Intellectual Property Law

S.D.N.Y Holds eBay Not Liable in Closely Watched Trademark Case

By Sheppard Mullin

In a July 14, 2008, decision addressing the issue of who bears the burden in policing counterfeiting on online auction sites, Judge Richard J. Sullivan of the Southern District of New York held that "it is the trademark owner's burden to police its mark and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their websites." The decision was rendered in Tiffany (NJ) Inc. v. eBay, Inc., No. 04 Civ. 4607 (RJS) (S.D.N.Y). The district court held that Tiffany had failed to meet its burden to hold eBay liable for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution.

The following are the key holdings:

• eBay's use of the Tiffany marks on its homepage and with respect to online advertising is protected under the nominative fair use doctrine. The district court held that eBay's practice of purchasing sponsored links of Tiffany trademarks also is protected by the defense of nominative fair use;
• eBay's internal use of the Tiffany mark as a key word to trigger the display of sponsored links is not a use of the mark in a trademark sense under 1-800 Contacts v. WhenU;
• Contributory infringement in this case is evaluated under the second prong of the Inwood Laboratories test -- which recognizes contributory liability when a manufacturer or distributor continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement. This test applies in cases such as this one where eBay is analogous to a flea market, like those in Hard Rock Cafe and Fonavisa. eBay had sufficient control over its website so that the Inwood test applies;
• Generalized knowledge of infringing activity is not sufficient to meet the "know or reason to know" standard regarding contributory infringement set forth in Inwood. Courts require a showing that a defendant knew or had reason to know of specific instances of actual infringement;
• Tiffany demonstrated that eBay had general knowledge of infringement, but Tiffany's allegations of counterfeiting failed to provide eBay with the specific knowledge required under Inwood. Demand letters and the presumption that any listing of five or more Tiffany items was counterfeit, along with buying program evidence of infringements, notices of counterfeit auctions and buyer complaints, were not considered specific notice or sufficient in volume to create a duty to act and, to the extent that there was specific notice, the district court held that eBay responded appropriately;
• The district court concluded that eBay was not willfully blind to evidence of infringement on its website because the evidence established that, when eBay had general knowledge of counterfeiting on its website, it took reasonable steps to investigate and stop that wrongdoing through general anti-fraud measures. The district court also concluded that Tiffany failed to demonstrate that eBay continued to supply its service to those whom it knew or had reason to know were engaging in infringement and that eBay took appropriate steps to cease making its website available in those instances where Tiffany brought objectionable conduct to its attention. The burden of policing the Tiffany mark rests with Tiffany;
• The district court rejected the remaining causes of action asserted by Tiffany for unfair competition; false advertising and trademark dilution.

It remains to be seen whether this decision will be appealed to the Second Circuit, but this case will no doubt set a template for anticounterfeiting claims against auction websites in the Second Circuit and, in light of the recent developments in Europe regarding auction websites, may result in forum shopping overseas in similar cases.

Click here for a PDF copy of the opinion.

Authored by:

Theodore C. Max

(212) 332-3602

tmax@sheppardmullin.com

Full post as published by Intellectual Property Law on July 14, 2008 (boomark / email).