August 24, 2012, 4:36 PM

Amazon wins a marketplace ruling

The California dispute involves counterfeit items sold on Amazon.

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In the latest case that involves sales of counterfeit items via an online marketplace, a California court of appeals this week denied a request for an injunction brought against Amazon.com Inc., No. 1 in the Internet Retailer Top 500 Guide.

Tre Milano, which makes the InStyler Rotating Hot Iron Hair Straightener, wants to permanently bar Amazon and third-party sellers on its marketplace from selling or advertising “any purported InStyler products in California … or advertising any counterfeit InStyler products,” according to the Aug. 22 opinion from Second Appellate District, Division Seven.

Tre Milano had appealed the denial of its requested injunction from the Superior Court of Los Angeles County. The company, based in California, also seeks unspecified damages for what it claims are trademark violations under the federal Lanham Act, which is nearly 70 years old and serves as a main law governing trademark infringement in the United States. (The opinion does not say why claims under the federal law were heard in state court.)

In the Aug. 22 opinion, the appellate court acknowledged that Tre Milano “will be harmed by the continued sale of counterfeit InStylers through Amazon … and (Tre Milano) presented evidence that one person has been injured by a counterfeit InStyler.” Tre Milano also said harm came from negative product reviews from customers who had purchased the counterfeits. But the appellate court said that Tre Milano failed to show strong enough claims that made it likely it would ultimately win the suit, or that the harm was enough to merit an injunction.

The appellate court also seemed to give Amazon some wiggle room when it came to marketplace sales. “At least in respect to the InStyler, Amazon is a service provider, not the seller. That Amazon provided the product description and handled the payments did not make it a direct seller of the products.”

“This is a favorable ruling for e-commerce sites, but I see it more as a rejection of the aggressive demands that manufacturers and brand owners are making on e-commerce sites,” Eric Goldman, an attorney and professor who specializes in intellectual property and Internet law, tells Internet Retailer.  “In many cases, the brand owners are asking for things well beyond what the law requires, and judges aren't backing the brand owners up when it gets into court.”

That reasoning echoes another major trademark infringement case, in which jewelry retailer Tiffany & Co. sued eBay Inc. for sales of counterfeit Tiffany products via the online marketplace. The case—heavily referenced in the Aug. 22 appellate opinion, and generally in favor of Amazon—was decided in favor of eBay nearly two years ago when the U.S. Supreme Court denied Tiffany’s request for reconsideration. That ruling came after lower courts found that eBay couldn’t be held liable for the actions of independent sellers.

According to the Aug. 22 appellate court opinion, Tre Milano regularly monitors web sites, including via software, to make sure products sold there are not knock-offs of its own beauty products. When it finds a suspected counterfeit, Tre Milano sends an infringement notice to the site or seller. The opinion says that Tre Milano sent 311 such notices to Amazon between May 1, 2010, and April 28, 2011; of those, 226 notices were for “first-time” listings, while 85 were reminders about previous listings.

The notices stem from instances such as one that took place on Nov. 11, 2009, the opinion says. That’s when Tre Milano attorney Elizabeth Swanson bought an InStyler “directly” from Amazon, determined it was a fake and contacted an official in Amazon’s legal department, “who acknowledged that Amazon was having trouble with its inventory being mixed with that of third parties in its facilities. The [legal department] representative requested a reference guide to assist Amazon in identifying counterfeit InStylers, and Swanson sent one to Amazon’s legal department,” the opinion states.

The opinion notes that Tre Milano in some cases identified for Amazon the merchants that were selling the counterfeits in its marketplace. Tre Milano requested contact information from Amazon for marketplace sellers of counterfeit items, but found that much of the provided information was inaccurate, the opinion says.

Amazon has more than 100 employees who focus on hunting down counterfeits listings and similar tasks, the opinion says, adding that Amazon over the past two-and-a-half years has blocked approximately 5,900 sellers suspected of infringement. Of those, the opinion says, 75% were identified by Amazon, with the rest coming from infringement notices sent by other companies or by online shoppers themselves.

For its part, Amazon says the infringement notices from Tre Milano often lacked necessary detail and that suspicions were based mainly on the item having a lower-than-expected price.

For instance, the opinion quotes Amazon’s copyright compliance officer, Adrian Garver, as saying that “while a handful of these notices have contained evidence … the vast majority have contained nothing but a statement like ‘the item is a counterfeit product that infringes the trademark owner’s rights’ or ‘the item is an unlawful replica.’ Unless Tre Milano  did an actual test buy and inspected the product, these unexplained notices can only be based on the offering price (i.e., the offering price is very low in relation to Tre Milano’s wholesale price). Unless there is something else suspicious about the offering or the seller, [Amazon is] reluctant to accuse a seller of counterfeiting goods.”

According to the Aug. 22 opinion, Garver also accused Tre Milano of sending numerous infringement notices that turned out to contain errors or be false, and that Amazon during one period had taken down, on its own, 41% of items that were later the subject of infringement notices from Tre Milano.

The opinion quotes Garver as saying that Amazon no longer has InStylers in its inventory; indeed, searches today on Amazon turned up none of the Tre Milano products. On the e-commerce site dedicated to the InStyler, the product was selling for $14.99 in a buy one, get one free promotion.

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