Summary and Analysis of Tiffany v. eBay

Excerpted with permission from Chapter 3 of Bloomberg BNA’s Secondary Trademark Infringement by Jane Coleman and Griff Price

To hold a defendant liable for contributory trademark infringement, a plaintiff must prove that it knew or had reason to know of specific acts of infringement.[1] The court enunciated this rule in Tiffany (NJ) Inc. v. eBay, Inc.,[2] where it applied contributory liability doctrine to an online marketplace for the first time. While the court said it would not engage in a balancing of interests as between the parties,[3] its ruling—which places the burden on the plaintiff to prove that the defendant knew of specific instances of infringement and failed to stop them—nonetheless furthers a policy against forcing a defendant to remediate at the expense of other legitimate business activity.[4]

In Tiffany, the plaintiff luxury jeweler Tiffany sought to hold the defendant liable for facilitating counterfeit sales of Tiffany jewelry on its Web site, the online marketplace eBay. Although a significant portion of the Web site’s sales of Tiffany jewelry were counterfeit, another significant portion comprised entirely legitimate, secondary sales of authentic Tiffany items.[5] The facts in Tiffany thus called on the court determine contributory liability in the context of otherwise legitimate sales involving the same mark. With that consideration in mind,[6] the court held that the defendant’s generalized knowledge of infringement on its Web site did not give rise to a duty to remediate; contributory liability would only lie if the defendant knew about specific instances of infringement and turned a blind eye.[7] Because eBay did not ignore such information, the court declined to hold it liable for other infringing sales—i.e., from the listings it failed to remove—of the plaintiff’s goods on its Web site.[8]

The Tiffany court placed great weight on what it deemed the defendant’s substantial investment in both detecting and remediating infringement, finding that these efforts precluded a determination of willful blindness.[9] Its anticounterfeiting measures included an internal policing system—a “fraud engine” used for finding counterfeit listings—and a notice-and-takedown system that allowed trademark holders to file “notices of claimed infringement” (NOCIs) with eBay. Significantly, the district court found that eBay never refused to remove a reported Tiffany listing in response to an NOCI from the plaintiff.[10] The court therefore concluded that eBay had not, when presented with information about specific listings, shielded itself from finding out the identities of the offending sellers behind them. By consistently acting on the specific information it was given, eBay negated a finding of willful blindness.[11]

Tiffany argued that notwithstanding these measures, eBay failed to take down many other listings for counterfeit Tiffany items.[12] It maintained that taken together, the volume of demand letters and NOCIs it sent to eBay, as well as various complaints from buyers, established that eBay knew or had reason to know that counterfeits of its goods were sold “ubiquitously” on its Web site.[13] This generalized knowledge, Tiffany argued, “required eBay 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.”[14] Based on its failure to respond to this information, Tiffany asserted, eBay should be held liable for the infringing sales from the other listings it failed to remove.[15]

The district court disagreed, finding that such evidence “demonstrated that eBay had generalized notice that some portion of the Tiffany goods sold on its website might be counterfeit.”[16] Applying the Inwood Labs. “knowledge or reason to know” requirement, the court held that such generalized knowledge was insufficient to place an affirmative duty on eBay to remedy the problem.[17] As the circuit court restated in affirming the district court’s ruling,

For contributory trademark infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.[18]

Because eBay removed specific listings of counterfeits once it had notice of them, the court declined to hold it liable for contributory trademark infringement.[19]

Tiffany’s requirement that a plaintiff prove the defendant knew about specific instances of infringement and failed to remediate effects a policy against forcing defendants to terminate otherwise legitimate commerce merely because some portion of a business’s activity is unlawful.[20] As the district court acknowledged, were it to accept the broad reading of Inwood Labs. urged on the court by the plaintiff, “Tiffany’s rights in its mark would dramatically expand, potentially stifling legitimate sales of Tiffany goods on eBay.”[21] Indeed, in Inwood Labs., Justice White forewarned against such a result in his concurrence when he stated that “the doctrine of contributory trademark infringement should not be used to require defendants to refuse to provide a product or service to those who merely might infringe the trademark.”[22]

That said, Tiffany’s rule, strictly applied, would seem to allow a defendant some measure of willful blindness to the infringing activity it facilitates. Just how much willful blindness depends on what it convinces the court it can or cannot remediate without halting its other rightful transactions: It will not be held liable for the ones it misses—unless the plaintiff catches each one individually and brings it to the defendant’s attention—so long as it has done “all it can” to stop them. As the plaintiff in Tiffany argued, the defendant will have no incentive to “root out” infringing conduct if it is only required to do so when it has the specific knowledge required by the Tiffany court.[23] Tiffany was unable to prevail on this point because eBay was found to have invested substantially in remediating fraud, convincing the court that it was in its own best interests to do so “‘to preserve the reputation of its website as a safe place to do business.’”[24]

But what about the fraud that was not in eBay’s best interests to remediate—the counterfeit sales fueled by a genuine public appetite for fakes and on which sales eBay received a fee? The reality of this segment of the market came to light in eBay’s promotional efforts, both on its own Web site and on the Internet’s search engines. For at the same time eBay invested in anticounterfeiting measures, it also invested in search engine advertising for Tiffany and other luxury items, at first directly and then later—after the plaintiff objected—indirectly, concealing its identity through a third-party affiliate marketing program.[25] This advertising included sponsored links inviting the user to shop for “tiffany items at low prices.”[26] Notwithstanding the significant portion of counterfeit sales on its Web site, the court yielded to eBay’s position that its interest in remediating infringement was greater than its interest in profiting from it.[27] And though it cautioned it would not engage in a balancing of interests between the parties,[28] the court ultimately was compelled by the legitimate market in secondary sales of authentic Tiffany jewelry and the loss to eBay that would result from limiting it.[29]

Tiffany’s test for proving knowledge takes these considerations into account by placing the burden on the plaintiff to prove the defendant knew or was willfully blind to specific instances of infringement. As to those instances which the plaintiff cannot specifically identify, in Tiffany, the defendant’s claim that it had done all it could to remediate convinced the court that it was not willfully blind. However, by resting contributory liability on what the defendant claims it can and cannot remediate, Tiffany’s knowledge-with-specificity rule arguably incentivizes contributory infringers to do just enough, but not too much, to eliminate the infringing activity they profit from.

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[1] Rosetta Stone Ltd. v. Google, Inc. 676 F.3d 144, 163, 102 USPQ2d 1473 (4th Cir. 2012) (“It is not enough to have general knowledge that some percentage of the purchasers of a product or service is using it to engage in infringing activities; rather, the defendant must supply its product or service to ‘identified individuals’ that it knows or has reason to know are engaging in trademark infringement.”) (vacating district court’s summary judgment order in favor of defendant on contributory infringement claim where evidence was sufficient to establish question of fact as to whether defendant continued to supply its services to known infringers), affirming in part, vacating in part, and remanding 730 F. Supp. 2d 531, 97 USPQ2d 1855 (E.D. Va. 2010) and 732 F. Supp. 2d 531, 97 USPQ2d 1824 (E.D. Va. 2010) (Rosetta Stone is discussed below in this section); Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 107, 106–09, 94 USPQ2d 1188 (2d Cir. 2010) (defendant’s generalized knowledge of infringement on its online auction site insufficient to support a claim of contributory trademark infringement), affirming in part, reversing in part, and remanding 576 F. Supp. 2d 463, 470, 508–10 (S.D.N.Y. 2008), cert. denied, 131 S. Ct. 647 (2010); Nomination Di Antonio E Paolo Gensini S.N.C. v. H.E.R. Accessories, Ltd., No. 07 civ. 6959, 2010 WL 4968072 (S.D.N.Y Dec. 6, 2010) (plaintiff jewelry company failed to allege specific knowledge of infringement against defendant that licensed its intellectual property rights in famous cartoon characters to direct infringer); MetroPCS Wireless, Inc. v. Virgin Mobile USA, L.P., No. 3:08-CV-1658-D, 2009 WL 3075205, at *17 (N.D. Tex. Sept. 25, 2009) (dismissing contributory liability claim where plaintiff failed to allege defendant’s knowledge of particularized instances of its customers’ infringement). Cf. Roger Cleveland Golf v. [Prince], No. 2:09-CV-2119, 2010 WL 5019260 (D.S.C. Dec. 3, 2010), defendant’s renewed motion for judgment as a matter of law denied, No. 2:09-2119, 2012 WL 1106775, at *6–7 (D.S.C. Mar. 30, 2012) (Tiffany’s knowledge with particularity requirement was met by plaintiff golf club manufacturer who presented evidence that defendant Web hosting company knew or had reason to know its services were being used by one of its customers to commit trademark infringement).

[2] 600 F.3d 93, 105, 94 USPQ2d 1188 (2d Cir. 2010), affirming in part and reversing in part 576 F. Supp. 2d 463 (S.D.N.Y. 2008).

[3] Id. at 109 (“[W]e are interpreting the law and applying it to the facts of this case. We could not, even if we thought it wise, revise the existing law in order to better serve one party’s interests at the expense of the other’s.”).

[4] See 1-800 Contacts, Inc. v. Lens.com, Inc., Nos. 11-4114, 11-4204, 12-4022, 2013 WL 3665627, at *20 (10th Cir. July 16, 2013) (hereinafter Lens.com) (“The obvious rationale for ordinarily requiring that the defendant know the identity of the infringer is that otherwise the defendant could not halt the infringement without also stopping perfectly proper conduct—throwing the baby out with the bath water, so to speak.”).

[5] Tiffany, 600 F.3d at 97–98.

[6] See id. at 98 (citing 576 F. Supp. 2d at 510 & n.36) (rejecting plaintiff’s argument for standard that would limit legitimate sales).

[7] Id. at 110. Compare Tiffany with Lens.com, Inc., where the court held that if the defendant had an easy method for stopping infringement and failed to use it, it could be held liable, notwithstanding its inability to identify the specific infringer. 2013 WL 3665627, at *21.

[8] Tiffany, 600 F.3d at 110. Note that the district court also declined to hold eBay contributorially liable for the infringement of sellers whose listings it did remove. Id. at 106. Tiffany apparently did not appeal that ruling. Id.

[9] See id. at 98 (citing 576 F. Supp. 2d at 476) (noting that eBay spent as much as $20 million each year).

[10] Id. at 99 (citing 576 F. Supp. 2d at 488).

[11] Id. at 110 (citing 576 F. Supp. 2d at 513).

[12] Although Tiffany’s evidence on the number of counterfeit items sold was called into doubt, the district court nonetheless found that a “significant portion” of the Tiffany items sold on eBay were counterfeit. Id. at 97–98 (citing 576 F. Supp. 2d at 486).

[13] Id. at 106 (citing 576 F. Supp. 2d at 507–08).

[14] Tiffany, 576 F. Supp. 2d at 507.

[15] Tiffany, 600 F.3d at 106 (citing 576 F. Supp. 2d at 507–08).

[16] Tiffany, 576 F. Supp. 2d at 507 (emphasis in original).

[17] Id. at 508.

[18] Tiffany, 600 F.3d at 107.

[19] Id. at 109.

[20] See also Lens.com, 2013 WL 3665627, at *20, where the court observes, “The obvious rationale for ordinarily requiring that the defendant know the identity of the infringer is that otherwise the defendant could not halt the infringement without also stopping perfectly proper conduct—throwing the baby out with the bath water, so to speak.”

[21] Tiffany, 576 F. Supp. 2d at 510. Note that mark holders would of course welcome this result, because they would like to control the means of distribution to the extent possible.

[22] Id. at 509–10 (quoting Inwood, 456 U.S. at 861 (White, J., concurring)).

[23] See Tiffany, 600 F.3d at 109, where the plaintiff argues this point.

[24] Id. at 98 (quoting 576 F. Supp. 2d 469).

[25] Tiffany, 576 F. Supp. 2d at 480.

[26] Tiffany, 600 F.3d at 101.

[27] See id. at 109 (reasoning that “private market forces give eBay and those operating similar businesses a strong incentive to minimize the counterfeit goods sold on their websites”).

[28] See Tiffany, 600 F.3d at 109 (“[W]e are interpreting the law and applying it to the facts of this case. We could not, even if we thought it wise, revise the existing law in order to better serve one party’s interests at the expense of the other’s.”).

[29] See id. at 98 (noting same).

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