Tiffany lawsuit could spell an end to eBay marketplace
Thursday, November 29, 2007
FOR years, eBay has defined itself simply as an online marketplace that links buyers and sellers.
But in a weeklong bench trial in the US Federal District Court in Manhattan that ended last Tuesday, lawyers for Tiffany & Company argued that the online auction house was far more than that: it is a distribution network that enables the trading of counterfeit Tiffany items.
If Tiffany wins its case, not only could other lawsuits follow, but eBay's business model could be threatened because it would be difficult and extremely expensive for the company, based in California, to police a site that now has 248 million registered users worldwide and approximately 102 million items for sale at any one time.
Tiffany has requested injunctive relief that would require eBay to alter its procedures to eliminate counterfeit silver Tiffany merchandise from its auctions. Judge Richard Sullivan instructed both sides to file post-trial briefs by December 7.
"I will hopefully turn this around quite quickly after that," he told the lawyers.
Hani Durzy, an eBay spokesman, said eBay was not responsible for determining whether each product sold on the site was fake.
"As a marketplace, we never take possession of any of the goods sold on the site, so it would be impossible for us to solely determine the authenticity of an item," Durzy said.
"And we go above and beyond what the law requires us to do to keep counterfeits off the site."
But in his closing argument, James Swire, the lawyer for Tiffany, said eBay directly advertised the sale of Tiffany jewellery on its home page, and "because eBay profits from the sales generated by these and other actions", Tiffany considers its actions direct copyright infringement.
Swire added that "there's certainly much in the record to show that eBay is liable for contributory infringement".
Bruce Rich, eBay's lawyer, told the court the company had fulfilled its obligation to prevent the sale of counterfeit goods. In his closing argument, he said the law placed the primary policing responsibility on the trademark owner, Tiffany, because Tiffany had the necessary expertise to identify counterfeits of its products.
Of course, fakes are sold everywhere, as anyone trying to dodge the street vendors selling fake designer handbags in Times Square can attest.
But the anonymity and reach of the Internet makes it perfect for selling knockoffs.
And as the biggest online marketplace, eBay is the centre of a new universe of counterfeit products.
"The fact that eBay has chosen to set up its business in a manner that makes it extremely difficult for it to monitor the merchandise that is sold at its auctions is not a defence," said Geoffrey Potter, chairman of the anti-counterfeiting practice at Kramer Levin Naftalis & Frankel, a New York law firm.
Potter said that if the judge found that eBay had the same duty as flea markets and traditional retail stores to not sell counterfeit products, "eBay will likely have to either stop auctioning famous luxury products or radically alter the way it does business so that it can precertify the authenticity of those products".
"One way that eBay could do this would be to require proof that Tiffany had been paid for the items, before eBay permits an auction of multiple, identical alleged Tiffany products," Potter said.
He added that eBay did manage to keep other illegal items, such as human organs, firearms, and child pornography, off the site.
When Tiffany filed its suit against eBay in 2004, it said that Tiffany employees had trolled eBay to find fake Tiffany silver jewellery and concluded that 73 per cent of 186 pieces they purchased on eBay were counterfeit.
Other makers of luxury goods have also complained that sales of counterfeit items are hurting their businesses.
"Louis Vuitton believes that people avoid buying their signature bags because of all the fake ones out there," Potter said.
In his opening statement last week, Swire said that in 2003, Tiffany put eBay on notice about the counterfeit items and requested that the company investigate. Yet "eBay simply turned a blind eye".
Last Tuesday, Judge Sullivan questioned Michael Kowalski, Tiffany's chairman and chief executive, about the measures Tiffany had taken to track down and prosecute counterfeiters.
Kowalski said it had been difficult and often fruitless to pursue sellers who listed counterfeits on eBay, as they frequently changed identity.
In the end, Kowalski said, "the heart of the issue was the distribution network", referring to eBay.
Durzy said eBay had put in place additional anti-counterfeiting measures since Tiffany filed its suit.
These include closer monitoring of categories chosen most often by counterfeiters, like expensive jewellery and handbags, as well as PayPal verification requirements, selective restrictions on sales volume and limits on cross-border sales.
Although Judge Sullivan gave little indication of how he might rule, he pointed to legal precedents that have found that if a manufacturer or distributor continues to supply a product knowing it is engaging in trademark infringement, that manufacturer or distributor is "contributorily responsible" for any harm done as a result of the deceit. New York Times
But in a weeklong bench trial in the US Federal District Court in Manhattan that ended last Tuesday, lawyers for Tiffany & Company argued that the online auction house was far more than that: it is a distribution network that enables the trading of counterfeit Tiffany items.
If Tiffany wins its case, not only could other lawsuits follow, but eBay's business model could be threatened because it would be difficult and extremely expensive for the company, based in California, to police a site that now has 248 million registered users worldwide and approximately 102 million items for sale at any one time.
Tiffany has requested injunctive relief that would require eBay to alter its procedures to eliminate counterfeit silver Tiffany merchandise from its auctions. Judge Richard Sullivan instructed both sides to file post-trial briefs by December 7.
"I will hopefully turn this around quite quickly after that," he told the lawyers.
Hani Durzy, an eBay spokesman, said eBay was not responsible for determining whether each product sold on the site was fake.
"As a marketplace, we never take possession of any of the goods sold on the site, so it would be impossible for us to solely determine the authenticity of an item," Durzy said.
"And we go above and beyond what the law requires us to do to keep counterfeits off the site."
But in his closing argument, James Swire, the lawyer for Tiffany, said eBay directly advertised the sale of Tiffany jewellery on its home page, and "because eBay profits from the sales generated by these and other actions", Tiffany considers its actions direct copyright infringement.
Swire added that "there's certainly much in the record to show that eBay is liable for contributory infringement".
Bruce Rich, eBay's lawyer, told the court the company had fulfilled its obligation to prevent the sale of counterfeit goods. In his closing argument, he said the law placed the primary policing responsibility on the trademark owner, Tiffany, because Tiffany had the necessary expertise to identify counterfeits of its products.
Of course, fakes are sold everywhere, as anyone trying to dodge the street vendors selling fake designer handbags in Times Square can attest.
But the anonymity and reach of the Internet makes it perfect for selling knockoffs.
And as the biggest online marketplace, eBay is the centre of a new universe of counterfeit products.
"The fact that eBay has chosen to set up its business in a manner that makes it extremely difficult for it to monitor the merchandise that is sold at its auctions is not a defence," said Geoffrey Potter, chairman of the anti-counterfeiting practice at Kramer Levin Naftalis & Frankel, a New York law firm.
Potter said that if the judge found that eBay had the same duty as flea markets and traditional retail stores to not sell counterfeit products, "eBay will likely have to either stop auctioning famous luxury products or radically alter the way it does business so that it can precertify the authenticity of those products".
"One way that eBay could do this would be to require proof that Tiffany had been paid for the items, before eBay permits an auction of multiple, identical alleged Tiffany products," Potter said.
He added that eBay did manage to keep other illegal items, such as human organs, firearms, and child pornography, off the site.
When Tiffany filed its suit against eBay in 2004, it said that Tiffany employees had trolled eBay to find fake Tiffany silver jewellery and concluded that 73 per cent of 186 pieces they purchased on eBay were counterfeit.
Other makers of luxury goods have also complained that sales of counterfeit items are hurting their businesses.
"Louis Vuitton believes that people avoid buying their signature bags because of all the fake ones out there," Potter said.
In his opening statement last week, Swire said that in 2003, Tiffany put eBay on notice about the counterfeit items and requested that the company investigate. Yet "eBay simply turned a blind eye".
Last Tuesday, Judge Sullivan questioned Michael Kowalski, Tiffany's chairman and chief executive, about the measures Tiffany had taken to track down and prosecute counterfeiters.
Kowalski said it had been difficult and often fruitless to pursue sellers who listed counterfeits on eBay, as they frequently changed identity.
In the end, Kowalski said, "the heart of the issue was the distribution network", referring to eBay.
Durzy said eBay had put in place additional anti-counterfeiting measures since Tiffany filed its suit.
These include closer monitoring of categories chosen most often by counterfeiters, like expensive jewellery and handbags, as well as PayPal verification requirements, selective restrictions on sales volume and limits on cross-border sales.
Although Judge Sullivan gave little indication of how he might rule, he pointed to legal precedents that have found that if a manufacturer or distributor continues to supply a product knowing it is engaging in trademark infringement, that manufacturer or distributor is "contributorily responsible" for any harm done as a result of the deceit. New York Times
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