Ebay Becomes a Girl's New Best Friend as the Second Circuit Sidesteps the Nominative Fair Use Doctrine, Leaving Tiffany to Police Counterfeits in the Online Marketplace

• Publication year: 2010

Lisa Williford Arthur⁰

This article examines the recent Second Circuit decision of Tiffany v. eBay and the effect it has on the nominative fair use doctrine. The Second Circuit was the first circuit to consider the doctrine of nominative fair use in the online marketplace. However, the Second Circuit failed to expressly recognize the doctrine, likely due in part to the current circuit split on nominative fair use. In addition, the Lanham Act lacks clarity by only recognizing nominative fair use in the trademark dilution context. In light of Tiffany v. eBay, this article argues for the need for legislative clarity in the Lanham Act by recognizing the nominative fair use doctrine as an affirmative defense to direct trademark infringement.

I. Introduction

Tiffany. The company behind that one word spurred more than 170 years of luxury jewelry and one of the most successful jewelry businesses in the world.¹ Since 1837, Tiffany & Co. ("Tiffany") has been the leading provider of diamonds to the rich and famous.² Tiffany is also innovative, creating unique designs from rare diamonds.³ But how did Tiffany become so successful in the jewelry marketplace?

The answer is the Tiffany brand, captured by the one word that started it all.⁴ When you buy a Tiffany diamond, you know you are buying a high-quality, exclusive product.⁵ In fact, Tiffany designs have graced the necks of First Ladies for decades, including Jackie Onasis Kennedy and Mary Todd Lincoln.⁶ Tiffany china was featured in meals served in the Lyndon B. Johnson White House.⁷ Tiffany is even credited with designing the Great Seal of the United States, as seen on the back of the dollar bill, and the National Football League Trophy.⁸ The Tiffany brand attracts as consumers world leaders, sports fans, Hollywood stars, and others, both famous and not, around the world.⁹

Tiffany has invested many resources in protecting its name from being associated with anything other than the superior products it designs and produces.¹⁰ Its jewelry is only offered for sale through its stores, catalogue, Web site, or Corporate Sales Department.¹¹ Tiffany has also resisted the temptation to increase its profit margin by selling its surplus to discount retailers.¹²

Unfortunately for Tiffany, policing the Tiffany brand is much harder than it used to be.¹³ While in the past Tiffany was able to control the distribution channels for its product, today, due to the emergence of the online marketplace and the secondary market for Tiffany products, Tiffany has lost that distribution control.¹⁴ In fact, eBay made approximately $4.1 million on the sales of Tiffany jewelry and watches listed on its Web site from April 2000 to June 2004.¹⁵ In response to the growing counterfeit market, Tiffany created a "Buying Program" to police counterfeit goods being sold on eBay, but the high volume of counterfeit goods has made it difficult for Tiffany to sue individual sellers.¹⁶ As a result, Tiffany is losing the battle in policing its products, as 75.5% of the goods purchased through the "Buying Program" in 2005 were counterfeit.¹⁷

Furthermore, eBay is actively contributing to the problem.¹⁸ For example, eBay used the Tiffany name to advertise its cheaper non-Tiffany product offerings on its Web site.¹⁹ In a trademark infringement suit brought by Tiffany in the Southern District of New York (Tiffany I), eBay defended its use of Tiffany's trademark under the nominative fair use doctrine, which allows a defendant to use a plaintiff's trademark to identify the plaintiff's product.²⁰ The District Court applied the doctrine of nominative fair use and found for eBay.²¹ Two years later, in a landmark victory for eBay, the Second Circuit (Tiffany II) held on appeal that eBay could lawfully use Tiffany's trademark to describe its product offerings, but the court did not recognize the nominative fair use doctrine.²²

This article will examine the recent Second Circuit decision in Tiffany II and the effect that it has on the nominative fair use doctrine. The Second Circuit's failure to expressly recognize the doctrine, while essentially enforcing it, shows that now, more than ever, the Lanham Act needs to explicitly reflect this doctrine so that Courts can uniformly apply the law. With the emergence of the online marketplace and the increase in trademark infringement claims, there is an added pressure for Congress to recognize nominative fair use in all uses, not just trademark dilution. This article argues for the need for legislative clarity in the Lanham Act by recognizing the nominative fair use doctrine as an affirmative defense to direct trademark infringement. Part II discusses the definition of nominative fair use. Part III addresses the current circuit split on the nominative fair use doctrine. Part Iv provides an overview of Tiffany I and II, including both the District Court and the Second Circuit holdings. Part V examines what Tiffany II added to the nominative fair use jurisprudence, particularly in the online marketplace context, and how this shows that now is the time for a legislative clarification in the Lanham Act. Part VI concludes with an argument for the need to recognize the nominative fair use doctrine as an affirmative defense under the Lanham Act.

II. Nominative Fair Use Defined

Nominative fair use is a common-law doctrine that allows a defendant to use a plaintiff's trademark to name the plaintiff's product if the defendant's use does not confuse the consumer by implying that the plaintiff is affiliated with the sale.²³ Nominative fair use is different from classic fair use.²⁴ Classic fair use recognizes a defense against trademark infringement where a defendant uses a "'plaintiffs mark to describe the defendant's own product.'"²⁵ Nominative fair use occurs when the defendant uses a "plaintiffs mark 'to describe the plaintiff's product.'"²⁶ For example, a mechanic advertising that he is fixing BMWs would fall under the nominative fair use doctrine, whereas a baker using Splenda in his advertisement promoting the sale of his apple pies would fall under the classic fair use doctrine. The distinction is significant because classic fair use is an affirmative defense, codified in the Lanham Act,²⁷ whereas nominative fair use is a doctrine created by the Ninth Circuit.²⁸

In addition to the distinction between classic fair use and nominative fair use, it is important to distinguish descriptive fair use and nominative fair use. Classic fair use accounts for descriptive use of a mark, which is expanded upon in § 1115(b):

That the use of the name, term, or device charged to be an infringement is a use, otherwise than as a mark, of the party's individual name in his own business, or of the individual name of anyone in privity with such party, or of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin . . . .²⁹

Descriptive use, however, falls under the definition of classic fair use, and the definition of classic fair use in this section does not include nominative fair use.³⁰ The purpose of the nominative fair use doctrine, on the other hand, is to protect uses of a trademark that identify goods associated with that trademark, rather than describe it.³¹

Nominative fair use is implicated if the trademark is "entitled to protection" and the use of the mark by the defendant is "likely to confuse" the consumer about the affiliation of the trademark holder.³² If the trademark usage is nominative, some courts have applied a specific nominative "likelihood of confusion" analysis, as opposed to the classic fair use "likelihood of confusion" analysis, while court another recognized the doctrine as an affirmative defense.³³

III. The Nominative Fair Use Doctrine: The Current Circuit Split

The Ninth Circuit and the Third Circuit provide the leading case law on the nominative fair use doctrine. The Ninth Circuit created the doctrine, while the Third Circuit modified the Ninth Circuit test to be an affirmative defense.³⁴ Other circuits have considered the doctrine but added very little, if anything, to the jurisprudence.³⁵

A. The Ninth Circuit Approach

The nominative fair use doctrine originated in the Ninth Circuit with New Kids on the Block v. News American Publishing, Inc.³⁶ There, the music group "New Kids on the Block" sued USA Today for creating a poll in its newspaper soliciting readers to vote on which band member in the group was the "most popular."³⁷ "New Kids on the Block" claimed trademark infringement for USA Today's use of its trademark in the article.³⁸ USA Today asserted a fair use defense, and the Ninth Circuit responded with the creation of the first nominative fair use doctrine as a three-pronged test:

First, the product or service in question must be one not readily identifiable without use of the trademark; second only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and third the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.³⁹

After applying the newly-created, three-pronged test, the court found USA Today met its burden and was not liable for trademark infringement because its use was nominative.⁴⁰

As a result, the test outlined by the Ninth Circuit was to be used for nominative fair use cases instead of the classic fair use "likelihood of confusion" test.⁴¹ The Ninth Circuit elaborated that the nominative use of a trademark should not be subject to infringement claims because it did not trigger unfair competition or the "source-identification function" of trademark law.⁴² Rather, when the trademark is used simply as a means to identify or describe a sale, consumers should not be confused by the mark.⁴³

B. The Third Circuit Approach

The Third Circuit adopted the concept of nominative fair use but took it a step further by recognizing the...