The United States Court of Appeals for the Second Circuit reviewed the case Tiffany (NJ) Inc. v. eBay Inc. concerning Tiffany's claims against eBay for trademark infringement, trademark dilution, and false advertising related to the sale of counterfeit Tiffany goods on eBay's platform. The district court ruled that eBay did not engage in trademark infringement or dilution, which the appellate court affirmed. However, the court remanded the false advertising claim back to the district court for further proceedings. The judges involved included Circuit Judges SACK and B.D. PARKER, and Senior Judge Goldberg, with Tiffany represented by Arnold & Porter LLP and eBay by Weil, Gotshal & Manges LLP. The ruling recognizes eBay’s role as a marketplace while acknowledging the challenges of counterfeit goods sold through its platform.
On July 14, 2008, the United States District Court for the Southern District of New York, presided by Judge Richard J. Sullivan, issued findings of fact and conclusions of law after a week-long bench trial in Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008). The appellate court reviews the district court's factual findings for clear error and conclusions of law de novo, concluding that the district court's findings are not clearly erroneous and will be relied upon in this dispute.
eBay operates as an online marketplace (www.ebay.com), facilitating transactions between registered buyers and sellers without directly selling or taking possession of items. eBay offers auction and listing services, generating revenue through insertion fees for listings and final value fees for completed sales, alongside additional fees from its owned company, PayPal, which processes transactions.
Tiffany, known for its high-end jewelry, has restricted the sale of its new products in the U.S. since 2000 to its own retail channels and does not engage in discount sales or use liquidators. The trial records indicate limited information regarding the availability of authentic Tiffany jewelry in the secondary market.
Before 2004, Tiffany discovered the sale of counterfeit merchandise on eBay. To evaluate the prevalence of counterfeits, Tiffany conducted two 'Buying Programs' in 2004 and 2005, revealing that 73.1% and 75.5% of items purchased were counterfeit, respectively. However, the district court deemed these programs methodologically flawed, providing limited evidence of the overall counterfeit percentage on eBay. Nonetheless, the court acknowledged that a significant portion of 'Tiffany' sterling silver jewelry listed on eBay was counterfeit and that eBay was aware of the presence of counterfeit goods. The court also noted that a substantial number of authentic Tiffany items were sold on eBay, and that reducing or eliminating the sale of second-hand Tiffany goods would benefit Tiffany by decreasing competition in the market for genuine merchandise.
eBay, which profited from sales of both genuine and counterfeit Tiffany goods, generated approximately $4.1 million in revenue from listings featuring 'Tiffany' from April 2000 to June 2004. While eBay had a vested interest in eliminating counterfeit items to maintain its reputation as a trustworthy marketplace, its ability to identify counterfeit listings was limited, as it did not inspect merchandise and often lacked the expertise necessary to determine authenticity. During late 2004, eBay received 125 consumer complaints regarding counterfeit Tiffany items.
eBay invested up to $20 million annually in tools to enhance trust and safety on its platform. Key initiatives included buyer protection programs that reimbursed buyers for non-genuine items, and the establishment of a Trust and Safety department with approximately 4,000 employees, including over 200 dedicated to combating infringement and 70 collaborating with law enforcement. By May 2002, eBay developed a 'fraud engine' to identify illegal listings, replacing manual keyword searches with automated systems that utilized complex models and various filters, including specific filters for Tiffany goods.
During the disputed period, eBay maintained the Verified Rights Owner (VeRO) Program, allowing intellectual property rights holders to report potentially infringing listings through a Notice of Claimed Infringement (NOCI) form. eBay typically removed reported listings within 24 hours, often within 12 hours, and would cancel bids or transactions related to those listings. Reimbursements for counterfeit items were provided to buyers who presented evidence. The district court determined that eBay consistently acted in good faith regarding Tiffany's NOCIs, never refused to remove reported listings, and provided Tiffany with seller information. Additionally, eBay allowed rights owners to create 'About Me' webpages to communicate their rights and products, without exercising material control over the content.
Tiffany maintains the 'About Me' page on eBay, warning that most TIFFANY & CO. silver jewelry listed on the platform is counterfeit and advising buyers to purchase genuine products only from Tiffany retail stores, its website, or catalogs. In 2003-2004, eBay introduced warning messages for sellers listing Tiffany items, instructing them to verify authenticity and informing them of potential account suspension for listing counterfeit goods. If a seller ignored the warning, the listing would be flagged for review. eBay cancelled suspicious transactions and suspended hundreds of thousands of sellers annually for infringing conduct, primarily using a 'three strikes rule,' but could suspend sellers after a single violation if it was clear they primarily sold counterfeit items. In late 2006, eBay enhanced its anti-fraud measures by delaying the visibility of certain listings to allow rights-holders like Tiffany additional review time and restricting auction formats for brand-name items. The district court found that eBay made consistent technological improvements and took appropriate actions to combat counterfeit sales. Despite these efforts, eBay also promoted premium jewelry sales, including Tiffany products. The court concluded that eBay's policies were effective in preventing the re-listing of counterfeit merchandise while recognizing the need for a balanced approach to seller suspensions, given the serious implications for those relying on eBay for income.
eBay encouraged its sellers to capitalize on the demand for Tiffany merchandise to enhance its Jewelry and Watches category and actively promoted Tiffany products through various advertisements prior to 2003. These promotions included themes for holidays and events, such as "Mother's Day Gifts" and "Top Valentine's Deals," featuring hyperlinks directly related to Tiffany products priced under various amounts. eBay also engaged in purchasing sponsored advertisements on search engines to direct traffic to its listings of Tiffany items. Despite Tiffany's complaints about these practices in 2003, eBay claimed it stopped buying sponsored links; however, the district court found that eBay continued this practice indirectly through third parties.
In 2004, Tiffany filed an amended complaint against eBay, alleging trademark infringement, trademark dilution, and false advertising due to the sale of counterfeit Tiffany goods. After a bench trial, the district court ruled in favor of eBay on all claims, leading Tiffany to appeal. The appellate court reviews factual findings for clear error and legal conclusions de novo. Tiffany's claims were grounded in both the Lanham Act and New York State common law, which share the same elements. The district court categorized Tiffany's claims as direct trademark infringement under section 32 of the Lanham Act, which prohibits unauthorized use of a registered mark that could confuse consumers regarding the goods' origin or sponsorship. The analysis involves a two-prong test assessing the protection eligibility of the mark and the likelihood of consumer confusion.
Tiffany claimed that eBay infringed its trademark by using it on its website and purchasing sponsored links containing the mark on Google and Yahoo!. The district court dismissed these claims, determining that eBay's use fell under the doctrine of nominative fair use, which permits the use of a trademark to identify a plaintiff's goods as long as there is no likelihood of confusion regarding source or sponsorship. For nominative fair use protection, three criteria must be met: the product must not be readily identifiable without the trademark, only the necessary amount of the mark should be used, and the user must avoid implying sponsorship or endorsement by the trademark holder. Other circuit courts have acknowledged these principles. The court concluded that eBay's use of Tiffany's mark was lawful as it accurately described genuine Tiffany products and did not suggest any endorsement from Tiffany. Additionally, Tiffany's own eBay page indicated that most items labeled as "Tiffany & Co." were counterfeit and clarified that Tiffany sells only through its official channels.
Tiffany contends that eBay infringed its trademark by being aware of significant counterfeit sales of Tiffany jewelry on its platform. However, this knowledge relates to eBay's potential liability for contributing to the infringement by counterfeit sellers, rather than constituting direct trademark infringement. It is established that eBay swiftly removed listings challenged by Tiffany as counterfeit and took proactive steps to eliminate illegitimate goods. Holding eBay liable for not guaranteeing the authenticity of all Tiffany products would unreasonably restrict the legitimate resale of genuine items. Consequently, eBay's use of Tiffany's mark does not amount to direct trademark infringement.
The more complex issue is whether eBay is liable for contributory trademark infringement, which involves facilitating the infringing actions of counterfeit vendors. Despite limited case law on this matter, the court affirmed that the district court correctly ruled in favor of eBay regarding contributory infringement. This legal concept, rooted in common law, holds that if a party knowingly encourages trademark infringement or continues to supply goods to someone engaging in such infringement, it can be held liable. The precedent established in Inwood Laboratories, Inc. v. Ives Laboratories, Inc. is applicable to manufacturers and distributors but has also been extended to service providers, such as eBay. Courts have drawn parallels between service providers and landlords or licensors regarding their responsibilities in preventing trademark infringement.
The Ninth Circuit ruled that Inwood's test for contributory trademark infringement applies to service providers who exert sufficient control over infringing activities. In Lockheed Martin Corp. v. Network Solutions, the court established that direct control and monitoring of third-party infringement can extend the 'supplies a product' requirement for contributory infringement. Limited case law, including Polymer Tech. Corp. v. Mimran, indicates that distributors who induce infringement or supply products to known infringers can be held liable, but the law remains unclear.
The court highlighted that while previous courts have applied Inwood to the Internet, this case is the first to consider it in the context of an online marketplace. European courts have reached different conclusions on eBay's liability for counterfeit products sold through its platform. Specifically, a Belgian court found no liability, while French courts determined that eBay violated trademark laws.
In the district court, eBay contested its subjection to the Inwood test, arguing it applies only to product manufacturers and distributors. However, the court rejected this argument, aligning with the Ninth Circuit's reasoning that Inwood applies to service providers with significant control over infringing conduct. The court concluded that eBay's substantial control over transactions and listings on its site meant that the Inwood test was applicable.
On appeal, eBay did not maintain its argument against being subject to Inwood, allowing the court to assume, without deciding, that the test governs its potential liability for contributory trademark infringement.
eBay's potential liability under the Inwood test hinges on its role as a service provider for sellers of counterfeit Tiffany products. The Inwood test outlines two conditions for contributory liability: (1) intentional inducement of infringement and (2) continued provision of services to known infringers. Tiffany does not claim that eBay induced sales of counterfeit items but asserts that eBay continued to support sellers they knew or should have known were infringing.
The district court dismissed Tiffany's argument, stating that eBay promptly removed listings flagged as counterfeit when notified and took steps to warn sellers and buyers, thereby negating contributory liability for those listings. Tiffany did not contest this aspect on appeal, and the court agreed with the lower court's conclusion regarding terminated listings.
However, Tiffany strongly opposed the district court's finding that eBay lacked sufficient knowledge of infringement regarding non-terminated listings. Tiffany provided various forms of evidence, including demand letters, results from its Buying Programs, numerous Notices of Claimed Infringement (NOCIs), and buyer complaints about counterfeit items purchased through eBay, to argue that eBay should have been aware of widespread infringement on its platform.
Tiffany contended that evidence indicated eBay was aware of the widespread sale of counterfeit Tiffany products on its platform and should therefore be held contributorially liable for continuing to provide services to sellers engaged in such infringement. The district court acknowledged that eBay had generalized knowledge of potential counterfeiting but ruled that this level of awareness did not satisfy the "knowledge or reason to know" requirement established by the Inwood test. The court determined that attributing contributory liability requires specific knowledge of individual instances of infringement rather than merely general awareness. It emphasized that plaintiffs must meet a high burden of proof to demonstrate such knowledge, and courts are hesitant to extend liability when there is uncertainty regarding the infringement's extent or nature. Consequently, the court concluded that Tiffany needed to provide evidence of eBay's knowledge of specific infringement occurrences, which Tiffany failed to do. On appeal, Tiffany argued that the district court's distinction between general and specific knowledge was unfounded, asserting that any cumulative knowledge indicating a substantial trademark infringement issue should suffice for establishing liability. The appellate court concurred with the district court's findings.
Contributory trademark infringement requires service providers to possess specific knowledge regarding the infringing use of their services, rather than a general awareness that counterfeit goods are being sold. Contrary to Tiffany's interpretation of the Inwood case, which suggests that liability arises when evidence indicates the defendant knew or should have known of the infringement, the court finds Tiffany's view overly broad. The Inwood Court did not apply the "knows or has reason to know" prong to the facts before it and instead focused on the inducement prong. The court supports the district court's interpretation of Inwood, stating that liability arises when a defendant continues to supply products to someone it knows is engaging in infringement. The comparison to the Supreme Court's ruling in Sony Corp. of America v. Universal City Studios highlights the distinction between contributory liability in trademark and copyright law. In Sony, the court indicated that mere knowledge of potential infringement by some purchasers was insufficient for liability, reinforcing that the Inwood standard necessitates knowledge of specific individuals engaged in infringing activities. Tiffany's reading of Inwood is thus inconsistent with the interpretation presented in Sony.
The Supreme Court's commentary in the Sony case regarding the "knows or has reason to know" standard for contributory trademark infringement, although considered dicta, is viewed as persuasive authority relevant to the current case. In applying this standard, the court agrees with the district court's finding that Tiffany's allegations of counterfeiting did not sufficiently inform eBay of specific sellers engaging in counterfeit activities. Although Tiffany's notifications and buyer complaints indicated potential counterfeiting, eBay took action by removing listings and suspending repeat offenders, demonstrating a lack of knowledge required under the Inwood standard. Consequently, the court affirms the district court's judgment that eBay is not liable for contributory trademark infringement.
Tiffany and its supporters express concern that the ruling places an unreasonable burden on mark holders to monitor eBay's platform for counterfeit listings, potentially requiring constant vigilance. However, the court emphasizes its obligation to interpret existing law without favoring one party over another. The court also notes that market incentives compel eBay to address counterfeit sales, as user complaints about counterfeit products threaten its business. eBay has reportedly invested significantly in efforts to combat counterfeit listings. Furthermore, if it were found that eBay intentionally avoided discovering counterfeit sales, it could be charged with knowledge sufficient to meet the Inwood standard.
eBay's potential liability for allowing counterfeit listings hinges on the principle of willful blindness. A service provider cannot ignore evidence of infringement; if it suspects wrongdoing, it must investigate rather than deliberately avoid knowledge. Willful blindness equates to actual knowledge regarding liability under the Lanham Act. While eBay acknowledges general awareness of counterfeit Tiffany products on its platform, this alone does not establish liability. The district court concluded that eBay was not willfully blind to counterfeit sales, as it did not ignore the information about such listings. Additionally, precedents indicate that mere failure to anticipate infringing conduct is insufficient for contributory liability; rather, a defendant must actively disregard known infringement. Tiffany's arguments referencing "flea market" cases do not support its position against eBay's actions.
eBay's anti-counterfeiting measures significantly outperformed the defendants' actions in prior cases, such as Hard Rock Cafe and Fonovisa, where defendants failed to investigate known counterfeit seizures. Neither case established that the defendants were willfully blind; Hard Rock remanded for clarification on "willful blindness," while Fonovisa allowed the plaintiff's complaint to proceed against a motion to dismiss.
Federal law permits owners of "famous marks" to prevent uses that may dilute their marks, either by blurring—impairing the distinctiveness of the mark—or tarnishment—harming the mark's reputation. Blurring occurs regardless of consumer confusion and is exemplified by unlikely associations, while tarnishment arises from associations with low-quality products or unsavory contexts. The law outlines six factors for courts to consider regarding potential blurring, including similarity, distinctiveness, exclusive use, recognition, intent to associate, and any actual associations. New York State law similarly protects against both forms of dilution.
The similarity required for a dilution by blurring claim does not need to be "substantial" for success, as established in Starbucks Corp. The district court determined that the Trademark Dilution Revision Act (TDRA) governs Tiffany's claim, and Tiffany did not contest this on appeal. However, New York state law differs, requiring marks to be "substantially" similar for dilution claims to succeed. The district court rejected Tiffany's dilution by blurring claim, stating that eBay did not use the TIFFANY Marks to suggest an association with its own products but rather used them to advertise authentic Tiffany merchandise. Consequently, both Tiffany's dilution by blurring and tarnishment claims were deemed unsuccessful, as there was no second mark or product to blur or tarnish Tiffany's brand. Tiffany further claimed that counterfeiting diluted its product's value, but since eBay did not sell the counterfeit goods directly, it did not engage in dilution. Tiffany's argument for contributory dilution also failed for similar reasons, and this conclusion was not contested on appeal.
Tiffany also alleged that eBay engaged in false advertising under Section 43(a) of the Lanham Act, which prohibits misrepresentation in commercial advertising. A false advertising claim can be based on literal falsehood or misleading advertisements. The injuries addressed in such cases arise from public deception, and the plaintiff must demonstrate that the misleading representation pertains to a material quality of the product. For literally false claims, courts can issue an injunction without considering the advertisement's impact on consumers.
To succeed in a likelihood-of-confusion case involving non-literal falsehoods, a plaintiff must provide extrinsic evidence showing that the challenged advertisements mislead or confuse consumers, specifically that a statistically significant portion of the audience holds the false belief communicated by the advertisement. While literal falsehoods require proof of the substance conveyed, implicit falsehoods necessitate extrinsic evidence of consumer deception. The doctrine of "false by necessary implication" mandates a full contextual analysis of the advertisement's message.
In the case concerning eBay's advertising of Tiffany goods, eBay used various promotional links and purchased advertising space to market Tiffany products. The district court found eBay had general knowledge that many Tiffany products sold on its platform were counterfeit but ruled that the advertisements were not literally false because authentic Tiffany merchandise was available on eBay. The court further assessed whether the advertisements were misleading and concluded they were not for three reasons: eBay's usage of the Tiffany mark constituted protected nominative fair use; Tiffany failed to prove eBay's specific knowledge of the counterfeit nature of individual listings, which was deemed necessary for a false advertising claim; and any falsity attributed to the advertisements was the responsibility of third-party sellers, not eBay.
While agreeing that eBay's advertisements were not literally false, the court expressed uncertainty regarding the district court's conclusion that the ads were unlikely to mislead or confuse consumers.
To evaluate Tiffany's claim against eBay regarding misleading advertisements, the court must assess whether extrinsic evidence shows that the advertisements were indeed misleading. The district court's rejection of Tiffany's claim was based on several points. Firstly, it argued that eBay's use of Tiffany's mark constituted nominative fair use; however, this does not negate the possibility of misleading advertising. An analogy is drawn to Brand X Coffee using Brand Y Coffee's trademark, where the advertisement could still be misleading despite fair use.
Secondly, the court noted eBay's lack of knowledge about which listings were counterfeit, which pertains to contributory trademark infringement rather than the misleading nature of the advertisements. The implication that Tiffany goods were genuine on eBay's platform remains a key issue.
Lastly, the district court's view that any misleading nature of the advertisements stemmed solely from counterfeit sellers was deemed less relevant to the false advertising claim. Although eBay did not sell counterfeit goods directly, it advertised these goods as authentic Tiffany merchandise, which raises accountability for misleading implications.
Concerns from eBay and its supporters about potential deterrence for online advertisers were addressed, suggesting that disclaimers could mitigate risks without necessitating a halt in advertisements for potentially inauthentic goods. However, the law prohibits implying that all advertised goods are genuine when a significant portion is not.
The court decided not to vacate the district court's judgment but to remand the case for a re-evaluation of Tiffany's false advertising claim based on the discussed points. The district court retains jurisdiction for any appeals post-remand, and the case will return to the district court for further proceedings on the false advertising issue while affirming the district court's decisions regarding trademark infringement and dilution.
