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July 16, 2009 5:51 PM

Tiffany v. eBay Appeal Grabs Second Circuit Spotlight

Posted by Ed Shanahan

Correction, July 17, 10:50 a.m.:  The twelfth paragraph of this story has been revised to more accurately reflect eBay's argument relative to the Supreme Court's Inwood decision.

It isn't often that nearly every seat is full in the Second Circuit Court of Appeal's ample courtroom. That it was on Thursday morning during oral arguments in the Tiffany v. eBay appeal indicates just how high the stakes are in this trademark infringement case--not just for the parties directly involved, but for anyone with a vested interest on either side of the key issues being litigated.

The arguments came a year and a day after federal district court judge Richard Sullivan rejected Tiffany's claim that eBay had aided the infringement of its trademark by not doing enough to yank fake Tiffany jewelry off its site. In a decision that made IP Law & Business's list of Top 10 Litigation Wins of 2008, Sullivan wrote that  "Ebay cannot be held liable…based solely on their generalized knowledge that trademark infringement might be occurring on their Web sites." Download Sullivan's decision here

Representing Tiffany before the three-judge panel, Arnold & Porter partner James Swire continued to press the point that--eBay's institutional efforts to root out counterfeits notwithstanding--the online auctioneer doesn't do enough to fight fakes. He said the site continues to allow large lots of suspicious goods to be sold at unusually low prices despite being aware of longstanding counterfeiting problems.

The net result, Swire said, is that the online retailer is both mistreating shoppers and putting his client's (literally) sterling reputation at risk.

Early on, Judge Robert Sack said he was unclear what remedy Tiffany was seeking should the appeals court remand the case to the district court.

"If we were to send it back," Sack asked, "what would you want eBay to do?"

Swire said his client isn't seeking a guarantee that eBay will remove all counterfeit goods carrying the Tiffany label, just asking that the online retailer employ "good-faith measures" and use "the state of the art that is available to counter this problem."

Pressed by Sack to identify specific steps, Swire cited immediately and permanently banning those caught selling fake Tiffany products on this site ("no 'three strikes and you're out'") and holding back listings of suspicious goods until their authenticity can be verified.

The ultimate goal, Swire said, is to have eBay "protect the consumer and protect the brand owner, which is what trademark law is all about."

Representing eBay, Bruce Rich of Weil, Gotshal & Manges dismissed claims that eBay is lax in going after counterfeits. He noted that the company spends some $18 million a year to ferret out and remove listings for fake goods. He added that the company responds swiftly to whatever takedown notices it receives--more than 280,000 all told—by removing specific listings when their legitimacy is challenged.

Rich said Tiffany is trying to shift its own obligation to police the integrity of its brand onto a third party because it doesn't want to spend the money necessary to combat counterfeiting. He said another motive for Tiffany's suit against eBay is that, as a retailer, "eBay is a competitor in the secondary marketplace."

Much of the discussion involved the relevance of the Supreme Court's 1982 decision in Inwood v. Ives, which renders a third party liable if it "intentionally induces another to infringe a trademark or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement." Rich argued that while Inwood does apply in this case, it is the decision's finding relative to a third party's "specific knowledge" that it is enabling infringement that is most relevant. In that regard, he said, Inwood supports eBay's position that it acts appropriately when notified about specific suspicious goods.

Judge Barrington Parker noted that much has changed in the retail arena in the 27 years since that decision.

"When Inwood was written," Parker said, "what's going on now was in the realm of science fiction." He returned to the topic of technology later, saying that whatever decisions the courts reach on these issues today must allow for what are sure to be further technological advances in verifying the authenticity of goods.

For his part, Sack expressed a particular interest in the false advertising claim against eBay that Tiffany included in its suit. He quizzed both lawyers about the issue, which he said "got less attention from the district court."

Courtroom observers explained the large crowd on hand by pointing to the numerous amicus briefs filed in the case by those with a stake in e-commerce (Amazon, Google, and Yahoo among them) and those committed to fighting fakes (including cosmetics maker Coty, Inc., the Council of Fashion Designers of America, and the International Anti-Counterfeiting Coalition). Also weighing in: the Electronic Frontier Foundation, Public Knowledge, and Public Citizen, all of whom argue that a victory on appeal by Tiffany would spell the death of online marketplaces.

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