Tiffany Inc. v. eBay Inc

Brief Fact Summary.

Tiffany (NJ) Inc. (Plaintiff) and Tiffany and Company (Plaintiff) sold high-end jewelry in retail stores, catalogues, and online but not through second-hand vendors or third-party online retailers.  eBay Inc. (Defendant) sells goods online by connecting third-party sellers and buyers and without ever taking possession of the goods.  Plaintiff accused eBay of knowingly permitting the sale of counterfeit Tiffany goods in violation of Plaintiff’s trademark.

Synopsis of Rule of Law.

Service provider liability for contributory trademark infringement requires a showing of intentional incentive to infringe or “knows or should have known†of the direct infringement and a continued providing of the service to the infringer.

Facts.

eBay (Defendant) is an Internet marketplace that permits registered sellers to sell various items to registered buyers without eBay ever taking possession of the item.  eBay is a very successful company that makes its money by charging sellers to list goods and charging a percentage of the final sale price.  eBay also makes money through its ownership of PayPal, which charges a percentage and small flat fee for eBay users to process purchases.  Tiffany (Plaintiff), a world-famous jeweler, sells its goods exclusively through its own retail stores, catalogue, and website.  It does not sell overstock, discontinued, or discontinued merchandise.  Plaintiff learned of counterfeit Tiffany sales on eBay (Defendant) and alerted Defendant about the problem.  eBay initiated a variety of anticounterfeit sales measures, including a fraud engine, a notice-and-takedown system so rights holders could complete a Notice of Claimed Infringement Form and request the takedown of a particular sellers allegedly counterfeit goods, and cancellation of seller accounts of repeat offenders.  Plaintiff also put a buyers’ notice on the eBay (Defendant) site informing buyers of the potential danger in purchasing Tiffany products on the second-hand market.  Plaintiff filed suit against Defendant, claiming inter alia, eBay’s (Defendant) conduct constituted direct and contributory trademark infringement, trademark dilution, and false advertising.  The district court found for eBay (Defendant) on all counts.  Plaintiff appealed.

Issue.

Does service provider liability for contributory trademark infringement require a showing of intentional incentive to infringe or “knows or should have known†of the direct infringement and a continued providing of the service to the infringer?

Held.

(Sack, J.)  Yes.  Service provider liability for contributory trademark infringement requires a showing of intentional incentive to infringe or “knows or should have known†of the direct infringement and a continued providing of the service to the infringer.  The district court was correct in its finding that eBay’s (Defendant) use of Tiffany’s (Plaintiff) argument that Defendant knew or should have known of the counterfeit sales and thus directly infringed upon its mark for failing to identify and remove the illegitimate goods fails.  It would unduly limit the resale of legitimate second-hand Tiffany goods to impose liability on Defendant for an inability to guarantee the genuineness of all claimed Tiffany products.  Next, Plaintiff argues eBay’s conduct constitutes contributory trademark infringement, which is a more difficult argument.  This is a judicially created doctrine most recently addressed by the United States Supreme Court in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982).  Inwood, applies on its face to manufacturers and distributors of goods but has been extended to providers of services.  This Court’s precedent in related decisions does not provide great insight and this is the first case where Inwood is applied to an online marketplace.  Inwood assesses liability for contributory infringement on service providers if the provider: (1) intentionally encourages the infringement; or (2) knows or has reason to know of infringement and continues to supply its service to the offending party.  Tiffany (Plaintiff) argues the second factor applies to eBay (Defendant).  Plaintiff argues the second factor applies to Defendant.  Plaintiff does not challenge the district court’s finding that Defendant was not liable for those sales it terminated upon receipt of notice from Plaintiff about allegedly offending products.  Tiffany (Plaintiff) does challenge the district court’s finding eBay (Defendant) had insufficient knowledge about infringement of other nonterminated listings because its generalized knowledge of counterfeit products on its site did not trans late into sufficient knowledge under Inwood.  It is a high burden to prove “knowledge†of contributory infringement.  Tiffany (Plaintiff) argues here that generalized knowledge and specific knowledge of particular sellers is the same under Inwood and creates liability.  This court does not read Inwood to be so broad and does not find Inwood established the parameters of “knows or has reason to know†when it only applied the inducement prong of the test.  Another United States Supreme Court case held Inwood had a narrow standard and interpreted Inwood’s second prong to require knowledge of identified individuals.  Sony Corp. of America v. Universal City Studios, Inc. 464 U.S. 417 (1984).  eBay (Defendant) had no such knowledge here.  Tiffany (Plaintiff) argues “willful blindness†cannot be permitted to overcome liability.  If eBay (Defendant) shielded itself deliberately from knowledge of offending sales, it could become liable under the Inwood second prong.  However, that is not the case because Defendant had only general knowledge and did not ignore the issue.  Finally, Tiffany’s (Plaintiff) dilution claims fail because eBay (Defendant) did not use the Tiffany mark to associate it with its own products but to identify Tiffany products on its site.  [False advertising analysis is omitted from the casebook excerpt.]  Affirmed as to the trademark infringement and dilution; remand as to false advertising.

Discussion.

Consumer advocates worried a victory for Tiffany (Plaintiff) would require online merchants to prohibit even lawful uses of trademarks on their sites because of the fear of liability for contributory trademark infringement.  eBay’s (Defendant) existing safeguards and rapid response to notifications of counterfeit products gave it a significant advantage in this case, but not many online retailers are so responsive.  Trademark infringement is rampant online and rights holders must be vigilant about policing the use of their marks.  This case did not offer the hoped-for protection for trademark holders.