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Tiffany v. eBay: Decision day at SCOTUS

By 1 December 2010 No Comment

Last Monday, the Supreme Court declined to review Tiffany v. eBay, in which the issue, as stated in the legalese of certiorari petitions, was:

Whether, under the doctrine of contributory trademark infringement, a defendant can be held liable for operating a marketplace that it knows is used to sell substantial quantities of goods that infringe a plaintiff’s trademark, even if it does not know that particular goods are infringing.

In theory, a denial of certiorari does not mean that the Court approves the decision below, but in fact a cert denied in a citation reinforces its power as a precedent, and raises the odds that other Courts of Appeal will adopt the same position. Besides, the decision below was a good one, and the chances that it sets the Law of the Land are overwhelming.

The trial court held for eBay, and the Second Circuit Court of Appeals agreed:

Tiffany posits that the only relevant question is “whether all of the knowledge, when taken together,puts [eBay] on notice that there is a substantial problem of trademark infringement. If so and if it fails to act, [eBay] is liable for contributory trademark infringement.” Id. at 29. We agree with the district court. 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.

Before doing too many high fives, though, potential defendants should keep reading, because the opinion also takes up the concept of “willful blindness”:

A service provider is not, we think, permitted willful blindness.When it has reason to suspect that users of its service are infringing a protected mark, it may not shield itself from learning of the particular infringing transactions by looking the other way. [Citations omitted] In the words of the Seventh Circuit, “willful blindness is equivalent to actual knowledge for purposes of the Lanham Act.”

The opinion also emphasized the congruence of incentives between Tiffany’s and eBay in that the latter has a strong reputational interest in avoiding the sale of fakes, and the extensive anti-counterfeit program operated by eBay:

eBay spent “as much as $20 million each year on tools to promote trust and safety on its website.” . . .  eBay and PayPal set up “buyer protection programs,” . . . eBay also established a “Trust and Safety” department, with some 4,000 employees . . . including over 200 who “focus exclusively on combating infringement” and 70 who “work exclusively with law enforcement.” . . . By May 2002, eBay had implemented a “fraud engine,” which “uses rules and complex models that automatically search for activity that violates eBay policies.”  In addition to identifying items actually advertised as counterfeit, the engine also incorporates various filters designed to screen out less-obvious instances of counterfeiting.

And eBay and its amici ad seller supporters) lost on one big point – false advertising, on which the case was remanded for further analysis by the district court:

eBay did affirmatively advertise the goods sold through its site as Tiffany merchandise. The law requires us to hold eBay accountable for the words that it chose insofar as they misled or confused consumers. eBay and its amici warn of the deterrent effect that will grip online advertisers who are unable to confirm the authenticity of all of the goods they advertise for sale. See, e.g., Yahoo! Inc. Amicus Br. 15; Electronic Frontier Foundation et al. Amicus Br. 18-19. We rather doubt that the consequences will be so dire. An online advertiser such as eBay need not cease its advertisements for a kind of goods only because it knows that not all of those goods are authentic. A disclaimer might suffice. But the law prohibits an advertisement that implies that all of the goods offered on a defendant’s website are genuine when in fact, as here, a sizeable proportion of them are not.

The decision is reasonable, indeed, inevitable. eBay has 100 million listings at any given time, says the opinion (as of 2008), and gets 6 million per day. The idea that it can police all of these is absurd, and upholding the maximum claims of Tiffany would put all such sites out of business.  But it is reasonable to expect eBay to engage in some anti-fraud activity, both for its own sake and to protect others in the commercial system. So by establishing the obligation at a general level, without specific rules as to what exact procedures are required, the law leaves the system open to the creativity of the marketplace, as sites like eBay and Amazon develop concepts of peer review and feedback.

One final point should be noted: the Senate Judiciary Committee last week reported out S. 3804, Combating Online Infringement and Counterfeits Act ( COICA), and caused serious heartburn in both the left and right blogosphere. Nothing in COICA would undermine Tiffany.  The bill is directed at websites that are devoted to copyright infringement or counterfeit goods – those which are “primarily designed, or [have] no demonstrable commercially significant purpose or use other than, or [are] marketed by [their] operator” as devoted to nefarious purposes, and for which “such activities are the central activities of the Internet site or sites accessed through a specific domain name . . . .” Also, existing protections for Internet players are not affected by COICA.

Image from eBayink’s photostream;

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