Who is minding the online store?

Ruling could have implications for trademark owners

Last month, a US federal judge ruled that eBay had fulfilled its obligations to investigate and control users who were trying to use its website to sell counterfeit Tiffany goods — a decision that put the onus on Tiffany & Co. to monitor eBay's site itself.

The ruling, by US District Judge Richard Sullivan, was a major victory for eBay in its fight with luxury goods companies over the sale of their merchandise — counterfeit or otherwise — on its auction site. If the ruling stands, it could have big implications for trademark owners, which would have to deploy technology to scour eBay's site for counterfeit and pirated goods, have employees manually monitor the site or pay other companies to watch it for them.

But similar lawsuits filed against eBay in French and German courts haven't turned out in eBay's favour, resulting in a split decision internationally — and the possibility that in the end, eBay might have to increase its own enforcement efforts.

The financial stakes are high on both sides of the legal dispute. Tiffany, which last week filed an appeal in the US Court of Appeals, says that in the five years before the lawsuit was filed in 2004, it spent US$14 million (NZ$19.5 million) on technology and manpower to police its trademarks on eBay's site.

But between US$3 million and US$5 million of Tiffany's spending was on the lawsuit itself, and Sullivan described the New York-based company's overall monitoring tab as "relatively modest" in his ruling.

Meanwhile, eBay, which is appealing the European court decisions, says it spends US$20 million annually to identify counterfeit goods on its site. That figure would be likely to increase substantially if eBay were forced to take on more responsibility for rooting out sales of fake products.

"EBay operates on one technology platform, and to the extent that eBay has to change its business model in other countries, it would change it everywhere," says Heather McDonald, an attorney at law firm Baker & Hostetler, in Cleveland.

McDonald adds that if eBay didn't do so, trademark owners in the US could argue that the company was offering more protections to foreign businesses than it was to them.

eBay says the ruling in the US case confirms what it has maintained all along: that its efforts to stop counterfeit sales have been reasonable. According to eBay spokeswoman Nichola Sharpe, eBay removed 2.2 million potentially counterfeit listings worldwide last year alone. It also suspended about 50,000 sellers who were found to be offering fake goods and took steps to make it harder to post such items, she says.

One of the ways that eBay tries to stop the sale of counterfeit goods is through its Verified Rights Owner Program, or VeRO, which provides software tools to help companies look for fake goods on its site. More than 18,000 businesses take part in VeRO, eBay said; if a company determines that a seller is peddling counterfeit merchandise, it notifies eBay, which immediately takes down the auction.

McDonald says businesses that want to invest in a technical solution to the monitoring problem can write algorithms that automatically scan eBay for listings with their brand names, then dump the information into spreadsheets so workers can determine whether the products are counterfeit.

Over a period of about 18 months, the Software & Information Industry Association spent hundreds of thousands of dollars to develop a tool to help it check for counterfeit or pirated software on eBay's site — money that the SIIA said should have come out of eBay's pockets. The SIIA last month threatened to sue eBay over the issue.

Sullivan's position is that eBay has to be the enforcer but not the detective, notes Horwitz. That puts the burden on trademark owners to do their own investigating of items listed on the eBay site, he says.

At least in the US. And at least for now — until the appeals process decides who really should be minding the online auction store.

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