A legislative response to Tiffany v. Ebay: in search of an Online Commerce Certification Act (OCCA).

• Author: Rosenberg, Phillip A.

Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the Nation for a new age. (1)

1. INTRODUCTION

   Counterfeit products are a cancer on the global economy, whether in the form of cheap replicas of high-end Gucci[R] handbags or knock-offs of household Duracell[R] batteries. (2) However, because the sale of counterfeit goods is perceived as a victimless offense (3) too burdensome for law enforcement to combat aggressively, (4) counterfeit goods have proliferated in the global marketplace at an alarming rate. (5) The online commercial marketplace is certainly no exception. (6)

   Enforcement of intellectual property rights (7) against the numerous agents in the counterfeiting food chain is often described as a 'whack-a-mole.' (8) The online marketplace is no different, but it is beset by additional complications. (9) Intellectual property rights owners ("IPROs") have attempted to stay apace with the counterfeiters, relying on numerous strategies to combat the trafficking of counterfeit goods both on and offline. As can be expected, the widespread and global nature of counterfeit trafficking makes coordinating an effective anti-counterfeiting effort a herculean task, even for IPROs with a well-funded legal budget. (10) As such, the chief litigation strategy for IPROs in combating online trafficking of counterfeits has been to take action against parties that enable and facilitate the counterfeit trade. (11)

   According to IPROs, counterfeiters found fertile ground for purveying their knock-offs on the online auction site provided by eBay, Inc. ("eBay"). (12) Tiffany & Co. (13) ("Tiffany") filed suit against eBay, alleging that, from 2003 to 2006 alone, hundreds of thousands of counterfeit TIFFANY (14) silver jewelry pieces were offered for sale on eBay's website. (15) While Tiffany sued eBay on multiple theories, (16) the district court focused primarily on Tiffany's legal theory that eBay was liable for contributory trademark infringement, as eBay was the online host facilitating and benefitting from the third-party sale of counterfeit TIFFANY products. (17) The district court required eBay to have sufficient Knowledge that particular users were purveying counterfeit products on its platform, and did nothing to impede such sales, in order to impute contributory trademark infringement to eBay. (18) Although the Second Circuit Court of Appeals had not yet determined how much knowledge of infringing activity is necessary to impute liability to an online host, the district court ruled, and the Second Circuit recently affirmed, that "specific knowledge" was necessary. (19)

   As a result of its factual findings, the district court concluded that eBay was not contributorily liable for trademark infringement even though IPROs suspected that individual sellers were selling counterfeit goods on the eBay site; (20) eBay must have had specific knowledge that certain offerings on its site were counterfeit yet did nothing to impede those transactions. (21) Furthermore, the district court found that whenever eBay received specific knowledge of a user's counterfeit activities, eBay took the necessary action to suspend service and remove the appropriate listings. (22)

   In brief, the Tiffany litigation can best be characterized as an attempt by a major IPRO to obstruct a major conduit for the trafficking of counterfeit goods. (23) Instead of pursuing the individual eBay sellers purveying suspect "Tiffany" products, Tiffany's strategy was to pursue the hornet's nest itself. (24) To Tiffany's chagrin, the district court found that eBay had been implementing a legal compliance strategy that was consonant with the interests of IPROs, in addition to being well within the bounds of their legal duties. (25)

   The major issue between online hosts and IPROs, the contours of which litigation seems unlikely to change in the near future (in the U.S., at least), (26) is who should shoulder the burden of policing the online marketplace for counterfeit goods. (27) Currently, eBay encourages IPROs, Tiffany included, to use its VeRO (Verified Rights Owners) program to notify eBay of third-party listings that offer counterfeit products. (28) Violations of eBay's anti-counterfeiting policies can result in the termination of seller privileges and resort to law enforcement. (29) Although the district court found that IPROs have the principal responsibility of policing eBay's online marketplace of secondhand products, (30) Tiffany and its amici have appealed the issue to the Second Circuit Court of Appeals in an effort to seek a more favorable legal standard that "willful blindness is equivalent to actual knowledge for purposes of the [trademark laws]" and that "knowledge can be imputed to a party who knows of a high probability of illegal conduct and purposefully contrives to avoid learning of it." (31) The IPROs' portrayal that eBay avoids ferreting out counterfeit products could not overcome the district court's fact-finding to the contrary. (32) Regardless of the disposition of the Tiffany litigation, the resources that both eBay and Tiffany have devoted to anti-counterfeiting are noteworthy, as it represents a significant cost of doing business in, and policing, the secondhand marketplace.

   Despite its ruling in favor of eBay, the district court was sympathetic to the plight of the IPROs in policing their marks, and it found eBay sympathetic as well. (33) However, an important comment found in the introduction to the Court's decision reveals what will, in the end, be the most effective forum for apportioning the burden of policing online commerce: the legislature. (34) Unless and until policymakers re-apportion this responsibility by law, IPROs will be assisted by courts against online hosts only if IPROs can demonstrate that the hosts 1) actually knew of a third party's infringing use, 2) provided the means to effectuate the infringer's transaction, and 3) did nothing to prevent same. (35) Significantly, the legal status quo is reactive, resorting to remedies in expensive litigation instead of addressing the online counterfeit problem head on.

   Tiffany raises an important question confronting the online commercial landscape: do current business practices and legally recognized duties between online hosts and IPROs adequately address the infiltration of counterfeit products in online commerce? (36) Part II of this note identifies five essential stakeholders in the online commerce debate, each with different interests as to who should bear the costs to ensure that online commerce is free from counterfeits. Part III then examines the experience of the online host in a stronger regulatory framework, Europe, where intellectual property laws largely favor the IPROs at the expense of the online host. Part IV synthesizes the strengths of existing business practices and legal frameworks in the U.S. and abroad into an Online Commerce Certification Act ("OCCA"), a proposed legislative solution that seeks to equitably redistribute the costs of anti-counterfeiting measures in the online marketplace. This proposed solution requires pre-authentication prior to posting secondhand products online, helping to protect consumers from counterfeit products and rendering the online marketplace safer. Finally, Part V discusses other proposed solutions to the ongoing problem of counterfeit products online, and how such proposals may be incorporated into the OCCA.

2. THE STAKEHOLDERS

   Any successful legislative proposal addressing the online commerce issue would be well-attuned to the five essential stakeholders in the online commerce debates, as noted below:

   1. the online intermediary host facilitating and benefiting from the transaction between buyer and seller (e.g. eBay.com, Amazon.com, Overstock.com, uBid.com, etc.);

   2. the IPRO (ranging from the high-end multinational luxury goods purveyor to the very nascent local brand);

   3. the selling public (e.g. a college graduate selling used textbooks online, brick-and-mortar businesses supplementing their revenue with an online commerce unit, businesses foregoing brick-and-mortar entirely and functioning solely on the Internet, etc.); (37)

   4. the buying public (expecting a convenient, expedient, safe, valuable and trustworthy online service); and,

   5. the Government (e.g. local law enforcement, local, state, and federal governments, the tax authorities, etc.).

      The effectiveness of the current legal status quo is questionable. For the online hosts, as the Tiffany court clarified, contributory infringement requires that the online host take action when it has the specific knowledge of third-party infringement. (38) As for the IPROs, they must police the marketplace against infringement and work with law enforcement to prosecute vendors of knock-off products. (39) Furthermore, the selling public is required under penalty of law to abstain from directly infringing on IPROs' intellectual property rights. (40) While the executive branch of the state and federal governments are charged with enforcing current intellectual property laws, the buying public has no cognizable duty to abstain from demanding and knowingly purchasing counterfeit products. However, these legal duties need not remain static.

      Policymakers could consider the legal and political status quo, in addition to the best of all possible options, and still forego any modifications to the current state of the law. Here, "status quo" denotes the current affirmative duties of each of the above stakeholders in relation to the purchase and sale of counterfeit product online. Given the proliferation of counterfeit products, the legal status quo appears defenseless on its face, lest we are content with the growth of the counterfeit trade and all its ills. (41)

      The overwhelming status quo in the anti-counterfeiting struggle burdens IPROs and law enforcement with most of the...