Ebay Case: Tiffany Knocked Out Over Knock Offs

A week after unequivocally losing a lawsuit over its listing of counterfeit items in France, ebay unequivocally won one here in the United States, with a judge ruling that Tiffany should shoulder the responsibility of policing counterfeit Tiffany items on ebay, not the site itself.

When I first spoke to Tiffany about this, they said they tried to participate in ebay’s anti-counterfeiting programs, but “we had to devote two full time employees to it and the total [of items taken down] was staggering.” But the judge apparently didn’t think Tiffany was spending enough policing its marks, noting that a fair chunk of the money Tiffany has spent  so far on anti-counterfeiting measures has been on the ebay litigation. (Ouch!)

When we last discussed this issue, the point was raised that perhaps ebay should just disclaim responsibility for everything it sells. Apparently, that is how these issues were traditionally handled. But as this excellent analysis shows, ebay won points for going the other way:

Back in the 1990s, some caselaw suggested that affirmative efforts to suppress user activity might exacerbate liability, so the preferred strategy was to remain “passive” with respect to users. eBay chose a different approach. It proactively attempted to reduce the incidence of counterfeiting on the site through its VeRO program, its fraud engine, manual review efforts to seek out auctions that looked like they might be counterfeit goods. Further, eBay continues to innovate new ways to curb bad users or help brand owners.

A ruling like this validates eBay’s investments. The judge fully acknowledged and appreciated that eBay didn’t just stand on the sidelines and let Tiffany take it up with its users. Kudos to eBay’s management and in-house legal department for navigating the liability issues in a way that clearly impressed the judge.

Another issue was Tiffany’s proposed “five items or more” rule — meaning, if someone is selling five or more Tiffany items on ebay, the listing should be pulled down, as Tiffany does not have a secondary market. This seems like a pretty sensible compromise to me, but the judge apparently rejected this logic, noting that Tiffany did not prove definitively that selling five or more items proves you are dealing in counterfeits.

Even so, as a good faith measure, ebay should at least flag people who are selling five or more Tiffany items, as it is pretty likely they are selling counterfeits.

These are not easy issues. Ebay apparently pulled down everything Tiffany asked it to. But we are presuming that Tiffany is acting in good faith. If a company simply wants to prevent a secondary market in its goods, can’t it just flag everything as counterfeit? What would that mean to innocent sellers (who are, let’s not forget, ebay’s customers)?

Another issue that came up in the last thread is how ebay should respond to complaints. So for example, if I see a listing that is likely misleading or gemologically incorrect — like, for example, this one (as CZs are not synthetic diamonds) — how should ebay respond? Are they required to investigate? Should they have experts watching this stuff? There is no real rulebook here. Which is why we will likely see further litigation on this topic. (And Tiffany has indicated it’s likely to appeal this ruling.)

Another interesting point, raised to me last year, is that, with ebay cracking down, most of the counterfeiting has migrated to other places, such as craigslist and other auction sites. Ebay seems to have won this round in part because it did have an active anti-counterfeiting program. But will other, less responsible, sites be taken more to task?

It does seem that, perhaps in part to avoid these issues, ebay is courting bigger names like buy.com, and leaving its mom and pop clientèle behind. I can see why it’s doing that, although I think we would all lose something in the process. 

The ruling can be seen here (PDF). And again, I commend this analysis.

JCK News Director