Sweeping Decision for Ebay in the Tiffany Case: Brand Holders have the Burden to Police the Internet for Abuse

Yesterday, the long awaited decision in Tiffany v Ebay was released by the U.S. District Court in the Southern District of New York, exonerating Ebay from any liability to Tiffany for infringing auctions on its site. In a sweeping ruling for Ebay, the Court emphasized that, although both Ebay and Tiffany have an interest in eliminating counterfeit Tiffany merchandise from Ebay, the burden of policing Tiffany’s valuable trademarks on the Internet falls squarely on the brand holder.

In holding that Ebay was not contributorily liable for trademark infringement, the standard is not whether eBay could reasonably anticipate possible infringement, but rather whether eBay continued to supply services to sellers when it knew or had reason to know of the infringement by those sellers. The Court flatly rejected Tiffany’s assertion that Ebay should monitor and preemptively remove listings from its site before they became active, based on a reasonable anticipation that they might be counterfeits. Because Ebay immediately removed listings when notified of specific listings Ebay was not required to take preemptive steps based on generalized knowledge that counterfeit goods might be sold on its website.

The decision was influenced by the costs incurred by both parties. Ebay benefited from its substantial investments in anti-counterfeiting initiatives investing as much as $20 mill each year on tools to promote trust and safety on its website with one quarter of eBay’s workforce (or 4 000 employees) devoted to this area. In sharp contrast Tiffany invested relatively modest resources to combat this problem budgeting approximately $763 000 in 2003 to address the issue representing less than .05% of its net sales with only 1.15-1.6 full-time employee equivalents devoted to monitoring the Ebay site.

In light of this decision brand holders need to reassess their budget resources and strategy for policing the Internet. No longer can the Internet be an after-thought in a company’s legal budget and IP strategy. Instead companies need to manage the Internet proactively for brand abuse and devote sufficient resources to this task. The lesson of the Tiffany v. Ebay case is stark: companies should not expect relief from third parties such as auction sites and ISPs if they have not adequately implemented