July 15, 2008, 12:00 AM

eBay win in Tiffany case is a victory for e-commerce, legal experts say

Yesterday’s ruling by a federal judge that eBay is not liable for sales of fake Tiffany items avoids putting undue burdens on e-commerce sites, legal experts say.

A federal judge has ruled that eBay Inc. is not legally liable for sales of counterfeit Tiffany items on eBay. The decision not only benefits online marketplaces like eBay and Craigslist where consumers and web merchants resell merchandise, but removes a potential obstacle to the extension of such web commerce to social networks like MySpace and Facebook, legal experts say.

U.S. District Court Judge Richard J. Sullivan of the Southern District of New York issued the ruling yesterday in a lawsuit filed in 2004 by luxury jewelry manufacturer Tiffany and Co. Tiffany, No. 88 in the Internet Retailer Top 500 Guide, contended that hundreds of thousands of counterfeit silver jewelry items were sold on eBay from 2003 to 2006 and that eBay did not do enough to prevent those sales, effectively making eBay guilty of trademark infringement. Tiffany also claimed violation of its trademark by advertising on search engines that Tiffany items were being sold on eBay.

In his 66-page ruling, the judge noted that that eBay had invested heavily in preventing fraud and had set up a program called Verified Rights Owner that 14,000 trademark owners, including Tiffany, use to report counterfeit items up for sale on eBay. Tiffany acknowledged that eBay rapidly removed items that Tiffany identified as probably counterfeit, the judge observed. He concluded that Tiffany bore the ultimate responsibility for monitoring violations of its trademark.

Sullivan noted that while the Internet has created new ways for legitimate buyers and sellers to connect, it also makes it easier for counterfeiters to peddle their wares. “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,” he wrote. “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 web sites.”

EBay hailed the ruling, calling it “an important victory for our global community of buyers and sellers.” Rob Chesnut, the company’s senior vice president and legal counsel, said that eBay bars sales of counterfeit goods and has a stake in preventing such sales because “counterfeits hurt the eBay community-the millions of honest sellers building their businesses and buyers who come to eBay for great value and selection. That’s why we want to continue to work with rights owners to aggressively fight the sale of counterfeit items.”

A Tiffany spokesman said, “We are shocked and deeply disappointed in the District Court’s erroneous reading of the law. This ruling allows sellers of counterfeit goods on eBay to victimize consumers. We continue to believe that eBay is legally responsible for the trademark infringement of those selling counterfeit Tiffany jewelry and that eBay cannot avoid liability by placing the entire burden for enforcement on Tiffany and on the other manufacturers of well-known brand name products.” While Tiffany has not announced plans to contest the judge’s ruling, he said, “I would be surprised if Tiffany did not appeal.”

Legal experts noted that the ruling avoids burdening e-commerce sites in a number of ways. For instance, the judge found it was permissible to buy keywords that include the word Tiffany for placing ads on search engines, noted Wendy Seltzer, an assistant professor of intellectual property, Internet law and antitrust at Northeastern University’s law school. She added that the judge’s “careful analysis leaves the path clear for online marketplaces to flourish, putting enforcement burdens where they belong, on trademark owners.”

A decision for Tiffany in the case would have drastically altered the e-commerce landscape by for the first time making online retailers responsible for monitoring postings of goods for sale on their sites, says Chris Glancy, a trademark and copyright litigation specialist at law firm White & Case LLP.

“Online retailers should feel some relief from this decision,” and that includes social network sites like MySpace and Facebook whose users may post notices of goods for sale, he said. “Had Tiffany prevailed and had this court fashioned this new duty, those sites arguably would have had to have some internal monitoring procedures that go beyond their current policies,” Glancy said. For instance, if a consumer says he has an Apple computer for sale, Facebook would have to verify that it was indeed an Apple device, potentially opening the social networking site up to legal action from Apple if it failed to spot a counterfeit and from the seller if it stopped the sale of an item that was legitimate, Glancy said.

This battle is likely not over, as Tiffany may well appeal, noted Eric Goldman, an assistant professor at the Santa Clara University law school and director of the High Tech Law Institute. But the decision is well researched and it appears the judge wrote it “to be as appeal-proof as possible,” Goldman said, adding, “Clearly, Tiffany will have an uphill battle on appeal.”

While eBay won this round in a U.S. court, it lost last month in a similar lawsuit in France filed by luxury goods manufacturer LVMH. EBay has issued a statement saying it would appeal that decision. The statement added, “It is clear that eBay has become a focal point for certain brand owners’ desire to exact ever greater control over e-commerce. We view these decisions as a step backwards for the consumers and businesses whom we empower everyday.”

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