DEVELOPMENTS IN SCIENCE
AND TECHNOLOGY LAW
POST TIFFANY (NJ) INC. V. EBAY, INC.:
ESTABLISHING A CLEAR, LEGAL
STANDARD FOR ONLINE AUCTIONS
Justin Nicholas Redman*
ABSTRACT: Recent cases such as Tiffany (NJ) Inc. v. eBay, Inc. bring to light an
escalating international commercial problem. While the Internet offers tremendous
opportunities for increased commerce, it also facilitates the growth of counterfeit sales,
global crime, and consumer confusion via online auction houses. With the advent of the
Internet, trademark violations and counterfeiting are more difficult to police and, therefore, more frequent. Specifically, Internet auctions, or “virtual flea markets,” feature an
endless array of trademarked goods from around the world. These auction sites serve as
an intermediary between buyer and seller through which Internet sales of counterfeit
goods have skyrocketed. Tiffany, a premier luxury jeweler and specialty retailer offering high quality goods, faced this very problem. Counterfeit jewelry advertised as
Tiffany brand was being sold on eBay, an Internet auction house. Tiffany argued that
eBay was contributorily liable for trademark infringement because it had knowledge
that counterfeits were being sold and failed to take appropriate steps to address the
issue. The court disagreed and reasoned that eBay had done enough, under current law,
to discourage counterfeit sales, that eBay did not know any specific seller who was
selling counterfeits, and that the ultimate burden of policing a trademark rests with the
mark owner.
The court was correct in determining that eBay satisfied the current legal standard
set out by the Supreme Court in Inwood Laboratories, Inc. v. Ives Laboratories, Inc.
Inwood, however, was decided before the Internet was publicly available and goods
could be exchanged across such a medium. Without an updated statute or act regarding
contributory liability in trademark law, similar to the safe harbor policy set forth by
Congress in the Digital Millennium Copyright Act (DMCA), the court ruled that the
full burden to police trademarks lies with Tiffany, not eBay. Trademark law simply has
not kept up with copyright statutes, bringing into question whether current statutes and
case rulings are sufficient in the nearly limitless marketplace of the World Wide Web,
*J.D. Candidate, Pedrick Scholar, and Law, Science, and Technology Center Scholar, Sandra
Day O’Connor College of Law, Arizona State University; B.S., 2006, summa cum laude,
Computer Science, Arizona State University.
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where new sites are added daily and the cost to monitor is impossibly high. The Tiffany
case exposes the problems and potential unfairness of placing the brunt of the burden of
policing trademark infringement on trademark owners in an Internet world.
Interestingly, a predominant focus of the court’s ruling was eBay’s programs to
combat infringement, despite the fact that the Inwood test does not require such steps.
This note concludes that Tiffany should become the test, with a prescribed set of actions
that e-commerce sites must take to thwart counterfeit sales and to remove offending
merchandise if they receive notice from trademark owners of infringement. The note
explains why Inwood alone is not sufficient for online commerce and further argues
that updated statutes are needed to bring trademark law to the same level as copyright
law in this area.
CITATION: Justin Nicholas Redman, Note, Post Tiffany (NJ) Inc. v. eBay, Inc.:
Establishing a Clear, Legal Standard for Online Auctions, 49 Jurimetrics J. 467–490.
In Tiffany (NJ) Inc. v. eBay, Inc.,1 Tiffany & Co., Inc., a luxury jeweler,
asked the U.S. District Court for the Southern District of New York to determine whether eBay, Inc., an Internet auction house, should be held responsible
for the sale of counterfeit Tiffany goods on eBay’s Web site. 2 Based on current
but arguably outdated law, the court concluded that eBay was not responsible
for policing Tiffany’s mark on eBay’s Web site.3 Relying on the U.S. Supreme
Court’s 1982 opinion in Inwood Laboratories, Inc. v. Ives Laboratories, Inc.,4
the district court stated that the standard of liability “is not whether eBay could
reasonably anticipate possible infringement, but rather whether eBay continued to supply its services to sellers when it knew or had reason to know of
infringement by those sellers.”5
The Inwood contributory infringement standard of knowing or having reason to know is core to the ruling. 6 It requires eBay to have specific knowledge
of which items were counterfeit and which seller was listing those items. 7 This
standard may have been relevant and appropriate in 1982 when most commerce involved physical brick-and-mortar transactions, and it was much simpler to determine the source of sales. In today’s technological world, however,
that standard is flawed. In particular, Inwood’s knowledge requirement can too
easily be avoided by Internet auction houses for two reasons: (1) it is much
more difficult to monitor sales in a virtual, global marketplace; and (2) the
auction house never has the burden to investigate anything beyond claims of
suspected infringement.
1. Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008).
2. Id. at 469.
3. Here, “current law” refers to the standard articulated in Inwood Laboratories, Inc. v. Ives
Laboratories, Inc., which is “if a manufacturer or distributor 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, the manufacturer or distributor is contributorially
responsible for any harm done as a result of the deceit.” 456 U.S. 844, 854 (1982).
4. 456 U.S. 844 (1982).
5. Tiffany (NJ) Inc., 576 F. Supp. 2d at 469.
6. Inwood Labs., 456 U.S. at 854.
7. Id.; Tiffany (NJ) Inc., 576 F. Supp. 2d at 469.
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Certainly it is dangerous, due to the vast number of users, sales, and the
impossibility of policing these Web sites, to hold an Internet auction house
liable simply because it was aware that counterfeiting on a general level was
taking place. This is why in order for any e-commerce business to both survive
and flourish, it must not be held accountable simply for general knowledge of
infringement. Auction houses, however, must be held to a standard that clearly
demonstrates that they are committed to preventing counterfeiting and taking
specific actions to help prevent fraud. The burden of policing trademarks with
respect to Internet auctions, therefore, must be shared by both the trademark
owner and, to some greater degree than at present, the Internet auction house.
This can be accomplished in two ways: (1) eBay’s anticounterfeiting programs
can be used as a new test to further define what e-commerce companies and
online auction houses must do to show they are not contributorily liable for
generalized infringement; and (2) Congress can review trademark policy in
light of the digital revolution and enact notice and safe harbor requirements
similar to copyright regulations under the Digital Millennium Copyright Act
(DMCA).8
Although the traditional policy objectives of trademark law continue to
apply today, the laws themselves struggle to keep up with growing technology.
During the Middle Ages and into the nineteenth century, most businesses were
local in nature; consumers knew the merchants they traded with and their
reputations.9 The Industrial Revolution and the twentieth century, however, led
to explosions of population, transportation, communications, and technology
that distanced the consumer from the manufacturer. 10 Because the consumer
no longer knew the manufacturer, he or she had to rely upon the mark of the
good as reflecting and demonstrating its quality. 11 It, therefore, became imperative to assure the consumer that the origin of the goods could be relied
upon for consistent quality.12
The Trademark Act of 1946, known as the Lanham Act,13 included the
following rationales for giving trademarks legal protection: generally, trademarks (1) designate the source or origin of a product or service; (2) represent
that a good or service has a particular quality; (3) allow for a product or service to be distinguished from those of others; (4) motivate consumers to purchase a good or service by demonstrating goodwill of the mark owner; and (5)
protect consumers from confusion or deception, insuring that they are able to
purchase the products or services they want, while allowing the courts to establish an appropriate standard of business conduct.14 But the drafters of the
Lanham Act could not have anticipated the problem that faces mark owners,
8. 17 U.S.C. § 512 (2006).
9. JEROME GILSON & ANNE GILSON LALONDE, GILSON ON TRADEMARKS, § 1.03[3][a], at 11 (2008).
10. Id.
11. Id.
12. Id.
13. Trademark Act of 1946 (Lanham Act), 15 U.S.C. §§ 1051–1127 (2006).
14. GILSON & LALONDE, supra note 9, § 1.03[3][a], at 1-1.
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consumers, and courts today; namely, the proliferation of sales of counterfeit
goods over the Internet. In the United States alone, the Federal Bureau of
Investigation (FBI) reports that Internet auction fraud is the most reported
offense to the Internet Crime Complaint Center, comprising 44.9% of complaints.15 Although the Internet is a remarkable invention—a global network
for the exchange of ideas and goods—the freedom offered by this invention
enhances opportunities for fraud and deception. The Internet allows buying
and selling between complete strangers and facilitates this process by permitting users to engage in transactions simply by clicking on Web pages.16 Sale of
counterfeit goods over the Internet amounts to more than $30 billion worldwide annually17 and is likely to increase unless clearer standards are established and enforcement becomes more stringent.
Despite several amendments to the Lanham Act, and numerous court
opinions addressing changing technology with respect to intellectual property,
there is still considerable uncertainty about how to apply existing laws to
Internet commerce. In fact, one court of appeals suggested that “attempting to
apply established trademark law in the fast–developing world of the [I]nternet
is somewhat like trying to board a moving bus . . . .”18 The Lanham Act defines a counterfeit mark as “a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.” 19 Counterfeiting consists
of making goods appear similar, so they can be passed off as the goods of
another and, thereby, steal the goodwill of that party. 20 Counterfeiting is not
new; it has occurred throughout history, generating a broad and negative effect
on commerce.21 This includes harm to “companies that produce legitimate
goods” and harm to consumers who unwittingly purchase counterfeit products
thinking they are genuine.22
Consumers and trademark owners are directly impacted by counterfeit
sales because “‘if [counterfeiters] steal enough of the brand, the value of the
brand goes away.’”23 Consumers do not benefit if they cannot distinguish
between the real and the fake product and determine the quality. Correspondingly, trademark owners are unable to use the mark to successfully sell and
market a product or service.
15. In 2007, “[t]he Internet Crime Complaint Center or IC3, a partnership of the FBI and the
National White Collar Crime Center, . . . released its latest annual report on victims’ complaints
received and referred to law enforcement.” Federal Bureau of Investigation, Internet Fraud,
http://www.fbi.gov/majcases/fraud/internetschemes.htm (last visited Aug. 7, 2009).
16. TIM PHILLIPS, KNOCKOFF: THE DEADLY TRADE IN COUNTERFEIT GOODS 3 (2005).
17. TRADEMARKS & UNFAIR COMPETITION COMM., ONLINE AUCTION SITES AND
TRADEMARK INFRINGEMENT LIABILITY 2, available at http://www.abcny.org/pdf/report/Online%
20Auction%20Sites%20Final%20Report.pdf (last visited Aug. 7, 2009).
18. Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997).
19. Trademark Act of 1946 (Lanham Act), 15 U.S.C. § 1127 (2006).
20. PHILLIPS, supra note 16, at 13.
21. Id. at 12–13.
22. Bradley J. Olson et al., The 10 Things Every Practitioner Should Know About AntiCounterfeiting and Anti-Piracy Protection,7 J. HIGH TECH. L. 106, 107 (2007).
23. PHILLIPS, supra note 16, at 51 (quoting Joseph Gioconda, a partner specializing in
Intellectual Property at Kirkland & Ellis LLP).
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In struggling with the issue of counterfeiting by third parties, courts have
created the doctrine of contributory liability. 24 Contributory liability holds
third parties liable for trademark violations, even though they do not directly
infringe on the mark, provided they materially assist the infringing activity
with knowledge that it is in fact infringing. 25 But different scenarios have
yielded different standards regarding the level of knowledge required to hold
the third party liable. The most recent Supreme Court case addressing the
knowledge requirement for contributory liability is Inwood Laboratories, Inc.
v. Ives Laboratories, Inc.,26 decided more than twenty-five years ago before
the advent of online auctions. Inwood held that there is no liability for contributory infringement unless there is actual knowledge or reason to know of
the infringement occurring. 27
An Internet auction house, or as eBay refers to itself, an Internet “marketplace,”28 almost never will be liable under the Inwood standard,29 because
on eBay’s Web site at any time, 135 million members are auctioning forty
million items and posting around six million items a day. 30 Thus, the Tiffany
opinion should be read to incorporate a new test, stipulating what Internet
auction houses must do to help police trademarks to avoid contributory liability. It is arguably not in eBay’s interest to have counterfeit goods sold on its
site, and eBay has in fact implemented numerous methods for addressing
trademark infringement. Other Internet auction houses, however, may not be
in the same position as eBay and likely would be immune from contributory
liability under the Inwood standard. Therefore, Congress should reexamine
trademark laws and create requirements similar to the DMCA.
Part I of this note describes the facts, reasoning, and holding of Tiffany
discussing the Inwood analysis with respect to Tiffany’s contributory infringement claim. Part II argues that while the Tiffany court did apply Inwood
correctly, courts should follow the reasoning of Tiffany and go further by requiring online businesses to demonstrate they are employing proactive programs to stifle online trademark infringement and help mark owners police
their trademarks. Also, Congress should reexamine trademark laws to bring
them up to today’s requirements, similar to the DMCA.
24. Trademarks & Unfair Competition Comm., supra note 17, at 4.
25. Id.; Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 501–03 (S.D.N.Y. 2008).
26. 456 U.S. 844 (1982).
27. Id. at 854.
28. PHILLIPS, supra note 16, at 88.
29. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854 (1982).
30. PHILLIPS, supra note 16, at 89; Tiffany (NJ) Inc., 576 F. Supp. 2d at 475.
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I. TIFFANY (NJ) INC. V. EBAY, INC.31
A. Facts of the Case
Since 1837, Tiffany has been regarded as one of the premier luxury jewelers and specialty retailers,32 offering high quality goods under its Tiffany
trademarks including fine jewelry, timepieces, and home items. 33 Tiffany is the
exclusive licensee and user of TIFFANY, TIFFANY & CO., and T & CO.
trademarks to represent its products, as well as those registered on the Principle Register of the United States Patent and Trademark Office for jewelry,
watches, and artwork.34 The district court accepted the undisputed evidence
that these trademarks are recognizably famous, that they are valuable to Tiffany,35 and that protecting the quality and integrity of the Tiffany brand is vital
to Tiffany’s success as a premier luxury retailer. 36
Also undisputed was the court’s determination that Tiffany strives to
maintain its reputation for high-quality jewelry.37 The court noted that before
Tiffany merchandise is released for distribution, Tiffany quality control personnel physically inspect each item, ensuring that each meets Tiffany’s exacting standards for “composition, quality, shape, and polish of the metal, as well
as quality and integrity of the TIFFANY marks appearing on the item.” 38 Furthermore, Tiffany closely controls the distribution of Tiffany-branded goods.39
Since 2000, all new Tiffany jewelry sold in the United States has been available only from Tiffany, through Tiffany retail stores, catalogs, its Web site,
and its Corporate Sales Department. 40 Tiffany discourages the sale of Tiffany
goods on eBay or online marketplaces, and it also has a general policy of refusing to sell more than five of the same items to any individual customer at
any given time without approval of the retail store manager. 41 This tightly
controlled distribution chain exists to further ensure that Tiffany products
maintain their high quality and excellent reputation, as well as to drive sales
through Tiffany.42 Since 2003, Tiffany has spent $14 million to help fight
counterfeiting of its products.43 In addition, since 2006, Tiffany has patrolled
eBay’s Web site and reported possible counterfeiting violations to eBay
31. 576 F. Supp. 2d 463 (S.D.N.Y. 2008).
32. Tiffany & Co., N.Y. TIMES, http://topics.nytimes.com/top/news/business/companies/
tiffany_and_co/index.html?inline=nyt-org& (last visited Aug. 7, 2009); Tiffany & Co., About
Tiffany, http://www.tiffany.com/About/Default.aspx?isMenu=1& (last visited Sept. 23, 2009).
33. Tiffany (NJ) Inc., 576 F. Supp. 2d at 471.
34. Id. at 472.
35. Id. at 471.
36. Id. at 471–72.
37. Id. at 472.
38. Id.
39. Id.
40. Id. at 472–73.
41. Id. at 473.
42. Id.
43. Id. at 484.
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daily.44 EBay’s sheer size and volume, however, make it impossible for Tiffany to review every listing and investigate every seller. 45
Legitimate secondary markets in brand-name goods, such as the ones Tiffany produces, do exist.46 This creates an environment for Internet marketplaces like eBay to flourish. 47 EBay is a well-known online marketplace located at www.ebay.com, where users can create accounts and buy and sell
goods with other users.48 EBay is very successful—more than six million new
listings are posted daily—and at any given time 100 million listings appear on
eBay.49 The listings are created and posted by third-party users, who register
with eBay and agree to abide by a User Agreement. 50 Although users often go
by descriptive usernames instead of their real names, users must supply identifying information to eBay when registering. 51 Sellers, however, can use multiple usernames.52
A transaction on eBay is conducted by registered sellers who choose the
appropriate category for their listed items, such as “Jewelry and Watches” or
“Toys and Hobbies.”53 A listing can include single or multiple items. 54 Also,
sellers can post multiple listings at the same time. 55 EBay offers an auctionstyle listing, where the highest bidder wins the good, or a “Buy It Now” feature, where sellers offer their goods based on a fixed price. 56 EBay also offers
a classified advertisement service through which sellers can publish the availability of goods for sale. 57 Buyers can click on keywords on eBay’s home page
to search for products that satisfy those keywords, or buyers can browse
through eBay categories or search through listing titles or descriptions to find
the products they desire.58
EBay provides the venue for selling and generates revenue from listings
and sales, but it does not itself participate directly in transactions. 59 EBay’s
role is to connect buyers with sellers and facilitate transactions, which are
carried out directly between eBay members. 60 When a buyer purchases an
item, the buyer and seller communicate to arrange for shipment and payment. 61
EBay generates revenue both by charging sellers a fee to list products and by
44. Id.
45. Id. at 484–85.
46. Id. at 473.
47. Id.
48. Id. at 474.
49. Id. at 475.
50. Id. at 474.
51. Id.
52. Id.
53. Id.
54. Id.
55. Id.
56. Id.
57. Id.
58. Id. at 474–75.
59. Id. at 475.
60. Id.
61. Id.
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charging sellers a fee when products are purchased by buyers. 62 EBay’s Chief
Marketing Officer testified in 2006 that approximately 33% of eBay’s North
America income was derived from listing fees and 45% from selling fees. The
remaining income is derived from classified advertising on eBay’s site. 63
Although eBay merely provides the venue for transactions, it does exercise some control over users and the items sold.64 All users must sign a User
Agreement requiring buyers and sellers to refrain from violating any intellectual property rights and eBay policies. 65 Upon violation of the User Agreement, eBay may take disciplinary action against the seller, including removing
the listing, issuing a warning, or suspending the user. 66 Furthermore, eBay has
invested $20 million each year to help promote safety and trust, 67 and more
than 200 eBay employees are responsible specifically to combat intellectual
property infringement.68
EBay also has adopted some safeguards to help prevent fraud. 69 The company uses a fraud detection engine that searches for items that contain select
keywords or other data, such as the seller’s Internet protocol address and all
seller feedback70 that might indicate a counterfeit item. Any flagged listings
are sent to Customer Service Representatives so they can take appropriate
action.71 In addition to the fraud detection engine, eBay has an anti-infringing
program known as the Verified Rights Owner (VeRO) Program. 72 The VeRO
program is a “notice and takedown” system whereby intellectual property
rights owners can notify eBay of potentially infringing listings by submitting a
Notice of Claimed Infringement form. 73 Within 24 hours of receiving the Notice of Claimed Infringement, eBay removes the listing. 74 Furthermore, eBay
notifies the seller and bidders that the potentially infringing listing has been
removed and notifies the seller of the reason for the removal. 75 As of July
2008, more than 14,000 rights owners, including Tiffany, participated in the
VeRO program.76 Lastly, eBay encourages trademark owners to create an
About Me Web page on eBay where buyers and sellers can learn about brands
and intellectual property.77 Tiffany has maintained an “About Me” page on
eBay since 2004, which explains that genuine Tiffany products are available
62. Id.
63. Id.
64. Id. at 476.
65. Id.
66. Id.
67. Id.
68. Id.
69. Id. at 477
70. Id.
71. Id.
72. Id. at 478.
73. Id.
74. Id.
75. Id.
76. Id.
77. Id. at 479.
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only through Tiffany and that selling or manufacturing counterfeit Tiffany
goods is a crime.78
EBay generates substantial revenue from the sale of Tiffany goods79 and
so takes active steps to increase the sales of Tiffany items on its Web site. In
fact, between April 2000 and June 2004, eBay earned $4.1 million from items
with a “Tiffany” label in the Jewelry & Watches category. 80 To help generate
this revenue, eBay’s Jewelry & Watches management team ran a program for
its top twenty sellers.81 These sellers were told that “Tiffany” was one of the
top-searched keywords and were urged to take advantage of the demand for
Tiffany merchandise.82 EBay also regularly has promoted increasing sales of
luxury brands like Tiffany. 83
On July 15, 2004, Tiffany filed its complaint alleging that eBay was liable
for, among other claims, contributory infringement of Tiffany’s trademarks by
virtue of eBay’s promotion of Tiffany products and the resulting profits it
derived from individuals selling counterfeit Tiffany goods on eBay. 84 Two of
Tiffany’s six claims included: (1) “contributory trademark infringement of
Tiffany’s trademarks in violation of” 85 Sections 32(1) and 34(d) of the Lanham
Act;86 and (2) “contributory trademark infringement under common law.” 87
These claims were based on several different factors, including buyers’ complaints to Tiffany and eBay about counterfeit Tiffany jewelry sold on eBay and
Buying Programs conducted by Tiffany. Under the Buying Program, Tiffany
purchased goods on eBay that were advertised as genuine Tiffany brand merchandise. Tiffany received the goods and inspected and validated whether the
goods were truly authentic. The results showed that 73.1% and 75.5% of “Tiffany” goods purchased on eBay during two different occasions were counterfeit.88 Tiffany argued that eBay was on notice that counterfeit goods were
being sold on eBay and, accordingly, that eBay had the obligation to investigate and control the illegal activities of these sellers. Specifically, Tiffany
asserted that eBay had the obligation to refuse to post any listings for five or
more Tiffany items, as well as to immediately suspend any seller upon learning of Tiffany’s belief that the seller had engaged in potentially infringing
activity.89 In response to Tiffany’s claims, eBay contended that it was Tiffany’s burden, not eBay’s, to monitor the eBay Web site and to bring counterfeits to eBay’s attention.90 EBay asserted that upon receiving notice of
78. Id.
79. Id. at 479–81.
80. Id. at 481.
81. Id. at 479.
82. Id.
83. Id. at 479–80.
84. Id. at 470.
85. Id.
86. Trademark Act of 1946 (Lanham Act), 15 U.S.C. §§ 1114(1), 1116(d) (2000).
87. Tiffany (NJ) Inc., 576 F. Supp. 2d at 471.
88. Id. at 485.
89. Id. at 469.
90. Id.
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potentially infringing listings, eBay immediately took down the offending
listings.91 Therefore, the main dispute was over which party should bear the
burden of policing Tiffany’s trademarks on the eBay site. 92
B. Reasoning
Contributory trademark infringement extends liability to those who materially aid a direct trademark infringement. Contributory trademark infringement exists as a way to extend “‘liability for trademark infringement . . .
beyond those who actually mislabel goods with the mark of another.’” 93 Contributory trademark infringement is a judicially created doctrine, with the test
established by the U.S. Supreme Court in Inwood Laboratories, Inc. v. Ives
Laboratories, Inc.94
The court analyzed Tiffany’s contributory infringement claim in five
parts. The court concluded that (1) the test articulated by the Supreme Court in
Inwood is the proper test for Tiffany’s claim; (2) “Inwood applies to entities
like eBay that provide a marketplace for infringement and maintain direct
control over that venue”; (3) “under Inwood, Tiffany’s generalized assertions
of trademark infringement were insufficient to establish that eBay knew or had
reason to know of the [specific] infringement at issue”; (4) “eBay was not
willfully blind to evidence of counterfeiting on its website”; and (5) whenever
eBay did have “the requisite knowledge of infringement, eBay took appropriate steps to cut off . . . its service to the infringer . . . .”95
Tiffany argued that the 1982 Inwood test was inappropriate and that the
appropriate test is stated in the 1995 Restatement (Third) of Unfair Competition § 27.96 Section 27 provides that a party may be found liable for contributory infringement when “the actor fails to take reasonable precautions against
the occurrence of the third person’s infringing conduct in circumstances in
which the infringing conduct can be reasonably anticipated.”97 The district
court, however, responded that the Inwood majority explicitly rejected a rea91. Id.
92. Tiffany decided to forego legal action against individual sellers of counterfeit Tiffany
merchandise in the hope of a more efficient remedy against eBay directly. Id.
93. Id. at 501 (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 853 (1982)). In
addressing Tiffany’s claims of contributory infringement, the court chose to treat the two claims of
contributory infringement under state and federal law together, because the elements required to
prevail on contributory trademark infringement claims under New York law mirror the federal
Lanham Act claims for trademark infringement. Id.
94. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982).
95. Tiffany (NJ) Inc., 576 F. Supp. 2d at 501–02.
96. Id. at 502; RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 27 (1995).
97. Under the court’s reasoning, eBay may have won even under the Restatement standard.
This reasonable anticipation standard is similar to the standard proposed in this note; however, the
proposed standard requires more than reasonable anticipation of infringement—there must also be
generalized knowledge of actual infringement. If this generalized knowledge is present, then an
Internet auction house must be able to show they have precautions in place to address that knowledge to avoid being held liable. As discussed below, eBay’s precautions may satisfy this.
RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 27 (1995); Tiffany (NJ) Inc., 576 F. Supp. 2d
at 503.
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sonable anticipation standard and that the majority of courts considering this
question have also rejected such a standard.98 Therefore, the court chose not to
apply the reasonable anticipation standard and relied instead on Inwood.99
1. The Precedent
a. The Inwood Decision
In Inwood, the United States Supreme Court had to determine the circumstances under which a generic drug manufacturer, who intentionally designs a
drug in the same size, shape and color as that of a similar drug manufactured
by a competitor under a registered trademark, can be held vicariously liable for
infringing that trademark. 100 Ives, the maker of the drug Cyclospasmol, complained that pharmacists routinely dispensed generic drugs mislabeled as
Cyclospasmol.101 Ives alleged that Inwood, one of the generic manufacturers,
contributed to the infringing activities of pharmacists who mislabeled the
generic drug.102 The Supreme Court established a test that articulated two
grounds for subjecting third parties to trademark infringement liability. 103
According to Inwood, a manufacturer or distributor is contributorily liable
for any harm resulting from deceit if it: “[1] intentionally induces another to
infringe a trademark, or [2] continues to supply its product to one who it
knows or has reason to know is engaging in trademark infringement . . . .” 104
Under this test, Inwood would be liable for contributory infringement if it
either suggested that retailers fill bottles with generic drugs and label the bottle
with Ives’ trademark or if it continued to supply drugs to retailers who it knew
or had reason to know were infringing Ives’ trademark. 105 The court of appeals
concluded the evidence was clearly sufficient to establish a contributory
trademark violation for several reasons: (1) Inwood “reasonably could have
anticipated misconduct by a substantial number of pharmacists” 106; (2) the trial
court incorrectly found that mislabeling simply “reflected confusion about
state law requirements”107; (3) “illegal substitution and mislabeling in New
98. Tiffany (NJ) Inc., 576 F. Supp. 2d at 503. The court acknowledged that many cases have
held the reasonable anticipation standard is not appropriate in contributory liability cases; however, these cases did not deal with Internet auction house issues. See, e.g., Gen. Motor Co. v.
Keystone Auto. Indus., Inc., No. 02-74587, 2005 U.S. Dist. LEXIS 23168, at *35 n.21 (E.D.
Mich. May 10, 2005); Medic Alert Found. United States, Inc. v. Corel Corp., 43 F. Supp. 2d 933,
940 (N.D. Ill. 1999); Lockheed Martin Corp. v. Network Solutions, Inc., 175 F.R.D. 640, 646
(C.D. Cal. 1997); David Berg & Co. v. Gatto Int’l Trading Co., 9 U.S.P.Q.2d (BNA) 1070, 1073
(N.D. Ill. Oct. 21, 1988); Ciba-Geigy Corp. v. Bolar Pharm. Co., Inc., 547 F. Supp. 1095, 1116
(D.N.J. 1982).
99. There was no doubt here that eBay could reasonably anticipate infringing conduct.
Tiffany (NJ) Inc., 576 F. Supp. 2d at 503.
100. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 842, 849–51 (1982).
101. Id.
102. Id.
103. Id. at 854.
104. Id. (emphasis added).
105. Id. at 855.
106. Id. at 856.
107. Id. at 857
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York are neither de minimis nor inadvertent”108; and (4) Inwood did not present “‘any persuasive evidence of a legitimate reason unrelated to
C[yclospasmol]’ for producing an imitative product.” 109
The Supreme Court, however, found that each of these conclusions was
“contrary to the findings of the district court.”110 As a result, the Supreme
Court ruled the “Court of Appeals erred in setting aside findings of fact that
were not clearly erroneous” and subsequently reversed the court of appeals’
judgment.111 The two-part Inwood test—intentionally inducing or continuing
to supply—is now the standard applied in trademark contributory infringement
cases.112
b. Hard Rock and Fonovisa: Expanding Inwood to Flea Market Operators
The Inwood test for contributory infringement arose in the manufacturerdistributor context.113 Since Inwood, however, courts have applied the test in
other contexts as well.114 The application of Inwood to brick-and-mortar, fleamarket operators and Internet domain name registrars has produced varying
results.115
The Seventh Circuit, in Hard Rock Cafe Licensing Corp. v. Concession
Services, Inc.,116 first applied the Inwood contributory infringement test in the
flea market operator context.117 Hard Rock brought suit against a flea market
operator, Concession Services, Inc., claiming contributory liability for sales of
counterfeit Hard Rock merchandise. 118 The court reasoned that Inwood applied
to flea market owners, and not just manufacturers and distributors, 119 based on
the common law rule holding landlords and licensors responsible for torts
committed on their premises if the landlord or licensor knows or has reason to
know that the tenant or licensee will act tortiously. 120 The court saw no distinction between the duty of a landlord or licensor and the duty of a manufacturer
or producer and, therefore, applied Inwood to the facts of this case.121 Concession Services was guilty of “willful blindness” in that they knew counterfeit
Hard Rock goods were being sold at its flea market and turned a “blind eye” to
the transactions, and Concession Services had taken no steps to “detect or
prevent” counterfeiting.122
108. Id.
109. Id. (quoting Ives Labs., Inc. v. Darby Drug Co., 638 F.2d 538, 544 (2d Cir. 1981)).
110. Id. at 857.
111. Id. at 858.
112. Id. at 854.
113. Lauren Troxclair, Search Engines and Internet Advertisers: Just One Click Away From
Trademark Infringement?, 62 WASH. & LEE L. REV. 1365, 1376 (2005).
114. Id. at 1378–79.
115. Id.
116. 955 F.2d 1143 (7th Cir. 1992).
117. Troxclair, supra note 113, at 1377.
118. Hard Rock Cafe, 955 F.2d at 1148.
119. Id. at 1148–49.
120. Id.
121. Id.
122. Id. at 1149.
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Similarly, the Ninth Circuit in Fonovisa, Inc. v. Cherry Auction, Inc.123
applied the Hard Rock analysis by extending the Inwood test to include landlords and licensors.124 Fonovisa, Inc., the owner of trademarks and copyrights
to Latin-Hispanic music recordings, claimed that Cherry Auction, Inc., operators of a swap meet, were contributorily liable for selling counterfeit goods
that infringed those trademarks and copyrights. 125 The court held that Hard
Rock Café’s application of the Inwood test was sound, and that Fonovisa had
proven a claim of contributory trademark infringement. 126 Both of these cases
thus applied the Inwood test to resale markets.
c. Lockheed Martin—Inwood Not Satisfied for Internet Registrar
Trademark holders have sought to hold domain name registration companies contributorily liable for infringing domain names created by customers. 127
Several courts have applied the Inwood test but have found domain name
registrars not liable for contributory infringement because they do not offer a
product and there is insufficient control by the domain name registrar over the
means of infringement.128
In one of these cases, Lockheed Martin Corp. v. Network Solutions,
Inc.,129 the Ninth Circuit articulated the rationale for not holding domain name
registrars liable under Inwood for contributory trademark infringement. 130
Analyzing the second part of Inwood’s test—continuing to supply a product
with knowledge of the infringing activity131—the court accepted the district
court’s finding that defendant Network Solutions, Inc. offered a service and
did not offer a product to third parties.132 In the absence of a product, the Ninth
Circuit concluded that “the extent of control exercised by the defendant over
the third party’s means of infringement” must be analyzed.133 That is, the
trademark holder must demonstrate that the defendant directly controlled and
monitored the mechanism or service that facilitated the third party’s infringing.134 The court, in applying this standard to domain names, found that the
123. 76 F.3d 259, 263–65 (9th Cir. 1996).
124. Troxclair, supra note 113, at 1378–79.
125. Fonovisa, Inc., 76 F.3d at 261.
126. Id. at 265.
127. See Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984–87 (9th Cir.
1999) (refusing to extend contributory infringement liability to domain name registrars); Ford
Motor Co. v. Greatdomains.com, Inc., 177 F. Supp. 2d 635, 647 (E.D. Mich. 2001) (holding that
contributory liability would only be extended in exceptional circumstances not present in this
case); Acad. of Motion Picture Arts & Sci. v. Network Solutions, Inc., 989 F. Supp. 1276, 1280
(C.D. Cal. 1997) (rejecting the extension of contributory infringement outside the limited contexts
of manufacturer-distributor and flea market operator-vendor); Troxclair, supra note 113, at 1379.
128. Troxclair, supra note 113, at 1379–81.
129. 194 F.3d 980 (9th Cir. 1999).
130. Id. at 981.
131. Inwood’s first test—intentional inducement of TM infringement—is not relevant to
these facts, as there was no evidence that Network Solutions sought to induce or encourage infringement.
132. Lockheed Martin Corp., 194 F.3d at 984.
133. Id. at 984.
134. Id.
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defendant was a registration service whose involvement failed to rise to the
required level of “[d]irect control and monitoring” over those who infringed
the plaintiff’s mark.135 The defendant, therefore, was not contributorily liable.136 The Ninth Circuit, relying on the district court’s language, noted that
extending contributory liability here would force upon domain name registrars
the unreasonable burden of monitoring the Internet. As a result, the court concluded that extending contributory liability to Network Solutions, Inc. would
expand the scope of liability much further than Inwood intended.137
2. Tiffany v. eBay—Product, Service, or Venue?
EBay argued its Web site is not a “product” as required in the Inwood
analysis, but rather it is a “service [that] does not trade in the products at issue” and is only a “venue for listings created and posted by third parties.” 138
EBay relied on the Seventh Circuit’s statement in Hard Rock Café139 that it is
“not clear how the doctrine [of contributory trademark infringement] applies to
people who do not actually manufacture or distribute the good that is ultimately palmed off as made by someone else.” 140
The Tiffany court, however, noted that cases decided after Inwood have
expanded the concept of contributory infringement to include more than just
situations involving misuse of a manufacturer’s product. 141 The Hard Rock
Café court determined that the Inwood test applied142 because the common law
imposed “the same duty on landlords and licensors” that the Supreme Court
has imposed on manufacturers and distributors. Similarly, in Fonavisa, the
Ninth Circuit held that the Inwood test “laid down no limiting principle that
would require defendant to be a manufacturer or distributor.” 143 Finally, in
135. Id.
136. Id. at 985. Here, the infringement was the use of the actual domain name itself. Network
Solutions had complete control over whether to allow use of a given domain name; therefore,
Network Solutions had control over the mechanism of infringement. Id. at 983-85. If they did not
award the domain name, it would not have been used and, therefore, there would have been no
infringement. Perhaps the court was most worried about placing a trademark search burden on a
domain name registrar, fearing that would stifle growth of the Internet. This would not be a trivial
fear, as it would force domain name registrars to suffer huge costs in the searching and analysis
necessary to insure that none, or perhaps only a few, of the names it registers infringe trademarks.
Therefore, although the court could have concluded that Inwood’s test suggests Network Solutions
was liable, the court, for policy reasons, chose not to extend it in this setting. The Tiffany court
possibly considered similar policy justifications for allowing Inwood to strictly apply to eBay’s
situation. EBay cannot possibly monitor every single user. There may be greater policy reasons,
however, for relaxing the Inwood standard and requiring a defendant to show it helped to police
trademarks. The question then becomes, just what types of policing, and how much, are required?
137. Id.
138. Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463, 504 (S.D.N.Y. 2008).
139. Hard Rock Cafe Licensing Corp. v. Concession Serv., Inc., 955 F.2d 1143, 1148 (7th
Cir. 1992).
140. Id.
141. Tiffany (NJ) Inc., 576 F. Supp. 2d at 504.
142. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854 (1982).
143. Fonovisa, Inc. v. Cherry Auction, Inc.,76 F.3d 259, 261 (9th Cir. 1996).
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Lockheed Martin Corp.,144 the Ninth Circuit determined that the relevant query
for those providing a service is “the extent of control exercised by the defendant over the third party’s means of infringement” and that “[d]irect control
and monitoring of the instrumentality used by a third party to infringe the
plaintiff’s mark permits the expansion of Inwood Lab’s ‘supplies a product’
requirement for contributory infringement.” 145 Consequently, the Tiffany court
countered that eBay construed the case law too narrowly.146 The court agreed
with Tiffany that Inwood extends beyond merely imposing liability on a manufacturer or distributor and expanded the Inwood standard accordingly.147
The court first concluded that eBay retained significant control over the
transactions conducted through eBay. 148 Because eBay does not take possession of items sold on its site and there is no way for eBay to visually inspect
and authenticate all items, eBay argued that it lacked control and acted more
like an online classified ad service than an online flea market.149 The court,
however, found that: (1) “eBay supplies the necessary marketplace for the sale
of counterfeit goods”; (2) “eBay actively has promoted the sale of Tiffany
[products]”; (3) eBay generates revenue from the listing and selling of products; and (4) eBay maintains control over its Web-site listings.150 On the basis
of these findings, the court concluded that eBay was similar to the flea markets
in Hard Rock and Fonovisa and that Inwood, therefore, supplied the correct
standard for assessing eBay’s conduct. 151
3. Tiffany v. eBay—Knowledge or Reason to Know
In proceeding with the Inwood analysis, the court reasoned that eBay had
generalized knowledge that some portion of the Tiffany-labeled goods sold on
its Web site could be counterfeit. The court reached this conclusion based on
the following evidence: (1) Tiffany sent eBay letters in 2003 and 2004 stating
that “large quantities of counterfeit Tiffany merchandise were being sold
through the eBay website, and that any seller of a significant lot—e.g., of five
or more pieces of purported Tiffany jewelry—was ‘almost certainly’ selling
counterfeit merchandise”; (2) Tiffany informed eBay of its Buying Program
results, specifically “finding that 73.1% of the Tiffany items it purchased [on
eBay] in its 2004 Buying Program were counterfeit”; (3) “Tiffany filed thousands of NOCIs [Notice of Claimed Infringement forms] alleging a good faith
belief that certain listings were counterfeit or otherwise infringing on Tiffany’s
[trade]marks”; and (4) eBay received numerous buyer complaints about purchasing fake Tiffany goods through its Web site.152 Tiffany argued that this
144. Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999).
145. Id. at 984.
146. Tiffany (NJ) Inc., 576 F. Supp. 2d at 504.
147. Id. at 505–06.
148. Id. at 506.
149. Id.
150. Id.
151. Id. at 507.
152. Id.
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generalized knowledge satisfied the Inwood test even without specific knowledge about individual instances of infringing listings or sellers.153 EBay, however, argued that the law demands more specific knowledge of individual
instances of infringement, and of infringing sellers, before eBay has the burden to remedy the problem. 154 The court then had to determine whether generalized knowledge of trademark infringement met the “knowledge or reason
to know” element of the Inwood test.155
In summary, the Tiffany court concluded that Tiffany’s notice to eBay and
eBay buyers failed to provide eBay with the specific knowledge required by
Inwood because: (1) Tiffany failed to present sufficient evidence that an eBay
seller offering “five or more” Tiffany items was presumptively selling counterfeit merchandise; (2) Tiffany’s Buying Programs only put eBay on general
notice that a high percentage of goods being sold were counterfeit; and (3)
Tiffany’s multiple filings of Notice of Claimed Infringement forms were evidence only of eBay’s general—not specific—knowledge of infringement.156
4. Tiffany v. eBay—Willful Blindness
Tiffany argued that eBay’s failure to take further steps to investigate
which individual sellers were offering counterfeit goods constituted willful
blindness and, thus, satisfied Inwood’s knowledge requirement. The Inwood
reason to know standard can be satisfied by showing that the defendant was
willfully blind, where willful blindness is defined as suspecting wrongdoing
and purposely failing to investigate it. 157 The court, however, was not swayed
by this argument158 and focused on eBay’s actions to address the generalized
concern.159 For example, when eBay became aware through its VeRO Program
of suspected wrongdoing, it investigated and removed the challenged listings.160 That eBay did not take additional steps was immaterial because without specific knowledge or reason to know, it was under no affirmative duty to
seek out potential infringement.161 EBay, therefore, was not willfully blind,
and Tiffany had failed to prove the degree of knowledge required by the
Inwood standard.162
5. Tiffany v. eBay—Continue to Supply
Finally, Tiffany argued that eBay “continue[d] to supply” its services by
allowing repeat offenders to persist in selling goods on eBay and by failing to
take proper steps in response to the filing of Notice of Claimed Infringement
153. Id.
154. Id. at 508.
155. Id.
156. Id. at 511–13.
157. Id. at 513.
158. Id.
159. Id. at 513–14.
160. Id. at 514
161. Id. at 515
162. Id.
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forms by Tiffany.163 The court noted, however, that once Tiffany notified eBay
of a potentially infringing listing, eBay promptly removed it. 164 Also, the court
reasoned that a Notice of Claimed Infringement form is filed based on only a
good faith belief that a counterfeit product is being sold, as opposed to verifiable proof, and eBay, therefore, was not required to automatically suspend the
seller.165 Consequently, Tiffany had failed to prove this element of the Inwood
test as well.
C. Holding
The district court in Tiffany concluded that the duty to police its trademark
ultimately rests on the mark owner.166 The court rejected the reasonable anticipation standard and strictly applied the Inwood specific knowledge standard
as the test for contributory infringement of another’s trademark.167 Accordingly, the court held that Tiffany did not prove eBay continued to supply its
service to those it “knew or had reason to know” were engaging in the selling
of counterfeit goods and that eBay took appropriate measures when Tiffany
alerted it of potential infringement.168 As a result, eBay could not be liable for
contributory infringement.
II. BEYOND INWOOD:
THE NEED FOR A LEGAL STANDARD
OF SHARED BURDEN
Applying the Inwood test to the fact pattern in Tiffany, where an Internet
flea market provides a venue for counterfeit goods to be sold, highlights the
need for a modified legal standard that will require Internet auction sites to
partially share the burden of preventing counterfeiting. With the vast Internet,
Congress could enact a type of safe harbor trademark provision, similar to that
for copyrights in the DMCA, which contains a limitation on contributory liability for e-commerce sites providing they take certain actions similar to
those in Tiffany. These could include:
1.
2.
Taking swift and aggressive steps169—similar to those instituted by
eBay—to investigate and, if necessary, remove and ban offenders from
their Web sites.
Allowing the trademark owner to determine if the alleged offender is infringing, such as Tiffany found with sellers of more than five of the
same item, and, if so found, the offender is removed and banned from
the online seller’s site.
163. Id.
164. Id. at 516.
165. Id. at 516–17.
166. Id. at 518.
167. Id.
168. Id.
169. These steps are outlined in Section II(B)(3).
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Part A of this section examines the problems with using a pre-Internet
standard, specifically issues with Inwood’s knowledge requirement. Part B
proposes that Internet auction houses must share some of the responsibility to
police their Web sites and examines how and why this could be legally required.
A. Problems with Inwood: Overview
Inwood is a 27-year-old precedent that does not adequately address today’s new and challenging issues of online commerce. Inwood is a good standard for brick-and-mortar commerce but is not adequate for the Internet Age.
These issues include the sheer size and scope of the Internet, which makes
knowledge of all content impossible; the proliferation of user-generated content; and the monstrous growth of online counterfeiting.
1. Problems with Inwood: Avoiding the Knowledge Requirement
The Inwood test is ideal for brick-and-mortar situations, because the nature of physical transactions allows for specific knowledge or inducement to
be easily ascertained. Inwood does not easily transfer to an online context,
however, because most online resale sites rarely, if ever, have actual knowledge of infringements. Rather, they only have actual knowledge once they are
notified. A solution to the problems with Inwood for Internet commerce could
be to have the steps taken by eBay in Tiffany become the de facto standard for
avoiding contributory liability. Courts could use Tiffany to establish a new
Internet test spelling out the concrete steps required to determine if online
commerce and auction houses have created an environment conducive to allowing trademark holders to more easily police their marks. These entities
would need appropriate procedures in place to discourage infringement and to
allow trademark owners to make claims and know that swift action will take
place.
The Supreme Court’s recent decision in Metro-Goldwyn-Mayer Studios
Inc. v. Grokster, Ltd.,170 although it dealt with copyright infringement, may lay
the groundwork for an Internet trademark contributory infringement test that
does not always require actual knowledge of specific infringement. In this
case, the Supreme Court unanimously held that defendant Grokster could be
sued for inducing copyright infringement for its marketing of peer-to-peer file
sharing software.171 In finding that Grokster could be sued for copyright infringement, the Supreme Court acknowledged that, while Grokster did not
necessarily have specific knowledge of infringement by its customers, Grokster did not attempt “to develop . . . tools or other mechanisms to diminish the
infringing activity . . . .”172 This is analogous to Tiffany, in that the court there
spent considerable time focusing on the responsible actions taken by eBay to
prevent infringement on its site.
170. 545 U.S. 913 (2005).
171. Id. at 941.
172. Id. at 939.
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2. Specific Knowledge Is an Unrealistic Standard
Although it is easy to see how the Internet poses problems of infringement
for copyright owners, the same is not true with respect to trademark owners—
unless a mark owner’s products are being sold in the aftermarket, such as on
eBay. The sheer size and scope of Internet commerce makes it impossible to
monitor all activity there, especially because new listings are posted every
second. Indeed, as the court noted in Lockheed,173 monitoring the entire Internet is an “unreasonable burden.” Virtual or online auctions make physical
inspections of goods impossible. Inwood is based on a brick-and-mortar world,
applicable in Hard Rock and Fonovisa as well, where it is realistic for an auction house to be aware of the goods being sold. A physical auction house typically provides the space for sales to occur, and employees of the auction house
can both physically inspect the goods and observe participants’ behavior for
signs of illicit activity. But on the Internet, an item’s authenticity may not be
discerned easily from a photograph or description. More sophisticated counterfeiters can easily circumvent these measures, such as using a picture of an
authentic item, allowing the infringement to escape detection until the buyer
receives the item.
The sheer size and magnitude of Internet activity guarantees many if not
most of the goods sold on the Web site of an online auction house will be
genuine. EBay, unlike brick-and-mortar auction houses, enjoys an almost
limitless amount of available space, users, and listings dependent only on Web
or server space. More than 627 million people globally shopped online in
2005.174 With a global customer base of 276 million users, containing “113
million items in 50,000 categories,” eBay is a giant in the online marketplace.175 EBay is the fifth most visited Web site in the United States. 176 The
total value of the goods sold through eBay in 2007 exceeded $59 billion in
thirty-nine markets.177 With so many users and listings, it is virtually impossible to have specific knowledge about individual infringers versus genuine
product sellers on eBay.
The law itself also allows Internet auction sites to avoid “specific knowledge.” Because the burden of policing a trademark lies with the mark owner,
an Internet auction house does not have a duty to investigate until it receives
knowledge of suspected infringement by one of its users. The Tiffany court
used this trademark law maxim to claim the burden is not on eBay to police
Tiffany’s mark.178 Thus, although eBay received knowledge through its VeRO
173. Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999)
174. Jennifer Brown & John Morgan, Reputation in Online Markets: Some Negative
Feedback, Feb. 2006, at 2, http://faculty.haas.berkeley.edu/rjmorgan/Reputation%20in%20Online
%20Markets.pdf.
175. EBay Partner Network, About eBay’s Affiliate Programs, https://www.ebaypartnernet
work.com/files/hub/en-US/aboutAdvertisers.html (last visited Sept. 13, 2009).
176. Brown & Morgan, supra note 174, at 2.
177. EBay Partner Network, supra note 175.
178. Tiffany (NJ) Inc. v. eBay, Inc., 576 F .Supp. 2d 463, 469–70 (S.D.N.Y. 2008).
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program that infringement was suspected, it did not have any duty to go further and inspect the goods beyond the specific complaint. EBay also is not
under any duty to implement software that scans or inspects goods as they are
placed on the site, and eBay is not required to review all listings before they
are posted. Instead, eBay’s policy is to suspend users suspected of infringing.
And because they are only suspected of infringing, eBay has no legal duty to
press further and investigate the claims or goods. If the trademark owner is
indeed responsible for policing its trademark, it seems only fair that the trademark owner should be able to decide if and when infringement is taking place,
instead of the auction house making the determination.
B. What Now? Important Factors in Determining Contributory
Infringement
1. The Need for a Shared Requirement toward Policing Trademarks
The law is clear: a trademark owner bears the burden of policing its mark.
But using Inwood as the test for contributory liability for Internet auction
houses makes it difficult, if not impossible, for a mark owner to police its mark
due to technological restraints and the unreasonable weight of policing the
nearly limitless Internet. If eBay or another auction house lacks actual knowledge, as it almost always will, and does not induce users to infringe, it has no
duty to do anything more. This leaves the mark owner with a dilemma; the
owner is required to police its mark but cannot do so because the Internet
auction house is not legally required to design its Web site and infrastructure
in a way that enables a mark owner to police its mark. Parties that have the
ability to prevent infringement are not, under this approach, held accountable.
As technology enables criminal conduct to take different forms, the law should
change to effectively regulate such conduct.
The Tiffany court was correct in using Inwood in its analysis, but it should
have strengthened its ruling by emphasizing that the steps that eBay took to
directly address and minimize infringement are as important as the Inwood test
and should be considered in similar cases going forward. The court’s discussion of the steps eBay took to help thwart counterfeiting could be the legal
catalyst to transfer some of the burden from owners to Internet auction houses.
The court could have clearly stated that the specific actions eBay took are
necessary to avoid being liable for contributing to trademark infringement.
Such a ruling would have been faithful to Inwood, simply applying that opinion to online auction houses in the new environment of Internet commerce. In
other words, Tiffany provides the opportunity for courts to invoke a new twostep test when deciding contributory liability issues for online marketplaces.
Step one: use Inwood as the correct test for determining the knowledge requirement. Step two: make sure the e-commerce site has been responsible in
setting up programs, similar to eBay’s, to help trademark owners police the
site and to prevent counterfeiting. Alternatively or in addition, as suggested
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below, Congress should act and update the Lanham Act with clear guidelines
spelling out what online sites must do to avoid contributory trademark liability.
2. How Much Should Internet Auction Houses Be Required to Police?
EBay is an Internet business that is sometimes referred to as a “Web 2.0”
company,179 with a business model that includes making profits from usergenerated content.180 EBay profits from users who list items and buyers who
view the listings and purchase the products. It is counter to the intent of trademark law that a profitable Web site like eBay be immune from the consequences of infringements at its site simply because it necessarily lacks specific
knowledge.
The problem lies in placing the entire duty to police trademarks solely on
the trademark holder. With the Internet being vast and virtually unregulated, it
is too expensive for Tiffany to adequately monitor its mark, because its trademark could be used on a multitude of Web sites. Because each individual
auction house has knowledge of its inner workings, software code, and environment, each has a better ability to protect trademarks than the mark owners.
Hence, auction house sites should have a legal duty to partially police trademarks or at least be held to standards of what they must do to help stop counterfeiting. As noted in the Tiffany case, eBay designed its Web site and,
therefore, has the means to control it.
In today’s technological world, Internet auction houses at best can only
partially police a mark. The reality of Internet commerce makes it impossible
for Web sites to police their site all on their own. E-commerce companies do
not know about all trademarks. They are experts in the site and sales, but not
in all of the various trademarks that exist. Trademark owners must actively
police their trademarks, perhaps through a Buying Program such as Tiffany
employed, but the auction houses must assist the trademark owners in the
policing activities.
3. Legally Necessary Steps for Auction Houses in
Policing Trademarks
The Tiffany court addressed the steps that eBay already takes in helping
police its site. Two steps in particular should be legally required for eBay and
other Internet auction houses to avoid contributing to the buying and selling of
counterfeit goods.
179. A Web 2.0 company has a business model “to make profits out of user-generated content”; on eBay, the user-generated content is items users buy and sell. Lilian Edwards & Ashley
Theunissen, Creating Trust and Satisfaction Online: How Important Is ADR?: The eBay
Experience, [2007] 5 Web J. Current Legal Issues, http://webjcli.ncl.ac.uk/2007/issue5/Edwards5.
html.
180. Id.
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a. Implement a User-Feedback System
Internet auction sites should be required to implement a process for buyers
and sellers to gain reputation for selling genuine goods versus counterfeit
goods.181 On eBay, after each transaction, the winning bidder and the seller
can submit feedback to the other party. 182 This consists of a rating—positive,
negative, or neutral—as well as a description about the transaction in general.183 Each rating is tallied, and a feedback indicator appears next to each
username showing the number of points a user has received consisting of
positive ratings minus negative ratings. 184 The feedback system is in place to
accommodate eBay’s community, which relies heavily on user-generated
opinion to ensure the authenticity of products and integrity of transactions. 185
With this feedback model, eBay trusts its users to monitor sales while maintaining distance from the transaction process itself. Good sellers have an incentive to list products on eBay, because they will gain an advantage by
gaining buyer’s trust with a positive rating. 186 Bad sellers will have a more
difficult time selling infringing products to unwitting buyers, as negative feedback will make it difficult for them to pretend to be good sellers. 187
b. Create a VeRO-like System Informing the Internet Auction House
of Potential Infringers and Establishing Clear Means for Claimants
to Identify and Substantiate Claims of Trademark Infringement
Internet auction sites should be required to create a system allowing mark
holders to notify them about potential infringement. Online auctions are
sometimes referred to as “two-sided markets,” where the value of the Web site
increases with the number of buyers and sellers using it. 188 “An online seller’s
revenue increases with the number of interested bidders, while an online buyer
benefits both in terms of increased product variety and price competition with
more sellers.”189 With users growing by the millions, it becomes difficult for
online auction houses to manage the volume of listings and customers.
Trademark law does not have a “take down” provision comparable to the
DMCA, but eBay essentially created one in its VeRO system.190 EBay uses
this system to be informed about potential trademark violations. The VeRO
system, in this case, works both for the trademark holder and for the auction
house—it can be used by the trademark holder to police its own mark by noti181. Id.
182. Id.
183. Id.
184. Id.
185. Mary M. Calkins, My Reputation Always Had More Fun Than Me: The Failure of
eBay’s Feedback Model to Effectively Prevent Online Auction Fraud, 7 RICH. J.L. & TECH. 33, ¶¶
59–66 (2001), http://law.richmond.edu/jolt/v7i4/note1.html.
186. Id.
187. Id.
188. Brown & Morgan, supra note 174, at 2.
189. Id.
190. Tiffany (NJ) Inc. v. eBay, Inc., 576 F .Supp. 2d 463, 469–70 (S.D.N.Y. 2008); infra
notes 192–95 and accompanying text.
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fying eBay about potential infringement and can be used by eBay to take
proper action once notified. The VeRO system alone, however, without proper
enforcement by Internet auction houses, should be deemed insufficient to
escape liability for contributing to infringement. The VeRO-like system is a
good model, but there needs to be the legal requirement of forcing Internet
sites to take action once notified of potential infringement.
c. Congress Should Enact a Digital Millennium Trademark Act
with Safe Harbor Provisions for Contributory Infringement
In part to help address the Tiffany type of problem involving copyrights,
Congress passed the Digital Millennium Copyright Act (DMCA) in 1998.191
Under Title II of the Act, 192 an Internet Service Provider can avoid financial
liability by following the “notice and takedown” provisions should one of its
subscribers offer copyright infringing content online. Basically, once an Internet Service Provider receives notice of potential infringement, it must remove
the potentially infringing material.193 Furthermore, in order for the Internet
Service Provider to avoid copyright infringement, it must (1) not generate
financial gain from the infringement; (2) not have actual knowledge of the
facts indicating infringement; (3) when learning of potential infringement, take
swift action to remove or disable access to the infringing transmission; and (4)
create and execute a policy of terminating the accounts of repeat infringers.194
This Act, however, does not apply to trademarks. But the persistent problem
highlighted by the Tiffany case should spur Congress to enact similar safe
harbor regulations for trademarks. Notice requirements for trademarks, similar
to those for copyrights under the DMCA, would limit the number of potential
lawsuits for contributory infringement, advance public trust in e-commerce,
and establish the standards by which online auction houses must conduct their
business to prevent infringement.
4. What Will Be The Cost?
EBay and other Internet auction houses create the Web sites and generate
financial gain from goods sold on the sites. The sites, therefore, should bear
the initial costs of creating the environment to allow mark owners to police
their marks and take the steps outlined here to help safeguard their sites from
counterfeit sales. Internet auction houses will benefit from having this system
in place because users will be confident that goods are being regulated, and
there will be fewer lawsuits alleging infringement if clear standards and, especially, safe harbor provisions are in place.
191. Nolo, When Is an ISP Liable for the Acts of Its Subscribers? (2009), http://www.nolo.
com/article.cfm/ObjectID/1902780E-68C9-436B-925AC37E42F4CD71/catID/806B7BA0-4CDF4221-9230A3135E2DF07A/104/284/205/ART/.
192. Digital Millennium Copyright Act (DMCA) of 1998, 17 U.S.C. § 512 (2000).
193.§ 512(c)(1)(C); Nolo, supra note 191.
194. Nolo, supra note 191; § 512(c)(1)(A)–(C).
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Because of eBay’s success, its cost of policing goods is relatively modest
in relation to its annual revenue. First, implementing a user-feedback system is
not difficult. A team of programmers can set up a database system for relatively little cost containing user information, each sale, and the appropriate
feedback. Second, a VeRO-like system also is not difficult or expensive to
implement. The costs will be felt on the maintenance level and the monitoring
level, however. Therefore, up-and-coming auction houses must be given some
leeway to allow them the time to develop and perfect their systems. There is
reason to believe that these systems will be successful because eBay is successful. Other auction houses can have confidence knowing they can slowly
build up their systems comparable to that of eBay and, thus, be a genuine
competitor.
Perhaps a shift is already in progress; the Tiffany court seems to suggest
that it should be eBay’s responsibility to provide an environment for marks to
be policed. Although the court held that the duty to police the mark ultimately
rests with the mark owner, it highlights what eBay did to help combat counterfeiting and to establish an environment that allowed Tiffany to actively police
its mark. Tiffany’s Buying Program points out the responsibility of trademark
owners in e-commerce. However, with the lack of congressional action to
enact laws similar to the DMCA, eBay, rather than Tiffany, could decide what
was in violation. This seems contradictory to the policy objectives of trademark law to protect the consumer from confusion. Therefore, even when eBay
or other Web sites do not satisfy the requisite specific knowledge that Inwood
requires to demonstrate contributory trademark infringement, they should have
a legal duty to take steps that allow trademark owners to realistically police
their marks. Specifically, the site should be required to (1) implement a userfeedback system and (2) implement a VeRO-like system.
While advances in technology and commerce have moved with breathtaking speed, Congress has not updated trademark law since the Lanham Act
of 1947. The contributory trademark liability standard dates to the pre-Internet
1982 Inwood case. Policy and law must change as technology and ways of
doing business evolve. Tiffany provides an opportunity for courts, consistent
with Inwood, to establish a clear test outlining the procedures required of
online auction houses and e-commerce sites to avoid contributory trademark
infringement. In addition, Congress needs to revisit trademark laws and enact
safe harbor provisions for trademarks, similar to those for copyrights under the
DMCA.
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