July 2008
US Courts Give eBay a Break
It has been a torrid few months for global auction site, eBay. Earlier this month we reported that the French courts had ordered eBay to pay €38.6m to the French luxury goods group LVMH for allowing the sale of fake versions of their merchandise on the site. (See Briffa article http://www.briffa.com/news/current/ebay.php). This decision came hot on the heals of another case in which eBay were ordered to pay handbag maker Hermes €20,000 for permitting the sale of counterfeit goods. However it proved to be third time lucky for the auction site as in the US the District Court in New York ruled that eBay were not liable for trade mark infringement after counterfeit Tiffany items flooded the site.
The court ruled that eBay were not liable because they lacked the requisite knowledge. Judge Richard Sullivan said that eBay could not be responsible for all the trade mark infringements on their site “based solely on their generalized knowledge that trademark infringement might be occurring on their Web sites". Sullivan also indicated that eBay’s anti-counterfeiting policies were sufficient. Ultimately it was up to rights holders to effectively police the site and notify eBay in accordance with its VeRO notification procedure. EBay would then be legally obliged to act. The judge said:
"Tiffany must ultimately bear the burden of protecting its trademark. Policymakers may yet decide that the law as it stands is inadequate to protect rights owners in light of the increasing scope of Internet commerce and the concomitant rise in potential trademark infringement. Nevertheless, under the law as it currently stands, it does not matter whether eBay or Tiffany could more efficiently bear the burden of policing the eBay website for Tiffany counterfeits – an open question left unresolved by this trial."
"Instead, the issue is whether eBay continued to provide its website to sellers when eBay knew or had reason to know that those sellers were using the website to traffic in counterfeit Tiffany jewellery. The Court finds that when eBay possessed the requisite knowledge, it took appropriate steps to remove listings and suspend service," it said.
In addition the court also ruled that eBay could advertise using other people's trade marked terms both on its site and on other people's websites such as links in Google and Yahoo.
Briffa’s Opinion
This decision must come as a huge relief to eBay. The seemingly endless litigation over the past few months has greatly undermined its business model. If eBay has to verify every single item listed on its site then it would greatly increase the cost of listing. This is a major decision for eBay since the US market is responsible for nearly half of the company's earnings.
The court’s reasoning was that while eBay may have been aware of the relevant transactions since they take a percentage cut, the level of complicity did not amount to contributory infringement. Had eBay continued offering for sale infringing items after it had been notified by the rights holders then this would have amounted to infringement. As such the case highlights the need for rights holders to monitor eBay themselves and to use the VeRO procedures if infringing articles are being sold on the website.
It is also worth noting that Tiffany only decided to purse eBay not the primary infringers. This may have influenced the decision of the court, since eBay were not primarily responsible.
Tiffany has indicated that they may appeal.