Second Circuit affirms district court judgment in favor of eBay on Tiffany’s direct and contributory trademark infringement and dilution claims based on eBay’s alleged facilitating and advertising of the sale of “Tiffany” goods that turned out to be counterfeit, and remands the false advertising claim because the court was unable to affirm on the record before it that eBay’s advertisements related to the sale of Tiffany goods on its website were not likely to mislead or confuse consumers.Tiffany filed suit against eBay for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution, on the grounds that eBay facilitated and allowed counterfeit Tiffany items to be sold on its website and eBay used Tiffany trademarks in advertising. After a bench trial, the district court ruled in favor of eBay on all of Tiffany’s claims. The Second Circuit affirmed the judgment with regard to the trademark infringement and dilution claims, and remanded the false advertising claim.
In the district court, Tiffany argued that eBay had directly infringed its mark by using it on eBay’s website and by purchasing sponsored links containing the mark on Google and Yahoo! The district court rejected these arguments on the ground that eBay’s use of Tiffany’s mark was protected by the doctrine of nominative fair use. The Second Circuit stated that it did not need to address the viability of the nominative fair use doctrine to resolve Tiffany’s claim. The court explained that a defendant may lawfully use a plaintiff’s trademark where doing so is necessary to describe the plaintiff’s product and does not imply a false affiliation or endorsement by the plaintiff of the defendant.
On appeal, Tiffany argued that even if eBay had the right to use its mark with respect to the resale of genuine Tiffany merchandise, eBay infringed the mark because it knew or had reason to know that there was “a substantial problem with the sale of counterfeit [Tiffany] silver jewelry” on the eBay website. The court explained that eBay’s knowledge that counterfeit Tiffany wares were offered through its website is relevant to the issue of whether eBay contributed to the direct infringement of Tiffany’s mark by the counterfeiting vendors themselves, and whether eBay bears liability for false advertising “[b]ut it is not a basis for a claim of direct trademark infringement against eBay, especially inasmuch as it is undisputed that eBay promptly removed all listings that Tiffany challenged as counterfeit and took affirmative steps to identify and remove illegitimate Tiffany goods. To impose liability because eBay cannot guarantee the genuineness of all of the purported Tiffany products offered on its website would unduly inhibit the lawful resale of genuine Tiffany goods.”
Regarding contributory trademark infringement, the district court followed the U.S. Supreme Court decision in Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982), and held that the standard for contributory trademark infringement “is not whether eBay could reasonably anticipate possible infringement, but rather whether eBay continued to supply its services to sellers when it knew or had reason to know of infringement by those sellers.” The Second Circuit acknowledged “the paucity of case law” on the issue of contributory trademark infringement, surmising that it is not the first court to consider the application of Inwood to the Internet, but it is apparently the first U.S. court to consider its application to an online marketplace.
The court phrased the question as whether eBay is liable under the Inwood test on the basis of the services it provided to those who used its website to sell counterfeit Tiffany products. According to the court, when applying Inwood to service providers, there are two ways in which a defendant may become contributorially liable for the infringing conduct of another: first, if the service provider “intentionally induces another to infringe a trademark,” and second, if the service provider “continues to supply its [service] to one whom it knows or has reason to know is engaging in trademark infringement.” Inwood, 15 456 U.S. at 854.
Tiffany argued, under the second part of the Inwood test, that eBay continued to supply its services to the sellers of counterfeit Tiffany goods while knowing or having reason to know that such sellers were infringing Tiffany’s mark. Tiffany argued that eBay had generalized knowledge of the infringing activity due to Tiffany’s cease and desist letters, data collected by Tiffany based on purchases it made of items for sale on eBay, and buyer complaints to eBay, and Tiffany argued that this generalized knowledge was sufficient to meet the “knowledge or reason to know” standard in Inwood. The district court rejected this argument, and the Second Circuit agreed with this conclusion. “For contributory trademark infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.”
Turning to the dilution by blurring and tarnishment claims, the Second Circuit agreed with the district court’s conclusion that Tiffany’s claim failed because “eBay never used the TIFFANY Marks in an effort to create an association with its own product, but instead, used the marks directly to advertise and identify the availability of authentic Tiffany merchandise on the eBay website” and “just as the dilution by blurring claim fails because eBay has never used the [Tiffany] Marks to refer to eBay’s own product, the dilution by tarnishment claim also fails.” The court concluded “[t]here is no second mark or product at issue here to blur with or to tarnish ‘Tiffany.’”.
Finally, the court addressed Tiffany’s false advertising claim. Tiffany argued that because eBay advertised the sale of Tiffany goods on its website, and because many of those goods were in fact counterfeit, eBay should be liable for false advertising. The Second Circuit agreed with the district court that eBay’s advertisements were not literally false inasmuch as genuine Tiffany merchandise was offered for sale through eBay’s website. But the court concluded that it was unable to affirm on the record before it the district court’s further conclusion that eBay’s advertisements were not “likely to mislead or confuse consumers.” According to the court, to evaluate Tiffany’s claim that eBay’s advertisements misled consumers, a court must determine whether extrinsic evidence indicates that the challenged advertisements were misleading or confusing. The court held that, even though it concluded that eBay did not infringe Tiffany’s mark, eBay did affirmatively advertise the goods sold through its site as Tiffany merchandise. “The law requires us to hold eBay accountable for the words that it chose insofar as they misled or confused consumers.” Rather than vacate the judgment of the district court on the false advertising claim, the Second Circuit remanded this issue for the district court to reconsider and explained that an online advertiser such as eBay “need not cease its advertisements for a kind of goods only because it knows that not all of those goods are authentic. A disclaimer might suffice. But the law prohibits an advertisement that implies that all of the goods offered on a defendant’s website are genuine when in fact, as here, a sizeable proportion of them are not.” The Second Circuit retained jurisdiction so that any of the parties may seek appellate review within thirty days of entry of the district court’s judgment on remand.