USDC SDNY, July 14, 2008

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Tiffany filed suit against eBay for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution, on the grounds that eBay facilitated and allowed counterfeit Tiffany items to be sold on its website and eBay used Tiffany trademarks in advertising. After a bench trial, the district court held that Tiffany failed to prove any of its claims.

Regarding contributory trademark infringement, the court followed the U.S. Supreme Court decision Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982), and held that the standard for contributory trademark infringement “is not whether eBay could reasonably anticipate possible infringement, but rather whether eBay continued to supply its services to sellers when it knew or had reason to know of infringement by those sellers.” The court reached this conclusion despite Tiffany’s contention that the applicable standard of knowledge for contributory infringement should be whether wrongdoing by a seller might well have been anticipated by eBay, a standard taken from the Restatement of Unfair Competition. The court found that Inwood foreclosed the use of this standard, finding it to be “watered down.”

Tiffany argued that eBay had generalized knowledge of the infringing activity due to Tiffany’s cease and desist letters, data collected by Tiffany based on purchases it made of items for sale on eBay, and buyer complaints to eBay, and Tiffany argued that this generalized knowledge was sufficient to meet the “knowledge or reason to know” standard in Inwood. However, the court held that “while eBay clearly possessed general knowledge as to counterfeiting on its web site, such generalized knowledge is insufficient under the Inwood test to impose upon eBay an affirmative duty to remedy the problem.” Absent evidence of specific knowledge, eBay could not be held liable under Inwood.

The court went on to say that even if such generalized knowledge was sufficient, Tiffany could not prove that eBay continued to supply its services to sellers who were infringing Tiffany’s marks, such that the second element of the Inwood test was not met. The court noted that when Tiffany used eBay’s notice and take-down procedure to specifically identify individual sellers, eBay acted quickly to remove the listing from its site. In addition, eBay took appropriate steps to stop infringing activity by suspending sellers after one, two or three notices had been filed, using software to identify fraudulent sales on its web site, having employees manually search the site for fraudulent transactions, providing space for rights holders to educate consumers about their brands and counterfeit products, issuing warnings to sellers who used certain terms to make sure the item for sale was authentic, and delaying the sale of certain branded items so that eBay employees could review the listings. The court also indicated that the question is not whether it is easier or cheaper for eBay to monitor for infringing uses because it is the trademark holder’s duty to protect its own rights by monitoring for infringement. Although Tiffany had demanded that eBay preemptively remove certain listings, the court held that the law did not impose liability on eBay for its refusal to take such preemptive steps based on “reasonable anticipation” of wrongdoing or generalized knowledge of counterfeit goods alone.

Regarding Tiffany’s claims of false advertising, unfair competition, direct trademark infringement and trademark dilution, the court held that eBay’s use of Tiffany’s marks in its advertising (including the purchase of sponsored links from Yahoo and Google) was a nominative fair use because some eBay sellers are selling genuine Tiffany products (i.e, the use was descriptive) and because the use did not suggest endorsement by Tiffany. Under the nominative fair use doctrine, a defendant may use another’s trademark to identify its own goods so long as there is no likelihood of confusion about the source of the product or the mark-holder’s sponsorship or affiliation.