Back in 2004, USA Today, and many other news organizations, reported on Tiffany’s lawsuit against eBay. The trademark issue is fairly simple to grasp — a lot of the Tiffany jewelry sold on eBay is apparently not authentic Tiffany jewelry. So is eBay liable for the sale of these fakes? The district court said no. The Second Circuit, in its appellate opinion and order, issued today, has largely agreed, but has remanded on the issue of false advertising.
This case is a pretty big deal, given the size of the eBay marketplace, the trademark doctrines involved, and the pressing questions of liability for online intermediaries. The EFF, which filed amicus pleadings in support of eBay, has collected some of the pleadings in the case here.
Rebecca Tushnet and Eric Goldman (and others, no doubt) have beaten me to the punch on the analysis of the opinion, which you can find here. But here’s a quick summary: eBay won on the direct infringement claims (concerning its own uses of the word “Tiffany” and its purchase of keywords), it won on contributory liability (concerning its duty to prevent — or actually, not facilitate — infringement by others), it won on trademark dilution, and it looks like it will need to revisit the issue of false advertising on remand.
The opinion is a pretty easy read. Since Eric and Rebecca have already briefed it in a straightforward way, I’ll just add a few of my personal observations:
- On p.7, the Second Circuit notes that Tiffany has an economic motive for shutting down, entirely, the secondary market for legitimate Tiffany merchandise, because secondary sales compete with its own sales. The court doesn’t really explain why it is noting this fact, but it’s clearly a nod to the long history of cases validating the policy of permitting the use of trademarks in aftermarket sales, e.g., the Supreme Court’s 1947 decision in the Champion spark plugs case. (This is made more explicit at page 20.)
- In recounting the facts, the Second Circuit take abundant notice of the tremendously expensive and time-consuming measures eBay takes to remove counterfeit Tiffany auctions and to police against them. With VERO, eBay has essentially crafted its own “DMTA,” a notice-and-takedown procedure for trademark infringement complaints. But eBay’s efforts go considerably beyond that, including a fraud engine, 70 full-time employees policing IP issues, etc. (pp. 7-13.) Was eBay legally required to do all this? The opinion does not say that, but at the very least, it is clear that eBay helped its litigation defense by pro-actively crafting in-house measures to police against trademark counterfeiting and infringement. (More on this in a bit.)
- On direct infringement, part of Tiffany’s claim is that eBay is liable because it purchased sponsored links under the “tiffany” term on Google and Yahoo! The court finds that eBay is entitled to use the “tiffany” trademark in this way because it does host sales for some genuine Tiffany products. The court (wisely in my opinion) takes a technical pass on Judge Kozinski’s “nominative fair use” invention, which the district court relied on, simply finding that eBay’s actions, based on pre-New Kids case law, were not unlawful. Personally, I think coming up with something other than “nominative fair use” is really the right way to go here, given that cases like Jardine were the linear progeny of New Kids in the Ninth Circuit, and they resulted, as the Supreme Court pointed out in KP Permanent, in a Ninth Circuit rule where a trademark defense amounted, more or less, to a burden on the defendant to disprove the likelihood of confusion. As the Supreme Court said, that’s not really a defense at all.
- On contributory infringement, it appears that the EFF asked the Second Circuit to apply the Supreme Court’s language in Inwood literally, restricting it to the actions of manufacturers and distributors of physical goods and therefore not applying it to eBay. Apparently, though, eBay was just fine with the application of Inwood on appeal. Because eBay fails to contest Inwood’s application, the court just assumes the Inwood test applies to online auctions in this case, reserving the right to decide it doesn’t if some party wants to actually make that claim in the future. Tough question effectively dodged!
- So the question becomes: how much notice is enough to charge eBay with liability for the infringing auctions? Does eBay need to have general notice that counterfeiters are using its services (it does know this, and this is Tiffany’s proposed standard), or does it have to have specific notice of the auctions of particular infringing sellers (a narrower standard). Where does the Second Circuit look for the answer? Sony! (As if we all needed another reason to talk about the Sony doctrine.) The Sony court cited to Inwood in order to uphold the technology of the VCR, and here the Second Circuit flips that discussion back to trademark law, by noting that the Sony copyright standard for contributory liability requires notice of specific acts of infringement.
- The most interesting part of the opinion for me was around page 33, where the Second Circuit responds to Tiffany’s arguments that, essentially, the court really ought to make some new trademark law to deal with the pressing problem of online counterfeits. The court explains that it doesn’t have the power to do this, but then adds, just ruminating on the topic:
“But we are also disposed to think, and the record suggests, that private market forces give eBay and those operating similar businesses a strong incentive to minimize the counterfeit goods sold on their websites. eBay received many complaints from users claiming to have been duped into buying counterfeit Tiffany products sold on eBay. The risk of alienating these users gives eBay a reason to identify and remove counterfeit listings. Indeed it has spent millions of dollars in that effort.” (p. 33.)
- So for me, the above is where eBay’s internal efforts really pay off–in a very interesting way. The Second Circuit suggests that eBay’s enthusiasm for getting rid of Tiffany counterfeits isn’t really something eBay is doing for Tiffany. It suggests that as a private company, eBay has market-based motivations to create and enforce it’s own home-brewed blend of trademark law in response to the demands of consumers, within its own little auction jurisdiction. I imagine that’s right, to some extent. But this leads me to wonder how much eBay’s emergent in-house trademark regime would actually reflect the one we have today: would the market demands of consumers, for instance, lead eBay to create its own shadow dilution protections? Merchandising right protections? I doubt it. And if trademark law really has something to do with protecting consumers from confusion and deception, what’s so bad about giving eBay’s customers the trademark law they actually want?
- If you blink, you’ll miss the dilution analysis (pp. 38-39). Essentially, the problem for Tiffany is that eBay is not directly selling any product, so unlike in the paradigmatic case of the Rolls Royce toothbrush, there is no eBay product that could tarnish or impair the distinctiveness of Tiffany’s mark.
- eBay does not win on the false advertising claim, not because its ads were literally false, but because they were sort of misleading–maybe. eBay ran paid placement advertisements saying things such as “Find tiffany items at low prices.” (The opinion doesn’t say this, but I imagine these ads are generated by a routine that responds to any search for “X” with an ad stating that you can “find X items at low prices” on eBay.) The Second Circuit thinks this sort of ad might be misleading, and observes that eBay knew that many of the Tiffany items offered on its auction site were counterfeits. So the advertisement perhaps implies that the low-priced Tiffany goods were all genuine? The Second Circuit wants the district court to determine if that was in fact the case. My guess as to the factual finding we’ll get? On remand, I bet the district court says “no, these ads were not misleading” and eBay wins on this claim too. But maybe I’m too optimistic. Check out what Rebecca and Eric have to say.