Knowledge and Misfeasance: Tiffany v. eBay and the Knowledge Requirement of Contributory Trademark Infringement by Matthew C. Berntsen

Posted in: Research at 30/10/2011 15:35

Introduction: eBay created a new business model, made possible by the internet. The popular legend is that eBay was originally intended as a site at which consumers could offer for sale and sell still useable items sitting in garages and basements. But it blossomed into the world's largest marketplace where anonymous sellers offer unseen and unexamined merchandise to distant buyers. Given such circumstances, it was not long before the counterfeiters and grifters of the world realized that the site could be exploited by them without risk.

Although somewhat melodramatic, the above characterization of the online auction site eBay is rooted in fact. Indeed, nearly half of reported online fraud takes place in the form of Internet auction fraud, and an estimated 29% of online auction fraud happens on eBay. As such, eBay accounts for approximately 15% of known fraud on the Internet. Fraud on eBay occurs twice as frequently as online identity theft and credit card fraud put together, and amounts to an estimated annual loss of 32 million dollars. Further, since this amount only represents reported fraud, it is likely that there is considerable fraud that is either undiscovered or unreported, suggesting that the actual cost of this problem is notably higher.

After observing that considerable quantities of counterfeit jewelry were being sold on eBay, the luxury jewelry maker Tiffany & Co ("Tiffany") wrote to eBay in 2003 in an attempt to curb the problem. After numerous exchanges, Tiffany remained unsatisfied with eBay's attempts to curtail the counterfeiting problem and filed suit in 2004 claiming that eBay was committing contributory trademark infringement instances such as a flea market or online auction where the defendant provides a service to the actual infringer. Part III summarizes Tiffany v. eBay,9 a recent case where Tiffany sued eBay, arguing that eBay facilitated the sale of counterfeit Tiffany jewelry. This note first summarizes the facts of the case. Then it explains that, because a contributory infringer's duty to prevent infringement is triggered by that party's knowledge of the infringement, it is extremely important that courts fix the requisite level of knowledge correctly. It continues by summarizing the parties' arguments in Tiffany. Finally, it outlines the court's decision that the knowledge requirement of contributory trademark infringement is not satisfied by a general knowledge of infringement, but rather requires specific knowledge.

Part IV analyzes the Tiffany decision from multiple viewpoints. First, it looks at the effect of the specific knowledge requirement, finding that it effectively resurrects a requirement of misfeasance for a contributory infringer to be found liable. Next, it examines the case under least cost avoider analysis, concluding that a determination as to which party is the least cost avoider in this situation requires further information. Lastly, it returns to the objectives of trademark law, and finds that they are not furthered by the decision in Tiffany.

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