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

February 16, 2010 by
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.

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