© Sheppard, Mullin, Richter & Hampton LLP 2009

Internet Auctions After Tiffany v. eBay and Auction Cases In Europe

Theodore C. MaxSheppard Mullin Richter & Hampton LLPtmax@sheppardmullin.com

Internet Auctions After Tiffany v. eBay: What Does It Mean?

Background: Vicarious Liability for Trademark Infringement:A. Under the Doctrine of Contributory Infringement, the U.S.

Supreme Court has held that if a Manufacturer or Distributor:i. Intentionally Induces Another to Infringe on a Trademark; orii. Continues to Supply a Product Knowing that the Recipient is Using

the Product to Engage in Trademark Infringement, the Manufacturer or Distributor Itself May Be Held Liable for Trademark Infringement. (Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844,854 (1982)).

B. In Order to Establish Contributory Infringement Liability, You Need To:i. Put the Contributory Party Infringer (e.g., ISP) on Notice of the

Infringement to Make Sure She Has Actual Knowledge; andii. Prove the Third Party Contributory Infringer Has Continued to

Facilitate Ongoing Trademark Infringement.

C. THEORIES OF VICARIOUS LIABILITY:

1. Brick and Mortar Model of Vicarious Liability for Malls and Flea Markets: Fonavisa, Inc. v. Cherry Auction, Inc., 76

F.3d 259 (9th Cir. 1996); Lockheed Martin Co. v. Network Solutions,

Inc., 194 F.3d 980, 984-85 (9th Cir. 1999)(flea market that exercises “direct control and monitoring” over its vendors can be liable for contributory infringement if it “supplied the necessary marketplace” for the sale of infringing products);

Hard Rock Cafe Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143 (7th Cir. 1992);

Arista Records, Inc. v. Flea World, Inc., 78 U.S.P.Q.2d 1339 (D. N.J. 2006); and

See also Doe v GTE Corp., 347 F.3d 655 (7th Cir. 2003) (analogizing ISP to a lessor of office space, phone company or delivery service; holding ISP’s do not have duty to take reasonable care to prevent injury to third parties).

2. Printer/Publisher Model of Vicarious Liability Digital Millennium Copyright Act (“DMCA”) provides immunity to

service providers liable for copyright infringement with respect to content originating with a third party user of the service; and

DMCA does not provide immunity with respect to trademark claims. Gucci America, Inc. v. Hall & Associates, 135 F. Supp.2d 409 (S.D.N.Y. 2001) (ISP Mindspring’s motion to dismiss denied where defendant continued to permit webpage to infringe Gucci’s trademark after receiving notices and actual knowledge of infringing jewelry).

Printer/Publisher Model: Publisher of advertisement for sale of item does not have control initially and may only be held liable if have actual knowledge and continues to facilitate trademark infringement.

Background: Sponsored Links – Is This “Use In Commerce”? Internet Websites Use Sponsored Links: Purchase of

keyword advertisements for “sponsored links” from search engines such as Yahoo and Google are triggered by searches containing plaintiff’s trademark. • Is this actionable held to be “use in commerce” under the

Lanham Act? • Initially, most courts held trademarks in keyword

advertising constituted infringing use in commerce: Brookfield Communications, Inc. v. West Coast Entm’t

Corp., 174 F.3d 1036, 1045 (9th Cir. 1999) (“description” and “keyword” metatags held infringing due to initial interest confusion)(Carlo Van Den Bosch litigated this case);

Google, Inc. v. American Blind & Wallpaper Factory, Inc., Case No. C03-05340-JF, 2005 U.S. Dist. LEXIS 6228 (N.D. Cal. March 30, 2005)(Court denied Google’s motion to dismiss claims for trademark infringement and dilution arising out of Google’s alleged use of American Blind’s trademarks to trigger the display of third party advertisements in search engine results for such marks);

Playboy Enterprises v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004) (Summary judgment finding was inappropriate regarding use of Playboy’s trademarks to trigger banner advertisements; majority of likelihood of confusion factors favor Playboy);

Promatek Industries, Ltd. v. Equitrac Corp., 300 F.3d 808 (7th Cir. 2002) (initial interest confusion found based upon competitor’s use of metatags even where consumers are not confused when they reach a competitor’s site);

Tdata v. Aircraft Tech. Publishers, 411 F. Supp. 2d 901 (S.D. Ohio, 2006) (key words and metatags usage supports finding of bad faith intent, inconsistent with fair use and evidence of improper trading on goodwill);

Government Employees Insurance Company v. Google, Inc., Civil Action No. 1:04cv507 2005 U.S. Dist. LEXIS 18642 (E.D. Va. Aug. 8, 2005) (E.D. Va. December 15, 2004); and

Edina Realty, Inc. v. TheMLSonline.com, Civ. No. 04-371, 2006 WL 1314303 (D. Minn. May 11, 2006) ((Court specifically rejects Merck “use in commerce” standard on motion to reconsider).

1-800 Contacts, Inc. v. WhenU.com et al., 414 F.3d 400 (2d Cir. 2005): Second Circuit held that pop-up advertisements of

competitors delivered to consumer over plaintiff’s website when consumer types in plaintiff’s trademark in browser or search engine to trigger pop-up ads does not constitute “use of trademark in commerce” under Lanham Act);

Recent decisions since WhenU.com in the Second Circuit have found keyword advertising does not constitute “use in commerce”:

See Merck & Co., Inc., et al. v. Mediplan Health Consulting, Inc., 425 F. Supp. 2d 402 (S.D.N.Y. 2006); motion for reconsideration denied, 05 Civ. 3650 2006 U.S. Dist. Lexis 34508 (S.D.N.Y. May 24, 2006).

eBay Cases Before Tiffany:

Hendrickson v. eBay Inc., 165 F.Supp.2d 1082 (C.D. Cal. 2001) (plaintiff who refused to use VERO process sued eBay for copyright infringement based on sale of infringing videotapes through eBay-hosted auctions; no liability found due to DCMA): eBay’s ability to remove listings is not tantamount to “ability to control” for consideration and imposition of vicarious liability); and

Stoner v. eBay Inc., 56 U.S.P.Q.2d 1852 (Cal. Sup. S.F. Cty. 2000) (refusing to hold eBay liable for sale of bootleg musical recordings through eBay auctions).

Tiffany (NJ) Inc. v. eBay, Inc.

Judge Richard J. Sullivan of the United States District Court for the Southern District of New York held:• “[I]t 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 that trademark infringement might be occurring on their websites.”

• The district court held that Tiffany had failed to meet its burden to hold eBay liable for direct and contributory trademark infringement, unfair competition, false advertising, and direct and contributory trademark dilution.

The following are the key holdings:• eBay's use of the Tiffany marks on its homepage and with respect to

online advertising is protected under the nominative fair use doctrine. eBay's practice of purchasing sponsored links of Tiffany trademarks also is protected by the defense of nominative fair use;

eBay's internal use of the Tiffany mark as a key word to trigger the display of sponsored links is not a “use of the mark in commerce” under 1-800 Contacts v. WhenU.com;

Contributory infringement in eBay’s case is evaluated under the second prong of the Inwood Laboratories test -- which recognizes contributory liability when a manufacturer or distributor continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement;

This test likens eBay to a flea market, like those in Hard Rock Cafe and Fonavisa. eBay had sufficient control over its website so that the Inwood test applies;

Generalized knowledge of infringing activity is not sufficient to meet the "know or reason to know" standard regarding contributory infringement set forth in Inwood. Courts require a showing that a defendant knew or had reason to know of specific instances of actual infringement. Tiffany had obligation to put eBay on notice and “reasonable anticipation” is not the correct standard; more specific knowledge is as to which items are infringing and which sellers are infringers is required;

Tiffany demonstrated that eBay had general knowledge of infringement, but Tiffany's allegations of counterfeiting failed to provide eBay with the specific knowledge required under Inwood.

A. Demand letters and the presumption that any listing of five or more Tiffany items was counterfeit, along with buying program evidence of infringements, notices of counterfeit auctions and buyer complaints, were not considered specific notice or sufficient in volume to create a duty to act; and

B. To the extent that there was specific notice, the district court held that eBay responded appropriately by removing listings and suspending service;

The district court concluded that eBay was not “willfully blind” to evidence of infringement on its website because the evidence established that, when eBay had general knowledge of counterfeiting on its website, it took reasonable steps to investigate and stop that wrongdoing through general anti-fraud measures. The district court also concluded that Tiffany failed to demonstrate that eBay continued to supply its services to those whom it “new or had reason to know” were engaging in infringement and that eBay took appropriate steps to cease making its website available in those instances where Tiffany brought objectionable conduct to its attention;

The district court rejected the remaining causes of action asserted by Tiffany for unfair competition; false advertising and trademark dilution.

Issues on Appeal: Did the court err by applying the test requiring

notice of “specific instances” of infringement rather than a “reasonable anticipation” test?

Did the court err by finding nominative fair use because there were some genuine samples of TIFFANY designs sold on eBay’s website, even though counterfeit goods were sold as well?

Did the court err when it held the eBay was not liable for false advertising?

Did the district court err by holding that Tiffany failed to prove dilution?

Whose Burden Is Enforcement?The eBay Guarantee?

Why Just Cars?

Hermes Int’l. v. eBay: On June 4, 2008, a Reims court fined eBay €20,000 for the sale of three

Hermes bags on its website (including two fakes). The Reims court held:

• “[B}y selling Hermes bags and branded accessories on the ebay.Fr site, and by failing to act within their powers to prevent reprehensible use of the site” eBay and the auction sponsor “committed acts of counterfeiting and imitation of French brand names . . . to the detriment of Hermes International.”

eBay was ordered to publish the ruling on its French homepage for three months.

Hermes contended “eBay is an active player in the transaction because not only does it offer a number of services to improve the sale, but when it does not work well enough or fast enough, they intervene with the client.” It also noted: “They are perfectly informed of the transactions since they take a percentage out.”

LVMH Moet Hennessy Louis Vuitton v. eBay

LVMH contended 90% of Louis Vuitton bags and Christian Dior perfumes sold on eBay are fakes:

eBay contended “[W]hen counterfeits appear on our site, we take them down swiftly”;

Court held eBay was not doing enough to combat counterfeit sales and should be requiring sellers to post more product information to guarantee authenticity;

Court held eBay had an obligation to check that sellers are selling are registered with governmental regulators and authorities for companies and have required sellers to provide certificate of authenticity. eBay should have taken the initiative to permanently close accounts selling counterfeits;

eBay is an online auctioneer. In France, auctioneer is required to validate the auction in return for their percentage share of the auction proceed;

eBay was ordered to pay €38 million and it banned eBay from selling any Louis Vuitton good, legitimate or not. Important fact was Louis Vuitton’s closed distribution system;

In the parallel case by Kenzo, Guerlain, Dior and Givenchy, eBay restricted from selling genuine Kenzo, Guerlain, Dior and Givenchy perfumes because LVMH strictly limits distribution to authorized dealers such as perfume chains and department stores. This is a significant ruling re: gray market sales within the EC;

French law allows trademark owners to control distribution channels through which their goods are sold, when the inherent qualities of the goods justify such control and the criteria for authorized retailers are objective and non-discriminatory;

Distribution of gray market goods in EC depends upon whether goods originate within the EC or outside of the EC;

The ruling applies to all eBay sites worldwide to the extent they are accessible from France;

Court held eBay’s sites were subject to French law because they were accessible from France and the fact that eBay takes a commission on every sale makes it an “active broker” rather than a passive “host”; and

The decision with respect to gray market goods raises issues that extends well beyond counterfeiting.

Lancome Parfums SA v. eBay: Success in Belgium eBay scored a victory in Belgium where the Court held that eBay’s posting of

Vero program sufficiently protected trademark owners -- eBay was held to be a host and does not have a general monitoring obligation;

Article 20 of Belgian Electronic Commerce Law provides that a host does not have affirmative duty to monitor for illegal content but once they receive notice of infringing activities they are obligated to take prompt action to take down the infringing items;

eBay claimed once it was notified of specific infringement, it acted to take down the infringing items;

The court held since Lancome’s claims were based on advertisements posted on eBay that eBay is entitled to host status and did not have any general obligation to actively affirmatively police counterfeiting activities; and

The court held that eBay’s desire to verify that a product was counterfeit prior to removing the posting and the delay in removal was not a breach of eBay’s duties as a host but evidence of diligence.

L’Oreal S.A. v. eBay L’Oreal brought suit against eBay over the sale of counterfeit goods,

specifically counterfeit 8 ml and 20 ml bottles of “Acqua di Gio” perfume (for which no genuine goods were made in these sizes), and claimed that eBay failed to take affirmative steps against easily recognizable counterfeit products as an indirect trademark violator;

L’Oreal put eBay on notice that all such goods were counterfeit and identified eBay that a specific vendor was selling counterfeit goods. eBay removed specific auctions but failed to take further steps;

Court held that party to proceeds of an auction who is notified of fraudulent item is obligated to not only block the specific auction but also must prevent further infringement when specifically notified.

What Is the Future for eBay’s Business Model? eBay may have won the battle and lost the war

because it is seen as a flea market; Different famous brands will negotiate separate

arrangements; eBay may change from an auction format to avoid

European liability (more like classified advertisements);

eBay has become a big target due to its success; and

eBay could avoid liability by treating all auctions like auto auctions.