A Bid for Trouble?

With the advent of technology, online auctions have become popular over the years. People find it convenient since it removes the geographical, space, and time limitations and it reaches out to a wider audience. Of course, the meaty discounts are another incentive!! Auction sites like eBay, uBid, and Bidz.com are among the top 3 sites that maintain the mantle of the leaders in this field. While the advantages are many, there are also shortcomings to this medium of the internet. All bids cannot be genuine and it cannot be always ascertained, whether the bid is authentic or false. Shill bidding (placing fake bids), fraud (replacing the purchased product with a replicated version of it), selling stolen or counterfeit goods are some of the ways a potential consumer can be tricked.

When a seller (brand owner) is alleged to have deceived the buyer into buying his products, naturally, legal action would be taken against the seller. Many times, even the online auction website is held jointly liable along with the seller for trademark infringement.

When it comes to liability, there is one view that brand owners should only bear it, since the goods ultimately belong to them, and they can detect the authenticity of the goods or any other violation of the goods. Another view states that auction sites should bear the burden since they have the ability to filter the content on their site and ultimately they should take action against sellers and prevent any illicit activities. It can be seen that auction sites ultimately profit from sales on the site, which includes counterfeit sales, whereas, on the other hand, brand owners lose out on revenue which they could have collected through their genuine products. Let us look at a leading case in this respect and see what stand the court took:

In 2008 in the United States case of Tiffany (NJ) Inc. and Tiffany and Company v. eBay Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008), Tiffany filed a suit against eBay for direct and contributory trademark infringement, false advertising and trademark dilution, with respect to the sale of counterfeit jewelry on eBay. Tiffany, in its claim, acknowledged that eBay was not responsible for trademark infringement by the individual sellers. They claimed that eBay should be held liable merely for the fact that eBay knew that sellers sold counterfeit items on their site, and they allowed this punishable offense. Further, eBay’s use of the marks of ‘TIFFANY’ for the counterfeit goods constituted trademark dilution and false advertising.

Meanwhile, eBay negated these claims stating that in its policies it was clearly mentioned that they remove potentially infringing listings when it was reported to them. Even if they inconsistently applied this policy, it was sufficient to exclude them from the ambit of contributory infringement. Moreover, they further stated that the law per se did not mention anything about a website having to monitor and remove listings before they are made to the public. It was not the duty of the operators of an auction site to check the authenticity of the items; the liability falls back on the owner. They were merely a passive host between the seller and the buyer.

The U.S. Court of Appeals for the Second Circuit rejected the claim of direct infringement stating that mere use of Tiffany’s mark on the goods by eBay did not amount to Tiffany’s affiliation to eBay or that Tiffany endorsed the counterfeit goods.

Further, on the question of contributory infringement, the Court ruled:

“An auction site may be liable if it ‘continues to supply its service to one whom it knows or has reason to know is engaging in trademark infringement.’” However, regarding the requisite degree of knowledge, the Court ruled that “for contributory trademark infringement 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”.

The Court noted that eBay, in the past, had removed listings after knowing that they contained infringements and suspended the repeated offenders. Keeping this in mind, the Court held that eBay was not liable for contributory infringement.

In different hindsight, the Court prohibited eBay from ‘willful blindness’. That means, if eBay suspected a user was infringing a trademark, it is not permitted to ‘look the other way’ in an effort to shield itself from liability.

With respect to the claim of trademark dilution, the Court held that this was never in the picture since eBay never sold the products under its own name. Trademark dilution essentially means that an owner of a famous trademark can be allowed to forbid others from using the same mark in a way that its usage would lessen its uniqueness. The Court did not answer the false advertising claim and remanded it back to the District Court.

In my opinion, since, eBay was not held to be liable on all the other grounds, it cannot be said to have indulged in false advertising, since they never advertised the product in their own name.

A number of suits have been filed against eBay holding it liable for trademark infringement and other grounds, in countries like the UK, Belgium, and France. In Belgium and France, eBay has not been held to be liable, whereas, in the UK, the case is still pending.

In 2009, in Louis Vuitton Malletier, S.A., v. Akanoc Solutions, Inc., et al., CV07-03952 JW (N.D. Cal. 2007), a U.S. District Court in California found that two ISPs (internet service providers) and the brand owners were jointly liable for contributory trademark infringement for hosting websites that sold counterfeit LOUIS VUITTON goods. The Court held that the information provided by Louis Vuitton was sufficient to have given the ISPs prior knowledge of the infringement.

In conclusion, we can say that brand owners are usually held liable for trademark infringements, and the auction sites can be let off if they can prove they did not have sufficient knowledge of the prohibited activity. But as mentioned above, if the Court finds the ISP to be having ‘willful blindness’ i.e. ‘actual knowledge’, they can be held jointly liable.

About the Author: Ms. Madhuri Iyer, Trade Mark Associate at Khurana & Khurana and can be reached at Madhuri@khuranaandkhurana.com

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