Court Clears eBay in Suit Over Sale of Counterfeit Goods

EBay scored an important victory in an American court on Monday on how much vetting it is required to do of its auction listings, but the decision was in contrast to recent European court rulings.

In a long-awaited decision in a four-year-old trademark lawsuit against eBay brought by the jeweler Tiffany & Company, Judge Richard J. Sullivan of the Federal District Court in Manhattan ruled that the online retailer does not have a legal responsibility to prevent its users from selling counterfeit items on its online marketplace.

The verdict reaffirms that Internet companies do not have to actively filter their sites for trademarked material. Rather, they can rely on intellectual property holders to monitor their sites, as long as they promptly remove material when rights holders complain.

"The court ruled that eBay does in fact meet its responsibilities regarding counterfeits," said Rob Chesnut, senior vice president and legal counsel at eBay. "We aggressively fight counterfeits not only to meet our limited responsibilities, but also because counterfeits hurt the eBay community."

James B. Swire, counsel for Tiffany and a partner at the law firm of Arnold & Porter, said he was "shocked and disappointed" in the ruling. "The principal purpose of trademark law is first to protect consumers and then to protect brand owners," he added. "You don't get a real sense of that in this decision."

Mr. Swire said that Tiffany was likely to appeal the decision to the United States Court of Appeals for the Second Circuit.

The ruling is a shift in eBay's recent courtroom fortunes. A week ago, a French judge ordered eBay to pay 40 million euros ($63.2 million) to the French luxury goods maker LVMH Moët Hennessy Louis Vuitton over counterfeiting charges. In April, a German appeals court ruled that eBay must take preventive measures against the sale of counterfeit Rolex watches.

If those judgments are upheld in appellate court, eBay could have a potential problem on its hands. Though it operates a single global marketplace - buyers in Europe see the same items that buyers in the United States do - eBay would be legally required to do more abroad to fight counterfeiting than it is required to do at home. American shoppers on eBay will see no change in the company's listings, but how the various rulings will affect the listings in Europe remains to be seen.

"The decision is a rousing victory for eBay's current efforts, but it contrasts quite vividly with decisions in the European courts," said Geoffrey Potter, who leads the anticounterfeiting practice at Kramer Levin Naftalis & Frankel, a New York law firm. "To avoid contempt and damages in Europe, eBay is going to have to regulate the sales in there differently than they do in the U.S."

Mr. Chesnut said, "That's a challenge and I don't have a pat answer. That is something we have to study."

Tiffany originally filed the trademark lawsuit against eBay in 2004, after conducting a study that found a majority of items bought on eBay under the Tiffany's brand were fakes. Lawyers for Tiffany argued that eBay directly profited from infringement of its trademark, while eBay's lawyers countered that, just like YouTube or MySpace, it was required only to faithfully take down material when rights holders complained.

Judge Sullivan concurred with eBay. "Tiffany has failed to demonstrate that eBay knowingly encouraged others to dilute Tiffany's trademarks," he wrote in his 66-page decision. "Rather, to the extent that eBay may have possessed general knowledge of infringement and dilution by sellers on its Web site, eBay did not possess knowledge or a reason to know of specific instances of trademark infringement or dilution as required under the law."