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Liability of Online Auctioneers – Auction Sites and Brand Owners Hammer it Out

February 16, 2010 by · Comments Off
Filed under: Business, trademark, Trademark Articles 

Author: Emily S, William & Mary Intern

In today’s economy, online auctions are often viewed as a strategy to beat the credit crunch. Those unwanted gifts and unused purchases can all be put on Internet auction sites and sold for a bit of much-needed cash. Not all sellers have such innocent motives, however, and the unscrupulous have used these auction websites to sell counterfeit and other illegal goods. Such sellers have involved online auction sites with legal proceedings in a variety of jurisdictions, as luxury brand owners try to hold auction sites such as eBay jointly liable with sellers for trademark infringement.

Multiple examples of legal proceedings involving auction sites have occurred in the United States. In 2008, Tiffany brought suit against eBay for direct and contributory trademark infringement, false advertising and trademark dilution, with regard to the sale of counterfeit jewelry on eBay. Tiffany (NJ) Inc. and Tiffany and Company v. eBay Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008)

In filing its primary infringement claim, Tiffany acknowledged that eBay was not responsible for trademark infringement by individual sellers. However, Tiffany asserted that eBay was liable for contributory infringement because eBay knew that sellers posted and sold counterfeit items on its site and it did not take necessary measures to prevent or regulate this illegal activity. The company also claimed that eBay’s use of TIFFANY marks on its website and the advertising of counterfeit goods as authentic goods on eBay constituted trademark dilution and false advertising. In response to these claims, eBay asserted that its policies to remove potentially infringing listings when such listings were reported to eBay, even if somewhat inconsistently applied, were sufficient to exempt the company from being deemed a contributory infringer.  In addition, eBay claimed that it was not required by law to monitor its website and preemptively remove listings of counterfeit TIFFANY jewelry before such listings were made public. It argued that the duty to search the online market for counterfeit items belonged to the brand owner rather than the operator of the auction site.

In its decision, a U.S. district court in New York reiterated that liability for contributory infringement is not based on a reasonable anticipation of infringement, and it requires that the party knew or had reason to know of specific infringing activity. In looking into the matter, the court found that eBay had insufficient prior knowledge of specific infringing activity and took action to remove any infringing items once Tiffany provided notice that it believed the items were counterfeit. In addition, the court decided that eBay was not liable for dilution or false advertising, as eBay did not use the TIFFANY mark on its own products and false advertising is the fault of the seller.

However, a later case in California made the courts’ position on this matter less clear-cut. In August 2009, a U.S. District court in California found that two internet service providers and their owner were liable for contributory trademark infringement for hosting websites that sold counterfeit LOUIS VUITTON goods. Louis Vuitton Malletier, S.A., v. Akanoc Solutions, Inc., et al., CV07-03952 JW (N.D. Cal. 2007).

Just as in the previous case, the court considered if the internet service provider had specific knowledge of the infringement, but unlike in the Tiffany case, the court held that the information provided by Louis Vuitton was sufficient to have given the internet service provider specific prior knowledge of the infringing activity.

The judgments in such cases to date appear to endorse the view that online auction sites are generally not liable for trademark infringements by their users and that the brand owners are the ones responsible for monitoring these sites. However, if the internet site or provider had sufficient specific knowledge of infringement activities, it may be held liable for contributory infringement. Additional information about trademark law and infringement may be found here.

What is the value of a brand, trademark or insignia?

When visiting the “Voyeurism” exhibit by Andy Warhol at the Muscarelle Museum, I was reminded about the power of name brand recognition. Warhol is sometimes attributed as having coined the term “superstar”, and in the 1970s, Warhol forecasted that “everyone will be famous for fifteen minutes.” That same analogy can be used for start-up businesses trying to figure out how to create a mob-like demand for a product or service. Remember, the ThighMaster or the Pet Rock? If you do, then you recognize the “sizzle” and lasting impact that the mark associated with the product (or producer) acquires, even if the product itself is no longer offered for sale. Now, think of mark for a new product or service associated with an established business, such as, for example, the iPhone or Google Ventures. I tend to compare these brands with the “pop culture” art work surrounding Marilyn Monroe or Elvis Presley compared to Warhol’s work transforming the ordinary person. That is, the ThighMaster, the Pet Rock, the iPhone and Google Ventures (and Apple and Google) are all “superstar” brands, but the market value of each trademarked brand is drastically different.

Brands in the field of mass-marketing originated in the 19th century with the advent of packaged goods from local businesses to centralized factories that wanted to establish trust in non-local products and sell their products to a wider market. As mass-marketing matured, manufacturers and large businesses began experimenting with slogans, mascots, and jingles that were promoted on radio and early television. By the 1940s, businesses recognized how consumers responded to social, psychological, and various other stimuli. From there, businesses learned to build their brand’s identity and personality, such as youthfulness, fun, luxurious, healthy, environmentally-friendly and organic in which the consumer buys “the brand” instead of the product.  Think about brands such as NASCAR, Sponge Bob and Paul Newman.

OK, now let’s take that mass-marketing appeal and revisit my recent Voyeurism experience. As it turns out, most businesses would be quite happy owning a “superstar” brand, even if it is a ThighMaster and not a Marilyn. So, how much is that brand worth? How much money can a business sell the “sizzle” and what is needed to maximize a return on investment (ROI)?

1. The brand needs to be a registered trademark. Trademarks are territorial, so think about the geography of your marketplace, but also think about the reach of the Internet. For most businesses, having a registered trademark with the United States Patent and Trademark (USPTO) is enough. However, sometimes, that protection needs to be expanded to other countries.

2. The business also needs to own or control a URL that includes the brand. Sometimes, this is so important, this should be #1. For example, if the brand is Pepsi, then the corresponding URL should be www.pepsi.com.  On a personal and subjective note, I do happen to think that THROWBACK PEPSI is awesome and the brand has mass appeal to quash concerns about corn syrup and alternate sweetening products.

3. Know the history of use of the mark by others that came before you as well as translation of the mark in other languages.

4. Start to get some feedback on the brand. Online surveys can be helpful and easy, but there is also a potential for harm, so be careful. More to come on that later.

5. Due diligence on potential buyers. Have they purchased marks before? If so, how much? Do you know the identity of the buyer? If not, consider a worldwide search to find out information.

6. Seek out recorded assignments with the USPTO to see if they include sales data of similar marks. Compare this to selling a home and getting comps of similar homes. That is exactly what is going on.

7. Look to online auction sites, such as Ocean Tomo, and foreign trademark offices that list sales prices of similar marks, such as the Danish Patent and Trademark IP Marketplace.  Also, do a search for reliable valuation and informational sites, like the International Trademark Association’s (INTA’s) brand valuation page on its website.

8. eBay is not reliable, but it does make for some late night snacking that is fun when taken in the right context – that is, eBay tends to allow sellers to make their own representations or misrepresentation, and eBay allows sellers to post marks that likely infringe well known brands.  For example, VerizonWirelessSales.com was listed for $10 Million Dollars and VERIZONWIRELESSBLACKBERRYSTORM.COM was listed for $1 Million Dollars.

So, with so much chatter, what is a realistic price for a registered mark that includes the URL and that has potential for generating volume online search engine results?  I would conservatively start at $5K on the low end and $25K being a more realistic starting value that likely increases with the power and strength of the organic search terms in the URL. For example, the URL www.drive.com is the subject of at least one federal lawsuit, and more than likely, drive.com has a price point in the millions with significant room to increase in value.  Let’s just say that if the owner (or an investor) figured out how to register for U.S. trademark protection to “compliment” the URL and associate a source of goods or services that sold like hotcakes, well, it’d probably being a considerable return on investment.  Not bad for what one might consider an “ordinary” URL rocked to “superstar” status.  For more information, please contact the law firm of Bambi Faivre Walters, PC for more information — 1-888-388-9614 or contact Bambi directly at bambi@bfwpc.com.