(Recasts first and 2nd paragraphs; adds comments from brand
expert, updates share prices)
By Martha Graybow and Alexandria Sage
NEW YORK/SAN FRANCISCO, July 14 EBay Inc
scored a major legal victory on Monday when a federal judge
absolved it of taking more steps to police fake Tiffany jewelry
sold on its website and held that brand owners are ultimately
responsible for protecting their own trademarks.
All of Tiffany's trademark infringement claims against eBay
(EBAY.O) were rejected -- a knockout blow to the four-year-old
lawsuit that had been closely watched by Internet companies as
well as luxury goods makers seeking to stop the sale of
counterfeit products online. The ruling is expected to be
Tiffany & Co (TIF.N) had alleged that eBay turned a blind
eye to the sale of fake Tiffany silver jewelry on its site.
EBay countered it was not in a position to determine which
goods were knock-offs of the prestigious New York brand and had
said the jeweler did not adequately participate in eBay's
programs that help brand owners prevent fraud.
The judge, in a 66-page decision following a non-jury trial
in U.S. District Court in Manhattan last November, said he was
"not unsympathetic" to Tiffany and others who have invested in
building their brands only to see them exploited on the Web.
But he said the law was clearly on eBay's side.
"It is the trademark owner's burden to police its mark and
companies like eBay cannot be held liable for trademark
infringement based solely on their generalized knowledge that
trademark infringement might be occurring on their websites,"
wrote Judge Richard Sullivan.
EBay called the ruling a "victory for consumers," saying
it "appropriately establishes that protecting brands and
trademarks is the primary burden of rights owners."
"All I can say to that is that I'd be surprised if Tiffany
did not appeal this decision," said Mark Aaron, Tiffany's
vice president of investor relations.
He said Tiffany was "shocked and deeply disappointed" by
the ruling, which "allows sellers of counterfeit goods on eBay
to victimize consumers."
Jeffrey Lindsay, an Internet analyst with Bernstein
Research, said the ruling -- coming on the heels of a similar
case in France that resulted in an eBay defeat -- allayed some
Wall Street concerns of snowballing lawsuits.
"Anything short of victory for eBay would probably have
added to investor concerns that there would be a slew of
lawsuits down the pike," said Lindsay.
Tiffany had wanted eBay to preemptively take down listings
that offered five or more of its items and immediately suspend
sellers Tiffany suspected of fraud. It had also sought monetary
damages from eBay. The judge rejected all claims.
Ebay, which has been trying to increase trust between
buyers and sellers in its main auction business, has increased
spending on technology and people to stem the sale of fake
goods on its site.
San Jose, California-based eBay says it takes down more
than 90 percent of fake goods from its site within four hours
of their posting after being alerted by trademark holders.
Judge Sullivan found that Tiffany's claim ultimately failed
due to Tiffany's choice to sue eBay, rather than individual
sellers, and because eBay stops fraudulent listings after being
alerted to violations.
U.S. courts have largely taken the position that it is the
trademark owner's responsibility to determine which goods sold
online are counterfeit. Under this view, a party such as eBay
is liable only when it fails to remove offending items once
alerted by the trademark owner.
Still, case law has been spotty and at times inconsistent.
In Europe, courts have sometimes taken a more protectionist
view. A French court earlier this month ordered eBay to pay $61
million to LVMH (LVMH.PA), parent of the Christian Dior and
Louis Vuitton brands, over fake luxury handbags and perfumes on
its site. Ebay is appealing.
EBay has argued that a more open marketplace is key for
vibrant Internet commerce.
"This would have ended up foreclosing an entire category of
eCommerce," said Steve DelBianco, executive director of high-
tech industry group NetChoice Coalition, speaking of the sale
of trademark items on the Web.
EBay argued the issue of counterfeit goods is a red
herring. Luxury brands, according to eBay, are more interested
in keeping a tight rein on distribution of their goods than in
keeping knock-offs off eBay's site.
Brand experts say the issue is far from over.
"This is only one round of a very long bout," said Milton
Pedraza, chief executive of ratings and research group Luxury
Institute, who said that, ultimately, it will be consumers who
will demand authentication of goods purchased online.
EBay shares closed down 1.86 percent at $27.49 on Nasdaq
due to a weak day for Internet stocks. Rival Amazon.com Inc
(AMZN.O) closed 3.3 percent down and Google Inc (GOOG.O) was
off more than 2 percent.
(Writing by Alexandria Sage; additional reporting by Aarthi
Sivaraman in New York; editing by John Wallace and Andre