Online auction house liability for the sale of trademark infringing products.

• Jurisdiction: United States
• Date: 01 January 2010
• Author: Ziegler, Allison N.

INTRODUCTION I. FACTS AND BACKGROUND OF TIFFANY, INC. V. EBAY AND LOUIS VUITTON MOET HENNESSY V. EBAY A. EBay's Business Model B. Tiffany's Quaff el with EBay C. LVMH's Troubles with EBay II. AVENUES FOR CONTRIBUTORY TRADEMARK LIABILITY A. United States Contributory Trademark Liability in the Online Context 1. Contributory Tort Liability in the United States 2. Contributory Trademark Liability in the United States a. Inwood Laboratories v. Ives Laboratories: A Guide to Contributory Trademark Infringement b. Tiffany's Treatment of In wood i. Establishing the Supplier's Direct Control ii. Requisite Knowledge Required for the "Continued to Supply" Method B. French Contributory Trademark Liability in the Online Context 1. Contributory Tort Liability in France 2. Contributory Trademark Liability in France III. IMPLICATIONS AND EVALUATION OF THE U.S. AND FRENCH DECISIONS A. A Specific Knowledge Requirement Protects the Business Model of Online Auction Houses B. A Specific Knowledge Requirement is Consistent with Congressional Policies of the Communications Decency Act CONCLUSION INTRODUCTION

With the rise of the Internet, trademark owners have seen an increase in online trademark infringement. (1) In particular, trademark owners have found a large amount of trademark infringing products listed for sale on online auction houses' websites. (2) Trademark owners have demanded that these online auction houses help protect their trademarks and prevent the sale of trademark infringing products. (3) Trademark infringement on these websites, however, remains rampant, even with online auction houses' assistance in removing trademark infringing listings. (4) As a result, trademark owners looking for an effective solution to online trademark infringement seek to hold online auction houses liable for contributory trademark infringement. (5)

Two avenues exist by which trademark owners can hold online auction houses liable for contributory trademark infringement: tort negligence law and trademark law. In the United States, these trademark owners must use trademark law to bring a suit of trademark infringement because trademark owners are barred from bringing negligence actions for third party liability under [section] 230 of the Communications Decency Act. (6) However, in France, trademark owners are free to choose to bring suit for contributory trademark infringement under either a theory of tort negligence law or trademark law.

These two approaches were highlighted in two different cases: Tiffany, Inc. v. eBay and Louis Vuitton Moet Hennessy v. eBay. (7) In Tiffany, a United States district court, through its finding that specific knowledge is required for contributory trademark infringement liability, held that the trademark owner ultimately bears the burden of protecting its trademark on online auction houses' websites. (8) However, in LVMH, a French trial court held, under a theory of tort law, that online auction houses are liable to trademark owners if the online auction houses fail to prevent any trademark infringing sale on their websites. (9) Therefore, in France, online auction houses are responsible for protecting the trademark owners' trademarks. (10)

This Comment examines online auction house liability for the sale of trademark infringing products and the methodology used by these courts in making this determination. Part II of this Comment briefly summarizes the key facts from Tiffany and LVMH. Part III outlines contributory trademark jurisprudence in the United States and France and the application of this jurisprudence in Tiffany and LVMH, respectively. Part IV evaluates the implications of the two approaches to determine which approach is more practical and effective. Part V concludes that online auction houses should not be liable for trademark infringement unless they have specific knowledge that a third party is infringing a trademark and fail to act to prevent that party from trademark infringement.

1. FACTS AND BACKGROUND OF TIFFANY, INC. V. EBAY AND LOUIS VUITTON MOET HENNESSY V. EBAY

   1. EBay's Business Model

      EBay is an online auction house that facilitates transactions between buyers and sellers from all over the world. (11) EBay generates revenue in two ways: by charging sellers a fee to list their products on eBay and by taking a percentage of the item's final sale price. (12) Because eBay's revenue stream ultimately depends on the success of eBay's sellers, eBay works closely with sellers and provides them with marketing materials and methods to increase the number of sales on eBay. (13) EBay has received substantial revenue from the sale of Tiffany & Co. and LVMH merchandise on its website and has actively promoted the sale of Tiffany & Co. and LVMH goods. (14)

      Although eBay actively engages its sellers, it merely facilitates transactions between buyers and sellers--eBay never takes possession of any products that are bought or sold on its website. (15) Because eBay never takes possession of the products to verify their authenticity, (16) some products sold on eBay are counterfeit and subsequently infringe trademark owners' trademarks. EBay works to prevent the sale of counterfeit items and has made financial investments in anticounterfeiting initiatives. (17) Examples of eBay's anti-counterfeiting initiatives include eBay's Fraud Engine and its Verified Rights Owner Program (VeRO). (18)

      EBay's Fraud Engine searches listings for keywords that identify obvious counterfeiting activity. (19) For example, keywords such as "knock-off," "counterfeit," "replica," and "pirated" are keywords that indicate counterfeit activity. (20) Listings identified by the Fraud Engine containing these keywords are sent to customer service representatives who engage in a three step process: "(1) remove the listing from eBay; (2) send a warning to the seller; (3) place restrictions on the seller's account." (21)

      EBay's other anti-counterfeiting initiative is a verified rights owner program called VeRO. (22) The VeRO program allows trademark owners to report potentially trademark infringing seller listings to eBay, and eBay then removes the listing from its website. (23) A trademark owner notifies eBay of the potentially trademark infringing listing by submitting a notice of claimed infringement (NOCI) to eBay. (24) A NOCI indicates that the trademark owner has a good-faith belief that a particular seller's listing infringes on the owner's trademark. (25) A NOCI does not mean that the item actually infringes on the trademark owner's trademark. (26) After receiving a NOCI, eBay promptly removes the challenged listing, notifies the buyers and seller, and refunds any payment if the transaction has already been completed. (27)

   2. Tiffany's Quarrel with EBay

      Tiffany & Company is an American company that designs, manufactures, and markets high-end jewelry, timepieces, sterling silverware, china, crystal, stationery, fragrances, and accessories under the TIFFANY & CO. trademark. (28) Tiffany's trademark is well-known to consumers and signifies high-end, quality products. (29) Tiffany strives to protect its valuable trademark to maintain its favorable consumer reputation. (30) As a result, Tiffany is concerned with the sale of counterfeit products sold under its trademark. (31)

      In 2003, Tiffany wrote a letter to eBay indicating that it was displeased that counterfeit Tiffany merchandise was sold on eBay. (32) In that letter, Tiffany asked eBay to remove trademark infringing listings and to take appropriate measures to prevent counterfeit items from being sold on its website. (33) EBay responded by encouraging Tiffany to continue to use its VeRO program. (34)

      In 2004, Tiffany wrote another letter to eBay saying that although it had used the VeRO program to report counterfeit merchandise and eBay had never refused to remove a listing submitted by the NOCI form, the sale of counterfeit goods remained a problem on eBay's website. (35) In the letter, Tiffany made reference to a Buying Program it had implemented to determine the extent of the counterfeit goods being sold on eBay. (36) Tiffany stated that according to the findings of its Buying Program, "73% of the sterling silver Tiffany merchandise on eBay was counterfeit, and that only 5% was genuine." (37) Tiffany subsequently brought suit against eBay alleging eBay was liable for the trademark infringement occurring on its website. (38)

   3. LVMH's Troubles with EBay

      The Louis Vuitton Moet Hennessy Group (LVMH) is a French company that designs, manufactures, and markets high-end leather merchandise under the LOUIS VUITTON trademark. (39) Similar to Tiffany, LVMH's trademarked products enjoy a favorable consumer Reputation. (40) LVMH strives to protect its valuable trademark from individuals who falsely use the trademark for commercial gain. (41)

      In 2006, LVMH brought suit against eBay, alleging that eBay was negligent in permitting its sellers to advertise the sale of trademark infringing products and failing to implement an effective program designed to prevent the sale of counterfeit LVMH products. (42) Specifically, LVMH asserted that for the last seven years it had repeatedly notified eBay that counterfeit products were being sold on eBay's website (43) and that ninety percent of the Louis Vuitton products sold on eBay were counterfeit. (44) To prevent trademark infringement on eBay's website, LVMH argued that eBay should require sellers to guarantee the authenticity of products sold and eBay should terminate the account of any seller caught selling counterfeit products. (45)

2. AVENUES FOR CONTRIBUTORY TRADEMARK LIABILITY

   As discussed above, currently two avenues exist for contributory trademark infringement in the online auction house context: tort negligence law and trademark law. This section first examines the availability of both of these remedies in the United States through the lens of Tiffany v. eBay. (46) This section then examines these remedies in France and...