Tuesday, November 13, 2007

Tiffany versus eBay

NEW YORK (Reuters) - A lawsuit by jeweler Tiffany & Co (TIF.N) against eBay (EBAY.O) brought under trademark law is set to open on Tuesday and could affect online auctions of luxury products.

Tiffany sued eBay in 2004 in Manhattan's U.S. District Court, claiming the online auctioneer had aided violations of jeweler's trademarks by letting counterfeit items be sold on its Web site.

At the heart of the lawsuit is who should be responsible for policing the Web site for counterfeit products -- eBay or Tiffany, said experts, adding that the decision could set a precedent.

"It's important if Tiffany prevails because it would force eBay to radically change the way it handles auctions of products with a famous trademark," said Geoffrey Potter, chairman of the anti-counterfeiting practice at the law firm of Kramer Levin Naftalis & Frankel. "If eBay wins, the status quo would continue."

The trial, which will be held without a jury before U.S. District Judge Richard Sullivan, is scheduled to end November 21.

EBay has had a program in place since 1998 called VeRO, or verified rights owners, to help companies prevent fake goods from being sold on its site.

"We strongly believe that we have done all that the law requires, and then some...," eBay spokesman Hani Durzi said. "But success in fighting counterfeiting is dependent upon joint efforts between us and law enforcement and the rights owners."

Tiffany has argued in court papers that requiring it to police auctions was "less effective and more expensive than automatic screening by eBay."

During 2003 and 2004, Tiffany had two employees policing eBay and forced the shutdown of about 19,000 auctions, the complaint said. Tiffany randomly bought silver "Tiffany" jewelry on eBay and found only 5 percent was genuine, while 73 percent was counterfeit, the court papers said.

"Tiffany has made valiant efforts to work with eBay to seek the removal of counterfeit goods from its Web site," Tiffany spokeswoman Linda Buckley said in an e-mailed statement. "However, eBay has not been willing to confront and prevent the massive fraud on its site in any meaningful way."

Under U.S. law it is up to the trademark's owner to establish that goods are counterfeit, said Bruce Sunstein, co-founder of Bromberg & Sunstein, a Boston-based intellectual property law firm.

But in this case, the court could rule eBay was put on notice and so could be held liable for allowing the sale of counterfeit goods, he said.

"They have at least alleged ... that 95 percent of the goods going through the eBay virtual gateway are fake, at least vis a vis Tiffany," Sunstein said. "And they are trying to use that fact to make new law."

Such an outcome would lead to higher costs for Web sites as they are forced to dedicate more resources to monitor what is being sold, experts said.

"It is certainly a foundational case," said Eric Namrow, a partner at the law firm Jones Day. "What is the online auction house's responsibility to police its own marketplace?"

An adverse ruling could also expose eBay to a barrage of lawsuits by other trademark owners.

"If it is rendered in a manner adverse to eBay, it will embolden other brand holders immediately," said Lee Eulgen, a partner at Neal Gerber & Eisenberg. "I am confident many others are watching."

But the fight is unlikely to end with a trial court judgment and experts expect an appeal no matter which side wins.

"What's so special about this, I think, ultimately is that eBay runs a different kind of bazaar from the kind of bazaars that used to exist," Sunstein said. "If Tiffany prevails in litigation, certainly eBay has a lot more work to do because what is true of Tiffany could also be true of, for example, Rolex."

By Paritosh Bansal

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