On Monday, July 14th, eBay prevailed in a much-anticipated case brought by the famous jeweler Tiffany before the U.S. District Court in the Southern District of New York on the very same issue decided against eBay in a French court.  Judge Sullivan of the New York court held that eBay is not liable for trademark infringement because, although eBay generally knew that there were substantial amounts of counterfeit products available on its site, it did not know or have reason to know which specific listings or sellers were responsible for those counterfeits until it was alerted by Tiffany, at which time eBay promptly removed the listings^.

Judge Sullivan concluded that, based on the facts in the case, "a significant portion of Tiffany" sterling silver jewelry listed on the eBay website … was counterfeit" and that "eBay generated substantial revenue from the sale of "Tiffany" silver jewelry on its website." However, according to the Judge that was not enough to make eBay liable under trademark law standards because: (i) Tiffany, not eBay, is responsible for policing infringements on the site; (ii) under existing case law, "Tiffany’s generalized assertions of trademark infringement are insufficient to establish that eBay knew or had reason to know of the infringement at issue;" and (iii) to the extent eBay knew about any specific infringement of Tiffany’s jewelry it promptly removed the infringements from its site.

Ultimately the issue in this case came down to application of the standard set forth by the Supreme Court in Inwood Laboratories v. Ives Laboratories in which the Court stated that a manufacturer or distributor is contributorily liable for a trademark infringement if "it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement." In applying the Inwood "reason to know" standard Judge Sullivan acknowledged that "eBay had generalized notice that some portion of the Tiffany goods sold on its website might be counterfeit." Tiffany argued that this generalized knowledge satisfied the "reason to know" standard and required eBay to take preemptive steps to remedy the problem. The Judge disagreed, saying that "[g]iven the presence of authentic goods on eBay, it therefore cannot be said that generalized knowledge of counterfeiting is sufficient to impute knowledge to eBay of any specific acts of actual infringement."

The Judge likewise disagreed with Tiffany’s claims that eBay was "willfully blind" to the infringement and should have taken additional steps to further investigate and understand the counterfeiting on its website. "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 purposely contrived to avoid learning of it, for example, by failing to inquire further out of fear of the result of the inquiry," The Judge stated that "[w]ere Tiffany to prevail in its argument that eBay was willfully blind, the ‘reason to know’ standard would be inflated into an affirmative duty to take precautions against potential counterfeiters, even when eBay had no specific knowledge of the individual counterfeiters."

Lastly, the Judge considered whether eBay "continued to supply" its services to those who it knew or had reason to know were infringers. Tiffany showed that: (i) many sellers whose accounts had been suspended by eBay based on NOCI sent by Tiffany were able to continue to use eBay under different eBay seller IDs; and (ii) many sellers were able to re-post listings for counterfeit product after the original listing had been taken down by virtue of Tiffany’s Notice of Claims of Infringement (NOCI). Shockingly, the Judge did not find this to be an act of continuing to provide service to known infringers. The Judge reasoned that the thousands of NOCI sent by Tiffany to eBay do not provide evidence of actual infringements, but rather only provide evidence of suspected infringement. This results in eBay having no knowledge of an infringement when it receives a NOCI and therefore not meeting the "continue to supply" requirement. The Judge seems to say that the only way eBay can have knowledge of infringements on its site with any degree of certainty is if Tiffany were to purchase the item off eBay and verify that it was in fact infringement. That seems like a very high standard—one that is well beyond the "reason to know" standard and one that eBay is likely to benefit from both legally and economically.

In sum, the district court concluded that "the law is clear; it is the trademark owner’s burden to police its mark, and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their website."

Thursday:  Did Judge Sullivan Get It Right?

Monday:  What Implications Does This Decision Have For Copyright Owners?