The ruling leaves the door open for Tiffany to challenge’s eBay’s advertising policy, which is why some early headlines at Reuters and elsewhere pegged the decision by the three-judge panel as a win for Tiffany.
But on the central issue of the case, this is a huge win for eBay and its counsel, Bruce Rich of Weil, Gotshal & Manges. (Rich declined comment, saying his client planned to release a statement later in the day). The Second Circuit agreed with a lower court’s 2008 decision that the sale of some counterfeit Tiffany goods on eBay does not constitute infringement by the auctioneer. The panel ruled that eBay takes the appropriate steps to combat sales of counterfeits and therefore does not encourage infringement, as Tiffany alleged. Among the site’s anti-counterfeiting efforts: EBay employs hundreds of people to root out fakes and encourage companies, including Tiffany, to alert it when counterfeit items are listed for sale. EBay also removes such listings within at least 24 hours (and usually within 12 hours), according to court records.
In appealing the lower court’s decision, Tiffany and its counsel, James Swire at Arnold & Porter, continued to argue that eBay does not in fact do enough to stop the sale of phony goods. The company argued that the notice-and-takedown system placed too much of the burden for fighting counterfeit sales on Tiffany.
The three-judge panel disagreed and said it is the first circuit court in the U.S. to tackle the issue of so-called “contributory trademark infringement” in the context of e-commerce. To win its case, the court said, Tiffany would have to show specific instances in which eBay knew about counterfeit items for sale on its site and failed to take any action. “Tiffany failed to make such a showing,” the court ruled.
Swire did not return a call seeking comment. Tiffany issued a statement today saying it is “very disappointed” by the court’s ruling.
The court sent the case back to the district level for more discussion of whether eBay may be guilty of false advertising because it promotes the presence of “Tiffany” products on its site in both direct advertisements and paid ads that pop up when users search for Tiffany on Google and other search engines.
Those ads could be deemed false, because eBay is aware that “a significant portion” of goods advertised as Tiffany items on eBay are actually counterfeit, the court said. (The exact percentage of counterfeit Tiffany items among all those advertised is in dispute). EBay has pointed out that its site contains a special “About Me” page for Tiffany (and controlled by Tiffany) in which users are told that any Tiffany item advertised for sale on eBay is likely to be a fake.
To win a false advertising claim, Tiffany will have to produce evidence that consumers were confused by the advertisements, the court said. So far, Tiffany has not produced that sort of evidence, which usually comes in the form of consumer surveys.
The Second Circuit’s ruling is the most recent major development in an international debate over how much eBay and other consumer resale sites should be required to do in order to police counterfeit sales. As we’ve reported, the results have been mixed for eBay outside the U.S. A French court ruled in 2008 that eBay had not done enough to stop counterfeit sales of luxury items and ordered the auctioneer to pay a $63 million fine. A court in Belgium came to the opposite conclusion in a case that same year. And just six weeks ago, a French court ordered eBay to pay a $275,000 fine to the parent company of Louis Vuitton as punishment for buying ads that popped up when Internet users searched for terms that are common misspellings of Louis Vuitton and other brands.
So far, the U.S. a friendlier venue for eBay, and Thursday’s ruling only reinforced that.
This story originally appeared in The Am Law Daily, a Corporate Counsel sibling publication.