The Tiffany vs. ebay counterfeit suit, now underway in New York City, is fascinating, and if ebay loses, it could open the door for a lot more suits and possibly even hurt ebay as a business.

Tiffany is suing the auction site for hosting counterfeit merchandise on its site.  It says that when it did a “test buy,” it found that 73% of the products listed as “Tiffany” were counterfeit.

On the one hand, everyone knows buying on ebay carries certain risks. On the other, 73% counterfeit is appalling and clearly too much. Considering that ebay makes money off of those sales, you have a company that is profiting pretty handsomely from sales of bogus merchandise.

When this lawsuit first broke, Tiffany’s lawyer told me:

… Tiffany did participate in [ebay’s anti-counterfeiting] VERO program for five months last year, and ended up taking down 19,000 auctions.

“We had to devote full-time two skilled employees to it, and the total was staggering,” he said.

And that’s what this boils down to: Who should pay the cost of policing ebay – Tiffany or ebay? I think a fair answer would be ebay. But it says it already spends $10 million a year tracking down counterfeits. The company’s argument, made to me in 2004, boils down to this:

“We have 18 million products up on our site, spread over 35,000 categories and subcategories,” said spokesman Chris Donlay. “We cannot be experts in every category. A lot of these items look the same. The people who have the intellectual property rights are the real experts and only they can tell what the real item is. So we need their cooperation to fight this.

I spoke to Brian Brokate, with the law firm Gibney, Anthony & Flaherty, which is general counsel to Rolex. Rolex successfully sued ebay about this issue in Germany. There have been several cases of this type in Europe, but this is the first big one in the United States, and Brokate and other copyright lawyers are closely watching it. He noted the following:

– “I think the best result for ebay in this lawsuit is for a judge to say, ‘Ebay you are doing enough [to stop counterfeiting].’ My sense is that won’t happen. The big key will be if the court issues a road-map for ebay [to handle these issues]. That is what everyone is going to be looking at very keenly.

–  A major loss for ebay “could completely change [ebay’s] business model and directly cut into its profits. It will make them spend a whole lot more money and time policing their site.” He notes that even when ebay takes down a listing because it’s counterfeit, it still gets the listing fee.  

–   An ideal outcome for copyright holders would be if ebay prevented listings for certain brands.  “That would completely solve the counterfeiting problem, although it would also stop the legitimate trade [in those brands] on ebay.”

– He says that now that ebay has cracked down somewhat, a lot of the counterfeiting has migrated to other places, like craigslist and other auction sites.  

–  He says, since both sides will likely appeal no matter what the ruling, it could take from “two to three years” for this all to be settled.

This post has links to Tiffany’s compliant and ebay’s answer. And here’s the current listings for “Tiffany” product on ebay.  Alert readers, how much of it looks fake?

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