Tiffany v. eBay District Court Opinion Analysis

By Eric Goldman

Tiffany (NJ) Inc. v. eBay Inc., No 04 Civ. 4607 (RJS) (S.D.N.Y. July 14, 2008)

It took most of the day, but I’ve finally read through the 66 page book in the Tiffany v. eBay case, and this post supplements my brief announcement post with a more thorough critique. Overall, the opinion is very thoughtful. If you have the time, it’s worth reading in its entirety. If you deal with websites that are potentially liable for user-caused trademark infringements, you should definitely read the case to get a roadmap of eBay’s multitudinous infringement suppression practices that the court endorses. But if you don’t have the time to read the whole case, this post focuses on some of the best parts.

eBay’s Counterfeit Suppression Efforts Endorsed

Most noteworthy is that the judge endorsed eBay’s various efforts to reduce the sale of counterfeit goods on its site and provide extrajudicial recourse to brand owners like Tiffany. 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.

One small cautionary note. The judge rejected eBay’s argument that it was just an online advertising venue. Instead, because of the many value-added services that eBay provides to its sellers, the judge thought that the offline swap meet analogy was more apt. The determination was inconsequential in this case, although I’m sure eBay wishes the reference wasn’t there. However, it’s a good reminder that this “we’re just a venue” argument can be a tough sell to judges. Google, if you’re listening, this doesn’t bode well for your argument that you just sell ad “space” instead of selling trademarked keywords.

Tiffany’s Arguments Rejected

This ruling is a stinging rejection of some of Tiffany’s core arguments. First, the court found that Tiffany didn’t invest enough in its policing efforts, referring to Tiffany’s investment as “relatively modest.” I’ve argued before that this case is really just a Coasean battle over transaction cost allocation (i.e., once the judge sets the entitlements, the parties can negotiate from there), and Tiffany’s arguments to persuade the judge that eBay should bear more costs clearly failed (meaning that eBay gets the legal entitlement). Indeed, the court goes so far to say “even if it were true that eBay is best situated to staunch the tide of trademark infringement to which Tiffany and countless other rights owners are subjected, that is not the law.”

Second, it was really interesting to see the court’s treatment of Tiffany’s demand to eBay that eBay should filter out any auctions containing 5 or more Tiffany items of the same type because such an auction is an obvious red flag of suspect users. Tiffany’s approach is very common among IP owners–they manufacture an artificial rule and then demand fidelity to the rule at peril of litigation. (As another recent example of this phenomenon, recall the dustup over the AP’s unilateral declaration of the permissible amount of quoting of AP articles. Where did that rule come from?). Many times websites kowtow to these demands to avoid litigation, but here the court shreds Tiffany for creating a baseless rule and then treating eBay as the villain for “breaching” the rule–especially because Tiffany kept on changing the rules and softened its adamancy. Tip to IP owners–if you are going to manufacture a rule about how people can engage with your IP from whole cloth, don’t be surprised if judges won’t rubberstamp it. If anything, they may think you’re overreaching.

Notice-and-Takedown Scheme for User-Caused Trademark Infringements

Historically, the standards for contributory trademark infringement due to user activity have been underdeveloped. Copyright is covered by the DMCA (512) and non-IP claims are covered by the CDA 47 USC 230, but trademark law lacks an analogous statute. Further, there have been very few cases on the topic, and possibly applicable statutory provisions, such as the 1114 printer/publisher partial defense, are also underlitigated in the online context. Due to the dearth of statutory and caselaw material, Cyberlaw specialists have not had a good sense of the rules applicable to secondary trademark infringement online.

This case fills an important gap in our precedent. In the context of this case, it squarely anchors website liability for user-caused trademark infringements in a notice-and-takedown regime not dissimilar to the RTC v. Netcom copyright ruling from 1995 (which provided the basis for the DMCA notice-and-takedown system). Because it’s not statutory, this court doesn’t prescribe the specific contours of a sufficient takedown notice. At the same time, it rejects any generalized knowledge of future infringements as being sufficient–and most specifically, it declares as insufficient a trademark owner’s C&D letter demanding that the website prospectively police its premises to prospectively prevent any future infringements. (Cite to, and endorsement, of the Ninth Circuit’s 1999 Lockheed v. NSI case). It also says that failing to prospectively look for infringement does not equal willfully turning a blind eye.

While this is good news, I remain uncertain how generalizable this ruling is. So much of the court’s discussion is deeply linked to eBay’s specific situation–both the fact that it allows users to sell legitimate Tiffany goods, as well as the many efforts that eBay made to prospectively accommodate the interests of IP owners, which eBay can afford to do but many other websites can’t. Personally, I think a notice-and-takedown scheme is the most probable solution to a website’s liability for user-caused trademark infringements, and I hope this ruling moves us more clearly in that direction. However, we’ll have to see how much future courts limits this case’s holdings to eBay’s unique attributes.

An interesting side note: the judge blessed eBay’s tiered efforts to punish users whose listings were the subject of a NOCI. In some cases, eBay had a one-strike rule; but in other cases, especially when dealing with a known and trusted user who might be trying to earn a livelihood through the site, eBay had a three-strikes rule. The court endorses this practice, and specifically says that it was OK for eBay not to adopt a universal one-strike rule.

The Nominative Use Defense

With respect to Tiffany’s trademark infringement claim, the court largely skipped over the use in commerce and likelihood of consumer confusion discussion and instead focused on the nominative use defense. Per the nominative use defense, eBay is free to tell the world that legitimate Tiffany goods are available through eBay. From my perspective, eBay made a quintessential “commercial referential trademark use” that I have elsewhere argued is outside the scope of trademark law. The court doesn’t use that term; in fact, it sloppily uses the term “descriptive use” which superficially made it look like it was confusing this doctrine with the statutory descriptive fair use. Nevertheless, it fully and clearly gets the point that Tiffany was trying to suppress legitimate competitive after-market sales by circumscribing the use of the term “Tiffany,” and the court adopts the nominative use defense to give eBay the necessary breathing room.

While the court is right about this, the court does not acknowledge the limitations of the nominative use defense. Just last month, a online retailer reselling legitimate goods lost the nominative use defense because of an implied endorsement. See the uncited Standard Process v. Total Health Discount. I think this court got it right and the Standard Process case got it wrong, but I wonder which path future courts will follow.

eBay’s Keyword Advertising Blessed

eBay has received some notoriety for its Google AdSense spam, where it automatically manufactures lots of AdSense ad copy using all kinds of nouns, including third party trademarks, and buys the noun/trademark as the triggering keyword. eBay did this with the Tiffany trademark. Because this court is in the Second Circuit, this judge joins the prevailing caselaw that buying “Tiffany” as the keyword trigger for ads doesn’t constitute a trademark use in commerce. However, before eBay disabled the Tiffany term, eBay’s spam ads also displayed the term “Tiffany” in the ad copy, and the court (following the directly-on-point Hamzik opinion) says that the ad copy display of the trademark constitute a trademark use in commerce. Nevertheless, because eBay actually sells legitimate Tiffany goods, the ad copy display qualifies as a nominative use. This conclusion directly conflicts with the Standard Process v. Total Health Discount case.

eBay Didn’t Engage in False Advertising

Tiffany argued that eBay falsely advertised by implying that it offered legitimate Tiffany goods when, in fact, many goods were infringing. The court rejects this argument, although I fear the court may have cut some corners here. First, the court says that eBay is protected by the nominative use defense. I’d have to do some research, but I can’t recall another case where nominative use was a defense to false advertising. Also the court says that if eBay’s advertising is false, it’s the users’ fault, not eBay’s. While I agree with this sentiment, Judge Patel partially rejected this argument in the uncited Mazur v. eBay case.

No Dilution

The court says that a junior user cannot commit blurring when it’s making a referential use to the trademark owner. Further, eBay can’t be tarnishing the trademark by helping sell counterfeit goods when it takes down all counterfeit auctions it knows of.

The Future

I’ve read a number of press reports today indicating that Tiffany is likely to appeal to the Second Circuit. Given the amount of time and money they have already invested in this litigation, that’s a logical decision. However, I thought this opinion was almost uniformly thoughtful, thorough, well-written and well-researched, with usually multiple alternative bases for its conclusions. It looks like the judge intentionally wrote it to be as appeal-proof as possible. Clearly Tiffany will have an uphill battle on appeal.

If Tiffany loses on appeal, I wouldn’t be a bit surprised if the battle moves to Congress. I suspect the various pro-IP bar associations will be itching to mobilize the troops over this ruling.

Other Perspectives

* Michael Kwun at the EFF

* Wendy Seltzer

* Jason Schultz

(Wendy and Jason are ex-EFFers. Looks like a lot of EFF folks are interested in this case!)

* Rebecca Tushnet