In a well-reasoned, albeit lengthy opinion, Judge Richard Sullivan of the United States District Court for the Southern District of New York recently tackled the question of whether an on-line marketplace, namely eBay, could be held liable for trademark infringement based solely on the generalized knowledge that infringement is occurring as a result of sales made via the site. In Tiffany (NJ), Inc. and Tiffany and Company v. eBay, Inc., 2008 U.S. Dist. LEXIS 53359 (S.D.N.Y., July 14, 2008), Judge Sullivan determined that Tiffany, as the trademark owner, had the responsibility for policing its marks, and that eBay, despite being generally aware that counterfeit TIFFANY silver jewelry was routinely sold by third parties over its on-line marketplace, could not be held accountable for trademark infringement simply because it did not do more to prevent the activities of the infringing third parties.

By way of brief background, in June 2004, after becoming aware of sales of counterfeit TIFFANY silver jewelry on the eBay website, Tiffany filed suit against eBay alleging, inter alia, trademark infringement, unfair competition, and dilution under both federal and state law. Tiffany alleged, in general terms, that eBay was aware that counterfeit TIFFANY items were being sold over its website, that eBay facilitated such sales, and that because eBay did not do more to identify and prevent these counterfeit sales, eBay was contributorily liable for trademark infringement and was thus liable for the harm caused to Tiffany by those sales. eBay countered by pointing out that it sold no goods (infringing or otherwise) itself; rather, it merely provided the means by which others could sell their products. Moreover, eBay explained that it went to great lengths to detect and stop fraudulent transactions on its web site, and pointed out that when it learned about specific instances of counterfeit merchandise being sold, it promptly removed the items from its site and made it clear to the seller that such activity would not be tolerated.1

Tiffany’s key theory of liability on its claims against eBay was one of contributory infringement. The court explained that under a contributory infringement theory, which grows out of the Supreme Court’s decision in Inwood Labs., Inc. v. Ives Labs, Inc., 456 U.S. 844 (1982), the plaintiff must establish either that the accused party has intentionally induced another to infringe its trademark, or that the accused party has continued to supply product to one whom it knows or has reason to know is engaging in trademark infringement. The “reason to know” element can in turn be satisfied where the accused party is “willfully blind” to the infringing activity.

In support of its claim that eBay had “reason to know”, Tiffany argued that through its efforts to bring infringing and/or counterfeit sales to eBay’s attention over the years, eBay had “reason to know” that such sales were going on and thus had an obligation to take affirmative steps to seek out and stop such activities. Unfortunately for Tiffany, the court disagreed. Judge Sullivan concluded that the “reason to know” standard means more than merely being aware of the infringing activities. True, as a result of Tiffany’s efforts – including “demand letters to eBay articulating its belief that large quantities of counterfeit TIFFANY merchandise were being sold through the eBay website” – eBay technically “knew” about infringing sales. However, the judge concluded that for liability and an affirmative duty to remedy the problem to attach, the knowledge must be more than merely generalized knowledge. Here, eBay did not have the identities of the infringers and, indeed, could not even be sure which, if any, of the many TIFFANY items offered on eBay at any given time were counterfeits. While eBay arguably could have dedicated time and money to more diligently identifying counterfeits, the court concluded that it was not eBay’s responsibility to do so. Rather, Tiffany, as the owner of the marks being infringed, was the party that bore the burden to police.

As to whether eBay was “willfully blind” to the infringing activities, Judge Sullivan concluded that “willful blindness” requires “‘more than mere negligence or mistake’ and does not lie unless the defendant knew of a high probability of illegal conduct and purposefully contrived to avoid learning of it . . ..” Here, eBay could not be said to have purposefully contrived to avoid learning of counterfeiting on its website or that it had failed to take appropriate steps to shut down infringing auctions when it was provided (by Tiffany or other trademark owners) with specific intelligence regarding infringing activities. The fact that eBay did not go the extra mile to ferret out infringers itself did not equate to eBay being “willfully blind” to the activity of its site. Indeed, the anti-infringement protocols that eBay had put in place to deal with identified counterfeit situations were evidence that eBay was clearly not blind to the problem, and that eBay was indeed doing its part to address it.

Finally, the court took on the question of whether eBay could be held liable because it “continued to supply” certain infringers with on-line marketplace services notwithstanding Tiffany’s efforts to bring those infringers to eBay’s attention. In refusing to hold eBay liable, the court disagreed with Tiffany’s assertion that eBay failed to act appropriately after notice of an infringement by Tiffany. The court pointed out that eBay routinely suspended sellers upon receipt of information from trademark owners that certain goods being offered via the eBay marketplace were infringing. Indeed, Tiffany conceded at trial that whenever it brought an infringing auction to eBay’s attention, eBay shut it down. Thus, the court held that eBay’s efforts to cut off the supply of its services to infringers were appropriate steps under the circumstances.

Judge Sullivan ultimately concluded that “generalized knowledge” of the type provided by Tiffany to eBay was insufficient to impute to eBay knowledge of any and all instances of infringing activity occurring on the eBay online marketplace. Moreover, the mere fact that eBay had the ability to screen out potential counterfeiters (and, indeed, to do so more efficiently and cheaply than could Tiffany), did not shift the burden to police the TIFFANY trademarks to eBay. Rather, Tiffany, like all corporate trademark owners, had a duty to protect its trademarks “through vigilant policing and appropriate acts of enforcement.” (citation omitted).