B. The Elements of Contributory Liability under Inwood: 4. Continuing to Supply
Under Inwood, a plaintiff must prove that the defendant continued to supply its product to an infringer once it had knowledge of the infringement. Tiffany v. eBay, 576 F.Supp.2d 463, 516 (S.D.N.Y 2008)(citing Inwood), affirmed in part and remanded in part, 600 F.3d 93 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). See also Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., 2010 WL 4968072 at *6 (S.D.N.Y)(“Nomination II”)(plaintiffs failed to allege that licensor defendants continued to supply their services after receiving plaintiffs’ notice where license agreements were dated before notice was received). Remedial measures taken by defendants in the face of such knowledge are thus also the focus of the inquiry into whether a defendant has continued to supply its product or service.
Specifically, courts will not impose contributory liability on a defendant who, having the requisite knowledge, takes “appropriate steps” to cut off the supply of its product or service to the infringer. Tiffany v. eBay, 576 F.Supp.2d 463, 516 (S.D.N.Y 2008), cert denied, 131 S.Ct. 647 (2010), citing cases. See Sellify v. Amazon, 2010 WL 4455830 (S.D.N.Y.)(online sales company did not “continue to supply” its services where it promptly initiated enforcement action against and eventually cut off its contractual ties with its associate after it knew the associate had infringed plaintiff’s trademark). Thus, in Tiffany v. eBay, remedial measures taken by the defendant online marketplace eBay precluded a finding that it had “continue[d] to supply” its service to known infringers, notwithstanding its refusal to automatically and permanently suspend the suspect sellers upon receiving a notice from the trademark holder asserting its belief that their goods were counterfeit. Id. at 470.
At issue in Tiffany was whether eBay’s practices under its “notice-and-takedown” system, known as the Verified Rights Owner (“VeRO”) Program, constituted “appropriate steps” to cut off the supply of its service to those infringers against whom Tiffany had filed notices of claimed infringement (“NOCIs”). See Tiffany, supra at516-518. The VeRO program afforded rights owners the ability to police their own trademarks on eBay’s website. See Id. at 478. Upon identifying a suspected infringing listing, the owners could file an NOCI, attesting to their “good-faith belief that the item infringed on a copyright or trademark.” Id. After receiving and reviewing the notice for accuracy, eBay promptly removed the challenged listing. Id. at 478, 516. In addition, eBay also “warned sellers and buyers, cancelled all fees associated with the listing, and directed buyers not to consummate the sale of the listed item.” Id. at 516. Tiffany argued that eBay’s practices under the VeRO program were insufficient on several counts, but the court disagreed on each one.
Tiffany contended that eBay “continued to serve individual infringers by failing to take adequate steps in response to the filings of NOCIs by Tiffany.” Tiffany, supra at 516. The court rejected this argument outright, because, as noted above, it was undisputed that eBay “never refused to remove a listing” after an NOCI was filed. Id.
Tiffany argued further that there were instances where eBay allowed repeat offenders to sell counterfeit goods even after an NOCI had been filed. Tiffany, supra at 516. It asserted that eBay’s “refusal to automatically and permanently suspend sellers upon the filing of a NOCI constitute[d] per se contributory trademark infringement under Inwood. Id. at 516-517. The court acknowledged that in fact “eBay, as a rule, declined to automatically or permanently suspend a seller on the filings of a first, or even a second, NOCI.” Id. at 517. It nevertheless rejected Tiffany’s argument, finding eBay’s policy appropriate under the circumstances. Id.
In reaching its conclusion, the court distinguished the NOCI from actual proof of counterfeiting. Tiffany, supra at 517. (S.D.N.Y 2008). An NOCI, the court stated, “is not a determination of counterfeiting, but instead, is a good-faith assertion on the part of a rights holder that an item is counterfeit or otherwise infringing.” Id. Without actual knowledge of counterfeiting, Tiffany could not demonstrate that eBay should have permanently suspended a seller. Citing the consequences of an eBay suspension as well as evidence regarding “repeat offenders,” see Id., the court therefore concluded that eBay’s existing policy on suspending sellers was appropriate. Id.
Tiffany finally argued that “eBay’s efforts to remedy trademark infringement on its website through the VeRO Program were legally insufficient [,]” citing difficulties with reporting on an item before it became available to the public and the sheer multitude of listings to be reviewed. Tiffany, supra at 517. Once again, the court was unsympathetic, finding nothing in the evidence to demonstrate that the VeRO program was “unreasonably burdensome.” Id.
Moreover, in the court’s view, Tiffany’s contributory liability rationale amounted to a cost-avoider argument, resting “on the notion that because eBay was able to screen out potentially counterfeit Tiffany listings more cheaply, quickly, and effectively than Tiffany, the burden to police the Tiffany trademark should have shifted to eBay.” Tiffany, supra at 518. The evidence did not support eBay and in fact the court faulted Tiffany for having failed to adequately police its trademark, finding its participation in the VeRO program [had] been “sporadic and relatively meager.” Id.
More fundamentally, though, the court held that contributory liability did not depend on which party was in a better position to stop trademark infringement on eBay. See Tiffany, supra at 518. Rather, the court reiterated settled law that “rights holders bear the principal responsibility to police their trademarks.” Id. Ultimately, the court held that Tiffany “failed to prove that eBay continued to supply its service to those whom it knew or had reason to know were engaging in infringement,” finding it had taken the requisite “appropriate steps” to “cease making its website available in those instances where Tiffany brought objectionable conduct to its attention.” It therefore rejected Tiffany’s contributory liability claim under the “continues to supply” test of Inwood.
The district court’s ruling rejecting Tiffany’s contributory liability claim was upheld on appeal. Tiffany v. eBay, 600 F.3d 93, 106 -110 (2d Cir. 2010), cert denied, 131 S.Ct. 647 (2010). The Second Circuit’s decision is discussed in detail in Sections II.B.3. (a) and II.B. 3. (c)