Baer Business Law – Greater Philadelphia Area – Intellectual Property Law – Business Law – E Commerce – Contracts – Trademarks – Copyrights

Just in time for Mother’s Day comes a new federal court ruling on the responsibility of online marketplaces for trademark infringement by sellers on these sites. This was a clash of the titans, the antagonists being the premium jewelry manufacturer Tiffany and the world’s leading auction site, eBay. In its ruling, Tiffany (NJ), Inc. v. eBay, Inc., No. 08-3947-cv (2nd Cir. April 1, 2010) (downloadable here), the court upheld the lower court’s decision that generalized knowledge of numerous listings of counterfeit Tiffany sterling silver jewelry on the site did not render eBay liable for either direct or contributory trademark infringement or dilution.

I consider this a significant, if qualified, victory for online marketplaces and forums as well as consumers. Significant, because a contrary result would have imposed potentially crippling liability on these venues and forced them to adopt ever more draconian measures to filter user content and terminate users based on educated guesses and unproven allegations. Qualified, because the irony of this case is that eBay actually used a broad range of costly preventive and remedial measures to protect Tiffany’s trademarks and prevent sales of counterfeit Tiffany products. These measures included: canceling sales and reimbursing buyers of counterfeit products, deploying a “fraud engine” to filter out illegal Tiffany listings, responding within 12-24 hours to Tiffany’s take-down requests submitted through eBay’s highly respected Verified Rights Owner (VeRO) Program, terminating repeat offenders and sellers of multiple counterfeit Tiffany products, and manually reviewing certain Tiffany listings. In fact, during the relevant period covered by Tiffany’s complaint, eBay had over 200 employees dedicated exclusively to combatting trademark infringement.

Both the district court and the appellate court were clearly impressed by the seriousness with which eBay took infringement and counterfeiting. Obviously, this was not a case of a website looking the other way. But eBay sets a very, very high standard for other online marketplaces.

Despite all these protections, a “significant portion” of Tiffany jewelry listed on eBay was counterfeit, a fact of which eBay was aware. After determining that eBay’s use of sponsored-link advertisements on Google and Yahoo! touting the presence of Tiffany products on eBay was not direct trademark infringement (because the use of Tiffany’s mark was necessary to describe Tiffany products and did not falsely imply any affiliation with or endorsement by Tiffany), the court turned to the bigger issuer: to what extent was eBay responsible for the infringement of its sellers? The court applied the Supreme Court’s rule in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982) to hold that a service provider can be liable for contributory trademark infringement if it (1) intentionally induces someone else to commit trademark infringement, or (2) continues to supply services to someone it knows or has reason to know is engaging in trademark infringement.

Of course, no one claimed that eBay was intentionally getting its sellers to infringe Tiffany’s marks. However, Tiffany alleged that eBay’s knowledge of the existence of continued widespread counterfeiting and infringement, despite all of its protective measures, was enough to impose liability for contributory infringement. The court disagreed — generalized knowledge of infringement cannot be used to penalize a service provider for continuing to provide service to a particular individual where the provider doesn’t have real information to suggest that that individual may be using the service to infringe someone else’s trademark. In other words, suspecting that a person might conceivably be an infringer doesn’t make you, the service provider, an enabler in a legal sense. At the same time, the court noted that websites can’t choose to remain willfully blind when there is evidence to suggest that particular users are infringers. However, the response doesn’t have to be perfect, and eBay had clearly done at least as much as the law expects to detect and punish infringers.

Tiffany did score a lesser point when the appellate court remanded its false advertising claim under the Lanham Act for reconsideration by the lower court. It held that while eBay’s advertisements indicating that consumers could find Tiffany jewelry on eBay were not literally false, they could be considered misleading in view of eBay’s awareness that many Tiffany-branded products sold on eBay were counterfeit. Still, the elimination of the trademark claims significantly reduced eBay’s potential legal exposure.

So, what does all this mean for you, dear web businesses? As under the Digital Millennium Copyright Act (DMCA), you are partially protected from infringement liability flowing from the misdeeds of your site users. But the protection is porous — if you are aware (or are in possession of information to tip you off) that particular site users are using your site or web service to infringe trademarks, you can’t blithely continue to provide service and keep out of their business. You are NOT expected to have the knowledge of a trademark attorney and be able to judge authoritatively whether every use of a third-party trademark is infringing or not; there is room for error and miscalculation. Mere suspicion won’t make you contributorily liable. But you should investigate and respond expeditiously to any complaints by trademark owners. Even better, if your site invites abundant third-party content, you should include in your website terms of use or as a separate intellectual property policy a notice and take-down procedure (like eBay does with its VeRO policy) for rights holders to follow if they wish to submit complaints of infringement. Finally, if you are aware that certain trademarks are particularly susceptible to infringement on your site, and if economically feasible, you might consider adopting (again, as eBay did) a filtering mechanism to block or segregate for prior review postings that use the problematic trademarks.

For a slightly differently take on a ticked-off Tiffany, please check out a recent blog post on the Electronic Frontier Foundation’s (EFF) site. (The EFF, by the way, filed an amicus brief in the case on behalf of eBay.) The EFF, like me, sees the decision as a qualified victory for web businesses and consumers. Its main concern is that trademark law as yet does not provide a “put-back” procedure, as the DMCA does for content that is taken down by a web service provider in connection with a contested copyright infringement allegation.

Guys — on a related note, if you’re thinking of buying Tiffany jewelry for that special somebody in your life, please don’t buy it on eBay. If you’re in or near Center City, Philadelphia, go to the Tiffany store on Walnut Street between Broad and 15th. Or use their catalog or website. Otherwise, you may need a different type of lawyer.