Tiffany and eBay in Fight Over Fakes By KATIE HAFNER
Published: November 27, 2007
SAN FRANCISCO, Nov. 26 For years,
eBay has defined itself simply as an online marketplace that
links buyers and sellers.
But in a weeklong bench trial in Federal
District Court in Manhattan that ended last Tuesday, lawyers
for Tiffany & Company argued that the online auction house
was far more than that: it is a distribution network that
enables the trading of counterfeit Tiffany items.
If Tiffany wins its case, not only could other lawsuits follow,
but eBays business model could be threatened because
it would be difficult and extremely expensive for the company,
based in San Jose, Calif., to police a site that now has 248
million registered users worldwide and approximately 102 million
items for sale at any one time.
Tiffany has requested injunctive relief that would require
eBay to alter its procedures to eliminate counterfeit silver
Tiffany merchandise from its auctions. Judge Richard Sullivan
instructed both sides to file post-trial briefs by Dec. 7.
I will hopefully turn this around quite quickly after
that, he told the lawyers.
Hani Durzy, an eBay spokesman, said eBay was not responsible
for determining whether each product sold on the site was
As a marketplace, we never take possession of any of
the goods sold on the site, so it would be impossible for
us to solely determine the authenticity of an item,
Mr. Durzy said. And we go above and beyond what the
law requires us to do to keep counterfeits off the site.
But in his closing argument last Tuesday, James B. Swire,
the lawyer for Tiffany, told Judge Sullivan that eBay directly
advertised the sale of Tiffany jewelry on its home page, and
because eBay profits from the sales generated by these
and other actions, Tiffany considers its actions direct
Mr. Swire added that theres certainly much in
the record to show that eBay is liable for contributory infringement.
Bruce Rich, eBays lawyer, told the court the company
had fulfilled its obligation to prevent the sale of counterfeit
goods. In his closing argument, he said the law places the
primary policing responsibility on the trademark owner, Tiffany,
because Tiffany has the necessary expertise to identify counterfeits
of its products.
Of course, fakes are sold everywhere, as anyone trying to
dodge the street vendors selling fake designer handbags in
Times Square can attest. But the anonymity and reach of the
Internet makes it perfect for selling knockoffs. And as the
biggest online marketplace, eBay is the center of a new universe
of counterfeit products.
The fact that eBay has chosen to set up its business
in a manner that makes it extremely difficult for it to monitor
the merchandise that is sold at its auctions is not a defense,
said Geoffrey Potter, chairman of the anticounterfeiting practice
at Kramer Levin Naftalis & Frankel, a New York law firm.
Mr. Potter said that if the judge found that eBay had the
same duty as flea markets and traditional retail stores to
not sell counterfeit products, eBay will likely have
to either stop auctioning famous luxury products or radically
alter the way it does business so that it can precertify the
authenticity of those products.
One way that eBay could do this would be to require
proof that Tiffany had been paid for the items, before eBay
permits an auction of multiple, identical alleged Tiffany
products, Mr. Potter said.
Mr. Potter said eBay did manage to keep other illegal items
human organs, firearms, and child pornography
off the site. The truth of the matter is that if eBay
wanted to keep counterfeit Tiffany goods off, it probably
could, he said.
When Tiffany filed its suit against eBay in 2004, it said
that Tiffany employees had trolled eBay to find fake Tiffany
silver jewelry and concluded that 73 percent of 186 pieces
they purchased on eBay were counterfeit.
In its original complaint, Tiffany maintained that anyone
selling five or more pieces of jewelry said to be Tiffanys
at a discount is almost certainly selling counterfeit
Tiffany goods. Other makers of luxury goods have complained
that sales of counterfeit items are hurting their businesses.
Louis Vuitton believes that people avoid buying their
signature bags because of all the fake ones out there,
Mr. Potter said.
In his opening statement last week, Mr. Swire, Tiffanys
lawyer, said that in 2003 Tiffany put eBay on notice about
the counterfeit items and requested that the company investigate.
Yet eBay simply turned a blind eye, Mr. Swire
Last Tuesday, Judge Sullivan questioned Michael J. Kowalski,
Tiffanys chairman and chief executive, about the measures
Tiffany has taken to track down and prosecute the counterfeiters.
Mr. Kowalski said it had been difficult and often
fruitless to pursue sellers who list counterfeits on
eBay, as they frequently change identity.
We simply felt that we were chasing ourselves,
he said, and chasing phantom sites that would be taken
down one day and pop up another day, and so we were in a vicious
In the end, Mr. Kowalski said, The heart of the issue
was the distribution network, referring to eBay.
Mr. Durzy said that eBay had put in place additional anticounterfeiting
measures since Tiffany filed its suit. These include closer
monitoring of categories chosen most often by counterfeiters,
like expensive jewelry and handbags, as well as PayPal verification
requirements, selective restrictions on sales volume and limits
on cross-border sales.
Were very pleased with the way the trial went,
Mr. Durzy said.
After each side presented closing arguments, the judge noted
what he called a fundamental disagreement with respect
to what the law is here.
Although Judge Sullivan gave little indication of how he
might rule, he pointed to legal precedents that have found
that if a manufacturer or distributor continues to supply
a product knowing it is engaging in trademark infringement,
that manufacturer or distributor is contributorily responsible
for any harm done as a result of the deceit.