The culmination of the four-year legal battle with the jewellers Tiffany over who should be held liable for the sale of counterfeit goods on eBay comes only weeks after similar cases in France went against the online giant.
On July 14, district judge Richard Sullivan ruled that eBay could not be held responsible for policing their site and that Tiffany must police their own trademark and draw fake jewellery to the auctioneer’s attention.
It means that, in the US at least, eBay cannot be forced to vet goods before they are uploaded onto the site – a demand that would have threatened their core business model.
At the end of June, the commercial court in Paris ordered eBay to pay £30m compensation to luxury goods manufacturer LVMH for failing to prevent the sale of fake perfume, bags and designer goods.
The French court further effectively ruled that luxury brands had the right to limit sales of their goods to licensed outlets, a protectionist move that went down badly with free market economists in the US and UK.
It followed earlier rulings in France and Germany that also went against eBay.
Just as eBay vowed to fight the French ruling, Tiffany are unlikely to give in without a fight in the US. Intellectual property lawyers in the US had predicted a string of copycat lawsuits if Tiffany won in the Federal court.
EBay senior vice president and legal counsel Rob Chesnut welcomed the US court ruling, saying that it “appropriately established that protecting trademarks is the primary burden of rights owners – not marketplaces like eBay”. And he emphasised that the ruling also acknowledged eBay’s “aggressive” pursuit of counterfeiters on their site.
In court, Tiffany had described eBay as a “proverbial rat’s nest” of fake goods and claimed that the auctioneer earned $4.1m of revenue from counterfeit Tiffany goods over a four-year period.
EBay argued once again that they removed offending items as soon as they became aware of them, a procedure backed by the court as proof that they met their obligations under the law.
But Judge Sullivan, who sat without a jury, concluded that, in order to be held liable for contributory trademark infringement as Tiffany had claimed, eBay would have had to let specific sellers continue to trade in counterfeit goods on their site even after they were aware that they were infringing Tiffany’s trademark.
He indicated in his ruling that, whilst “Tiffany must ultimately bear the burden of protecting its trademark”, US law may need reassessing due to the rapid growth of customer-to-customer sales on the internet.
“Policymakers may yet decide that the law as it stands is inadequate to protect rights owners in light of the increasing scope of internet commerce and the concomitant rise in potential trademark infringement,” he said.
US politicians considering changing the law to make eBay more accountable are likely to consider the economic fallout such a move could have: the bulk of the 1m plus users who make their entire living trading on eBay are US citizens, and last week the company reported a 22 per cent rise in profits to $460m for the first quarter of the year, as well as 84.5m active users for the period.
What’s more, eBay stated that sales accounted for around five per cent of all US ecommerce.