By Peter Finocchiaro
December 1, 2010
Luxury brands hoping for greater legal support for combating the sale of counterfeit goods online were dealt a blow as the United States Supreme Court declined to hear Tiffany & Co.’s trademark infringement lawsuit against eBay to effectively place the onus of counterfeit enforcement on brands.
The Second Circuit Court of Appeals had previously ruled that manufacturers are responsible for reporting cases of trademark infringement to eBay. The ruling will make it harder for luxury brands to combat counterfeiting online as sites that allow third-party sales account for tens of billions of dollars in commerce each year, according to one legal expert.
“What the Supreme Court has done by refusing to hear the appeal is place the onus on brands as opposed to Web sites hosting or providing counterfeit sales, “said Mark Rosenberg, intellectual property attorney at Sills Cummis & Gross PC, New York.
“The Appeals Court decision basically says that if eBay is not aware of the infringement, they cannot be held liable for the counterfeiting, which is relatively simplistic,” he said.
“EBay has not affirmative duty to see what’s going on – it’s silly.”
Tiffany originally filed its suit against eBay in 2004, seeking damages for the sale of counterfeit goods on the auction site.
A U.S. district court found that eBay could not be held accountable because it did not intentionally induce anyone to infringe upon Tiffany’s trademark and because it lacked specific knowledge of infringement by any seller, according to Andy Lustigman, attorney at law and principal of The Lustigman Firm, New York.
Sills, Cummis & Gross’ Mr. Rosenberg said that eBay could conceivably develop an algorithm to detect suspicious items for sale based on the presence of keywords such as “faux” or “replica.”
However, the court ruling stops short of mandating such screening tactics.
EBay would likely lack the expertise to determine the presence of a counterfeit even if it did inspect every good on its site, according to Mr. Lustigman.
Therefore, the trademark holder has to report infringement in order to legally oblige a Web site hosting such sales to remove the item in question.
EBay has argued that Tiffany’s legal challenges were not motivated by the threat of counterfeiting on the Web site, but by the prospect of legitimate branded items generating revenue for merchants in the second-hand market.
The online auction brand also noted that the Second Circuit Court of Appeals and the trail court found that it exceeds legal requirements for fighting the sale of counterfeits on its Web site.
How to counteract counterfeits?
Web sites that allow third-party sales such as eBay and Amazon account for tens of billions of dollars in commerce each year.
Which begs the question: How can luxury manufacturers protect their brand equity and minimize the impact of counterfeit sales on such Web sites if the law places the burden of enforcement in their hands?
One solution is to do the actual grunt work of policing the sites in question and proactively investigate potential cases of infringement and counterfeiting.
“Luxury goods marketers must be vigilant in policing Internet sales of their products and to notify the parties that are facilitating the transactions of counterfeit products,” Mr. Lustigman said.
“Brands should be signing up for product alerts on major Internet sellers such as eBay, and inspecting the listings to determine if a product advertised appears to be genuine, taking into account the description, country of origin, quantity being offered, the distribution channel and other similar indicia,” he said.
“If a brand becomes aware that a product being listed in counterfeit, it should affirmatively notify the Internet seller of the infringement.”
However, another solution could be to increase the brand’s visibility and commerce presence on the Internet.
The issue of counterfeiting and trademark infringement arose in the first place in part because luxury brands have been so slow to adopt strong digital positions, according to Milton Pedraza, CEO of the Luxury Institute, New York.
By expanding out their presence on the Internet with fully realized ecommerce strategies, while leveraging channels such as social media to galvanize brand advocates against countefeiting practices.
“Luxury brands should be aggressive online,” Mr. Pedraza said. “It’s good for combating counterfeiting, [as well as] great commerce and what consumers want.”