Tiffany Inc. v. eBay Inc

Case Summary: Tiffany (NJ) Inc. v. eBay Inc.
1) Case Name:
Tiffany (NJ) Inc. v. eBay Inc

2) Case Cite:
Tiffany (NJ) Inc. v. eBay Inc., — F.3d —, 2010 WL 1236315 (2d Cir. Apr. 1, 2010).

3) Facts of the case:
Tiffany is a high end jewelry company. eBay is a large (perhaps the largest) on-line auction provider/web-site. Tiffany sued eBay for trademark infringement, trademark dilution, and false advertising in connection with the activity of certain eBay sellers who had been selling counterfeit tiffany products as well as eBay’s advertising practices.

In 2004 and 2005, Tiffany conducted “methodologically flawed” investigations “of questionable value” which showed that over 70% of “tiffany” items purchased on eBay were counterfeit. Tiffany (NJ) Inc. v. eBay Inc., — F.3d —, 2010 WL 1236315, at *2 (Citing lower court’s decision). eBay advertised the fact Tiffany products were available from sellers posting on its site, even though it was on notice that some of its sellers were selling counterfeit goods. eBay also purchased sponsored links on other sites (e.g. Yahoo!)which triggered on the word “tiffany,” but after Tiffany complained, eBay discontinued directly purchasing sponsored links. However, the lower court did find that eBay had continued to indirectly purchase sponsored links via another, third party company.

eBay implemented a site-wide a fraud prevention program. eBay actively pursued Tiffany fraudsters and allowed Tiffany to post a warning to eBay customers in the “about me” page dedicated to Tiffany. The warning directed eBay customers to purchase tiffany products in a Tiffany store, rather than on eBay, to ensure their authenticity.

In addition to the anti-fraud work that eBay did, Tiffany policed the site and informed eBay whenever it had detected a counterfeit product on the eBay auction site. Accordingly, eBay would remove the posting, notify any bidders, notify the seller, and refund the posting fee eBay ordinarily collects.

4) Procedural Posture:
Appeal to the Second Circuit court of appeals from a lower court holding that eBay did not infringe or dilute the Tiffany trademark and that eBay did not engage in false advertising.

5) Holding:
The lower court correctly concluded that eBay neither directly nor contributorially infringed on the Tiffany trademark by eBay used the Tiffany trademark in a nominative fashion.

The lower court correctly concluded that eBay did not dilute Tiffany’s trademark by

From the record, the lower court incorrectly concluded that eBay’s advertising was not “likely to mislead or confuse” customers.

6) Important Dicta/ Likely future importance or unanswered questions:

“An online advertiser such as eBay need not cease its advertisements for a kind of goods only because it knows that not all of those goods are authentic. A disclaimer might suffice. But the law prohibits an advertisement that implies that all of the goods offered on a defendant's website are genuine when in fact, as here, a sizeable proportion of them are not.” Id. at *17. (Emphasis added)
-- What counts as a disclaimer I wonder? Prof. Goldman has a good discussion of this in his blog (link below).

“To be clear, a service provider is not contributorially liable under Inwood merely for failing to anticipate that others would use its service to infringe a protected mark. Inwood, 456 U.S. at 854 n. 13 (stating that for contributory liability to lie, a defendant must do more than "reasonably anticipate" a third party's infringing conduct (internal quotation marks omitted)). But contributory liability may arise where a defendant is (as was eBay here) made aware that there was infringement on its site but (unlike eBay here) ignored that fact”. Id. at *17 n.14
-- Is this suggesting (as discussed in Prof. Goldman’s blog as well) that there is some sort of section 230 protection being extended to trademarks?

7) Critical Analysis:
a) Direct Trademark Infringement:
The court agrees with the lower court’s analysis that there was not any direct infringement because the nominative use doctrine applies. Several things about the court’s opinion confuse me a bit. First, I thought that the nominative use doctrine was a defense. Thus, one would directly infringe, but offer as a defense that they were using the trademark in a nominative way thus absolving the infringer of liability. The court’s opinion seems to conflate nominative use with direct infringement. Perhaps this is just a nit-picky reading of the opinion on my part.

Next, the court cites to the ninth circuit NKOTB opinion as well as a third circuit opinion that articulates the nominative use doctrine but does not adopt or reject the rules from those cases. Rather, the court cited to its own, truncated version of the nominative use doctrine and found that eBay was using tiffany within its bounds (trader may use the trademark to describe the trademarked good; the trader may not cause confusion by implying affiliation with the trademark holder). Id. at 7.

So I guess if you are in the second circuit, the nominative use doctrine applies, but not as it applies in the ninth district, and perhaps not as a defense but rather as part of the overall rule defining direct infringement. Regardless, the court upholds the lower court’s finding that eBay did NOT directly infringe on Tiffany’s trademark by using it on the eBay site or by purchasing sponsored links.

b) Contributory Trademark Infringement:
The court examined whether or not there was “contributory trademark infringement.” First, the court discusses principles of secondary infringement from copyright law (Grockster) and then proceeds to discuss an older, non-internet, SCOTUS trademark case (Ingwood). It knits the Ingwood rule ( A manufacturer or distributer that 1. intentionally induces another or 2. continues to supply its products to one whom it knows or has reason to know is infringing trademarks is contributorially liable for any harm done as a result of the deceit.) together with the seventh circuit Hard-Rock flea market case and the ninth circuit Lockheed v. NSI case. The resultant rule seems to be that an online marketplace (i.e. eBay) can be found to have contributorially infringed a trademark where it continues to allow infringers to use its store-front.

The court agrees with the lower court that eBay had generalized knowledge that there may be infringers, and that it took the necessary steps to deal with them when called out and thus was not contributing to the infringement. This is probably good news to the rest of the world, since any store-front on the net that allows users to post content likely has a few bad apples who are infringing. If the court would shut those sites down because of the possibility that there may be infringers, one of the key uses of the net would disappear overnight. Rather, the court wisely holds (applying inwood and sony) that providers which specifically know of infringing activity and deal with it are in the clear and that the mere general knowledge of the possibility of infringers is not enough to hold a site to be contributorially infringing.

Finally, the court does away with Tiffany’s “willful blindness” argument. In short Tiffany suggests that requiring specific, rather than general, knowledge of infringement on its site disincentivizes eBay from further policing because it is easier to “turn a blind eye.” The court reasons that if evidence shows that eBay was turning a blind eye, then the existing test (recited above) would apply and eBay would be contributorially infringing under Inwood.

c) Dilution:

The court also upheld the finding that eBay had not diluted, by blurring or tarnishment, Tiffany’s trademark. Essentially, the court held that the use was nominative; eBay used the trademark to describe tiffany’s products, not its own.

d) False Advertising:

The court cites to two rules to determine the basis for a claim of false advertising: 1) literally false advertising or 2) likely to mislead or confuse. Strangely, although the court cuts eBay slack on the allegations of contributory infringement, it finds that the same facts may lead to a case of false advertising. Basically the court says that because eBay knew of infringing products on its site and because eBay maintained advertising that suggested only genuine products, a trier of fact may find that there is a case of misleading/confusing false advertising (the second flavor. The court held that the first flavor did not apply).
In summary, the court holds that mere general knowledge of the possibility of infringement is not enough to lead to contributory infringement or tarnishment. Moreover, they hold that it is not dilution to use the Tiffany trademark to identify Tiffany products. However, these same factors could possibly lead to marketplace confusion when used in advertising, and are thus possibly a case of false advertising. The court does suggest that a disclaimer of some sort may cure the problem, but what kind of disclaimer would work? eBay has already given Tiffany the floor by allowing it to maintain a profile and web page indicating that possible counterfeit tiffany goods are on ebay. Is the court suggesting that each time eBay advertises that it has Tiffany goods (or any goods that may possibly be counterfeit) that it must have a little asterix or surgeon general’s warning pointing out the possibility of the goods being counterfeit?

8) Blog Discussions:

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