By Roger Parloff
July 14, 2008

Though eBay (EBAY) got roughed up last month in courts of France — which found the online auction site responsible for counterfeit sales —  it won big-time Monday in the court of the United States.

In a 66-page ruling, U.S. District Judge Richard Sullivan of Manhattan ruled against the venerable, New York-based jewelry company Tiffany and Co. (TIF), finding that eBay had taken reasonable and adequate steps to prevent its users from selling counterfeit Tiffany silver jewelry on its sites.

“The standard is not whether eBay could reasonably anticipate possible infringement,” Judge Sullivan wrote, “but rather whether eBay continued to supply its services to sellers when it knew or had reason to know of infringement by those sellers. . . . Here, when Tiffany put eBay on notice of specific items that Tiffany believed to be infringing, eBay immediately removed those listings.”

In effect, the court vindicated eBay’s so-called VeRO (Verified Rights Owners) program. Under that program, eBay provides brand-owners like Tiffany with software enabling them to identify specific eBay listings that the brand owner believes involve counterfeit goods. eBay then removes those listings (within 24 hours in 90 percent of the cases, and within four hours in 75% of the cases, according to evidence presented at trial last November).

Tiffany had argued that the VeRO program was simply inadequate to combat counterfeiting on the vast scale that was occurring on eBay. Its counsel performed a survey which purported to show that 73.1% of all products advertised as “Tiffany sterling” on eBay were counterfeit, while only 5% were genuine. (The remainder, 21.9%, were “imitations” that might subject the seller to liability, but they were not technically “counterfeit” because the trademark “Tiffany” did not appear on the product.)

Under the circumstances, Tiffany argued, eBay had to take proactive steps to filter out suspicious listings before they could be published.

But Judge Sullivan squarely rejected Tiffany’s argument. “The law does not impose liability for contributory trademark infringement on eBay for its refusal to take such preemptive steps in light of eBay’s ‘reasonable anticipation’ or generalized knowledge that counterfeit goods might be sold on its website. Quite simply, the law demands more specific knowledge as to which items are infringing and which seller is listing those items before requiring eBay to take action.”

An attorney for Tiffany said the company would be issuing a statement later this afternoon. eBay’s statement is available here.

Judge Sullivan’s ruling today was diametrically opposed to two that were rendered in June by trial-level courts in France. In those cases, courts found eBay liable to luxury goods manufacturers Hermes International and LVMH for having failed to prevent users from selling counterfeit versions of their products. In the LVMH case, eBay was ordered to pay more than $60 million in damages. (More remarkably still, eBay was ordered to block sales of even genuine LVMH perfumes that were being sold by unauthorized distributors. See prior posts here and here.) eBay has pledged to appeal the French rulings.

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