Tiffany (NJ) Inc. v. eBay Inc.

• Decision Date: 01 April 2010
• Docket Number: Docket No. 08-3947-cv.
• Citation: 600 F.3d 93
• Parties: TIFFANY (NJ) INC. and Tiffany and Company, Plaintiffs-Appellants, v. eBAY INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

600 F.3d 93

TIFFANY (NJ) INC. and Tiffany and Company, Plaintiffs-Appellants, v. eBAY INC., Defendant-Appellee.

Docket No. 08-3947-cv.

United States Court of Appeals, Second Circuit.

Argued: July 16, 2009.

Decided: April 1, 2010.

COPYRIGHT MATERIAL OMITTED

James B. Swire (H. Peter Haveles, Jr., Peter L. Zimroth, Erik C. Walsh, and Elanor M. Lackman, on the brief) Arnold & Porter LLP, New York, NY, for Plaintiffs-Appellants.

R. Bruce Rich (Randi W. Singer, Jonathan Bloom, and Mark J. Fiore on the brief) Weil, Gotshal & Manges LLP, New York, NY, for Defendant-Appellee.

Bruce P. Keller, David H. Bernstein, Michael R. Potenza, Debevoise & Plimpton LLP, New York, NY, for Amicus Curiae The International Anticounterfeiting Coalition.

John F. Cooney, Janet F. Satterwaite, Meghan Hemmings Kend, Venable LLP, Washington, D.C., for Amicus Curiae Coty, Inc.

Alain Coblence, Coblence & Associates, New York, NY, for Amicus Curiae The

Council of Fashion Designers of America, Inc.

Patric J. Carome, Samir C. Jain, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Amici Curiae Amazon.com, Inc., Google Inc., Information Technology Association of America, Internet Commerce Coalition, Netcoalition, United States Internet Service Provider Association, and United States Telecom Association.

Meredith Martin Addy and Howard S. Michael, Brinks Hofer Gilson & Lione, Chicago, IL, David S. Fleming, Brinks Hofer Gilson & Lione, New York, NY, for Amicus Curiae Yahoo! Inc.

Fred von Lohmann, Michael Kwum, The Electronic Frontier Foundation, San Francisco, CA, for Amici Curiae The Electronic Frontier Foundation, Public Citizen, and Public Knowledge.

Before: SACK and B.D. PARKER, Circuit Judges, and GOLDBERG, Judge.^*

SACK, Circuit Judge:

eBay, Inc. ("eBay"), through its eponymous online marketplace, has revolutionized the online sale of goods, especially used goods. It has facilitated the buying and selling by hundreds of millions of people and entities, to their benefit and eBay's profit. But that marketplace is sometimes employed by users as a means to perpetrate fraud by selling counterfeit goods.

Plaintiffs Tiffany (NJ) Inc. and Tiffany and Company (together, "Tiffany") have created and cultivated a brand of jewelry bespeaking high-end quality and style. Based on Tiffany's concern that some use eBay's website to sell counterfeit Tiffany merchandise, Tiffany has instituted this action against eBay, asserting various causes of action—sounding in trademark infringement, trademark dilution and false advertising—arising from eBay's advertising and listing practices. For the reasons set forth below, we affirm the district court's judgment with respect to Tiffany's claims of trademark infringement and dilution but remand for further proceedings with respect to Tiffany's false advertising claim.

BACKGROUND

By opinion dated July 14, 2008, following a week-long bench trial, the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge) set forth its findings of fact and conclusions of law. Tiffany (NJ) Inc. v. eBay, Inc., 576 F.Supp.2d 463 (S.D.N.Y.2008) ("Tiffany"). When reviewing a judgment following a bench trial in the district court, we review the court's findings of fact for clear error and its conclusions of law de novo. Giordano v. Thomson, 564 F.3d 163, 168 (2d Cir.2009). Except where noted otherwise, we conclude that the district court's findings of fact are not clearly erroneous. We therefore rely upon those non-erroneous findings in setting forth the facts of, and considering, this dispute.

eBay

eBay¹ is the proprietor of www.ebay. com, an Internet-based marketplace that allows those who register with it to purchase goods from and sell goods to one another. It "connects buyers and sellers and enables transactions, which are carried out directly between eBay members." Tiffany, 576 F.Supp.2d at 475.² In its auction and listing services, it "provides the venue for the sale of goods and support for the transactions, but it does not itself sell the items" listed for sale on the site, id. at 475, nor does it ever take physical possession of them, id. Thus, "eBay generally does not know whether or when an item is delivered to the buyer." Id.

eBay has been enormously successful. More than six million new listings are posted on its site daily. Id. At any given time it contains some 100 million listings. Id.

eBay generates revenue by charging sellers to use its listing services. For any listing, it charges an "insertion fee" based on the auction's starting price for the goods being sold and ranges from $0.20 to $4.80. Id. For any completed sale, it charges a "final value fee" that ranges from 5.25% to 10% of the final sale price of the item. Id. Sellers have the option of purchasing, at additional cost, features "to differentiate their listings, such as a border or bold-faced type." Id.

eBay also generates revenue through a company named PayPal, which it owns and which allows users to process their purchases. PayPal deducts, as a fee for each transaction that it processes, 1.9% to 2.9% of the transaction amount, plus $0.30. Id. This gives eBay an added incentive to increase both the volume and the price of the goods sold on its website. Id.

Tiffany

Tiffany is a world-famous purveyor of, among other things, branded jewelry. Id. at 471-72. Since 2000, all new Tiffany jewelry sold in the United States has been available exclusively through Tiffany's retail stores, catalogs, and website, and through its Corporate Sales Department. Id. at 472-73. It does not use liquidators, sell overstock merchandise, or put its goods on sale at discounted prices. Id. at 473. It does not—nor can it, for that matter—control the "legitimate secondary market in authentic Tiffany silvery jewelry," i.e., the market for second-hand Tiffany wares. Id. at 473. The record developed at trial "offered little basis from which to discern the actual availability of authentic Tiffany silver jewelry in the secondary market." Id. at 474.

Sometime before 2004, Tiffany became aware that counterfeit Tiffany merchandise was being sold on eBay's site. Prior to and during the course of this litigation, Tiffany conducted two surveys known as "Buying Programs," one in 2004 and another in 2005, in an attempt to assess the extent of this practice. Under those programs, Tiffany bought various items on eBay and then inspected and evaluated them to determine how many were counterfeit. Id. at 485. Tiffany found that 73.1% of the purported Tiffany goods purchased in the 2004 Buying Program and 75.5% of those purchased in the 2005 Buying Program were counterfeit. Id. The district court concluded, however, that the Buying Programs were "methodologically flawed and of questionable value," id. at 512, and "provided limited evidence as to the total percentage of counterfeit goods available on eBay at any given time," id. at 486. The court nonetheless decided that during the period in which the Buying Programs were in effect, a "significant portion of the `Tiffany' sterling silver jewelry listed on the eBay website . . . was counterfeit," id., and that eBay knew "that some portion of the Tiffany goods sold on its website might be counterfeit," id. at 507. The court found, however, that "a substantial number of authentic Tiffany goods are also sold on eBay." Id. at 509.

Reducing or eliminating the sale of all second-hand Tiffany goods, including genuine Tiffany pieces, through eBay's website would benefit Tiffany in at least one sense: It would diminish the competition in the market for genuine Tiffany merchandise. See id. at 510 n. 36 (noting that "there is at least some basis in the record for eBay's assertion that one of Tiffany's goals in pursuing this litigation is to shut down the legitimate secondary market in authentic Tiffany goods"). The immediate effect would be loss of revenue to eBay, even though there might be a countervailing gain by eBay resulting from increased consumer confidence about the bona fides of other goods sold through its website.

Anti-Counterfeiting Measures

Because eBay facilitates many sales of Tiffany goods, genuine and otherwise, and obtains revenue on every transaction, it generates substantial revenues from the sale of purported Tiffany goods, some of which are counterfeit. "eBay's Jewelry & Watches category manager estimated that, between April 2000 and June 2004, eBay earned $4.1 million in revenue from completed listings with `Tiffany' in the listing title in the Jewelry & Watches category." Id. at 481. Although eBay was generating revenue from all sales of goods on its site, including counterfeit goods, the district court found eBay to have "an interest in eliminating counterfeit Tiffany merchandise from eBay . . . to preserve the reputation of its website as a safe place to do business." Id. at 469. The buyer of fake Tiffany goods might, if and when the forgery was detected, fault eBay. Indeed, the district court found that "buyers . . . complained to eBay" about the sale of counterfeit Tiffany goods. Id. at 487. "During the last six weeks of 2004, 125 consumers complained to eBay about purchasing `Tiffany' items through the eBay website that they believed to be counterfeit." Id.

Because eBay "never saw or inspected the merchandise in the listings," its ability to determine whether a particular listing was for counterfeit goods was limited. Id. at 477-78. Even had it been able to inspect the goods, moreover, in many instances it likely would not have had the expertise to determine whether they were counterfeit. Id. at 472 n. 7 ("In many instances, determining whether an item is counterfeit will require a physical inspection of the item, and some degree of expertise on the part of the examiner.").

Notwithstanding these limitations, eBay spent "as much as $20 million each year on tools to promote trust and safety on its website." Id. at 476. For example, eBay and PayPal set up "buyer...