By Kathryn Newman

Luxury jeweler Tiffany & Co. has filed suit against eBay Inc., alleging that eBay has failed to properly police its online auction Web site to stop the sale of counterfeit Tiffany jewelry, since being put on notice about the sale of counterfeit jewelry in 2003.ⁱ Tiffany argues that eBay has a responsibility to actively police the site since the firm is profiting from the frauds. According to Tiffany, “Tens of thousands of counterfeit Tiffany items are sold through the eBay website each year, and eBay charges hundreds of thousands of dollars in fees in connection with the sale of this counterfeit merchandise on an annual basis.”ⁱⁱ eBay Inc. defends its “hands off approach,” though, arguing that it is not a retailer, but merely a service provider.ⁱⁱⁱ

Intellectual property experts and commentators believe that the case will come down to knowledge— whether eBay had “reasonable notice of problems and are they not willing to do anything about it.”^iv EBay will be held liable if Tiffany can prove that the Web site knew that a particular listing infringed a trademark. Based on court filings, eBay will argue that even if they had the ability to monitor the thousands of auctions going on all at once, they still have no way of knowing when a listing violates a trademark.

According to eBay spokesman Hani Durzy, aside from the sheer number of auctions that take place every day (there are 3.5 million new auctions every day on it–1.25 billion each year!),^v the fact that eBay does not own or take possession of any of the allegedly counterfeit products makes it impossible for eBay to know whether something violates trademark or intellectual property rights unless it is informed by the rights owners.^vi Thus, while eBay does not dispute that there is fraud on eBay, it contends that all it can do to minimize the number of frauds that are committed is “work with trademark owners to give them easy and efficient ways to alert us to specific sales.”^vii

To this end, both sides agree that eBay has removed 19,000 auctions at Tiffany’s request.^viii Additionally, eBay does regularly conduct its own keyword searches for suspicious items.^ix When the company comes across obvious fake auctions, it takes these auctions down and notifies rights holders of the suspicious items. One could argue that this ‘takedown’ procedure implemented by eBay is all that should be required of the company to root out fraud. Moreover, one could argue that the fact that counterfeiting of Tiffany-branded items not only exists, but is rampant, is not compelling enough to begin blanket removals of such items. According to Durzy, “Just because an item happens to be listed, it doesn’t mean it’s fake because there have been similar items on the site that were…We can’t make that kind of assumption and maintain an open and free marketplace, and we won’t.”^x

Still, counterfeit sales have persisted. In their complaint, Tiffany alleges that the “overwhelming majority” of jewelry items sold and offered on eBay’s Web site using the Tiffany name are counterfeit.^xi In fact, their research has found that 95 percent of the items are fakes.^xii In light of that statistic, perhaps eBay’s takedown procedure is not enough. The question thus becomes, how much longer should eBay be allowed to continue to hide behind its ‘bigness’? I believe that a Tiffany victory, however narrow, will alert eBay that they can no longer take a blind eye because of their size. Moreover, a narrow victory may go a long way in preventing the erosion of valuable brand equity, not only for Tiffany, but for other well-heeled brands as well.

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ⁱ Tiffany Calls Out eBay on Sales by Chad Bray. http://online.wsj.com/article/SB119500454117892190.html
ⁱⁱ Tiffany and eBay Clash Over Sales of Fake Goods by Michael Bobelian. http://www.law.com/jsp/article.jsp?id=1090180362167
ⁱⁱⁱ EBay Fights its Toughest Legal Battle by Bob Sullivan. http://www.msnbc.msn.com/id/6030048/
^iv Id.
^v Id.
^vi Id.
^vii Id.
^viii Id.
^ix Id.
^x Id.
^xi Tiffany and eBay Clash Over Sale of Fake Goods by Michael Bobelian. http://www.law.com/jsp/article.jsp?id=1090180362167
^xii Id.