Last month, a federal judge ruled that eBay Inc. had fulfilled its obligations to investigate and control users who were trying to use its Web site to sell counterfeit Tiffany goods — a decision that put the onus on Tiffany & Co. to monitor eBay's site itself.
The ruling by U.S. District Judge Richard Sullivan was a major victory for eBay in its fight with Tiffany and other luxury goods companies over the sale of their merchandise — counterfeit or otherwise — on its auction site. If the ruling stands, it could have big implications for trademark owners, which would have to deploy technology to scour eBay's site for counterfeit and pirated goods, have employees manually monitor the site or pay other companies to watch it for them.
But similar lawsuits filed against eBay in French and German courts haven't turned out in eBay's favor, resulting in a split decision internationally — and the possibility that in the end, eBay might have to bite the bullet and increase its own enforcement efforts.
On June 30, two weeks before Sullivan sided with eBay, the French Tribunal de Commerce in Paris ordered eBay to pay a group of companies a total of $61 million because it failed to stop counterfeit perfumes and other products from being sold through its site. That followed a similar, though much smaller, judgment against eBay by another French court in early June.
And last year, a court in Cologne, Germany, ruled that once eBay's subsidiaries in that country were notified that fake Rolex watches were being sold on the eBay Germany site, the company should have taken measures to prevent the recurrence of counterfeit Rolex postings.
The financial stakes are high on both sides of the legal dispute. Tiffany, which last week filed an appeal of Sullivan's ruling in the U.S. Court of Appeals in New York, said that in the five years before the lawsuit was filed in 2004, it spent $14 million on technology and manpower to police its trademarks on eBay's site.
But between $3 million and $5 million of Tiffany's spending was on the lawsuit itself, and Sullivan described the New York-based company's overall monitoring tab as "relatively modest" in his ruling.
Meanwhile, eBay, which is appealing the European court decisions, said it spends $20 million annually to identify counterfeit goods on its site. That figure would likely increase substantially if eBay were forced to take on more responsibility for rooting out sales of fake products. And the company probably would have to change the way it handles counterfeiting across the board, not just in those two countries.
"EBay operates on one technology platform, and to the extent that eBay has to change its business model in other countries — it would change it everywhere," said Heather McDonald, an attorney at law firm Baker & Hostetler LLP in Cleveland.
McDonald, who specializes in intellectual property enforcement and anticounterfeiting litigation, added that if eBay didn't do so, trademark owners in the U.S. could argue that the company was offering more protections to foreign businesses than it was to them.
"If we have to change our business in relation to [the Tribunal de Commerce's] ruling, it will be a massive undertaking," eBay spokeswoman Nichola Sharpe acknowledged. "We don't view it as just affecting eBay France, but affecting all eBay sites globally."
McDonald and other legal experts said the different rulings weren't surprising, because European courts typically take a stricter stance against trademark infringement and the sale of counterfeit goods than their U.S. counterparts do.
On the other hand, eBay said the ruling in the U.S. case confirms what it has maintained all along: that its efforts to stop counterfeit sales have been reasonable. According to Sharpe, eBay removed 2.2 million potentially counterfeit listings worldwide last year alone. It also suspended about 50,000 sellers who were found to be offering fake goods and took steps to make it harder to post such items, she said.
One of the ways that eBay tries to stop the sale of counterfeit goods is through its Verified Rights Owner Program, or VeRO, which provides software tools to help companies look for fake goods on its site. More than 18,000 businesses take part in VeRO, eBay said; if a company determines that a seller is peddling counterfeit merchandise, it notifies eBay, which immediately takes down the auction.
McDonald said businesses that want to invest in a technical solution to the monitoring problem can write algorithms that automatically scan eBay for listings with their brand names, then dump the information into spreadsheets so workers can determine whether the products are counterfeit.
Ethan Horwitz, an intellectual property attorney at King & Spalding LLP in Atlanta, said trademark owners also can buy packaged software from vendors such as MarkMonitor Inc. and OpSec Security Group PLC that combs the Web and finds uses of their brand names. Or, they can hire services firms to do the online sleuthing for them, he said.
Over a period of about 18 months, the Software & Information Industry Association spent hundreds of thousands of dollars to develop a tool to help it check for counterfeit or pirated software on eBay's site — money that the SIIA said should have come out of eBay's pockets.
Tiffany says eBay can't ignore fake goods on its site
In its appeal of U.S. District Judge Richard Sullivan's ruling in favor of eBay, Tiffany argues that trademark law doesn't allow online auction sites to turn a blind eye to the problem of counterfeit goods.
James Spire, a partner at Washington law firm Arnold & Porter LLP who is representing Tiffany in the case, said that prior court decisions have held that flea market operators and store owners have "a duty to investigate and take action" if they know of a problem with counterfeiting. "In neither instance is there any obligation on the trademark owner to investigate what is happening on-site," he added.
But Tiffany is fighting an uphill battle on the appeal, according to Ethan Horwitz, an intellectual property attorney at law firm King & Spalding. Horwitz said Sullivan's ruling was a "well-reasoned decision" with a solid legal basis for its finding that Tiffany had done "very little, if anything," to protect its trademarks.
Eric Goldman, an assistant professor and director of the High Tech Law Institute at the Santa Clara University School of Law, agreed that the ruling was "almost uniformly thoughtful, thorough and well researched. It looks like the judge intentionally wrote it to be as appealproof as possible."
But Goldman added that if Tiffany does lose on appeal, he wouldn't be surprised to see the battle move to Congress.
In a statement, eBay said Tiffany's appeal "doesn't do anything to combat counterfeiting." The best way to stop the sale of fake goods, it added, is "ongoing collaboration between companies, government agencies and law enforcement."
The SIIA last month threatened to sue eBay over the issue. Like Tiffany, the trade group contended that eBay is making money from the sale of counterfeit and pirated goods and thus should bear the financial burden of stopping such sales.
"At some point, the trademark and copyright owner has done as much as possible," said Keith Kupferschmid, the SIIA's vice president of intellectual property policy and enforcement. "There's so much piracy on the site that eBay really needs to do something [more] about it."
But the ruling in the U.S. case instead reinforced the position that trademark owners have to bear most of the expense of monitoring third-party Web sites.
"[Tiffany] complained, and the court basically said, 'Tough,'" said Eric Goldman, assistant professor and director of the High Tech Law Institute at the Santa Clara University School of Law.
Sullivan's position is that eBay has to be the enforcer but not the detective, noted Horwitz. That puts the burden on trademark owners to do their own investigating of items listed on the eBay site, he said.
At least in the U.S. And at least for now — until the appeals process decides who really should be minding the online auction store.
