Score one for the Web. A judge's decision in favor of electronic commerce giant eBay (EBAY) on July 14 is being heralded as a victory for companies across the Internet that rely on advertising or the buying and selling of goods.
Luxury retailer Tiffany & Co. (TIF) had sued eBay, accusing the site of not doing enough to thwart sales of counterfeit items. A loss would have hampered eBay's ability to offer name-brand goods on its bargain shopping site, but it also could have shaped the outcome of other court cases pitting the owners of trademarks and copyrighted material against the Web sites that in the past decade and a half have become crucial distributors of that content.
The case is indicative of other lawsuits that are trying to put more onus on Internet companies to police their pages and ensure they're not being used as a conduit for copyrighted content and pirated or counterfeit goods. If the Web companies shoulder too much of the burden, their ability to wring a profit from the sales or the advertising that appears alongside the commerce could be compromised. The July 14 decision helped show the limitations of trademark protections and reaffirmed a long-held policy that sites are not responsible for illegal violations of rights' holders trademarks or copyrights, providing they remove infringing material once notified. "The U.S. courts are aware of the increasing role these companies play in the U.S. economy, and they are not willing to shut them down," says Stephen Kramarsky, a partner at New York commercial litigation firm Dewey, Pegno and Kramarsky.
Burden Placed on Trademark Holder
Lawyers for Tiffany had argued that eBay was violating Tiffany's trademark by allowing sellers to list goods on its site branded "Tiffany" that were potentially counterfeit. EBay maintained that it was not responsible for counterfeit items because it does not directly have a hand in what sellers submit to its site and cannot verify an item's manufacturer. Instead, eBay allows individual vendors to list items for sale on its site, for a fee, and then takes a percentage of the sale price for helping to facilitate the transaction between buyers and sellers. It relies on brands and its user community to flag suspect items and immediately removes them, thus operating in a similar fashion to Google's (GOOG) YouTube and other sites where users supply content.
In his verdict, New York Southern District Court Judge Richard Sullivan sided with eBay. "Tiffany must ultimately bear the burden of protecting its trademark," wrote Sullivan in his decision. "The court finds that when eBay possessed the requisite knowledge, it took appropriate steps to remove [counterfeit] listings and suspend service."
EBay won the suit in part because it was able to show that it takes measures to prevent counterfeit items from being sold on its site. In addition to providing brands with tools to search for their items and request removal, the company also has technology that searches for suspicious listings, such as hundreds of supposedly Gucci bags offered by one seller in China.
Judge Sullivan's ruling was a sharp departure from the legal opinions against eBay that have emanated from European courts in recent weeks. In late June, a French Tribunal ordered eBay to pay LVMH (BusinessWeek.com, 7/1/08), the luxury brand behind the Dior and Louis Vuitton labels, $61 million in damages for failing to adequately prevent counterfeit items from appearing on its French site. The Tribunal also ruled that eBay had to immediately stop allowing the sale of LVMH (LVMH.PA
PA) perfumes on its European sites or face stiff penalties of €50,000 a day. EBay plans to comply with the ruling (BusinessWeek.com, 7/11/08) while appealing its case.
Many of the smaller vendors that make a living selling through eBay were also relieved at the verdict. Had the U.S. judge echoed the opinions of European courts, major brands that did not want their merchandise to be resold on a discount site would have had a strong weapon to keep resellers from advertising their brand names online, even when dealing with genuine articles. "This was never about controlling counterfeits. It was really about how consumers could buy and sell Tiffany's products and maintaining margins," says Steve DelBianco, executive director of NetChoice, a coalition that advocates for e-commerce. "If you aren't born with a Tiffany silver spoon in your mouth, you can buy one on eBay."
Copyright: A Different Story
While potentially helpful to Internet companies, particularly in the area of trademarks, the Tiffany decision leaves unresolved the question of whether removing infringing material is good enough when dealing with copyrights. That's the issue Google's YouTube is facing in its lawsuit with Viacom (VIA). Trademark laws are generally more limited than copyright laws. Trademarks, for example, can become so commonplace that they are virtually unenforceable. For example, Google, which has become synonymous with search, could have a hard time stopping people from saying "Google us" in advertisements. Copyright, however, cannot be similarly worn out. "Trademark and copyright are really different," says Kramarsky. "I expect that Viacom will have a much easier time in court than Tiffany did."
Tiffany is likely to appeal the ruling, says a company representative. "The primary purpose of trademark law is to protect the consumer and to protect the brand owner, and instead of fulfilling those purposes, the court's decision has allowed counterfeiters to flourish," the spokesman says. If Tiffany appeals, the case could go as high as the Supreme Court, legal experts say.