Second Circuit Supports eBay in Trademark Case

One of the main cases law students nationwide read and reread when attempting to understand third party liability in trademarks cases is Hard Rock Café Licensing v. Concession Services, which comes out of the 7^th Circuit. That case defined contributory liability, where the defendant continued to supply its product while possessing a requisite degree of knowledge of the other party’s infringement. The court held that Concession Services, a flea market of sorts, was responsible for one of its vendors selling counterfeit Hard Rock Café t-shirts, among other things.

That case is distinguished from a recent case to come out of the Second Circuit because in Hard Rock, Concession Services was found to be willfully blind in policing its vendors and that formed the main basis of the finding of liability.

In Tiffany Inc. v. eBay Inc., the Second Circuit upheld the lower court’s ruling that eBay, an online marketplace where individual vendors sell goods like books, DVDs, CDs, electronics, clothes, jewelry, cars, and more, to individual buyers and pay a small commission fee to eBay for providing the online forum for such transactions, is not responsible for upholding third-party trademarks when it comes to vendors selling counterfeit goods on their website. The Court of Appeals further found that as long as eBay responds to customer complaints about counterfeit products being sold on the site by removing those listings, the company is not liable for the goods that are listed.

For example, if a buyer buys an iPad from an eBay vendor and later comes to realize that the iPad is actually a uPad, a counterfeit version of Apple’s newly released product, the buyer can contact eBay for a refund and state that reason. Under the Second Circuit’s ruling, if eBay removes that counterfeit listing, eBay cannot be liable to Apple, Inc., for the trademark violation. This is in keeping with the Seventh Circuit’s ruling. After all, eBay is nothing more than an online version of a flea market, and as long as eBay is not willfully blind and polices listings (in this case, policing involves removing suspected counterfeit listings to protect consumers from buying false goods), it is not liable to wronged trademark holders.

The lower court held that the burden of policing listings for counterfeit goods is the plaintiff’s, in this case, Tiffany’s, a popular jewelry store. Tiffany & Co. sued eBay in 2006, alleging that most of the Tiffany items sold on eBay were counterfeit. According to the jewelry store, eBay was making millions in commission fees for these counterfeit goods and was complicit in the trademark violation that occurred. Tiffany demanded that eBay be more proactive in removing unapproved listings for Tiffany’s goods, and in 2008 a federal judge in the lower court found that the burden of proof was on the jewelry store and not the online marketplace.

Surprisingly, in an ill-formed legal argument, Tiffany & Co. argued against the use of the word “Tiffany” in the listings for (real or counterfeit) Tiffany goods, mostly jewelry. The federal judge answered that argument with the same response any well-informed law student could have provided on a final exam: that using the word “Tiffany” didn’t rise to the level of infringement because it was nominative fair use, using the name of the brand to refer to the good. Nominative fair use is protected in order to allow suppliers to use a trademark holder’s mark with the purpose of describing the supplier’s own product, but with qualifications. First, the instance of alleged nominative fair use must actually use the other party’s trademark. Second, the use is limited; splashing the trademark holder’s mark in large letters while putting the actual supplier’s mark in smaller, obscure typeface under the protected mark is not appropriate. And finally, the supplier may not suggest sponsorship or endorsement in using the protected mark. In this case, using “Tiffany” in an eBay listing is protected as nominative fair use because it satisfies the three elements of the test. Here, Tiffany has a brand associated with specific characteristics in terms of style and quality (interestingly enough, the light blue color of Tiffany bags is also registrable for trademark protection!), and that using the name in a listing becomes an adjective to describe the piece or the good, and as such is very clearly fair use.

Tiffany appealed the decision but it was affirmed this past Thursday by the Second Circuit. The Court of Appeals stated that eBay didn’t infringe Tiffany’s marks, and that the blame rested squarely on the shoulders of fraudulent vendors. The case was remanded, however, regarding Tiffany’s false advertising claims.

Tiffany & Co. continue to make the ‘willfully blind’ argument in stating that eBay is aware of counterfeit merchandise being sold on the sight, and that it has not taken any effective steps in putting an end to it, continuing to mislead consumers.