Updated at 2:10 PM PDT with analysis from attorney Heather McDonald.
Tiffany & Co. announced on Monday that it is appealing a recent federal court decision that said eBay is not responsible for policing counterfeit listings on its auction site.
In July, U.S. District Judge Richard Sullivan ruled that eBay could not be forced by trademark law to examine individual auction listings. "The law is clear," he wrote. "It is the trademark owner's burden to police its mark."
"We believe that legal errors were made in this decision, and we have every reason to believe that the circuit court will look at them afresh and hopefully agree with us," Tiffany attorney James Swire, a partner at the law firm Arnold & Porter, said in an interview.
"If one were a flea market operator and you become aware that counterfeiting is going on with the individual sellers at the flea market, you have a duty to investigate it," Swire said. "Why is eBay any different from that analogy?"
Tiffany filed suit against eBay in 2004 after it notified the auction site that 73 percent of a random sample of supposed Tiffany listings were, in fact, counterfeit. Tiffany primarily asked eBay to ban sellers who listed five or more objects of Tiffany jewelry under the logic that so many pieces were likely to be counterfeit. When that request was rebuffed, along with another request to ban all silver Tiffany jewelry listed on the site, Tiffany then filed suit.
"The effect of this is that eBay can continue to profit at the expense of consumers and trademark holders," Patrick Dorsey, general counsel to Tiffany, said in a press release. "Once eBay has reason to know that a specific brand like Tiffany & Co. is being widely counterfeited and sold, eBay should be compelled to investigate and take action to protect its customers and stop the illegal conduct."
eBay spokesperson Catherine England said on Monday: "Tiffany's decision to carry this litigation on after the District Court's decision doesn't do anything to combat counterfeiting. The best way to stop counterfeiting is ongoing collaboration between companies, government agencies and law enforcement."
The auction site was also recently ordered by a French court to pay nearly $61 million in damages to LVMH Moet Hennessy Louis Vuitton to compensate for fraudulent listings. The German Federal Supreme Court also recently handed down a ruling against eBay in an appeal from Montres Rolex SA, requiring the auction site to take preventative measures against the sale of counterfeits.
The foreign cases may affect eBay's operations as much as the Tiffany case, according to Heather McDonald, an attorney with Baker Hostetler who specializes in intellectual property enforcement.
"In the event that the foreign courts uphold those rulings, eBay's going to have to change the way it does business," McDonald said. Given that eBay operates on one technological platform globally, she said, it should be a natural step for eBay to extend greater oversight both abroad and in the U.S.
"If they have the ability to prevent counterfeiting in France and Germany, then clearly they have the ability to prevent it in the United States," McDonald said. "The question is, why won't they?"
Furthermore, other auctions sites may have to take note of all of the litigation facing eBay. "There are other online sites that have to realize that they've got to up their game and do at least what eBay is doing if they want to insulate themselves from liability," McDonald said.
eBay has measures in place already to help curb counterfeit listings, such as a search engine that seeks out words in listings such as "replica" or "knock-off." It also has a program to enable trademark owners to report and remove infringing listings.
"There's no question that eBay has taken a lot steps to take its marketplace clean of counterfeiting, but there are literally thousands of counterfeited items for sale every day" on the site, McDonald said. "If those auctions actually conclude, eBay reaps a financial profit from that sale of a counterfeit item. If you're gong to profit from it, don't you already have some responsibility there?"