Tiffany (NJ) Inc. v. eBay Inc. 600 F.3d 93 (2nd Cir. 2010), was a landmark case in which the United States Court of Appeals for the Second Circuit first addressed contributory trademark infringement in the context of online marketplaces.
The case began in 2004 when Tiffany & Co. filed a complaint against eBay, alleging that the platform's conduct (i.e., facilitating and advertising the sale of counterfeit "Tiffany" goods) constituted direct and contributory trademark infringement, trademark dilution, and false advertising. Following a bench trial, the District Court for the Southern District of New York ruled in eBay's favor on all claims on July 14, 2008.
Tiffany subsequently appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed the district court's rulings that eBay was not liable for trademark infringement and dilution. However, the false advertising claim was remanded for further review, though the district court again ruled in eBay's favor.
Background Tiffany Founded in 1837, Tiffany & Co. is an American luxury goods company selling jewelry, watches, and home items. Created in New York City by Charles Lewis Tiffany, Tiffany closely controls its trademarks through its distribution chains.
In 2009, Tiffany had worldwide net earnings of $368.4 million, 90% of which derived from jewelry sales.
eBay eBay is an online-market place, founded in 1995, that allows its registered users to buy and sell items with other users. eBay has more than 97 million active users globally, In 2010, users worldwide collectively traded more than $2,000 worth of goods every second. Sellers put listings of their items under certain categories, such as "Books" or "Electronics", and potential buyers can search the items they want by keyword search or by browsing under the category. The two parties contact each other directly and decide the payment and shipping details to complete a transaction. eBay makes revenue by charging the sellers a commission fee for its listing services and for each completed deal. eBay addresses trademark owners’ concerns through their Verified Rights Owner (VeRO) program and "fraud engine". Through VeRO, owners of trademarks report potentially infringing listings to eBay by submitting a Notice of Claimed Infringement form (NOCI). eBay staff review submitted NOCIs and remove the offending listings if the information is accurate. The fraud engine is a collection of software rules and models that automatically find and remove listings that violate eBay policies.
Starting from 2004, counterfeit Tiffany goods were found to be sold on eBay's website, which could also be linked from eBay's homepage as top-sale listings.
Actions leading to litigation In May 2003, Tiffany complained to eBay regarding the sale of counterfeit items on its website and eBay recommended Tiffany participate in VeRO. In 2004 (and again in 2005 after litigation ensued), Tiffany conducted surveys to determine the extent of counterfeiting occurring on eBay.Tiffany (NJ) Inc., 576 F. Supp. 2d at 485. Tiffany hired a third party to purchase a random sample of items bought from eBay using the keywords "Tiffany" and "sterling" and then inspected these items for authenticity. 136 pieces were purchased in 2004, 73.1% of which were counterfeit, 5% were authentic, and the remaining 21.9% were unverifiable. 139 items were purchased in 2005, 75.5% of which were counterfeit.
After counterfeit items continued to be sold on eBay, Tiffany made 5 different demands on eBay in June 2004 – (1.) Prevent sellers from listing 5 or more Tiffany jewelry items at once, (2.) Ban the sale of silver Tiffany jewelry, (3.) Ban the sale of items advertised as counterfeit Tiffany, (4.) Stop advertising the availability of Tiffany merchandise, and (5.) Remove ‘Tiffany’ sponsored link advertisements on search engines. Although eBay continued to allow the sale of Tiffany jewelry and buy sponsored link advertisements through a third party, eBay's refusal to categorically ban sellers listing more than 5 Tiffany items at a time triggered this lawsuit.
District Court findings On July 14, 2008, the district court ruled in favor of eBay on all issues. Tiffany appealed and on April 1, 2010, the Second Circuit court ruled in favor of eBay on all issues, except the false advertising claim, which it remanded back to the district court. On remand, the district court again ruled in favor of eBay on the last issue on Sept. 13, 2010.Tiffany v. eBay, Inc., 2010 WL 3733894
Direct trademark infringement EBay's use of the Tiffany marks – Tiffany pointed out that eBay advertised the availability of Tiffany goods on eBay's market through several ways such as "on the eBay home page, through communications with sellers and buyers, and through lists of top search terms and popular brand names." From this, the Court ruled that "eBay's use of the Tiffany marks on its website did not create the impression that Tiffany had affiliated itself with, sponsored, or endorsed the sale of Tiffany items on eBay" and that eBay's use of Tiffany marks on its homepage was "a protected nominative fair use." eBay demonstrated that it is necessary to use the Tiffany marks in order to identify and describe their jewelry. eBay demonstrated that it did not use the marks more than necessary to identify the item. eBay showed that it did not do anything that would suggest that Tiffany & Co. was sponsoring or endorsing any of the listings or eBay itself.
Tiffany alleged eBay violated the Lanham Act and New York state common law by directly infringing on its trademark in three ways. First, eBay profited from the sales of Tiffany jewelry resulting from the Tiffany trademark. Second, eBay bought sponsored links on Google and Yahoo! that advertised eBay listings for Tiffany items. Lastly, eBay should be held liable jointly and severally with the offending sellers, even though eBay didn't directly list counterfeit items.
Purchase of Sponsored Links. In response to Tiffany's assertion that eBay's practice of purchasing search engine advertising links constitutes direct trademark infringement, eBay claimed, under 1-800 Contacts, Inc. v. WhenU.Com, Inc. this conduct is not trademark "use" and thus is not infringing. While the Court found that 1-800 Contacts case is distinguishable from the current case, it concluded that the conduct is protected as a nominative fair use even if it was actually a use of the trademark. The reason is simply that eBay's use of the TIFFANY Marks in sponsored links is effectively identical to that on its own website, and thus the same conclusions can be made.
Joint and Several Liability. To support this allegation, Tiffany referred to Gucci America, Inc. v. Exclusive Imports International. The court held that, however, that the two cases were entirely distinguishable from one another because eBay "never takes possession of items sold through its website, and that eBay does not directly sell the counterfeit Tiffany merchandise to buyers." The court found that Tiffany's "joint and several liability" was misplaced and more applicable under the theory of contributory infringement rather than direct infringement and that eBay was not "liable for direct trademark infringement under state or federal law."
The Second Circuit held that the nominative fair use defense protected eBay's activities because eBay needed to reference the Tiffany name to identify the jewelry, eBay only used enough of the trademark as was "reasonably necessary" to make that identification, and eBay did not suggest endorsement or sponsorship by Tiffany. Further, because eBay does not take possession of counterfeit goods, nor does eBay directly sell items, this issue would be more properly argued under contributory trademark infringement.
Contributory trademark infringement Tiffany claimed the contributory trademark infringement of eBay, which was a judicially constructed doctrine articulated by the Supreme Court in Inwood Laboratories, Inc. v. Ives Laboratories, Inc. and found the liability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another. As established in Inwood, "if 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.". Using this finding, Tiffany claimed that eBay continued to provide its platform despite its knowledge, or reason to know, that counterfeit merchandise is being sold.
Product vs. service – eBay argued that its website was service that provides a "venue for listings created and posted by third parties" rather than a "product" as defined by the Inwood case. The Court agreed that eBay fell on the "service" side of the product/service distinction. After examining all the facts, the Court found that "eBay exercises sufficient control and monitoring over its websites" and is similar to a flea market and uses Hendrickson v. eBay as a case that eBay "features elements of both traditional swap meets—where sellers pay for use of space to display goods— and traditional auction houses where goods are sold in a highest bid process." The court concluded that "eBay's conduct must be assessed under the standard for contributory negligence set forth in Inwood." The Second Circuit held that eBay did not have the requisite level of knowledge to satisfy the Inwood standard. "For contributory trademark infringement liability…, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods." Here, Tiffany did not identify specific cases of infringement to eBay; and when NOCIs did identify specific sellers, eBay suspended them. Therefore, eBay was not liable for contributory trademark infringement.
Knowledge Or Reason To Know. Tiffany provided the evidence that eBay had been notified "that some portion of the Tiffany goods sold on its website might be counterfeit." Tiffany informed eBay by sending demand letters in 2003 and 2004, buying products in eBay's 2004 Buying Program and appraising that 73.1% of Tiffany's purchases were counterfeit and filing thousands of Notices of Claimed Infringement (NOCIs) submissions.
Tiffany argued that eBay's generalized knowledge of the counterfeit items should have prompted them to "preemptively remedy the problem at the very moment that it knew or had reason to know that the infringing conduct was generally occurring, even without specific knowledge as to individual instances of infringing listings or sellers." The court ruled that the generalized knowledge that eBay possessed was insufficient under the Inwood test and that eBay could not be forced to remedy the problem.
Willful Blindness. The Court considered whether eBay was willfully blind to the infringement. Tiffany contended that eBay was obligated to perform investigations on the infringing behaviors on its websites, given the knowledge and evidences provided by Tiffany. Nevertheless, evidence showed that eBay had spent significant efforts to fight with the sales of counterfeit items on its websites, including the VeRO program and the fraud engine. Upon the general knowledge of the problem, eBay also took reasonable steps to remedy the problem through its general anti-fraud tools. The Court thus held that eBay was not willfully blind. The court concluded that eBay did not ignore the infringing activities and tried to prevent the sale of counterfeit items, as evidenced by the VeRO program and the "fraud engine". In addition, eBay had no affirmative duty to search for potentially infringing items without specific knowledge.