Minding online store a case of 'Not my job' for eBay, legal foes

A legal battle over sales of counterfeit luxury goods on eBay could have far-reaching implications for trademark owners — or for eBay itself.

Last month, a federal judge ruled that eBay Inc. had fulfilled its obligations to investigate and control users who were trying to use its Web site to sell counterfeit Tiffany goods — a decision that put the onus on Tiffany & Co. to monitor eBay's site itself.

The ruling by U.S. District Judge Richard Sullivan was a major victory for eBay in its fight with Tiffany and other luxury goods companies over the sale of their merchandise — counterfeit or otherwise — on its auction site. If the ruling stands, it could have big implications for trademark owners, which would have to deploy technology to scour eBay's site for counterfeit and pirated goods, have employees manually monitor the site or pay other companies to watch it for them.

But similar lawsuits filed against eBay in French and German courts haven't turned out in eBay's favor, resulting in a split decision internationally — and the possibility that in the end, eBay might have to bite the bullet and increase its own enforcement efforts.

On June 30, two weeks before Sullivan sided with eBay, the French Tribunal de Commerce in Paris ordered eBay to pay a group of companies a total of $61 million because it failed to stop counterfeit perfumes and other products from being sold through its site. That followed a similar, though much smaller, judgment against eBay by another French court in early June.

And last year, a court in Cologne, Germany, ruled that once eBay's subsidiaries in that country were notified that fake Rolex watches were being sold on the eBay Germany site, the company should have taken measures to prevent the recurrence of counterfeit Rolex postings.

The financial stakes are high on both sides of the legal dispute. Tiffany, which last week filed an appeal of Sullivan's ruling in the U.S. Court of Appeals in New York, said that in the five years before the lawsuit was filed in 2004, it spent $14 million on technology and manpower to police its trademarks on eBay's site.

But between $3 million and $5 million of Tiffany's spending was on the lawsuit itself, and Sullivan described the New York-based company's overall monitoring tab as "relatively modest" in his ruling.

Meanwhile, eBay, which is appealing the European court decisions, said it spends $20 million annually to identify counterfeit goods on its site. That figure would likely increase substantially if eBay were forced to take on more responsibility for rooting out sales of fake products. And the company probably would have to change the way it handles counterfeiting across the board, not just in those two countries.

"EBay operates on one technology platform, and to the extent that eBay has to change its business model in other countries — it would change it everywhere," said Heather McDonald, an attorney at law firm Baker & Hostetler LLP in Cleveland.

McDonald, who specializes in intellectual property enforcement and anticounterfeiting litigation, added that if eBay didn't do so, trademark owners in the U.S. could argue that the company was offering more protections to foreign businesses than it was to them.

"If we have to change our business in relation to [the Tribunal de Commerce's] ruling, it will be a massive undertaking," eBay spokeswoman Nichola Sharpe acknowledged. "We don't view it as just affecting eBay France, but affecting all eBay sites globally."

McDonald and other legal experts said the different rulings weren't surprising, because European courts typically take a stricter stance against trademark infringement and the sale of counterfeit goods than their U.S. counterparts do.

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