Case Study pp 118-120
TIFFANY, INC. V. EBAY, INC. 576 F. Supp. 2d 463 (S.D.N.Y. 2008), aff’d, 600 F.3d 93 (2d Cir. 2010), cert. denied, 2010 WL 3416635 (Nov. 29, 2010)
RICHARD J. SULLIVAN, DISTRICT JUDGE
[FACTS]
Tiffany, the famous jeweler with the coveted blue boxes, brings this action against eBay, the prominent online marketplace, for the sale of counterfeit Tiffany silver jewelry on its website. Specifically, Tiffany alleges that hundreds of thousands of counterfeit silver jewelry items were offered for sale on eBay’s website from 2003 to 2006. Tiffany seeks to hold eBay liable for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution, on the grounds that eBay facilitated and allowed these counterfeit items to be sold on its website….
Over its 170-year history, Tiffany has achieved great renown as a purveyor of high quality and luxury goods under the TIFFANY Marks, including jewelry, watches, and home items such as china, crystal, and clocks. The TIFFANY Marks are indisputably famous, and are a valuable asset owned by Tiffany…. eBay is a well-known online marketplace, located at www.ebay.com, that allows eBay sellers to sell goods directly to eBay buyers. The listings are created and posted by third-party users, who register with eBay and agree to abide by a User Agreement. While users often go by descriptive user names instead of their real names, users are required to supply identifying information to eBay when registering….
[THE PARTIES’ ARGUMENTS]
Tiffany acknowledges that individual sellers, rather than eBay, are responsible for listing and selling counterfeit Tiffany items. Nevertheless, Tiffany argues that eBay was on notice that a problem existed and accordingly, that eBay had the obligation to investigate and control the illegal activities of these sellers—specifically, by preemptively refusing to post any listing offering five or more Tiffany items and by immediately suspending sellers upon learning of Tiffany’s belief that the seller had engaged in potentially infringing activity. In response, eBay contends that it is Tiffany’s burden, not eBay’s, to monitor the eBay website for counterfeits and to bring counterfeits to eBay’s attention. eBay claims that in practice, when potentially infringing listings were reported to eBay, eBay immediately removed the offending listings….
[CONTRIBUTORY INFRINGEMENT]
It is well established that “liability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another.” … Contributory trademark infringement is a judicially constructed doctrine articulated by the Supreme Court in Inwood [Labs. v. Ives Labs., 456 U.S. 844, 854 (1982)]. In that opinion, the Supreme Court held that:
[I]f a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit. [Emphasis added.]
[INTENTIONAL INDUCEMENT]
The first prong of the Inwood standard for contributory trademark infringement … is inapplicable here, because Tiffany has not alleged that eBay intentionally induced infringement of Tiffany’s marks….
[PRODUCT VERSUS SERVICE]
eBay argues that its website is not a “product,” as defined by Inwood. Rather, eBay characterizes its website as a “service [that] does not trade in the products at issue.” … Nevertheless, cases decided after Inwood have expanded the concept of contributory trademark infringement beyond the facts identified in Inwood, and have not limited liability for contributory infringement to situations involving misuse of a manufacturer’s product. First, in Hard Rock Café [v. Concession Services, 955 F.2d 1143 (7th Cir. 1992)], the Seventh Circuit considered the question of whether the owner of a flea market could be held liable for contributory trademark infringement on the grounds that vendors in the flea market were selling shirts that infringed the Hard Rock Café trademark…. [D]espite the fact that the flea market was clearly not a “product,” the Hard Rock Café court determined that the common law imposed “the same duty on landlords and licensors that the Supreme Court has imposed on manufacturers and distributors.” In reaching this conclusion, the court noted that the flea market operator was not merely a landlord, but advertised and promoted the activity on its premises, sold admission tickets to buyers, and supervised the premises.
[EBAY’S CONTROL OVER EBAY USERS]
In Lockheed Martin Corporation v. Network Solutions, Inc. [194 F.3d 980 (9th Cir. 1999)], the Ninth Circuit, synthesizing the holdings of Hard Rock Café and [another case], determined that whether the venue is online or in brick and mortar is immaterial. The relevant inquiry is, instead, “the extent of control exercised by the defendant over the third party’s means of infringement.” The court further noted that “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiff’s mark permits the expansion of Inwood Lab.’s ‘supplies a product’ requirement for contributory infringement.” Because the facts in Lockheed Martin demonstrated that the defendant was a service that did not have “direct control and monitoring” over those who infringed the plaintiff’s mark, the court determined that the defendant, a contractor in charge of registering Internet domain names, was not contributorily liable as a matter of law. Several courts have followed Lockheed Martin and assessed the extent of control exercised by the defendant over the actual infringer’s means of infringement in determining whether a defendant may be contributorily liable. See Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788 (9th Cir. 2007)….
[T]he Court first notes that while eBay itself does not sell or possess the items available on its website, eBay retains significant control over the transactions conducted through eBay…. Second, eBay has actively promoted the sale of Tiffany jewelry items. eBay advertises merchandise on its own website as well as through other websites, including until 2003, Google and Yahoo!. eBay also actively works with sellers and PowerSellers to help them grow their jewelry business…. Third, eBay profits from the listing of items and successful completion of sales, through insertion fees and final value fees…. Fourth, eBay maintains significant control over the listings on its website. Certain categories of items are entirely barred from the website, including drugs, firearms, and alcohol products. The fraud engine screens listings and removes items that use specific terms in the listing description, for example, “counterfeit” or “fake.” Through eBay’s User Agreements, users are required to abide by the terms of use, and eBay retains the right to suspend those users who fail to do so….
Despite the fact that eBay never takes physical custody of the items sold on its website, eBay nevertheless exerts sufficient control over the listings on its website such that it cannot qualify as a mere online version of a newspaper or a magazine that publishes classified ads….
[KNOWLEDGE OR REASON TO KNOW]
Under the Inwood test, Tiffany must prove that eBay continued to supply its services “to one whom it knows or has reason to know is engaging in trademark infringement.” The evidence produced at trial demonstrated that eBay had generalized notice that some portion of the Tiffany goods sold on its website might be counterfeit…. Tiffany has not alleged, nor does the evidence support a conclusion, that all of the Tiffany merchandise sold through eBay is counterfeit. Rather, a substantial number of authentic Tiffany goods are sold on eBay…. Were Tiffany to prevail on its argument that generalized statements of infringement were sufficient to impute knowledge to eBay of any and all infringing acts, Tiffany’s rights in its mark would dramatically expand, potentially stifling legitimate sales of Tiffany goods on eBay…. Instead, courts have required a much higher showing that a defendant knew or had reason to know of specific instances of actual infringement….
[T]he Court finds that eBay responded appropriately to notice of specific infringing items, and that evidence of eBay’s general knowledge of infringement is insufficient to impute knowledge to eBay of specific infringing listings.
[WILLFUL BLINDNESS]
However, the “reason to know” standard can be satisfied by a showing that the defendant was willfully blind to the infringing activity. Willful blindness means a person must suspect wrongdoing and deliberately fail to investigate….
[W]ithout specific knowledge or reason to know, eBay is under no affirmative duty to ferret out potential infringement. 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, for example, by failing to inquire further out of fear of the result of the inquiry. Put simply, it cannot be said that eBay purposefully contrived to avoid learning of counterfeiting on its website, or that eBay failed to investigate once it learned of such counterfeiting. To the contrary, in the face of such general awareness, eBay took significant steps to prevent counterfeiting…. Accordingly, the Court concludes that eBay was not willfully blind to the evidence of counterfeiting on its website.
[CONTINUED SUPPLY OF PRODUCT]
The Inwood test requires a plaintiff to prove that the defendant continued to supply its product to an infringer once it had knowledge of the infringement…. [T]he record is clear that once Tiffany notified eBay of a listing it believed to contain infringing merchandise, eBay promptly removed that listing from its website …. [Although] eBay, as a rule, declined to automatically or permanently suspend a seller [when notified by Tiffany of alleged infringement] [t]he Court finds that this policy was appropriate. As noted in the Findings of Fact, given the consequences of an eBay suspension, eBay reasonably proceeded with caution in suspending sellers based on [Tiffany’s notices] because [these notices] were a good faith determination of infringement, not an exact finding of infringement….
[CONCLUSION]
The rapid development of the Internet and websites like eBay have created new ways for sellers and buyers to connect to each other and to expand their businesses beyond geographical limits. These new markets have also, however, given counterfeiters new opportunities to expand their reach. The Court is not unsympathetic to Tiffany and other rights owners who have invested enormous resources in developing their brands, only to see them illicitly and efficiently exploited by others on the Internet. Nevertheless, 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 websites.
1. Why wasn’t eBay held liable for the infringing sales made by users? (HINT: Describe how the elements of the Inwood test apply to eBay’s actions).
2. As an online service provider, to whom to do you owe the greater duty? To your customer who wish to knowingly (i.e. without confusion) buy cheaper, imitation products? Or to unrelated businesses whose valuable intellectual property is being flagrantly violated on your site? Would you take precautions beyond what the law requires to reduce infringing sales?
Read the case study on pp. 164-166 of the textbook and answer the following questions:
1. What duty should OSPs such as Amazon that host content uploaded by others owe to copyright holders? Should such OSPs be required to “police” their websites to detect and prevent copyright infringement?