Trademark Law and Practice, Pages 193–204

Tiffany Inc. v. eBay Inc.

United States Court of Appeals for the Second Circuit, 2010

Facts:

Plaintiffs create high-end jewelery and sells it exclusively at strict prices. A secondary market grew up for plaintiffs' goods on defendant's auction site. However, plaintiffs bought many items on eBay to test them and found that approximately ¾ of them were counterfeit. While this test had flaws, it did show that a significant portion of the listed goods were counterfeit.

The listings were automated and not inspected by defendant. In many cases, an accurate determination of authenticity would be impossible without a physical inspection and a examiner with some degree of expertise. eBay nonetheless did spend up to $20 million each year on consumer protection and item authenticity. Part of these protections include automatically removing items reported by a manufacturer to violate their rights. Defendant also allowed plaintiff to put a disclaimer about eBay on plaintiff's site and later put a warning on its own site when listing a Tiffany item.

At the same time eBay was implementing its anti-counterfeiting measures, it was also advertising the sale of high-end jewelery, such as plaintiffs', on its own site and others'. Plaintiff complained about this and eBay falsely said to have stopped. Plaintiffs then brought this suit for infringing on and diluting their trademark by facilitating and advertising the sale of counterfeit goods.

Procedural History:

District court found for defendant.

Issue:

Is an intermediary liable for trademark-infringing counterfeit items sold on its site when it takes methods to curtail it?

Rules:

  • The doctrine of nominative fair use allows one to use another trademark to identify the other's product as long as there is no likelihood of confusion about the source or affiliation.

    To be protected by this:

    1. The other's product must not be readily identifiable without using the trademark
    2. Marks must only be used as reasonable necessary to identify the product
    3. The user must not do anything would suggest endorsement by the trademark holder.
  • Contributory trademark infringement holds a manufacturer or distributor liable if it induces another to infringe a trademark or continues to supply its product to one it knows or has reason to know is engaging in trademark infringement.

  • Trademark dilution can occur "by blurring" or "by tarnishment." Dilution by blurring is when a "famous mark" loses some of its distinctiveness because of the use of a similar mark, regardless of what for. Dilution by tarnishment is when a "famous mark" has its reputation hurt because of a similarly named product of poor quality or unwholesome context.

Reasoning:

  • Defendant's uses of plaintiff's mark were lawful because it used it to accurately describe genuine goods without suggesting endorsement. To impose liability because many of the items were counterfeit would unduly inhibit the lawful resale of plaintiffs' goods because defendant cannot guarantee the genuineness of all of the items.

  • Plaintiffs do not claim that defendant induced the counterfeit sales, but claims that it committed contributory trademark infringement by continuing to supply its services to sellers it knew were infringing on plaintiffs' trademark. However, eBay did remove all the listings plaintiffs notified it of being counterfeit. While it had generalized knowledge of counterfeit items being sold, this is not sufficient knowledge for contributory trademark infringement, which requires "identified individuals" engaging in infringing conduct.

  • Plaintiffs also express concern that if not held liable, defendant will have no incentive to work at removing counterfeit items. However, the courts cannot create new laws to rectify this even if it was a problem. Furthermore, market forces will pressure defendant into policing it regardless. It has already received complaints from its users about it. If it had been willfully looking the other way, it could be held liable, but it was not in a position to know who was selling counterfeits and who was not. It acted on what it was given.

  • Defendant did not sell the counterfeits itself, so there is no secondary product at issue here to dilute plaintiffs' brand either way.

Holding:

No, an intermediary is not liable for for trademark-infringing items sold on its site when it is responsive about removing them. Affirmed.

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