Background:

This case deals with an appeal brought forth by Tiffany Inc. and Tiffany and Company (Tiffany) against a previous ruling of the district court on 14 July 2008, which ruled in favor of eBay Inc. (eBay) on all issues. The issues raised by Tiffany date back to May 2003, when Tiffany complained to eBay regarding the sale of counterfeit items on its website and eBay recommended Tiffany to participate in VeRO (eBay's "Verified rights Owner" programme and "fraud engine"). Here, owners of trademarks can report potentially infringing listing to eBay by submitting a Notice of Claimed Infringement form (NOCI). EBay's staff then review the submitted NOCIs and remove the offending listings if the information is accurate.

In 2004, Tiffany conducted surveys to determine the extent of counterfeiting occurring on eBay. Tiffany hired a third party to purchase a random sample of items bought from eBay using the keywords "Tiffany" and "sterling" and then inspected these items for authenticity. A large number, almost three-quarters of the samples, turned out to be counterfeit items.

Tiffany listed five demands against eBay in the same year: to prevent sellers from listing five or more Tiffany jewelry items at once; to ban the sale of silver Tiffany jewelry; ban the sale of items advertised as counterfeit Tiffany; stop advertising the availability of Tiffany merchandise; and remove Tiffany sponsored link advertisements on search engines.

EBay continued to allow the sale of Tiffany jewelry and buy sponsored link advertisements through a third party. However eBay's categorical refusal to ban sellers listing more than five Tiffany items at a time triggered the initial lawsuit.

As mentioned above, on 14 July 2008 the district court ruled in favor of eBay on all issues, which led Tiffany to appeal at the Second Circuit court - the current case.

Discussion and Judgment:

Firstly, Tiffany alleged that eBay violated the Lanham Act and New York state common law by directly infringing on its trademark: profiting from the sales of Tiffany jewelry resulting from the Tiffany trademark; buying sponsored links that advertised eBay listings for Tiffany items; and holding eBay liable with the offending sellers, even though not directly listing counterfeit items itself. The Second Circuit held that the nominative fair use defense protected eBay's activities, as eBay only used enough of the trademark as was "reasonably necessary" and did not suggest endorsement or sponsorship by Tiffany. Thus, this issue would be more properly argued under contributory trademark infringement.

Secondly, Tiffany argued that eBay was liable for supplying its product to a third party if it knows or has reason to know that the product is being used to infringe. Here, the Second Circuit held that eBay did not have the requisite level of knowledge to satisfy that claim: "[...] a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods." Also, once Tiffany referred to VeRO and NOCIs indentified specific sellers to eBay, eBay suspended them. As such, eBay could not have been willfully blind to the infringement.

Thirdly, Tiffany claimed eBay had committed Lanham Act violations because eBay was using their trademark on their homepage as well as the use of sponsored links that referenced Tiffany. The Second Circuit reversed the district court's finding that nothing false was in eBay's advertisement as eBay did sell authentic Tiffany products too. The reversal was based on the holding that extrinsic evidence was necessary to determine if eBay's advertisements were misleading or confusing consumers. The district court, on remand, concluded that this was not the case.

Lastly, Tiffany contended eBay's advertising practices as constituting trademark dilution under the Lanham Act and New York state business law. Here, Tiffany argued that counterfeit items of inferior quality were sold, damaging the distinctiveness, value, and reputation of the trademark. The courts again ruled in favour of eBay, finding that eBay did not try to confuse the Tiffany trademark with its own product, an online auction website, but instead, it used the trademark to show the availability of authentic Tiffany merchandise on its website. There was "no second mark or product at issue here to blur with or tarnish" the trademark.