In a gem of a case, a district court in New York held that eBay is not liable for trademark infringement when its users sell counterfeit Tiffany items. Tiffany (NJ) Inc. v. eBay, Inc., 2008-1 Trade Cas. (CCH) P76, 219 (S.D.N.Y. 2008). This is an important case outlining website liability for usergenerated content and the obligations of website and brand owners in policing infringing activities.

eBay’s unique online marketplace allows sellers to sell directly to buyers. eBay charges a listing fee and takes a cut of the ultimate sale price, but never takes possession of the sale item. In a proactive effort to reduce the sale of counterfeit items on its website, eBay created and implemented several anti-fraud procedures and takedown policies, in addition to providing educational tools for brand owners and sellers.

Tiffany and Company, known for its jewelry and iconic little blue box packaging, has been working with eBay for years to combat the posting and sale of counterfeit Tiffany items offered by sellers on eBay’s website. Tiffany availed itself of all of eBay’s anti-fraud procedures and when it reported a potentially infringing item, eBay immediately removed the listing. Tiffany, however, was not satisfied eBay was doing enough to reduce the sale of counterfeit Tiffany items. When eBay refused to meet Tiffany’s additional policing demands, Tiffany sued eBay based on several claims, including contributory trademark infringement.

The crux of the contributory trademark infringement claim came down to who should bear the burden of policing a brand owner’s trademarks in Internet commerce. Tiffany argued that eBay had general knowledge that counterfeit problems existed and it therefore had an obligation to monitor and control its website and preemptively remove listings of Tiffany jewelry. eBay countered that it is the brand owner’s responsibility to monitor and report potentially infringing items, which eBay would then remove. The court ultimately concluded that it is the brand owner’s responsibility to police its trademarks. However, the provider of an online marketplace is not absolved of its responsibilities.

Indeed, the court concluded that, unlike a classified advertising service, eBay’s services are analogous to a flea market, making eBay more than a mere passive conduit. As such, a service provider like eBay is susceptible to liability for contributory trademark infringement if it “knows or has reason to know” it is supplying its services to someone engaging in trademark infringement.

Throughout its opinion, the court applauded eBay’s numerous proactive anti-fraud efforts because there is no duty to take steps against generalized knowledge of infringement. Further, when eBay had the requisite knowledge of infringement, it took appropriate steps to remove listings and suspend sellers.

Tiffany complained that eBay’s anti-fraud procedures required Tiffany to devote substantial time and resources to monitor and report listings and that “because eBay was able to screen out potentially counterfeit Tiffany listings more cheaply, quickly, and effectively than Tiffany, the burden to police the Tiffany trademark should have shifted to eBay.” The court dismissed those arguments because, regardless of who can more easily police, the rights holder bears the burden of policing its trademarks. The court also took note of Tiffany’s overall lack of investment in its policing efforts, stating it was “relatively modest” in light of the counterfeit issues it faces.

While this is a victory for eBay and online marketplaces generally, it’s important to note that eBay avoided liability in part due to its extensive fraud and counterfeit prevention policies and programs. Other online marketplaces that do not have such internal policies in place may still have reason to be concerned.

Tiffany recently appealed this ruling, making these issues far from resolved. Indeed, the court hinted that these issues may be picked up by the legislature if policymakers decide that current laws are “inadequate to protect rights owners in light of the increasing scope of Internet commerce and the concomitant rise in potential trademark infringement.” In the meantime, however, the court noted that “the law is clear: it is the trademark owner’s burden to police its mark, and companies like eBay cannot be held liable… based solely on… generalized knowledge that trademark infringement might be occurring on [its] websites.”