On Monday, Judge Richard Sullivan of the Southern District of New York ruled resoundingly for eBay in its defense against Tiffany’s various claims of trademark infringement. Coming as it does in the wake of eBay’s $63 million loss to Louis Vuitton in France, this decision stands as an unambiguous breath of sanity. It's great to see that France's nakedly protectionist, moral rights-influenced, lack-of-first-sale-doctrine decision has been quarantined to France for the time being. As Judge Sullivan affirmed, “The law clearly protects secondary markets in authentic goods.”
The Court detailed the myriad ways in which eBay extended itself in trying to accommodate Tiffany by removing listings featuring counterfeit Tiffany merchandise. In addition to complying with every request from Tiffany to pull suspected listings, eBay even implemented Tiffany-specific filters in its fraud engine—90 different keywords associated with tiffany merchandise. The Court also described how eBay is an electronic marketplace, not a retailer since it never takes possession of the goods sold through its website. As a result, eBay “could not physically inspect, examine or authenticate such items” to the extent necessary to give it actual control over the listings. Mark Aaron, a Tiffany vice president, wallowed:
We are shocked and deeply disappointed in the district court's erroneous reading of the law. This ruling allows sellers of counterfeit goods on eBay to victimize consumers.
This is pure malarkey. The decision has absolutely, positively nothing whatsoever to do with allowing consumers to be victimized. Judge Sullivan explicitly rejected this very notion in the opening summary of his decision:
The heart of this dispute is not whether counterfeit Tiffany jewelry should flourish on eBay, but rather, who should bear the burden of policing Tiffany’s valuable trademarks in internet commerce…The law is clear: It is the trademark owner's burden to police its mark, and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge.
But the burden of policing IS a major issue to Tiffany and many IP holders. In short, infringement is the world’s greatest catastrophe to these firms, yet they barely spend any money trying to police their own marks. Rather, they maintain that the public should do it for them, and spare no expense. Judge Sullivan called-out Tiffany on this nonsense:
Notwithstanding the significance of the online counterfeiting problem, it is clear that Tiffany invested relatively modest resources to combat the problem. In fiscal year 2003, Tiffany budgeted approximately $763,000 to the issue, representing less than 0.05 percent of its net sales for that year. Tiffany’s CEO, Michael Kowalski, testified that over the past five years, Tiffany has budgeted $14 million to anti-counterfeiting efforts — of which approximately $3-5 million was spent in litigating the instant action…the equivalent of anywhere between 1.15 to 1.6 full-time employees per month dedicated to monitoring the eBay website…nor did Tiffany attempt to develop its own technology to expedite the process of monitoring and reporting on eBay.
In almost every way, this decision was a grand slam for eBay and all Internet service platforms. The Court concluded that Tiffany has “failed to carry its burden with respect to each claim alleged in the complaint.” One, eBay’s use of Tiffany’s trademarks in its advertising, home page, and sponsored links are all nominative fair use. That is, they are merely descriptive of eBay’s offerings and in no way suggest an endorsement or affiliate relationship. Two, eBay is not guilty of false advertising for the same reason. Three, Tiffany didn’t carry its burden regarding unfair competition. Lastly, and most importantly, eBay is not guilty of contributory infringement. “Reasonable anticipation” is an invalid expectation without more specific knowledge about what items are infringing and who is posting them. Again, Tiffany must police its own trademarks.
As unwavering and certain as Judge Sullivan was in this decision, he included a few lines on contributory infringement that struck me as a bit ominous:
Policymakers may yet decide that the law as it stands is inadequate to protect rights owners in light of the increasing scope of Internet commerce and the concomitant rise in potential trademark infringement. Nevertheless, under the law as it currently stands, it does not matter whether eBay or Tiffany could more efficiently bear the burden of policing the eBay website for Tiffany counterfeits—an open question left unresolved by this trial.
Is the Judge hinting that eBay may have to shoulder the policing burden if it proves “more efficient” for them to do so? If so, would eBay have to pay for it, as well? How about if this rule applied to all Internet commerce or content platforms, such as YouTube? How about if this rule applied to ISPs?
This thought resonates because Tiffany’s counsel, James Swire, made a threat to the effect that if Sullivan's interpretation is upheld by the 2nd Circuit then Tiffany and other IP owners might try to effect a change in the law. It would be nothing new for IP-based companies or trade organizations to mount a heavy lobbying campaign. The MPAA and the RIAA do it 24/7/365. But what kind of changes could Tiffany, et al possibly push for here, if they fail in the 2nd Circuit? Would they “go French” and try to eliminate the first sale doctrine? This would kill all secondary markets and devalue new goods from cars to handbags to CDs. But what do they care? Would they try to “go Viacom” and claim that everything that appears over an Internet commerce or content platform is the responsibility of the platform provider (except for ISPs, of course)? This would decimate e-commerce, Internet usage, and the online advertising market. But what do they care? Would they “go themselves” and push for design copyright. This would grind every fashion-based industry to halt. But what do they care?
The irony is that, as the deconstructionists out there must relish hearing, Judge Sullivan may have included the seeds of this case’s undoing. While Judge Sullivan took great pains to go over the Inwood Labs case and used it to determine that eBay is a “service” not a “product,” he did agree with Tiffany that eBay’s reading of the case was overly narrow. That is, it is too easy for eBay to simply claim that it is a service and, therefore, never liable. Rather, services may very well be liable for contributory infringement, if they are judged to have sufficient control over the process or goods that are being exchanged. The Judge cited several cases, including the landmark Fonovisa flea market case to make his point. If a tighter connection can be made between flea markets like that in Fonovisa and Internet platforms like eBay, Monday’s decision may be open for attack, especially if the IP-industries’ lobbying juggernaut pushes against a Congress that often lends an ear or two to a persistently vocal and frequently anti-competitive IP-owning constituency. I’m shooting this one purely from the hip, but I’d rather start getting my arguments ready for my holsters when the lobby machine starts to show itself.