Tiffany appeals eBay counterfeit ruling

The court says eBay isn't responsible for counterfeit goods listed on its site

Tiffany & Co. has appealed a U.S. district court ruling that says eBay Inc. is not responsible for counterfeit goods sold on its Web site.

Tiffany filed its appeal in the U.S. Court of Appeals for the Second Circuit, seeking to overturn the trial court's failure to apply established principles of trademark law.

"We do not believe the law allows auction sites like eBay to continue to turn a blind eye to this problem while reaping profits from the listing and sale of counterfeit merchandise. Trademark law does not impose a duty on Tiffany to police eBay's site: eBay designed the site and has the responsibility to police it," said James Swire, a partner at the law firm of Washington-based Arnold & Porter LLP, in the statement.

EBay officials could not be reached for comment.

In an interview, Swire said Tiffany's arguments take into account previous circuit court decisions that ruled that a flea market operator, for instance, who becomes aware that counterfeit goods are being sold at the flea market has an obligation to investigate and take effective action against the sale of those counterfeit goods.

"If you look at a retail store, the same applies," he said. "Once a store owner knows there is a problem with counterfeiting, it has a duty to investigate and take action. In neither instance is there any obligation on the trademark owner to investigate what is happening on-site at the flea market or the retail store. Yet eBay has set itself up, and the [district] court seems to have agreed, that Tiffany has an obligation to police eBay's site. We don't believe that obligation exists in law, and we respectfully disagree with the district court decision."

In 2004, Tiffany sued eBay in federal court in New York, claiming that the online auction company didn't do enough to keep counterfeit goods off its Web site.

EBay disagreed, saying it did take steps to stop the sale of counterfeit goods through its Verified Rights Owners (VeRO) Program, which provides tools to help companies look for fake goods on the site. Under the program, if a company determines that a user is selling counterfeit merchandise, it notifies eBay, which immediately takes down the auction.

Last month, Richard Sullivan, judge of the U.S. District Court for the Southern District of New York, ruled that Tiffany, and not eBay, was responsible for monitoring the eBay Web site for counterfeit Tiffany goods and for bringing those counterfeit goods to eBay's attention.

That ruling was seen as a major victory for eBay in its fight with luxury goods companies over the sale of their merchandise — counterfeit or otherwise — on its Web site. Although the judge said he was sympathetic to Tiffany's claims, he noted that the law was clear and that the burden was on the trademark owner to police its mark.

At the time, an eBay spokeswoman said the decision affirmed that eBay's efforts to stop counterfeit sales were reasonable.

"Unfortunately, the trial court incorrectly held that trademark holders and not eBay are responsible for policing the eBay site. The effect of this is that eBay can continue to profit at the expense of consumers and trademark holders," said Patrick Dorsey, general counsel for Tiffany, in today's statement. "In our view, this approach makes no sense as a matter of law or policy. Once eBay has reason to know that a specific brand like Tiffany & Co. is being widely counterfeited and sold, eBay should be compelled to investigate and take action to protect its customers and stop the illegal conduct."

Ethan Horwitz, a partner in Atlanta-based King & Spalding LLP's intellectual property division, said he would be surprised if the second circuit court ruled differently than the district court.

"The district court decision was a well-reasoned decision with a good basis for what it said, [which was that] Tiffany had done very little, if anything, to protect its own mark while eBay, which might not have been perfect, took care of the problem whenever Tiffany, or anybody else, pointed out a problem," Horwitz said. "So the question is, are you going to put the burden on eBay to watch out for Tiffany's trademarks when it's really Tiffany's problem?"

Horwitz said he was pretty surprised that Tiffany was appealing the decision.

"I don't think the second circuit is going to change anything," he said.

If Tiffany were to win this appeal, the circuit court could remand it to the district court for reconsideration on the grounds that the district court had ruled incorrectly, said Heather McDonald, an attorney at Cleveland-based Baker & Hostetler LLP who specializes in intellectual property enforcement and anticounterfeiting litigation,

"Or the circuit court could find that [the district court judge's] arguments were clearly erroneous in order to overrule the district court decision — but Tiffany is going to have to make a pretty compelling argument to get the circuit court to see it that way," she said.

Copyright © 2008 IDG Communications, Inc.

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