands on eBay in its May 2003 letter, including that eBay remove all counterfeit listings and take measures to eliminate the sale through eBay of counterfeit merchandise. Id. eBay responded by encouraging Tiffany to take advantage of VeRO, and indicating that eBay did monitor for counterfeit listings and would work together with Tiffany to help protect the Tiffany marks. Id. at 482. However, eBay rejected Tiffany’s demands to prospectively ban listings without any further action from Tiffany. Id.
Between 2003 and 2004, Tiffany used VeRo to give eBay notice of listings by submitted NOCIs for what Tiffany believed to be counterfeit Tiffany merchandise. Id. Tiffany also conducted a “buying program,” whereby Tiffany purchased and inspected items listed on eBay as Tiffany merchandise, in an attempt to document the number of listings which it believed to be counterfeit. Id.
In June 2004, Tiffany sent another letter to eBay stating that it had used VeRO to no avail and that its buying program had indicated that 73% of sterling silver Tiffany merchandise being sold through eBay’s website was counterfeit. Id. Tiffany’s June 2004 letter also demanded that eBay (i) ban any eBay seller from listing five (5) or more Tiffany jewelry items at any given time, (ii) ban the sale of silver Tiffany jewelry, (iii) ban the sale of any Tiffany item that is advertised as being counterfeit or being “inspired by Tiffany,” (iv) not advertise the sale of Tiffany merchandise, and (v) remove sponsored links to Tiffany on any search engine. Id. eBay declined to comply with any of Tiffany’s requests, and litigation ensued soon after.
The principal issues before the Court related to whether eBay could be held liable for direct and/or contributory trademark infringement.
With respect to direct infringement, Tiffany’s arguments are three-pronged. First, Tiffany argued that eBay’s use of Tiffany’s marks in advertising and other promotional materials, use which resulted in revenue for eBay from the subsequent sale of counterfeit Tiffany goods through eBay’s website, constituted direct infringement. Second, Tiffany argued that eBay’s use of Tiffany’s marks in purchasing sponsored links through sites like Google and Yahoo! also constituted direct infringement. Third, Tiffany argued that, under principles of joint and several liability, eBay was liable for direct infringement of Tiffany’s marks as the result of its participation in the sales of counterfeit goods through its website. Id. at 494-495.
With respect to contributory infringement, Tiffany argued that eBay was liable for contributory trademark infringement because eBay “continue[d] to provide its platform despite its knowledge, or reason to know, that counterfeit merchandise is being sold [through that platform]” id. at 502, even though eBay did not itself assist or otherwise actively participate in the infringing activity.
In his opinion, Judge Richard J. Sullivan considered each of Tiffany’s factual allegations to determine whether Tiffany had established that “(1) it has a valid mark that is entitled to protection under the Lanham Act; and that (2) [eBay] use[d] the mark, (3) in commerce, (4) ‘in connection with the sale … or advertising of goods or services,’ (5) without the plaintiff’s consent,” and also whether Tiffany had shown that eBay’s use of its marks was “likely to cause confusion … as to the affililation, connection, or association of [eBay] with [Tiffany], or as to the origin, sponsorship, or approval of [eBay’s] goods, services, or commercial activities by [Tiffany.]” Id. at 495 (citing 1-800-Contacts, Inc., 414 F.3d at 406-407). In short, Tiffany had to establish that it had valid, protectible marks, and that eBay’s use of those marks was likely to cause confusion as to the origin of goods.
There was no dispute as to whether Tiffany’s marks were valid and protectible, and eBay stipulated to Tiffany’s registration of its marks. The bulk of the Court’s analysis therefore turned on the second prong of the test, whether eBay’s use of Tiffany’s marks constituted direct infringement, and its consideration of eBay’s defense of nominative fair use.
eBay’s defense to Tiffany’s claim of direct infringement relied on the doctrine of nominative fair use. Id. Nominative fair use is a principle which permits the use of trademarks in a descriptive manner. Trademark law “‘generally does not prevent one who trades a branded product from accurately describing it by its brand name, so long as the trader does not create confusion by implying an affiliation with the owner of the product.'” Id. at 496 (quoting Dow Jones & Co. v. Intl’ Sec. Exch., Inc., 451 F.3d 295, 308 (2d Cir. 2006)). Nominative fair use permits use of a trademark “where the only word reasonably available to describe a particular thing is pressed into service.” Id. (quoting New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302, 308 (9th Cir. 1992)). Under principles of nominative fair use, trademark owners cannot “use trademark law to prevent the resale of authentic, trademarked goods.” Id. (citing Polymer Tech. Corp. v. Mimranm 975 F.2d 58 (2d. Cir. 1992)).
With respect to eBay’s use of the Tiffany marks on the eBay homepage and in marketing materials, the Court found that goods bearing the Tiffany brand were not readily identifiable without use of the Tiffany marks, particularly since “the Tiffany name is what gives the jewelry the cachet it enjoys.” Id. at 497. If it could not use the Tiffany marks, “eBay would be forced into absurd circumlocutions.” Id. Further, the Court found that eBay only used as much of the Tiffany marks as necessary to identify the goods sold. Id. And lastly, the Court found that eBay did not do anything which would suggest sponsorship or endorsement by the actual trademark holder, Tiffany, and therefore its use did not create a likelihood of confusion as to Tiffany’s affiliation with eBay, stating that “the mere use of a trademarked term to describe something is not enough to suggest sponsorship or endorsement.” Id. The Court concluded that eBay’s use of the Tiffany marks was protected under the doctrine of nominative fair use.
The Court also relied on the doctrine of nominative fair use in considering Tiffany’s argument that eBay’s purchase of sponsored links using the Tiffany marks constituted direct infringement. eBay’s purchase of sponsored links “communicated the availability of Tiffany goods on eBay to the public,” essentially a practice of causing advertisements to be triggered by Internet searches for terms such as “Tiffany.” Those advertisements then communicated to the searching party that Tiffany goods were sold through the eBay website. Id. at 500-501. Finding that eBay’s use of the Tiffany marks in sponsored links was “effectively identical to its use of the Tiffany name on the eBay website,” the Court held that such use was protected under the doctrine of nominative fair use. Id. at 501. The Court rejected Tiffany’s claim that eBay was liable for direct trademark infringement under the theory of joint and several liability as being “misplaced,” and “more properly addressed under the theory of contributory infringement.” Id.
As noted above, liability for trademark infringement may arise in certain circumstances even when a defendant is not the direct infringer of a plaintiff’s trademark. In this case, Tiffany argued that eBay was liable for contributory trademark infringement because eBay “continue[d] to provide its platform despite its knowledge, or reason to know, that counterfeit merchandise is being sold [through that platform]” id. at 502, even though eBay did not itself assist or otherwise actively participate in the infringing activity.
Id. at 502. In applying the Inwood standard to eBay’s conduct, the Court made two critical holdings with respect to the knowledge required before contributory infringement will lie. First, the Court concluded that the Inwood test should be applied in determining whether there is a basis for liability for contributory infringement, and that application of the more expansive “reasonable anticipation” standard was not supported by precedent or policy. Second, the Court found that generalized knowledge is not sufficient to satisfy Inwood’s “knows or has reason to know” test and that, instead, specific knowledge of infringing activity is required.
As an alternative to the Inwood test, Tiffany had urged the Court to apply the “reasonable anticipation” standard as articulated in the Restatement (Third) of Unfair Competition. Tiffany at 502. Under the Restatement, a party may be liable for contributory trademark infringement where “the actor fails to take reasonable precautions against the occurrence of the third person’s infringing conduct in circumstances in which the infringing conduct can be reasonably anticipated.” Restatement (Third) of Unfair Competition 27 (1995) (emphasis added). Tiffany argued that the Court’s inquiry should consider whether the offer for sale of counterfeit Tiffany merchandise could be reasonably anticipated by eBay. Id. Tiffany’s position was rejected by the Court, based largely on the plain language of Inwood itself. Id. at 503. Pointing to a footnote in the Inwood opinion, the Court concluded that the Supreme Court in Inwood had “explicitly rejected” the “reasonable anticipation” standard and had described it as a “watered down and incorrect” standard. Id. (citing Inwood at 854). The Court went on to buttress its conclusion that the Inwood test applied by citing to a number of district court cases which had also rejected the “reasonable anticipation” standard. Id.
The most significant piece of the District Court’s decision in Tiffany concerned its conclusion as to how much or what type of knowledge a defendant must have to satisfy the “know or have reason to know” standard set forth in Inwood. The Court found that generalized knowledge of infringement, which eBay clearly had, was not sufficient under the Inwood test to impose upon eBay an affirmative duty to remedy the infringement, a breach of which duty would give rise to liability for contributory infringement. Id. at 508. Instead, specific knowledge of actual infringing activities was required. Id. at 510.
The Court found that “neither precedent nor policy” supported Tiffany’s position that generalized allegations of infringement provided eBay with knowledge or a reason to know of the infringement which would be sufficient to give rise to liability. The Court found initial support in the language of the Inwood decision, which stated that a defendant may be liable for contributory infringement if it “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.” Id. at 508 (emphasis in original). The Court concluded that “[t]he Supreme Court’s focus on individual infringers through its singular language is consistent with a requirement of specific, rather than general, knowledge.” Id.
The Court also concluded that prior court decisions demonstrated that generalized knowledge of infringement was not sufficient to find liability for contributory infringement. Id. at 509. Instead, plaintiffs face a high burden of establishing actual knowledge of infringing activity when alleging liability for contributory infringement. Id. at 508-09.
After considering many prior cases, the Court found that, rather than mere generalized knowledge, courts have required a much higher showing that defendant knew or had reason to know of specific instances of actual infringement. Id. at 510. Moreover, from a policy standpoint, the Court reasoned that, “were Tiffany to prevail on its argument that generalized statements of infringement were sufficient to impute knowledge to eBay of any and all infringing acts, Tiffany’s rights in its mark would dramatically expand, potentially stifling legitimate sales of Tiffany goods on eBay.” Id.
Based on the Inwood standard, the Court analyzed Tiffany’s arguments and evidence that eBay knew or had reason to know that infringing activity was taking place through its website. First, Tiffany argued that its demand letters provided detailed notice to eBay that there were no authorized third-party vendors for Tiffany merchandise and that anyone selling lots of more than five items was almost certainly offering counterfeit merchandise. Tiffany at 511. Second, Tiffany argued that the results of the buying program which it had conducted provided eBay with knowledge of any and all instances of counterfeiting on eBay. Finally, Tiffany contended that the large number of NOCIs that Tiffany submitted to eBay between 2003 and 2006, along with complaints from other rights holders, should have put eBay on notice of actual, ongoing counterfeiting which was occurring on its website. Id. at 513.
The Court was not persuaded by any of Tiffany’s arguments. The Court found that Tiffany failed to present sufficient evidence demonstrating that a seller offering five or more items of Tiffany jewelry was presumptively dealing in counterfeit merchandise. Id. This conclusion was based on the fact that the five-item limit was not regularly enforced by Tiffany itself; that lots of more than five identical Tiffany items were available through Tiffany’s corporate and international sales accounts; and, most importantly, that lots of five or more pieces of authentic new Tiffany items had been made available on eBay. Id. Therefore, the Court declined to impute knowledge or a reason to know of counterfeiting based on Tiffany’s demand letters and the proposed five-or-more rule. Id. at 512.
As to Tiffany’s buying program, the Court found that it suffered from serious methodological problems and that, at most, the results of the program gave eBay generalized notice that some level of infringement was occurring on its website. Id. at 512-13. Finally, the Court found that eBay had responded reasonably to all notices of specific infringing activities resulting from NOCIs, and that any generalized knowledge that the NOCIs provided was insufficient to impute the requisite specific level of knowledge to eBay to hold it liable. Id. at 513.
The Court’s analysis regarding the final two aspects of Inwood’s contributory infringement test–whether eBay was willfully blind to infringement and whether it “continued to supply” services to infringers–followed similar reasoning. As to willful blindness, the Court stated that eBay was not willfully blind to counterfeiting occurring on its website because “without specific knowledge or reason to know, eBay is under no affirmative duty to ferret out potential infringement.” Id. at 515. The Court warned that such an expansion of the “reason to know” standard was explicitly precluded by prior case law. Id. (citing Hard Rock Caf at 1149).
Finally, the Court concluded that even for those infringing listings of which eBay was notified through submission of NOCIs, eBay did not “continue to supply” its services because eBay acted reasonably and promptly to remove such listings upon receiving each NOCI. Tiffany at 516-17. The Court found that eBay’s administration of the VeRO program represented reasonable conduct by eBay to address specific acts of infringement of which it became aware. Id.
Based on this analysis, the Court found that eBay was not liable to Tiffany for contributory trademark infringement.
Tiffany brought four other claims against eBay in this action in addition to its claims for direct and contributory trademark infringement: unfair competition, false advertising, dilution, and contributory dilution. Id. at 519-26. These claims were considered and dismissed by the Court in a fairly summary fashion. Id.
The Court found that Tiffany’s federal and common law unfair competition claims were subject to the same analytical framework as its federal infringement claims, and that therefore both failed because Tiffany had failed to prove its federal infringement claims. Id. at 519.
Next, as to Tiffany’s false advertising claims, the Court found that eBay’s practice of advertising listings featuring Tiffany items were not literally false since authentic Tiffany merchandise is sold on eBay. Id. at 520. The second possible basis for Tiffany’s false advertising claim–that eBay’s advertising, though not literally false, was likely to mislead or confuse–was subjected to a similar analysis as were Tiffany’s direct and contributory infringement claims. The Court found that eBay’s use of Tiffany’s marks in advertising constituted nominative fair use; that eBay’s generalized knowledge of counterfeit sales did not support the claim that eBay was misleading consumers; and that any falsity was the responsibility of third party sellers, not eBay. Id. at 521. The Court also reiterated that eBay’s diligence in removing listings for counterfeit goods showed that eBay was not misleading consumers. Id.
Finally, with respect to Tiffany’s claims for trademark dilution, the Court concluded that Tiffany’s direct dilution claimed failed both on its merits and due to eBay’s nominative fair use defense, and that its contributory trademark dilution claim failed for the same reasons as its contributory infringement claim. Id. 525-26.
Although currently pending in the Court of Appeals for the Second Circuit, the District Court’s decision in Tiffany v. eBay, if upheld, could have a significant impact on businesses who rely on branding and brand awareness to sell their goods, and who already devote a large portion of their operating expenses to trademark protection and enforcement. Based on Tiffany, these companies may be compelled to step their own policing and enforcement efforts, at added expense, in order to protect against rampant counterfeit goods being sold online under their brands. On the other hand, the decision is good news for online merchants, who can now feel more insulated from liability for the sale of counterfeit goods on their websites, as long as they take reasonable steps to prevent such counterfeiting and take prompt steps remove infringing items upon notification from rights owners.
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