Tiffany loses to eBay in latest online trademark infringement battle

United States of America
In Tiffany (NJ) Inc v eBay Inc (Case 08-3947, April 1 2010), the US Court of Appeals for the Second Circuit has affirmed in part and reversed in part a July 2008 district court’s holding. 

Since 2000 Tiffany's stores and web page have been the only source of genuine TIFFANY-branded jewellery. After two surveys by Tiffany showed that a high percentage of advertised Tiffany jewellery being sold through eBay auctions were counterfeit goods, Tiffany sued eBay in 2004 to stop further auction sales.
 
The evidence at trial showed that:

  • eBay had stopped every auction Tiffany had complained of as selling counterfeit goods; and
  • eBay, while having a significant pecuniary interest in the continued sales of genuine Tiffany jewellery at auction, had spent $20 million per year on tools to promote trust and safety on its website (eg, the 'buyers protection programme') and had established a Trust and Safety Department.
After a week-long bench trial, the district court rejected Tiffany’s lawsuit alleging both direct and contributory trademark infringement, trademark dilution and false advertising.  
 
On appeal, the Second Circuit agreed with, and affirmed, the lower court's holding regarding trademark infringement, stating that eBay made a lawfully nominative 'fair use' of the famous TIFFANY mark, as:

  • doing so was necessary to describe Tiffany’s products; and
  • such use did not imply any false affiliation or endorsement of eBay by Tiffany. 
Further, the Second Circuit agreed with the lower court that, for contributory trademark infringement liability to lie, eBay should have had more than a general knowledge or reason to know that its services were being used to sell counterfeit goods. Moreover, some contemporary knowledge of which particular eBay auction listings were infringing or would infringe in the future was necessary. Tiffany did not meet this burden of proof. With regard to the dilution claim, the Second Circuit agreed with the district court that, since eBay did not sell anything under the TIFFANY mark, there was no second mark or product at issue to blur with, or to tarnish, the famous TIFFANY mark.   
 
The district court had found against Tiffany on the false advertising claim under Section 43(a) of the Lanham Act (15 USCA §1125). It noted that, to establish a prima facie case in an action for misrepresentation in commercial advertising or promotion, the plaintiff is generally required to offer proof that:
  • the defendant made a misrepresentation in commercial advertising or promotion concerning goods, services or commercial activities;
  • the misrepresentation actually deceived or tended to deceive its recipients;
  • the misrepresentation was likely to influence purchasing decisions;
  • the misrepresentation injured or was likely to injure the plaintiff and the misrepresentation was made in commerce. 
False advertising is thus based on whether the literally false statements of the advertiser or the advertised statements, while not literally false, are nevertheless likely to mislead or confuse consumers. 
 
eBay advertised the sale of Tiffany goods on its website by:

  • providing hyperlinks to 'Tiffany' and 'Tiffany & Co under $150', among others; and
  • purchasing ad space on search engines providing a link to eBay’s site and exhorting readers to “Find tiffany items at low prices”. 
eBay did not inspect any of the goods sold, nor did it ever take physical custody of any auctioned jewellery. Tiffany’s argument to the district court was that, since eBay advertised the sale of Tiffany goods, and because many of those goods were in fact counterfeit, eBay should be liable. The district court had found the advertising not to be literally false. It had also rejected Tiffany’s argument, finding that:
  • eBay’s ads were nominative fair use;
  • Tiffany did not prove that eBay had specific knowledge as to the illicit nature of individual listings (implying that such knowledge would be necessary to sustain a false advertising claim); and
  • to the extent that the advertising was false, the falsity was the responsibility of third-party sellers, not eBay.
The Second Circuit agreed with the holding that the advertising was not literally false, since some of the jewellery was in fact genuine Tiffany jewellery. Turning to the claim that eBay’s ads mislead consumers, the Second Circuit noted that the lower court should have determined whether extrinsic evidence indicated that the challenged advertisements were misleading or confusing. The reasons given by the district court for rejecting Tiffany’s claim did not seem to reflect this determination. Since eBay affirmatively advertised Tiffany goods, the law required the court to hold eBay accountable for the words that it chose insofar as they misled or confused consumers. 
 
The case was thus remanded to the district court for further proceedings so that it can reconsider the false advertising claim in light of what the Second Circuit has said.

Brian Banner, George Mason University School of Law, Washington DC

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