Petition for Writ of Certiorari — Tiffany (NJ) Inc. v. eBay Inc.

reme Court, U.S.

- FILED

O\ 19-300 Aus 27 2010

OFFICE OF THE CLERK

IN THE

Supreme Court of the Wnited States

TIFFANY (NJ) INC. AND

TIFFANY AND COMPANY,

Petitioners,

v.

EBAY INC.,

Respondent.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Second Circuit

PETITION FOR A WRIT OF CERTIORARI

MIGUEL A. ESTRADA

Counsel of Record

Scott P. MARTIN

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

mestrada@gibsondunn.com

Counsel for Petitioners

QUESTION PRESENTED

This Court held in Jnwood Laboratories, Inc. v.

Ives Laboratories, Inc. that a defendant is lable for

contributory trademark infringement if “it continues

to supply its product to one whom it knows or has

reason to know is engaging in trademark infringe-

ment.” 456 U.S. 844, 854 (1982). The defendant in

this case operates an online marketplace, which it

knows is used to sell substantial quantities of goods

that infringe the plaintiffs’ trademarks. The Second

Circuit held, in direct conflict with the Ninth Circuit,

that the defendant cannot be held liable for contribu-

tory trademark infringement unless the trademark

holders can prove that the defendant knows which

particular items are infringing.

The question presented is whether, under the

doctrine of contributory trademark infringement, a

defendant can be held liable for operating a market-

place that it knows is used to sell substantial quanti

ties of goods that infringe a plaintiffs trademark,

even if it does not know which particular goods are

infringing.

ll

RULE 29.6 STATEMENT

Pursuant to this Court’s Rule 29.6, undersigned

counsel state that Petitioner Tiffany (NJ) Inc. was,

on February 1, 2008, merged with and into Tiffany

(NJ) LLC, which is a wholly owned subsidiary of Pe-

titioner Tiffany and Company, which in turn is a

wholly owned subsidiary of Tiffany & Co. Tiffany &

Co. has no parent company, and no publicly held

company owns 10% or more of its stock.

lll

TABLE OF CONTENTS

Page

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EPI o 5c dovcn vs ccccasaphe seeuvaciahackweéuaxseuabedesuntican 1

IE ocx nckasns veidon vudnvesanvansidevudinnsieseniacnacsilestaes 1

REASONS FOR GRANTING THE PETITION ....... 12

1. THE SECOND - CIRCUIT INCORRECTLY

RESOLVED THE QUESTION PRESENTED AND

CREATED A SPLIT WITH THE NINTH

Ce 13

II. THE QUESTION PRESENTED IS EXTREMELY

IMPORTANT TO ALLOCATING TRADEMARK

RIGHTS AND BURDENS IN THE MODERN

ROC WOMIITIE TE MMIII ccs cssvessescosssoncesusstassasncenesesesss 22

en a as 28

APPENDIX A: Opinion of the United States

Court of Appeals for the Second Circuit ............. la

APPENDIX B: Opinion of the United States

District Court for the Southern District of

ae ee eee 43a

lV

TABLE OF AUTHORITIES

Page(s)

CASES

Ashcroft v. Iqbal,

Rs te PT CED ccc ceccescocssenecsuvscccrecsencesncaess 21

Coca-Cola Co. v. Snow Crest Beverages, Inc.,

64 F. Supp. 980 (D. Mass. 1946)...........00...... 15, 16

Fonovisa, Inc. v. Cherry Auction, Inc.,

16 F.3d 259 (Oth Cir. 1996)...............ceccssssees passim

Fonovisa, Inc. v. Cherry Auction, Inc.,

847 F. Supp. 1492 (E.D. Cal. 1994)..................... 19

Inwood Labs., Inc. v. Ives Labs., Inc.,

ME as EC RII ioc ivicnvncaccsncaicaiecinasernedereses passim

Ives Labs., Inc. v. Darby Drug Co.,

488 F. Supp. 394 (E.D.N.Y. 1980) ....................0.. 14

Ives Labs., Inc. v. Darby Drug Co..,

Ge Fee De Ce UE, BOE) viveicccvcccscccccssescocevessess 14

L’Oréal S.A. v. eBay International AG,

[2009] EWHC 1094 (CH) ............cccscsescconsceseee 26, 27

S.A. Louis Vuitton Malletier v. eBay Inc.,

Tribunal de Commerce de Paris,

Premiére Chambre B, No. 200677799

ne i eae ee acedae 25

Sony Corp. of Am. v. Universal City

Studios, Inc.,

gt Rs 2 | A eR 10, 11, 16, 17

STATUTE

Bers WE IIT iy ca ndcedi.ctncas dup suicencecsuts secvcnmnioeneieeav a aee 1

RULE

Ue cscs ces chciveponsiadsoananssseroersexegssiene

OTHER AUTHORITIES

Matthew Benjamin, A World of Fakes,

U.S. News & World Report, July 14,

ENT EGUc uu ahanShavsdnbinsaeustsntsxtesséabevesansecses

Doreen Carvajal, Court Sides with LVMH

over eBay, N.Y. Times, June 30, 2008.......

James C. Duff, Admin. Office of the U.S.

Courts, Judicial Business of the

United States Courts: 2009 Annual

Report of the Director ........... cash texnuseahccves

Matthew Fornaro, A Parallel Problem:

Grey Market Goods and the Internet,

8 J. Tech. L. & Pol’y 69 (2003)................06.

A ES OR ee)

Internet Systems Consortium,

Internet Host Count History ......................

Valerie Walsh Johnson & Laura P.

Merritt, Tiffany v. eBay: A Case of

Genuine Disparity in International

Court Rulings on Counterfeit Products,

Landslide, Nov./Dec. 2008 ....................00008

The Links Between Intellectual Property

Crime and Terrorist Financing:

Hearing Before the H. Comm. on Int'l

Relations, 108th Cong. (2003) ...................

vivaueaues 23

Siaseckeas 25

eases 23

vi

Irina D. Manta, Jn Search of Validity: A

New Model for the Content and

Procedural Treatment of Trademark

Infringement Surveys, 24 Cardozo Arts

es as IEE CINE Boo aci cdc decidccesvecssccsesvcsencsnnsss 18

Roslyn A. Mazer, From T-Shirts to

Terrorism: That Fake Nike Swoosh

May Be Helping to Fund Bin Laden's

Network, Wash. Post, Sept. 30, 2001 .................. 23

Ellie Mercado, Note, As Long As ‘It’ Is Not

Counterfeit: Holding eBay Liable for

Secondary Trademark Infringement in

the Wake of LVMH and Tiffany, Inc.,

28 Cardozo Arts & Ent. L.J. 115 (2010).............. 25

Office of the Comptroller, City of New York,

Bootleg Billions: The Impact of the

Counterfeit Goods Trade on New York

See IED iv ccachnassennisceskunns dusucsunavapaparstoasesavdkcelanads 23

Eric Pfanner, French Court Clears eBay

in Selling Fake Goods, N.Y. Times,

SN Was UI Gaccigisessinaeusceuissinicetucapsisinesieasspsanavsaveds 26

PETITION FOR A WRIT OF CERTIORARI

Petitioners Tiffany (NJ) Inc. and Tiffany and

Company (collectively “Tiffany”) respectfully petition

for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Second Cir-

cuit.

OPINIONS BELOW

The opinion of the court of appeals (App., in-

fra, la-42a) is reported at 600 F.3d 93. The opinion

of the district court (App., infra, 48a—172a) is re-

ported at 576 F. Supp. 2d 463.

JURISDICTION

The judgment of the court of appeals was entered

on April 1, 2010. Justice Ginsburg extended the time

in which to file a petition for a writ of certiorari to

and including August 30, 2010. See No. 09A1205.

The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1).

STATEMENT

Tiffany designs branded jewelry that it manufac-

tures in the United States for sale under its world-

famous trademarks; respondent eBay Inc. operates

an Internet-based marketplace in which users can

purchase goods from other users. After a bench trial,

the district court found that a “significant portion of

the ‘Tiffany’ sterling silver jewelry listed on the eBay

website ... was counterfeit.” App., infra, 83a. The

Second Circuit did not question this finding but

nonetheless held that, “(flor contributory trademark

infringement liability to lie, a service provider must

have more than a general knowledge or reason to

know that its service is being used to sell counterfeit

goods.” Id. at 27a. Instead, the court of appeals con-

2

cluded, “[slome contemporary knowledge of which

particular listings are infringing or will infringe in

the future is necessary.” Jd. at 27a—28a (emphasis

added).

The opinion below cannot be reconciled with the

Ninth Circuit’s decision in Fonovisa, Inc. v. Cherry

Auction, Inc., 76 F.3d 259 (9th Cir. 1996). In Fono-

visa, the Ninth Circuit concluded that the plaintiff

had “stated a claim for contributory trademark in-

fringement” based on allegations that the operator of

a flea market was “aware that vendors .. . were sell-

ing counterfeit recordings in violation of [the plain-

tiff]’s trademarks.” /d. at 261, 265. In stark contrast

to the Second Circuit’s approach, the Ninth Circuit

did not require any allegation that the defendant

knew which particular recordings were counterfeit.

The correct resolution of this disagreement is

unquestionably important: The selection of appro-

priate standards for contributory liability in the con-

text of Internet commerce is an issue that has re-

ceived worldwide attention and indeed divided the

courts in other countries. As the Second Circuit ac-

knowledged, “[a] Belgian court declined to hold eBay

liable for counterfeit cosmetic products sold through

its website,” while “French courts . . . have concluded

that eBay violated applicable trademark laws.”

App., infra, 22a n.8; see also Valerie Walsh Johnson

& Laura P. Merritt, Tiffany v. eBay: A Case of Genu-

ine Disparity in International Court Rulings on

Counterfeit Products, Landslide, Nov./Dec. 2008, at

22, 23. Given the undoubted importance of this is-

sue, particularly in light of the global reach of online

marketplaces such as eBay and the critical role

played by trademarks in supporting consumer confi-

dence in online commerce, the proper scope of federal

3

trademark law is an issue that warrants this Court’s

review.

1. For more than 170 years, Tiffany has

“achieved great renown as a purveyor of high-quality

and luxury goods” under the TIFFANY, TIFFANY &

CO., T & CO., and other trademarks. App., infra,

49a. These trademarks are “indisputably famous”

and are a “valuable asset owned by Tiffany.” Jd. at

50a. Since 2000, all new Tiffany merchandise sold in

the United States has been available exclusively

through Tiffany’s retail stores, catalogs, webpage,

and Business Sales division; Tiffany does not use

liquidators, sell overstock merchandise, or hold

“sales.” Id. at 52a.

eBay operates an online marketplace at

www.ebay.com, which “connect|s] buyers and sellers

and ... enable[s] transactions, which are carried out

directly between eBay members.” App., infra, 56a—

57a. eBay generates revenue through various fees

charged to its sellers. When a listing is created,

eBay collects an “insertion fee” ranging from $0.20 to

$4.80. Id. at 57a. If the item is sold, eBay collects a

“final value fee” ranging from 5.25% to 10% of the

sale price. /bid. eBay earns additional revenue if

the payment is processed through PayPal, an eBay

subsidiary, which charges between 1.9% and 2.9% of

the transaction amount, plus $0.30. Jd. at 58a. Be-

tween April 2000 and June 2004, eBay earned $4.1

million in revenue from sales of purported Tiffany

jewelry. Id. at 70a.

eBay repeatedly attempted to “boost” sales on its

webpage by encouraging sellers to offer Tiffany mer-

chandise. App., infra, 67a; see also id. at 68a (noting

that eBay took “activle]” steps to “grow the sales of

Tiffany items on its website”). In 2004, a newsletter

4

to jewelry sellers advised them to “usle] recom-

mended keywords to boost sales” and identified “Tif-

fany & Co.” as a recommended keyword because it

had “been used often” in recent eBay searches. Id. at

67a. Again in September 2006, eBay told sellers that

the terms “Tiffany” and “Tiffany & Co.” were top

search terms. ld. at 68a. These were not isolated

incidents; to the contrary, eBay regularly reported

demand for Tiffany items through its “Hot Catego-

ries Report,” which identified keywords for which

there was significant demand. J/bid.; see also ibid.

(discussing eBay’s “Holiday Hot List,” which in-

cluded Tiffany merchandise on a “detailed list of

products predicted to be in high demand and short

supply this holiday season”).

eBay rewarded the efforts of sellers who followed

its advice by encouraging buyers to purchase Tiffany

merchandise through eBay. App., infra, 68a. Before

2003, eBay “actively advertised the availability of

Tiffany merchandise on its website” and “purchased

sponsored link advertisements on Yahoo! and Google

advertising the availability of Tiffany items on

eBay.” Jd. at 69a. In response to a letter from Tif-

fany, eBay claimed to have stopped purchasing those

links. J/bid. In fact, it simply enlisted the services of

a third party, Commission Junction, to operate an

“affiliate program” in which “sellers who registered

as ‘affiliates’ contracted with Commission Junction

and then bought sponsored links on Google.” Jbid.

The affiliates could then be reimbursed “depending

on how much business they drove to the eBay web-

site.” Ibid. eBay did not ask Commission Junction

to prohibit affiliates from using Tiffany as a keyword

to trigger sponsored links or in the text of the spon-

sored links themselves, and thus the district court

specifically found that “eBay did not fully discon-

5

tinue the practice of advertising Tiffany goods on

eBay through sponsored links.” Jd. at 70a.

In early 2003, Tiffany discovered that vendors

were using eBay to sell large quantities of counterfeit

Tiffany merchandise. ‘lo assess the extent of this il-

licit activity, Tiffany conducted two “Buying Pro-

grams”—one in 2004 and another in 2005—in which

it purchased various Tiffany items on eBay and then

determined how many of these items were counter-

feit. App., infra, 79a—80a. In the 2004 Buying Pro-

gram, Tiffany found that 73.1% of the goods pur-

chased were counterfeit and only 5% were genuine.

Id. at 80a.! In the 2005 Buying Program, Tiffany

found that 75.5% of the items were counterfeit. bid.

Although the district court ultimately concluded that

these surveys provide only “limited evidence as to

the total percentage of counterfeit goods available on

eBay at any given time,” id, at 82a, it nonetheless

found that “a significant portion of the ‘Tiffany’ ster-

ling silver jewelry listed on the eBay website ... was

counterfeit,” id. at 83a; see also id. at 140a (noting

the “voluminous” amount of counterfeit Tiffany mer-

chandise). Indeed, even eBay’s own expert “conceded

that a substantial amount of the “Tiffany’ jewelry

listed on eBay’s website—-30% or more—could safely

be deemed to be counterfeit.” Jd. at 82a.

Tiffany’s initial strategy for combating counter-

feiting was to bring lawsuits directly against indi-

vidual counterfeiters. App., infra, 70a—7la,_ Al-

though it pursued several lawsuits against eBay

sellers, id. at 70a & n.13, Tiffany soon realized that

1 Tiffany concluded that the remaining 21.9% were poten-

tially actionable but did not conclusively determine that they

were counterfeit. App., infra, 80a.

6

this strategy was ineffective given the large «umber

of counterfeiters on eBay (many of which used multi-

ple usernames) and the fact that these eBay mem-

bers were typically anonymous. Instead, Tiffany

concluded that the better approach was to seek

eBay’s cooperation in attempting to stop the flow of

counterfeit merchandise on its site. Id. at 71a.

In May 2003, Tiffany’s outside counsel wrote

eBay to complain about the “deluge of counterfeit Tif-

fany merchandise, the vast majority of which has

been sold through eBay.” App., infra, 7la. Noting

that there were no authorized third-party vendors

for Tiffany merchandise, the letter explained that it

should “be apparent to eBay that any seller of a sig-

nificant lot—i.e. five pieces or more—of purported

‘Tiffany’ jewelry is almost certainly selling counter-

feit merchandise.” Jd. at 7la—72a. (In fact, some

sellers were listing thousands of purported Tiffany

items at a time. See C.A. App. 108-09.) The letter

demanded that eBay immediately remove listings for

all counterfeit Tiffany merchandise currently on the

eBay website and take steps permanently to elimi-

nate the sale of such counterfeit merchandise. App.,

infra, 72a.

eBay rejected these demands and instead en-

couraged Tiffany to participate in eBay’s Verified

Rights Owner (“VeRO”) program, a “notice-and-

takedown” system under which eBay could remove

potentially infringing listings. App., infra, 72a; see

also id. at 63a—66a. To trigger VeRO’s takedown

procedure, a trademark holder was required to sub-

mit a Notice of Claimed Infringement (““NOCI”) at-

testing, under penalty of perjury, that it had a “good-

faith belief” that the particular item is infringing.

Id. at 64a. eBay primarily employed a “three-strikes

7

rule” for suspensions in response to NOCIs, under

which a particular seller generally would be sus-

pended from eBay only after its listings were subject

to three NOCIs. Jd. at 12a, 88a. VeRO did not, how-

ever, resolve eBay’s massive counterfeiting problem.”

Unable to stop counterfeiting on eBay through

the VeRO program, Tiffany filed suit. Among other

things, it alleged that eBay is liable for contributory

trademark infringement under the Lanham Act, as

well as the parallel doctrine under New York law.3

In addition to damages, Tiffany sought an injunction

prohibiting eBay from “assisting in or contributing to

the offering for sale, sale, advertising and/or promo-

tion in the United States of ... jewelry bearing the

TIFFANY, TIFFANY & CO., or T & CO. trademarks,

except for genuine merchandise that in its entirety

has been made, sponsored or approved by [Tiffany].”

App., infra, 187a.

2. After a bench trial, the district court entered

judgment for eBay. App., infra, 44a—47a, 172a. The

court began its analysis by noting that “[i]t is well

established that ‘liability for trademark infringement

can extend beyond those who actually mislabel goods

2 To the contrary, “[iln each year from 2003 through 2006,

Tiffany reported substantially more listings [through VeRO]

than it did the year prior.” App., infra, 76a. Tiffany reported

20,915 infringing listings in 2003; 45,252 in 2004; 59,012 in

2005; and 134,779 in 2006. Jbid. By the time of trial, Tiffany

had reported a total of 284,149 listings. Jbid. These figures

likely understate the actual number of counterfeit items be-

cause they “represent only listings,” whereas “a single listing

may have offered multiple Tiffany items.” 7d. at 76a n.16.

3 “The elements required to prevail on trademark infringe-

ment... under New York common law mirror the Lanham Act

claims for trademark infringement... .” App., infra, 99a.

8

with the mark of another.” Jd. at 115a (quoting Jn-

wood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 853

(1982)). Under this Court’s decision in Jnwood, the

district court noted, a defendant may be held con-

tributorily liable if it “continues to supply’ its product

to one whom it knows or has reason to know is en-

gaging in trademark infringement.” Jd. at 117a

(quoting 456 U.S. at 854).4

The district court acknowledged that eBay was

well aware that counterfeit Tiffany merchandise was

being sold on its website. App., infra, 128a. For in-

stance, Tiffany had “apprised eBay of the results of

its Buying Programs” and “filed thousands of NOCIs

alleging a good faith belief that certain listings were

counterfeit or otherwise infringing on Tiffany’s

marks.” Jd. at 129a. In fact, the district court noted,

“eBay was generally aware that counterfeit Tiffany

jewelry was being listed and sold on eBay even prior

to Tiffany’s initial demand letter.” Jd. at 142a (em-

phasis omitted).

Thus, the district court characterized the rele-

vant issue as “whether eBay’s generalized knowledge

of trademark infringement on its website was suffi-

cient to meet the ‘knowledge or reason to know’

prong of the Inwood test.” App., infra, 129a (empha-

4 Inwood arose in the context of a “manufacturer or distribu-

tor,” 456 U.S. at 854, but the district court recognized that its

test for contributory trademark liability applies equally to ser-

vice providers, like eBay, that “halve] direct control over the

means of infringement,” App., infra, 125a. Although eBay chal-

lenged this point before the district court, “[o]n appeal, eBay no

longer maintain|ed] that it is not subject to Inwood.” Id. at 23a.

9

sis in original).o The court held that, “while eBay

clearly possessed general knowledge as to counter-

feiting on its website, such generalized knowledge is

insufficient under the /nwood test to impose upon

eBay an affirmative duty to remedy the problem.”

Id. at 130a. And because “a substantial number of

authentic Tiffany goods are sold on eBay” in addition

to the counterfeit items, “it ... cannot be said that

generalized knowledge of counterfeiting is sufficient

to impute knowledge to eBay of any specific acts of

actual infringement.” Jd. at 133a—134a.

3. The Second Circuit affirmed. “For contribu-

tory trademark infringement liability to lie,” it con-

cluded, “a service provider must have more than a

general knowledge or reason to know that its service

is being used to sell counterfeit goods.” App., infra,

27a. Instead, “[slome contemporary knowledge of

which particular listings are infringing or will in-

fringe in the future is necessary.” Jd. at 27a—28a

(emphasis added).

Although Tiffany had argued that Inwood im-

poses contributory liability whenever “the defendant

knew or should have known that its product or ser-

vice was being used to further illegal counterfeiting

activity,” the Second Circuit held that the case did

not “establis[h] the contours” of contributory liability

because Inwood had “explicitly declined to apply [the

° The district court acknowledged that “the situation is dis-

tinct with respect to the individual sellers against whom Tif-

fany filed NOCIs.” App., infra, 146a. Because “eBay’s practice

was to promptly remove the challenged listing from its web-

site,” however, the district court “conclude[d] that Tiffany has

failed to prove that eBay continued to supply its services in in-

stances where it knew or had reason to know of infringement.”

Id. at 147a.

10

‘knows or has reason to know’] prong to the facts

then before it.” App., infra, 28a (internal quotation

marks omitted); see also Inwood, 456 U.S. at 852

n.12 (declining to reconsider the district court’s fac-

tual finding that “the petitioners did not continue to

provide drugs to retailers whom they knew or should

have known were engaged in trademark infringe-

ment”).6 The court of appeals instead looked to this

Court’s “discussion of Jnwood in a subsequent copy-

right case, Sony Corp. of America v. Universal City

Studios, Inc., 464 U.S. 417 (1984).” App., infra, 28a—

29a (emphasis in original).

In Sony, this Court rejected claims of contribu-

tory copyright infringement against the manufactur-

ers of video cassette recorders that were used by

some purchasers to commit copyright infringement.

In a footnote, the Court explained that the test for

contributory copyright infringement is broader than

the test for contributory trademark infringement: “If

Inwood’s narrow standard for contributory trade-

mark infringement governed here,” the Court noted,

the plaintiffs’ “claim of contributory infringement

would merit little discussion” because Sony does not

“supply its products to identified individuals known

by it to be engaging in continuing infringement of

[the plaintiffs’] copyrights.” 464 U.S. at 439 n.19.

The Second Circuit acknowledged that this foot-

note was dicta and that it contained, at best, an ab-

6 The Second Circuit noted parenthetically that, “insofar as

[Inwood] speaks to the issue,” “the particular phrasing that the

Court used—that a defendant will be liable if it ‘continues to

supply its product to one whom it knows or has reason to know

is engaging in trademark infringement’—supports the district

court’s interpretation.” App., infra, 28a (quoting 456 U.S. at

854) (emphasis added by Second Circuit).

11

breviated description of the Jnwood test. App., infra,

30a & n.11 (noting that “Sony refers to a defendant’s

knowledge, but not to its constructive knowledge, of

a third party’s infringing conduct”). Nonetheless, the

Second Circuit concluded that Sony’s discussion of

Inwood was controlling because it “constitute|s] the

only discussion of [the ‘knows or has reason to know’]

prong by the Supreme Court of which we are aware.”

Id. at 30a.

The Second Circuit attempted to distinguish

Fonovisa, which involved counterfeit records sold at

a swap meet, only in a footnote. App., infra, 34a

n.16. The court noted that “eBay’s efforts to combat

counterfeiting far exceeded the efforts made by the

defendants” in Fonovisa, and also that “the court in

Fonovisa merely sustained the plaintiffs complaint

against a motion to dismiss.” [bid.

The court of appeals therefore “agree[d] with the

district court that ‘Tiffany’s general allegations of

counterfeiting failed to provide eBay with the knowl-

edge required under Inwood.” App., infra, 30a (quot-

ing id. at 136a). Because “Tiffany failed to demon-

strate that eBay was supplying its service to indi-

viduals who it knew or had reason to know were sell-

ing counterfeit Tiffany goods,” the Second Circuit “af-

firm[ed] the judgment of the district court insofar as

it holds that eBay is not contributorially liable for

trademark infringement.” Jd. at 30a—31a.7

7 The Second Circuit remanded on Tiffany’s separate claim

that eBay had engaged in false advertising of Tiffany goods on

its website. App., infra, 42a. These remand proceedings, which

are ongoing, do not address any issue that is relevant to the

question presented.

12

REASONS FOR GRANTING THE PETITION

This Court should grant certiorari to clarify the

type of knowledge required to impose liability for

contributory trademark infringement. ‘The Second

Circuit below split with the Ninth Circuit in holding

that the operator of an online marketplace where

substantial quantities of counterfeit goods are sold

cannot be held contributorily liable unless it has

“[slome contemporary knowledge of which particular

listings are infringing or will infringe in the future.”

App., infra, 27a—28a (emphasis added). Particularly

given the profound importance of the Second and

Ninth Circuits in articulating and developing federal

trademark law, this Court’s review is warranted.

The need for this Court’s gvidance on the scope

of contributory trademark iniri....ement is particu-

larly intense because, as the Second Circuit recog-

nized, the Court most recently addressed the issue in

1982. The allocation of liability in this context ulti-

mately determines who bears the burden of policing

against trademark infringement, yet when the Court

last considered the issue, the Internet was practi-

cally nonexistent. The Internet has since become an

effective and widely used tool for counterfeiters to

ply their trade, and the magnitude of that infringe-

ment on valuable trademark rights could scarcely

have been imagined in 1982.

The decision below is the latest in an ongoing se-

ries of cases around the world that have attempted to

define, in the face of these unprecedented develop-

ments in technology, the circumstances under which

eBay and other Internet-based service providers can

be held liable for the infringing conduct of their us-

ers. See App., infra, 22a n.8 (citing several foreign

cases). The position of federal law on this issue is a

13

matter for the courts, as contributory trademark in-

fringement has always been a “judicially created doc-

trine that derives from the common law of torts.” Jd.

at 19a. That position should be decided by the high-

est court in the country, not the Second Circuit.

I. THE SECOND '- CIRCUIT INCORRECTLY

RESOLVED THE QUESTION PRESENTED AND

CREATED A_ SPLIT WITH THE NINTH

CIRCUIT.

The Second Circuit held that, “[flor contributory

trademark infringement liability to lie, a service pro-

vider must have more than a general knowledge or

reason to know that its service is being used to sell

counterfeit goods.” App., infra, 27a. Instead, “[slome

contemporary knowledge of which particular listings

are infringing or will infringe in the future is neves-

sary.” Id. at 27a—28a. This decision is incorrect and

squarely conflicts with the Ninth Circuit’s decision in

Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259

(9th Cir. 1996).

1. In Inwood Laboratories, Inc. v. Ives Laborato-

ries, Inc., this Court held that a defendant is liable

for contributory trademark infringement if “it con-

tinues to supply its product to one whom it knows or

has reason to know is engaging in trademark in-

fringement.” 456 U.S. 844, 854 (1982). The Second

Circuit interpreted Inwood as drawing a distinction

between “general” and “specific”? knowledge of in-

fringing activity, but the relevant question under

Inwood is instead whether the defendant has contin-

ued to supply its product despite knowledge—

whether characterized as “general” or “specific”’—

that its customers are using that product to commit

trademark infringement.

14

In Inwood, the plaintiff manufactured and mar-

keted a patented prescription drug under a regis-

tered trademark. 456 U.S. at 846. Once the patent

had expired, generic drug companies began manufac-

turing the drug, using capsules in identical colors to

those used by the plaintiff. Jd. at 847. The plaintiff

sued the generic drug manufacturers, claiming that

their use of identically colored capsules contributed

to the infringing activities of pharmacists who had

substituted the generic drug and mislabeled it with

the plaintiffs trademark. Jd. at 849-50.

The district court entered judgment for the de-

fendants, concluding that incidents of mislabeling

“occurred too infrequently to justify the inference

that the ... use of imitative colors had ‘impliedly in-

vited’ druggists to mislabel.” 456 U.S. at 853. On

appeal, however, the Second Circuit concluded that

the district court had failed to give sufficient weight

to the “pattern of illegal substitution and mislabel-

ing.” Id. at 855 (quoting Ives Labs., Inc. v. Darby

Drug Co., 638 F.2d 538, 543 (2d Cir. 1981)).

This Court reversed. But it did not reverse—as

it might have done—because the “pattern” of infring-

ing activity discussed by the Second Circuit was le-

gally insufficient to trigger liability. Instead, it con-

cluded that, under the standard of review following a

bench trial, the Second Circuit could not have re-

jected the district court’s factual findings as clearly

erroneous. Inwood, 456 U.S. at 855—56; see also Ives

Labs., Inc. v. Darby Drug Co., 488 F. Supp. 394, 397

(E.D.N.Y. 1980) (district court opinion) (“There was

no proof of illegal substitution accompanied by mis-

labeling beyond the few instances referred to on the

motion for a preliminary injunction.”).

15

In this case, the Second Circuit believed Inwood

was of limited value because it did not contain a de-

tailed analysis of the “knows or has reason to know”

standard for liability. App., infra, 28a. That does

not mean, however, that Jnwood failed to offer any

meaningful guidance. To the contrary, in articulat-

ing the test for contributory trademark infringement,

the Court expressly and approvingly relied on Judge

Wyzanski’s seminal opinion in Coca-Cola Co. v.

Snow Crest Beverages, Inc., 64 F. Supp. 980 (D.

Mass. 1946), affd, 162 F.2d 280 (lst Cir. 1947),

which forecloses any effort to distinguish between

“specific” and “general” knowledge in this context.

In Snow Crest, Coca-Cola alleged that, “when

bars received orders for rum (or whiskey) and Coca-

Cola, [they] frequently substituted defendant’s prod-

uct,” Polar Cola. 64 F. Supp. at 988. Although Judge

Wyzanski ultimately concluded that Coca-Cola had

inadequate evidence of this alleged infringement, id.

at 989-90, his decision recognized that “general”

knowledge of infringing activity would be sufficient

for liability:

Plaintiff would have established a case

against defendant if ... plaintiff had given

defendant either (a) credible information that

would have led a normal bottler in defen-

dant’s position to believe that so many bar

customers specifically ordered “rum (or whis-

key) and Coca-Cola” that in view of the vol-

ume of defendant’s sales many bars must

necessarily be passing off defendant’s prod-

ucts as Coca-Cola, or (b) notice that particu-

lar named bars which defendant was con-

tinuing to supply were serving defendant’s

16

product when plaintiffs product was specifi-

cally ordered.

Id. at 989-90 (emphases added). Thus, Snow Crest

recognizes that knowledge of pervasive infringing ac-

tivity may support contributory liability. And since

that decision forms the basis for the test announced

in Inwood—indeed, the discussion of (b) and (a) in

the quoted passage parallels the “knows or has rea.-

son to know” prong of Inwood—it would be anoma-

lous indeed to conclude that eBay could be held liable

only based on knowledge of “which particular listings

are infringing” and thus could ignore evidence of

widespread infringement on its website (including by

specific sellers that had previously been identified as

infringers). App., infra, 28a.

Because Inwood and Snow Crest thus resolve the

question presented here, the Second Circuit had no

need to resort to this Court’s copyright decision in

Sony Corp. of America v. Universal City Studios,

Inc., 464 U.S. 417 (1984). And it was particularly in-

appropriate for the Second Circuit to treat acknow}-

edged dicta from that decision (App., infra, 30a) as

requiring a different and more specific type of knowl-

edge than Inwood or Snow Crest had required.

Sony is, in any event, easily distinguishable from

this case and Jnwood. The defendants in Sony “sup-

plie[d] a piece of equipment”—a video cassette re-

corder—“that is generally capable of copying the en-

tire range of programs that may be televised.” 464

U.S. at 436. Each video cassette recorder could be

employed for entirely lawful purposes, or was at

least “capable of commercially significant noninfring-

ing uses.” Jd. at 442. Once the recorder was sold,

Sony had no way to control how it might be used by

individual buyers. As this Court therefore recog-

17

nized, “[i]f vicarious liability is to be imposed on Sony

in this case, it must rest on the fact that it has sold

equipment with constructive knowledge of the fact

that its customers may use that equipment to make

unauthorized copies of copyrighted material.” Jd. at

439 (emphasis added). The Court concluded that

“the business of supplying the equipment that makes

[Inon-infringing] copying feasible should not be stifled

simply because the equipment is used by some indi-

viduals to make unauthorized reproductions of re-

spondents’ works.” Id. at 446.

None of this has anything to do with eBay’s in-

fringing conduct here. eBay has ongoing control over

what items may be sold on its marketplace, and it

profits handsomely and directly from increased post-

ings and sales whether or not the articles sold are

genuine; it has not merely sold an article of com-

merce that might be misused without any ability on

its part to control the potentially infringing activity.

The issue, therefore, is whether, having created and

profited from a marketplace that facilitates vast

amounts of trademark infringement, eBay can pur-

port to address that problem through steps that in

practice are wholly unequal to the task and simply

shift the costs of monitoring that market to the inno-

cent trademark holder. eBay “knows or has reason

to know” that its service is widely used for trade-

mark infringement, and that is sufficient under /n-

wood to require eBay to eliminate the infringe-

ment—that is, to adopt procedures that actually are

effective in removing the vast amounts of counterfeit

Tiffany items in its for-profit marketplace.

2. In holding that “general” knowledge of in-

fringing activity is insuificient for contributory liabil-

ity, the decision below brings the Second Circuit into

18

direct conflict with the Ninth Circuit’s decision in

Fonovisa, which upheld the legal sufficiency of a

complaint against a flea-market operator based on

allegations that the operator was “aware that ven-

dors ... were selling counterfeit recordings in viola-

tion of [the plaintiff]’s trademarks.” 76 F.3d 259, 261

(9th Cir. 1996). Although the district court in this

case correctly recognized that “eBay is analogous to a

flea market” like the one at issue in Fonovisa, App.,

infra, 128a, the Second Circuit nonetheless con-

cluded that eBay could not be held liable for con-

tributory trademark infringement even though it

“knew ... that counterfeit Tiffany products were

listed and sold through its website,” id. at 33a.

This division between the Second and Ninth Cir-

cuits is particularly problematic because those cir-

cuits each handle more trademark cases than any

other regional court of appeals.® Yet these two cir-

cuits have now staked out quite different positions

on the type of knowledge required for contributory

trademark infringement: The complaint in Fonovisa

was legally sufficient because, yet eBay prevailed be-

low even though, the market operator was aware of

widespread counterfeiting in its market. This Court

5 See, eg., Irina D. Manta, In Search of Validity: A New

Model for the Content and Procedural Treatment of Trademark

Infringement Surveys, 24 Cardozo Arts & Ent. L.J. 1027, 1032

n.22 (2007) (discussing statistics based on Westlaw searches

and noting that, “liJn terms of industries, New York City and

Los Angeles present the most logical locations for [trademark]

suits”); see also James C. Duff, Admin. Office of the U.S. Courts,

Judicial Business of the United States Courts: 2009 Annual Re

port of the Director 187--200 tbl. C-11 (providing statistics at the

district-court level).

19

should grant certiorari to bring national uniformity

to this important issue of trademark law.

a. Fonovisa involved claims for contributory

trademark infringement “against the operators of a

swap meet, sometimes called a flea market, where

third-party vendors routinely sell counterfeit re-

cordings that infringe on the plaintiffs ... trade-

marks.” 76 F.3d at 260. In that case, as here, there

was “no dispute for purposes of thle] appeal that [the

operators} were aware that vendors in their swap

meet were selling counterfeit recordings in violation

of [the plaintiffs] ... trademarks.” /d. at 261.

According to the allegations in the complaint, the

local sheriffs department had seized more than

38,000 counterfeit recordings at the swap meet just

over a year before the plaintiff filed suit, and it noti-

fied the swap meet’s operators of the seizure. 76

F.3d at 261. After a return visit, the sheriffs de-

partment informed the operators of “on-going sales of

infringing materials,” ibid., and an investigator hired

by the plaintiff likewise discovered “between nine

and twelve vendors selling counterfeits” on each of

several visits to the swap meet, Fonovisa, Inc. v.

Cherry Auction, Inc., 847 F. Supp. 1492, 1495 (E.D.

Cal. 1994).

Although these allegations were undoubtedly

sufficient to show that the swap meet’s operators had

“general knowledge” that their “service [was] being

used to sell counterfeit goods,” App., infra, 27a, the

allegations could not establish that the operators

knew which particular recordings—or even which

particular vendors—were infringing. Nonetheless,

the Ninth Circuit concluded that the plaintiff had

adequately “stated a claim for contributory trade-

mark infringement.” 76 F.3d at 265. The court em-

20

phasized that “a swap meet can not disregard its

vendors’ blatant trademark violations with impu-

nity.” Ibid.; see also id. at 264 (noting, in the context

of a related claim for contributory copyright in-

fringement, that “[t]here is no question that plaintiff

adequately alleged the element of knowledge in this

case”).

b. The Second Circuit held below that, “[flor con-

tributory trademark infringement’ liability to lie, a

service provider must have more than a general

knowledge or reason to know that its service is being

used to sell counterfeit goods.” App., infra, 27a. The

Second Circuit attempted to distinguish Fonovisa

only in a footnote, but neither of its purported dis-

tinctions is persuasive.

First, the Second Circuit noted that “eBay’s ef-

forts to combat counterfeiting far exceeded the ef-

forts made by the defendants” in Fonovisa. App., in-

fra, 34a n.16. Yet nothing in the Ninth Circuit’s dis-

cussion of knowledge turns on the defendants’ efforts

vel non to stop counterfeiting; instead, eBay is liable

under Inwood if it continued to supply its service af-

ter acquiring knowledge or reason to know of the in-

fringing activity. Thus, the critical issue addressed

by the Second Circuit was whether Jnwood required

knowledge or reason to know (1) that particular list-

ings on eBay were infringing, or (2) that substantial

quantities of counterfeit Tiffany merchandise were

listed’on eBay. There is no dispute that eBay knew

the latter, and if that knowledge were sufficient for

liability—as the Ninth Circuit held in Fonovisa—

21

then it is immaterial whether eBay purportedly tried

but failed to stop counterfeiting.9

Second, the Second Circuit emphasized that

Fonovisa “merely sustained the plaintiffs complaint

against a motion to dismiss.” App., infra, 34a n.16.

But the whole point of a motion to dismiss is to test

the /egal sufficiency of the complaint: whether the

pleader has alleged facts that, if true, would “entitle

lit] to relief.” Fed. R. Civ. P. 8(a)(2); see also, e.g.,

Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009)

(“When there are well-pleaded factual allegations, a

court should assume their veracity and then deter-

mine whether they plausibly give rise to an entitle-

ment to relief.”). The Ninth Circuit held that the al-

legations of knowledge made in Fonovisa were suffi-

cient to plead a claim of contributory trademark in-

fringement—that is, the defendant would be liable

for contributory trademark infringement if the plain-

tiff could prove those allegations. Yet the Second

Circuit rejected liability for eBay on analogous facts

because it concluded, as a matter of law, that “a ser-

vice provider must have more than a general knowl-

edge or reason to know that its service is being used

to sell counterfeit goods.” App., infra, 27a.

This case cannot meaningfully be distinguished

from Fonovisa, yet the two decisions reach contrary

answers to the question presented. This conflict of

authority—between the two most important regional

9 This is, of course, simply another way of saying that the

Inwood test determines which party bears the burden of polic-

ing against infringement. If that burden is placed on eBay, as

Fonovisa requires, then it likewise bears the risk that its efforts

at policing—however substantial they may seem to eBay—will

fail, and therefore should insure against that risk by charging

additional fees.

22

courts of appeals on trademark issues—warrants the

Court’s intervention.

II. THE QUESTION PRESENTED IS EXTREMELY

IMPORTANT TO ALLOCATING TRADEMARK

RIGHTS AND BURDENS IN THE MODERN

INTERNET ECONOMY.

As the district court recognized, the issue in this

case directly concerns “who should bear the burden

of policing” against counterfeit goods: the trademark

owner, Or a company that has created and continues

to profit from a marketplace in which infringing

goods are routinely sold. App., infra, 45a. This

Court last addressed the issue of contributory

trademark infringement in 1982. In the nearly 30

years since this Court’s decision in Inwood, however,

much has changed. Trafficking in counterfeit goods

has become a global economic problem, and the

Internet now provides unprecedented opportunities

for counterfeiters to market their illegitimate wares.

Courts around the globe have struggled to define the

proper scope of contributory liability in this changed

world. This Court’s review is likewise warranted to

ensure that federal trademark law is adequately cali-

brated to modern economic and technological reality.

1. There can be no debate that counterfeiting is

a serious problem. As the House Committee on the

Judiciary noted in evaluating legislation that ulti-

mately strengthened the protection for intellectual-

property rights, “[clonservative estimates indicate

that the United States economy loses between $200

and $250 billion per year, and has lost 750,000 jobs,

due to intellectual property theft.” H.R. Rep.

23

No. 110-617, at 21 (2008).19 Indeed, “[slome esti-

mates indicate that counterfeit and pirated goods

comprise six to nine percent of all world trade, the

bulk of which violates the intellectual property rights

of United States businesses and entrepreneurs.”

Ibid. This problem is all the more serious given the

well documented connection between counterfeiting

and terrorism: Funds from sales of counterfeit goods

can be, and often are, funneled to terrorist groups.

See The Links Between Intellectual Property Crime

and Terrorist Financing: Hearing Before the H.

Comm. on Int’l Relations, 108th Cong. (2003) (state-

ment of Ronald K. Noble, Sec’y Gen. of Interpol),

available at http:/Awww.interpol.int/Public/ICPO/

speeches/SG20030716.asp; see also, e.g., Roslyn A.

Mazer, From T-Shirts to Terrorism: That Fake Nike

Swoosh May Be Helping to Fund Bin Laden’s Net-

work, Wash. Post, Sept. 30, 2001, at B2.

Trademarks are vitally important to the modern

Internet economy and enable purchasers to evaluate

the quality of products they can neither see nor

touch. Yet, as this case illustrates, electronic com-

merce has also provided counterfeiters with new op-

portunities and new markets that simply did not ex-

ist 30 years ago. Even in the best of circumstances,

“trademark law has labored to keep pace with the

10 See also, e.g., Matthew Benjamin, A World of Fakes, U.S.

News & World Report, July 14, 2003, at 46-47 (estimating the

annual cost of counterfeit goods to the U.S. economy at $200—

$250 billion), cited in App., infra, 61a; Office of the Comptroller,

City of New York, Bootleg Billions: The Impact of the Counter-

feit Goods Trade on New York City (2004) (“The dollar exchange

of counterfeit goods in New York State during 2003 was esti-

mated to be $34 billion ....”), available at http://www.comp

troller.nyc.gov/bureaus/bud/04reports/Bootleg-Billions.pdf.

24

proliferation of technology.”. Matthew Fornaro, A

Parallel Problem: Grey Market Goods and the Inter-

net, 8 J. Tech. L. & Pol’y 69, 71 (2003) (arguing that

“current law does not adequately protect trademark

owners, especially in light of increasing Internet-

based commerce”). That is particularly true in the

context of contributory trademark infringement.

When Jnwood was decided in 1982, the number of

computers connected directly to the Internet—so-

called Internet “hosts”—-was 235; it is now well over

600 million. See Internet Systems Consortium,

Internet Host Count History, http://www. isc.org/

solutions/survey/history. Indeed, eBay itself was not

founded until 13 years after Jnwood; when the deci-

sion was handed down, eBay’s founder was just shy

of his 15th birthday.

This case presents the opportunity fer the Court

to clarify the doctrine of contributory trademark in-

fringement and ensure that this judicially created

doctrine reflects—or at least does not ignore—the

profound changes that have occurred since the Court

last considered the issue.

2. The importance of the question presented is

underscored by the fact that the decision below is

only the latest in a series of highly publicized deci-

sions, issued by courts in several countries, to ad-

dress whether eBay and other Internet service-

providers can be held liabie for trademark infringe-

ment committed by their users. See, e.g., App., infra,

22a n.8 (noting that “[a] Belgian court declined to

hold eBay hable for counterfeit cosmetic products

sold through its website,” while “French courts ...

have concluded that eBay violated applicable trade-

mark laws”). Given the global reach of websites such

as eBay, this Court, and not the courts of appeals,

25

should decide the correct interpretation of federal

law on this issue of international significance.

As commentators have noted, “(t]he ability of

trademark owners to knock down knockoffs from the

Internet is in flux as courts worldwide issue conflict-

ing rulings on the duty of online sellers and auction

brokers to police goods offered on their websites.”

Valerie Walsh Johnson & Laura P. Merritt, Tiffany

v. eBay: A Case of Genuine Disparity in International

Court Rulings on Counterfeit Products, Landslide,

Nov./Dec. 2008, at 22, 23. In particular, “(t]he courts

vary in answering some of the most significant ques-

tions in this area,” including the question presented

here: whether “an online host’s generalized knowl-

edge of the sale of infringing products on its site cre-

ate[s} liability.” Jd. at 23 (noting “mixed results”);

see also, e.g., Ellie Mercado, Note, As Long As ‘It’ Is

Not Counterfeit: Holding eBay Liable for Secondary

Trademark Infringement in the Wake of LVMH and

Tiffany, Inc., 28 Cardozo Arts & Ent. L.J. 115, 119

(2010) (noting that French and American courts have

“reached very different answers” to the same prob-

lem).

In one of the cases noted by the Second Circuit,

App., infra, 22a n.8, the Commercial Court of Paris

awarded €38.6 million in damages to Louis Vuitton,

concluding that eBay could have implemented addi-

tional measures to stop counterfeiting, such as by re-

quiring sellers to supply a purchase invoice or certifi-

cate of authenticity or by immediately terminating

the account of any infringing seller, see S.A. Louis

Vuitton Malletier v. eBay Inc., Tribunal de Com-

merce de Paris, Premiére Chambre B, No. 200677799

(June 30, 2008); see also, e.g., Doreen Carvajal, Court

Sides with LVMH over eBay, N.Y. Times, June 30,

26

2008, available at http://www.nytimes.com/2008/06/

30/technology/30iht-lvmh.4.14109529.html. This is

not the only foreign decision to award damages

against eBay in this context, but even decisions that

have declined to award damages have recognized the

possibility of injunctive relief. See, e.g., Eric Pfanner,

French Court Clears eBay in Selling Fake Goods,

N.Y. Times, May 13, 2009 (noting that a French

court ordered L’Oréal and eBay to work with a

“court-appointed mediator” in order to “improve

eBay’s counterfeit filters”), available at http://www.

nytimes.com/2009/05/14/technology/companies/14lore

al.html.

Regardless of the relief ultimately awarded,

these foreign decisions emphasize that the issue of

trademark liability presented in this case is appro-

priate for resolution at the highest levels of judicial

authority. In L’Oréal S.A. v. eBay International AG,

for instance, the English High Court of Justice de-

clined to hold eBay “jointly liable” for damages aris-

ing from the sale of counterfeit L’Oréal merchandise

but noted that L’Oréal might have an injunctive

remedy to “prevent the same or similar infringe-

ments in the future.” [2009] EWHC 1094 (Ch.)

(1 444 et seq., available at 2009 WL 1403418. 11

11 As the High Court explained, the English doctrine of “joint

liability” required L’Oréal to establish that eBay “participat[ed)

in a common design” with the infringers. L’Oréal 7 359. Yet

the High Court regarded even this issue—involving a more

stringent test than the one applicable here—as “a difficult issue

to decide.” Id. § 369; see also id. J 370 (admitting “considerable

sympathy with the suggestion that eBay Europe could and

should deal with the problem of infringement by accepting li-

ability and insuring against it by means of a premium levied on

sellers”).

27

eBay conceded that Article 11 of European Parlia-

ment and Council Directive 2004/48/EC “required

that an injunction be available against an intermedi-

ary whose services had been used to commit .. . in-

fringement,” but “submitted ... that Article 11

merely required that an injunction be available

against the intermediary to prevent the continuation

of that specific act of infringement. Id. | 464 (em-

phasis added). Rather than resolve the issue di-

rectly, the High Court recognized that “the guidance

of the [European Court of Justice] is required.” Id.

{1 465; see also id. J 478 (noting that, although the

court had discretion “as to whether to make a refer-

ence [to the ECJ] or to attempt to decide the issues,”

“in the circumstances of the present case it is clearly

better to make a reference”).

Just as the highest court in the European Union

is the proper body to determine the scope of Euro-

pean Union law on an issue with such significant in-

ternational ramifications, this Court is the proper

body to decide the issue as a matter of federal law.

And the Court should do so in this case. As the Eng-

lish High Court observed, “(t]he sooner the courts of

Europe are able to arrive at common answers to

these issues, the better.” L’Oréal J 480. The same is

true on this side of the Atlantic.

28

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

MIGUEL A. ESTRADA

Counsel of Record

Sco7tT P. MARTIN

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

mestrada@gibsondunn.com

Counsel for Petitioners

August 27, 2010

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 2008

(Argued: July 15, 2009 Decided: April 1, 2010)

Docket No. 08-3947-cv

TIFFANY (NJ) INC. and TIFFANY and COMPANY,

Plaintiffs-Appellants,

eBay Inc.,

Defendant-Appellee.

Before: SACK and B.D. PARKER, Circuit Judges,

and Goldberg, Judge.”

The Honorable Richard W. Goldberg, Senior Judge, United

States Court of International Trade, sitting by designation

. 7

4a

Appeal from a judgment of the United States

District Court for the Southern District of New York.

The district court (Richard J. Sullivan, Judge) con

cluded, inter alia, that eBay - the proprietor of a

website through which counterfeit Tiffany merchan-

dise was sold — did not, on the facts presented, en

gage in trademark infringement, false advertising, or

trademark dilution. We affirm the judgment with

respect to Tiffany’s claims of trademark infringement

and dilution, but remand for further proceedings

with respect to Tiffany’s claim of false advertising.

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 Anticounterfeit

ing 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., Infor-

mation Technology Association of America, Internet

Commerce _ Coalition, Netcoalition, United States

3a

Internet Service Provider Association, and United

States ‘l'elecom Association.

Meredith Martin Addy and Howard 8S. Michael,

Brinks Hofer Gilson & Lione, Chicago, LL, David S.

Fleming, Brinks Hofer Gilson & Lione, New York,

NY, for Amicus Curiae Yahoo! Inc.

Fred von Lohmann, Michael Kwum, The Elec-

tronic Frontier Foundation, San Francisco, CA, for

Amici Curiae The Electronic Frontier Foundation,

Public Citizen, and Public Knowledge.

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 us-

ers aS a means to perpetrate fraud by selling coun-

terfeit goods.

Plaintiffs Tiffany (NJ) Inc. and Tiffany and Com-

pany (together, “Tiffany”) have created and culti-

vated 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 merchan

dise, 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 be-

low, we affirm the district court’s judgment with re-

spect to Tiffany’s claims of trademark infringement

and dilution but remand for further proceedings with

respect to Tiffany’s false advertising claim.

4a

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. Sulli-

van, Judge) set forth its findings of fact and conclu-

sions of law. Tiffany (NJ) Inc. v. eBay, Inc., 576 F.

Supp. 2d 463 (S.D.N.Y. 2008) (“Tiffany”). When re-

viewing 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

eBay! 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 “connect[s] buyers and sellers and

[] enable[s] transactions, which are carried out di-

rectly between eBay members.” Tiffany, 576 F.

Supp. 2d at 475.2 In its auction and listing services,

1 eBay appears to be short for Echo Bay — the name of eBay’s

founder’s consulting firm was Echo Bay Technology Group. The

name “EchoBay” was already in use, so eBay was employed as

the name for the website. See http://en.wikipedia.org/wiki/

EBay#Origins_and_history (last visited Feb. 26, 2010);

http://news.softpedia.com/news/eBay-Turns-Ten-Happy-

Birthday-7502.shtml (last visited Feb. 26, 2010).

2 In addition to providing auction-style and fixed-priced list-

ings, eBay is also the proprietor of a traditional classified ser-

vice. Id. at 474.

5a

it “provides the venue for the sale [of goods] and sup-

port for the transaction|(s], [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.” Jd.

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. Jd. Sellers have the option of

purchasing, at additional cost, features “to differen-

tiate 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. Jd. 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. /d. at 471-72. Since

2000, all new Tiffany jewelry sold in the United

States has been available exclusively through Tif-

fany’s retail stores, catalogs, and website, and

through its Corporate Sales Department. Jd. at 472-

6a

73. It does not use liquidators, sell overstock mer-

chandise, 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 “offere[d] 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. Jd. 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 Pro-

gram were counterfeit. Jd. The district court con-

cluded, however, that the Buying Programs were

“methodologically flawed and of questionable value,”

id. at 512, and “provide[d] limited evidence as to the

total percentage of counterfeit goods available on

eBay at any given time,” id. at 486. The court none-

theless decided that during the period in which the

Buying Programs were in effect, a “significant por-

tion 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,” Jd. at 507.

The court found, however, that “a substantia] num-

ber of authentic Tiffany goods are [also] sold on

eBay.” Id. at 509.

la

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 Tif-

fany’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 reve-

nues 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.” dd.

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 in-

terest in eliminating counterfeit Tiffany merchandise

from eBay ... to preserve the reputation of its web-

site as a safe place to do business.” Jd. 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 ... complain[ed] to eBay”

about the sale of counterfeit Tiffany goods. Id. at

487. “[D]uring the last six weeks of 2004, 125 con-

8a

sumers complained to eBay about purchasing “Tif-

fany’ items through the eBay website that they be-

lieved to be counterfeit.” Jd.

Because eBay “never saw or inspected the mer-

chandise in the listings,” its ability to determine

whether a particular listing was for counterfeit goods

was limited. Jd. 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. Jd. at 472 n.7 (“[I]n

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 pro-

mote trust and safety on its website.” Jd. at 476. For

example, eBay and PayPal set up “buyer protection

programs,” under which, in certain circumstances,

the buyer would be reimbursed for the cost of items

purchased on eBay that were discovered not to be

genuine. Id. at 479. eBay also established a “Trust

and Safety” department, with some 4,000 employees

“devoted to trust and safety” issues, including over

200 who “focus exclusively on combating infringe-

ment” and 70 who “work exclusively with law en-

forcement.” Jd. at 476.

By May 2002, eBay had implemented a “fraud

engine,” “which is principally dedicated to ferreting

out illegal listings, including counterfeit listings.”

Id. at 477. eBay had theretofore employed manual

searches for keywords in listings in an effort to

“identify blatant instances of potentially infringing

. activity.” Jd. “The fraud engine uses rules and

complex models that automatically search for activ-

9a

ity that violates eBay policies.” Jd. In addition to

identifying items actually advertised as counterfeit,

the engine also incorporates various filters designed

to screen out less-obvious instances of counterfeiting

using “data elements designed to evaluate listings

based on, for example, the seller’s Internet protocol

address, any issues associated with the seller’s ac-

count on eBay, and the feedback the seller has re-

ceived from other eBay users.” Jd. In addition to

general filters, the fraud engine incorporates “Tif-

fany-specific filters,” including “approximately 90 dif-

ferent keywords” designed to help distinguish be-

tween genuine and counterfeit Tiffany goods. Id. at

491. During the period in dispute,? eBay also “peri-

edically conducted [manual] reviews of listings in an

effort to remove those that might be selling counter-

feit goods, including Tiffany goods.” Id.

For nearly a decade, including the period at is-

sue, eBay has also maintained and administered the

“Verified Rights Owner (‘VeRO’) Program” — a “no-

tice-and-takedown’ system” allowing owners of intel-

lectual property rights, including Tiffany, to “report

to eBay any listing offering potentially infringing

items, so that eBay could remove such reported list-

ings.” Jd. at 478. Any such rights-holder with a

“good-faith belief that {a particular listed] item in-

fringed on a copyright or a trademark” could report

the item to eBay, using a “Notice Of Claimed In-

3 In its findings, the district court often used the past tense to

describe eBay’s anticounterfeiting efforts. We do not take this

usage to suggest that eBay has discontinued these efforts, but

only to emphasize that its findings are issued with respect to a

particular period of time prior to the completion of trial and is-

suance of its decision.

10a

fringement form or NOCI form.” Jd. During the pe-

riod under consideration, eBay’s practice was to re-

move reported listings within twenty-four hours of

receiving a NOCI, but eBay in fact deleted seventy to

eighty percent of them within twelve hours of notifi-

cation. Id.

On receipt of a NOCI, if the auction or sale had

not ended, eBay would, in addition to removing the

listing, cancel the bids and inform the seller of the

reason for the cancellation. If bidding had ended,

eBay would retroactively cancel the transaction. Jd.

In the event of a cancelled auction, eBay would re-

fund the fees it had been paid in connection with the

auction. Id. at 478-79.

In some circumstances, eBay would reimburse

the buyer for the cost of a purchased item, provided

the buyer presented evidence that the purchased

item was counterfeit. Jd. at 479.4 During the rele-

vant time period, the district court found, eBay

“never refused to remove a reported Tiffany listing,

acted in good faith in responding to Tiffany's NOCIs,

and always provided Tiffany with the seller’s contact

information.” Jd. at 488.

In addition, eBay has allowed rights owners such

as Tiffany to create an “About Me” webpage on

eBay’s website “to inform eBay users about their

products, intellectual property rights, and legal posi-

4 We note, however, that, Tiffany’s “About Me” page on the

eBay website states that Tiffany does not authenticate mer-

chandise. Pl.’s Ex. 290.

Thus, it may be difficult for a purchaser to proffer evidence

to eBay supporting a suspicion that the “Tiffany” merchandise

he or she bought is counterfeit.

lla

tions.” Jd. at 479. eBay does not exercise control

over the content of those pages in a manner material

to the issues before us.

Tiffany, not eBay, maintains the Tiffany “About

Me” page. With the headline “BUYER BEWARE,”

the page begins: “Most of the purported TIF-

FANY & CO. silver jewelry and packaging

available on eBay is counterfeit.” Pl.’s Ex. 290

(bold face type in original). It also says, inter alia:

The only way you can ve certain that you are

purchasing a genuine TIFFANY & CO. prod-

uct is to purchase it from a Tiffany & Co. re-

tail store, via our website (www.tiffany.com)

or through a Tiffany & Co. catalogue. Tif-

fany & Co. stores do not authenticate mer-

chandise. A good jeweler or appraiser may

be able to do this for you.

Id.

In 2003 or early 2004, eBay began to use “special

warning messages when a seller attempted to list a

Tiffany item.” Tiffany, 576 F. Supp. 2d at 491.

These messages “instructed the seller to make sure

that the item was authentic Tiffany merchandise and

informed the seller that eBay ‘does not tolerate the

listing of replica, counterfeit, or otherwise unauthor-

ized items’ and that violation of this policy ‘could re-

sult in suspension of [the seller’s] account.” Jd. (al-

teration in original). The messages also provided a

link to Tiffany’s “About Me” page with its “buyer be-

ware” disclaimer. Jd. If the seller “continued to list

an item despite the warning, the listing was flagged

for review.” Id.

In addition to cancelling particular suspicious

transactions, eBay has also suspended from its web-

12a

site “hundreds of thousands of sellers every year,’

tens of thousands of whom were suspected [of] hav-

ing engaged in infringing conduct.” Jd. at 489. eBay

primarily emploved a “three strikes rule” for sus-

pensions, but would suspend sellers after the first

violation if it was clear that “the seller ‘listed a num-

ber of infringing items,’ and ‘[selling counterfeit mer-

chandise] appears to be the only thing they’ve come

to eBay to do.” Jd. But if “a seller listed a poten-

tially infringing item but appeared overall to be a le-

gitimate seller, the ‘infringing items [werej taken

down, and the seller [would] be sent a warning on

the first offense and given the educational informa-

tion, [and] told that ... if they do this again, they

will be suspended from eBay.” /J/d. (alterations in

original).®

By late 2006, eBay had implemented additional

antifraud measures: delaying the ability of buyers to

view listings of certain brand names, including Tif-

fany’s, for 6 to 12 hours so as to give rights-holders

such as Tiffany more time to review those listings;

developing the ability to assess the number of items

® According to the district court, “eBay took appropriate steps

to warn and then to suspend sellers when eBay learned of po-

tential trademark infringement under that seller’s account.”

Tiffany, 576 F. Supp. 2d at 489. The district court concluded

that it was understandable that eBay did not have a “hard-aid-

fast, one-strike rule” of suspending sellers because a NOCI “did

not constitute a definitive finding that the listed item was coun-

terfeit” and because “suspension was a very serious matter, par-

ticularly to those sellers who relied on eBay for their liveli-

hoods.” Id. The district court ultimately found eBay’s policy to

be “appropriate and effective in preventing sellers from return-

ing to eBay and re-listing potentially counterfeit merchandise.”

Id.

13a

listed in a given listing; and restricting one-day and

three-day auctions and cross-border trading for some

brand-name items. Id. at 492.

The district court concluded that “eBay consis-

tently took steps to improve its technology and de-

velop anti-fraud measures as such measures became

technologically feasible and reasonably available.”

Id. at 493.

eBay’s Advertising

At the same time that eBay was attempting to

reduce the sale of counterfeit items on its website, it

actively sought to promote sales of premium and

branded jewelry, including Tiffany merchandise, on

its site. Id. at 479-80. Among other things, eBay

“advised its sellers to take advantage of the demand

for Tiffany merchandise as part of a broader effort to

grow the Jewelry & Watches category.” Jd. at 479.

And prior to 2003, eBay advertised the availability of

Tiffany merchandise on its site. eBay’s advertise-

ments trumpeted “Mother’s Day Gifts!,” Pl.’s Exs.

392, 1064, a “Fall FASHION BRAND BLOWOUT,”

Pl.’s Ex. 392, “Jewelry Best Sellers,” id., “GREAT

BRANDS, GREAT PRICES,” Pl.’s Ex. 1064, or “Top

Valentine’s Deals,” Pl.’s Ex. 392, among other promo-

tions. It encouraged the viewer to “GET THE FINER

THINGS.” PIl.’s Ex. 392. These advertisements pro-

vided the reader with hyperlinks, at least one of each

of which was related to Tiffany merchandise — “Tif-

fany,” “Tiffany & Co. under $150,” “Tiffany & Co,”

“Tiffany Rings,” or “Tiffany & Co. under $50.” Pl.’s

Exs. 392, 1064.

eBay also purchased sponsored-link advertise-

ments on various search engines to promote the

availability of Tiffany items on its website. Tiffany,

576 F. Supp. 2d at 480. In one such case, in the form

l4a

of a printout of the results list from a search on Ya-

hoo! for “Tiffany,” the second sponsored link read

“Tiffany on eBay. Find tiffany items at low prices.

With over 5 million items for sale every day, you'll

find all kinds of unique [unreadable] Marketplace.

www.ebay.com.” Pl.’s Ex. 1065 (bold face type in

original). Tiffany complained to eBay of the practice

in 2003, and eBay told Tiffany that it had ceased

buying sponsored links. Tiffany, 576 F. Supp. 2d at

480. The district court found, however, that eBay

continued to do so indirectly through a third party.

Id.

Procedural History

By amended complaint dated July 15, 2004, Tif-

fany initiated this action. It alleged, inter alia, that

eBay’s conduct — i.e., facilitating and advertising the

sale of “Tiffany” goods that turned out to be counter-

feit — constituted direct and contributory trademark

infringement, trademark dilution, and false advertis-

ing. On July 14, 2008, following a bench trial, the

district court, in a thorough and thoughtful opinion,

set forth its findings of fact and conclusions of law,

deciding in favor of eBay on all claims.

Tiffany appeals from the district court’s judg-

ment for eBay.

DISCUSSION

We review the district 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).

l5a

I. Direct Trademark Infringement

Tiffany alleges that eBay infringed its trademark

in violation of section 32 of the Lanham Act. The

district court described this 1s a claim of “direct

trademark infringement,” Tiffany, 576 F. Supp. 2d at

493, and we adopt that terminology. Under section

32, “the owner of a mark registered with the Patent

and Trademark Office can bring a civil action against

a person alleged to have used the mark without the

owner’s consent.” ITC Lid. v. Punchgint, Inc., 482

F.3d 135, 145-46 (2d Cir.), cert. denied, 552 U.S. 827

(2007). We analyze such a claim “under a familiar

two-prong test. The test looks first to whether the

plaintiffs mark is entitled to protection, and second

to whether the defendant’s use of the mark is likely

to cause consumers confusion as to the origin or

sponsorship of the defendant’s goods.” Savin Corp. v.

Savin Group, 391 F.3d 439, 456 (2d Cir. 2004) (al-

6 That section states in pertinent part:

Any person who shall, without the consent of the regis-

trant — (a) use in commerce any reproduction, counter-

feit, copy, or colorable imitation of a registered mark in

connection with the sale, offering for sale, distribution,

or advertising of any goods or services on or in connec-

tion with which such use is likely to cause confusion, or

to cause mistake, or to deceive; ... shall be liable in a

civil action by the registrant for the remedies hereinaf-

ter provided.

15 U.S.C. §1114(1)(a). Tiffany's complaint asserts causes of

action under both the Lanham Act and New York State com-

mon law. The claims are composed of the same elements. We

therefore analyze them together. See, e.g., Standard & Poor's

Corp. v. Commodity Exch., Inc., 683 F.2d 704, 708 (2d Cir.

1982).

l6a

terations incorporated and ellipses omitted), cert. de-

nied, 546 U.S. 822 (2005).

In the district court, Tiffany argued that eBay

had directly infringed its mark by using it on eBay’s

website and by purchasing sponsored links contain

ing the mark on Google and Yahoo! Tiffany, 576 F.

Supp. 2d at 494. Tiffany also argued that eBay and

the sellers of the counterfeit goods using its site were

jointly and severally liable. Jd. The district court

rejected these arguments on the ground that eBay’s

use of Tiffany’s mark was protected by the doctrine

of nominative fair use. Id. at 494-95.

The doctrine of nominative fair use allows “lal

defendant [to] use a plaintiff's trademark to identify

the plaintiff's goods so long as there is no likelihood

of confusion about the source of [the! defendant’s

product or the mark-holder’s sponsorship or affilia-

tion.” Merck & Co. v. Mediplan Health Consulting,

Inc., 425 F. Supp. 2d 402, 413 (S.D.N.Y. 2006). The

doctrine apparently originated in the Court of Ap-

peals for the Ninth Circuit. See New Kids on the

Block v. News Am. Publ’g, Inc., 971 F.2d 302 (9th

Cir. 1992). To fall within the protection, according to

that court: “First, the product or service in question

must be one not readily identifiable without use of

the trademark; second, only so much of the mark or

marks may be used as is reasonably necessary to

identify the product or service; and third, the user

must do nothing that would, in conjunction with the

mark, suggest sponsorship or endorsement by the

trademark holder.” /d. at 308.

The Court of Appeals for the Third Circuit has

endorsed these principles. See Century 21 Real Ls

l7a

tate Corp. v. Lendingtree, Inc., 425 F.3d 211, 222 (3d

‘ir. 2005).7 We have referred to the doctrine, albeit

without adopting or rejecting it. See, e.g., Chambers

v. Time Warner, Inc., 282 F.3d 147, 156 (2d Cir.

2002) (noting that the district court had “la]ppl{ied]

the standard for non-trademark or ‘nominative’ fair

use set forth by the Ninth Circuit”). Other circuits

have done similarly. See, e.g., Univ. Comme’n Sys.,

Inc. v. Lycos, Inc., 478 F.3d 413, 424 (1st Cir. 2007);

Pebble Beach Co. v. Tour 187 Ltd., 155 F.3d 526, 547

(5th Cir. 1998), abrogated on other grounds by Traf:

Kix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23

(2001).

We need not address the viability of the doctrine

to resolve Tiffany’s claim, however. We have recop-

nized that a defendant may lawfully use a plaintiff's

trademark where doing so is necessary to describe

the plaintiff's product and does not imply a false af-

filiation or endorsement by the plaintiff of the defen-

dant. “While a trademark conveys an exclusive right

to the use of a mark in commerce in the area re

served, that right generally does not prevent one who

trades a branded product from accurately describing

it by its brand name, so long as the trader does not

create confusion by implying an affiliation with the

owner of the product.” Dow Jones & Co. v. Int'l Sec.

Exch., Inc., 451 F.3d 295, 308 (2d Cir. 2006); see also

Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 61-62

7 The Third Circuit treats the doctrine as an affirmative de

fense, see Century 21, 425 F.3d at 217-32, while the Ninth Cir

cuit views the doctrine as a modification to the likelihood of

confusion analysis of the plaintiffs underlying infringement

claim, see Playboy Enters. v. Welles, 279 F.3d 796, 801 (9th Cir

2002) .

18a

(2d Cir. 1992) (“As a general rule, trademark law

does not reach the sale of genuine goods bearing a

true mark even though the sale is not authorized by

the mark owner” (footnote omitted)); cf. Prestonettes,

Inc. v. Coty, 264 U.S. 359, 368 (1924) (when a “mark

is used in a way that does not deceive the public,”

there is “no such sanctity in the word as to prevent

its being used to tell the truth. It is not taboo.”).

We agree with the district court that eBay’s use

of Tiffany’s mark on its website and in sponsored

links was lawfut. eBay used the mark to describe ac-

curately the genuine Tiffany goods offered for sale on

its website. And none of eBay’s uses of the mark

suggested that Tiffany affiliated itself with eBay or

endorsed the sale of its products through eBay’s web-

site.

In addition, the “About Me” page that Tiffany

has maintained on eBay’s website since 2004 states

that “[mlost of the purported ‘TIFFANY & CO.’ silver

jewelry and packaging available on eBay is counter-

feit.” Tiffany, 576 F. Supp. 2d at 479 (internal quo-

tation marks omitted). The page further explained

that Tiffany itself sells its products only through its

own stores, catalogues, and website. Jd.

Tiffany argues, however, that even if eBay had

the right to use its mark with respect to the resale of

genuine Tiffany merchandise, eBay infringed the

mark because it knew or had reason to know that

there was “a substantial problem with the sale of

counterfeit [Tiffany] silver jewelry” on the eBay web-

site. Appellants’ Br. 45. As we discuss below, eBay’s

knowledge vel non that counterfeit Tiffany wares

were offered through its website is relevant to the

issue of whether eBay contributed to the direct in-

fringement of Tiffany’s mark by the counterfeiting

19a

vendors themselves, or whether eBay bears liability

for false advertising. But it is not a basis for a claim

of direct trademark infringement against eBay, espe-

cially inasmuch as it is undisputed that eBay

promptly removed all listings that Tiffany challenged

as counterfeit and took affirmative steps to identify

and remove illegitimate Tiffany goods. To impose

liability because eBay cannot guarantee the genu-

ineness of all of the purported Tiffany products of-

fered on its website would unduly inhibit the lawful

resale of genuine Tiffany goods.

We conclude that eBay’s use of Tiffany’s mark in

the described manner did not constitute direct

trademark infringement.

Il. Contributory Trademark Infringement

The more difficult issue, and the one that the

parties have properly focused our attention on, is

whether eBay is liable for contributory trademark

infringement -- i.e., for culpably facilitating the in-

fringing conduct of the counterfeiting vendors. Ac-

knowledging the paucity of case law to guide us, we

conclude that the district court correctly granted

judgment on this issue in favor of eBay.

A. Frinciples

Contributory trademark infringement is a judi-

cially created doctrine that derives from the common

law of torts. See, e.g., Hard Rock Café Licensing

Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1148

(7th Cir. 1992); cf’ Metro-Goldwyn-Mayer Studios

Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005)

(“[T]hese doctrines of secondary liability emerged

from common law principles and are well established

in the law.”) (citations omitted). The Supreme Court

most recently dealt with the subject in Inwood Labo-

20a

ratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844

(1982). There, the plaintiff, Ives, asserted that sev-

eral drug manufacturers had induced pharmacists to

mislabel a drug the defendants produced to pass it

off as Ives’. See id. at 847-50. According to the

Court, “if a manufacturer or distributor intentionally

induces another to infringe a trademark, or if it con-

tinues to supply its product to one whom it knows or

has reason to know is engaging in trademark in-

fringement, the manufacturer or distributor is con-

tributorially responsible for any harm done as a re-

sult of the deceit.” Jd. at 854.8 The Court ultimately

5 The Supreme Court cited two cases in support of this propo-

sition: William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526

(1924), and Coca-Cola Co. v. Snow Crest Beverages, Inc., 64 F.

Supp. 980 (D. Mass. 1946) (Wyzanski, J.), affd, 162 F.2d 280

(1st Cir.), cert. denied, 332 U.S. 809 (1947).

Like Inwood, Eli Lilly involved an allegation by a plaintiff

drug manufacturer that a defendant drug manufacturer had

intentionally induced distributors to pass off the defendant’s

drug to purchasers as the plaintiffs. 265 U.S. at 529-30. The

Supreme Court granted the plaintiffs request for an injunction,

stating that “|o]ne who induces another to commit a fraud and

furnishes the means of consummating it is equally guilty and

liable for the injury.” Jd. at 530-31.

In Snow Crest, the Coca-Cola Company claimed that a rival

soft drink maker had infringed Coca-Cola’s mark because bars

purchasing the rival soft drink had substituted it for Coca-Cola

when patrons requested a “rum (or whiskey) and Coca-Cola.”

64 F. Supp. at 982, $87. Judge Wyzanski entered judgment in

favor of the defendant primarily because there was insufficient

evidence of such illicit substitutions taking place. Jd. at 990. In

doing so, the court stated that “[blefore he can himself be held

as a wrongdoer ol[r] contributory infringer one who supplies an-

other with the instruments by which that other commits a tort,

must be shown to have knowledge that the other will or can

[Footnote continued on next page]

2la

decided to remand the case to the Court of Appeals

after concluding it had improperly rejected factual

findings of the district court favoring the defendant

manufacturers. Jd. at 857-59.

Inwood’s test for contributory trademark in-

fringement applies on its face to manufacturers and

distributors of goods. Courts have, however, ex-

tended the test to providers of services.

The Seventh Circuit applied Jnwood to a lawsuit

against the owner of a swap meet, or “flea market,”

whose vendors were alleged to have sold infringing

Hard Rock Café T-shirts. See Hard Rock Café, 955

F.2d at 1148-49. The court “treated trademark in-

fringement as a species of tort,” id. at 1148, and

analogized the swap meet owner to a landlord or li-

censor, on whom the common law “imposes the same

duty ... [as Jnwood] impose[s] on manufacturers and

distributors,” id. at 1149; see also Fonovisa, Inc. v.

Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996)

(adopting Hard Rock Café’s reasoning and applying

Inwood to a swap meet owner).

Speaking more generally, the Ninth Circuit con-

cluded that Jnwood’s test for contributory trademark

infringement applies to a service provider if he or she

exercises sufficient control over the infringing con-

duct. Lockheed Martin Corp. v. Network Solutions,

Inc., 194 F.3d 980, 984 (9th Cir. 1999); see also id.

(“Direct control and monitoring of the instrumental-

ity used by a third party to infringe the plaintiffs

mark permits the expansion of Inwood Lab.’s ‘sup-

[Footnote continued from previous page]

reasonably be expected to commit a tort with the supplied in-

strument.” Jd. at 989.

22a

plies a product’ requirement for contributory in-

fringement.”).

We have apparently addressed contributory

trademark infringement in only two related deci-

sions, see Polymer Tech. Corp. v. Mimran, 975 F.2d

58, 64 (2d Cir. 1992) (“Polymer I’); Polymer Tech.

Corp. v. Mimran, 37 F.3d 74, 81 (2d Cir. 1994)

(“Polymer IT’), and even then in little detail. Citing

Inwood, we said that “[a] distributor who intention-

ally induces another to infringe a trademark, or con-

tinues to supply its product to one whom it knows or

has reason to know is engaging in trademark in-

fringement, is contributorially liable for any injury.”

Polymer I, 975 F.2d at 64.

The limited case law leaves the law of contribu-

tory trademark infringement ill-defined. Although

we are not the first court to consider the application

of Inwood to the Internet, see, e.g., Lockheed, 194

F.3d 980, supra (Internet domain name registrar),

we are apparently the first to consider its application

to an online marketplace.®

8 European courts have done so. A Belgian court declined to

hold eBay liable for counterfeit cosmetic products sold through

its website. See Lancéme v. eBay, Brussels Commercial Court

(Aug. 12, 2008), Docket No. A/07/06032. French courts, by con-

trast, have concluded that eBay violated applicable trademark

laws. See, e.g., S.A. Louis Vuitton Malletier v. eBay, Inc., Tri-

bunal de Commerce de Paris, Premiere Chambre B. (Paris

Commercial Court), Case No. 200677799 (June 30, 2008); Her-

mes v. eBay, Troyes High Court (June 4, 2008), Docket No.

06/0264; see also Max Colchester, “EBay to Pay Damages To

Unit of LVMH,” The Wall Street Journal, Feb. 12, 2010,

http://online.wsj.com/article_email/SB100014240527487043370

04575059523018541764-

IMyQjAxMTAwMDEwMjExNDIyWj.html (last visited Mar. 1,

[Footnote continued on next page}

23a

B. Discussion

1. Does Jnwood Apply?

In the district court, the parties disputed

whether eBay was subject to the Inwood test. See

Tiffany, 576 F. Supp. 2d at 504. eBay argued that it

was not because it supplies a service while Inwood

governs only manufacturers and distributors of

products. Jd. The district court rejected that distinc-

tion. It adopted instead the reasoning of the Ninth

Circuit in Lockheed to conclude that Inwood applies

to a service provider who exercises sufficient control

over the means of the infringing conduct. Jd. at 505-

06. Looking “to the extent of the control exercised by

eBay over its sellers’ means of infringement,” the dis-

trict court concluded that Jnwood applied in light of

the “significant control” eBay retained over the

transactions and listings facilitated by and con-

ducted through its website. Jd. at 505-07.

On appeal, eBay no longer maintains that it is

not subject to Inwood.9 We therefore assume with-

[Footnote continued from previous page]

2010) (“A Paris court Thursday ordered eBay to pay Louis Vuit-

ton €200,000 ($275,000) in damages and to stop paying search

engines to direct certain key words to the eBay site.”); see gen-

erally, Valerie Walsh Johnson & Laura P. Merritt, TIFFANY v.

EBAY: A Case of Genuine Disparity in International Court

Rulings on Counterfeit Products, 1 No. 2 Landslide 22 (2008)

(surveying decisions by European courts in trademark in-

fringement cases brought against eBay).

9 Amici do so claim. See Electronic Frontier Foundation et al.

Amici Br. 6 (arguing that Inwood should “not govern where, as

here, the alleged contributory infringer has no direct means to

establish whether there is any act of direct infringement in the

first place”). We decline to consider this argument. “Although

an amicus brief can be helpful in elaborating issues properly

[Footnote continued on next pagel

24a

out deciding that Jnwood’s test for contributory

trademark infringement soverns.

2. Is eBay Liable Under Inwood?

The question that remains, then, is whether

eBay is liable under the Jnwood test on the basis of

the services it provided to those who used its website

to sell counterfeit Tiffany products. As noted, when

applying Jnwood to service providers, there are two

ways in which a defendant may become contributori-

ally liable for the infringing conduct of another: first,

if the service provider “inientionally induces another

to infringe a trademark,” and second, if the service

provider “continues to supply its [service] to one

whom it knows or has reason to know is engaging in

trademark infringement.” Jnwood, 456 U.S. at 854.

Tiffany does not argue that eBay induced the sale of

counterfeit Tiffany goods on its website — the circum-

stances addressed by the first part of the Inwood

test. It argues instead, under the second part of the

Inwood test, that eBay continued to supply its ser-

vices to the sellers of counterfeit Tiffany goods while

knowing or having reason to know that such sellers

were infringing Tiffany’s mark.

The district court rejected this argument. First,

it concluded that to the extent the NOCIs that Tif-

fany submitted gave eBay reason to know that par-

ticular listings were for counterfeit goods, eBay did

not continue to carry those listings once it learned

[Footnote continued from previous page]

presented by the parties, it is normally not a method for inject-

ing new issues into an appeal, at least in cases where the par-

ties are competently represented by counsel.” Universal City

Studios, Inc. v. Corley, 273 F.3d 429, 445 (2d Cir. 2001).

25a

that they were specious. Tiffany, 576 F. Supp. 2d at

515-16. The court found that eBay’s practice was

promptly to remove the challenged listing from its

website, warn sellers and buyers, cancel fees it

earned from that listing, and direct buyers not to

consummate the sale of the disputed item. /d. at

516. The court therefore declined to hold eBay con-

tributorially liable for the infringing conduct of those

sellers. Jd. at 518. On appeal, Tiffany does not ap-

pear to challenge this conclusion. In any event, we

agree with the district court that no liability arises

with respect to those terminated listings.

Tiffany disagrees vigorously, however, with the

district court’s further determination that eBay

lacked sufficient knowledge of trademark infringe-

ment by sellers behind other, non-terminated listings

to provide a basis for Inwood liability. Tiffany ar-

gued in the district court that eBay knew, or at least

had reason to know, that counterfeit Tiffany goods

were being sold ubiquitously on its website. Jd. at

507-08. As evidence, it pointed to, inter alia, the de-

mand letters it sent to eBay in 2003 and 2004, the

results of its Buying Programs that it shared with

eBay, the thousands of NOCIs it filed with eBay al-

leging its good faith belief that certain listings were

counterfeit, and the various complaints eBay re-

ceived from buyers claiming that they had purchased

one or more counterfeit Tiffany items through eBay’s

website. /d. at 507. Tiffany argued that taken to-

gether, this evidence established eBay’s knowledge of

the widespread sale of counterfeit Tiffany products

on its website. Tiffany urged that eBay be held con-

tributorially liable on the basis that despite that

knowledge, it continued to make its services avail-

able to infringing sellers. Jd. at 507-08.

26a

The district court rejected this argument. It ac-

knowledged that “[t]he evidence produced at trial

demonstrated that eBay had generalized notice that

some portion of the Tiffany goods sold on its website

might be counterfeit.” Jd. at 507 (emphasis in origi-

nal). The court characterized the issue before it as

“whether eBay’s generalized knowledge of trademark

infringement on its website was sufficient to meet

the ‘knowledge or reason to know’ prong of the Jn-

wood test.” Jd. at 508 (emphasis in original). eBay

had argued that “such generalized knowledge is in-

sufficient, and that the law demands more specific

knowledge of individual instances of infringement

and infringing sellers before imposing a burden upon

eBay to remedy the problem.” Jd.

The district court concluded that “while eBay

clearly possessed general knowledge as to counter-

feiting on its website, such generalized knowledge is

insufficient under the /nwood test to impose upon

eBay an affirmative duty to remedy the problem.”

Id. at 508. The court reasoned that Jnwood’s \an-

guage explicitly imposes contributory liability on a

defendant who “continues to supply its product [— in

eBay’s case, its service —] to one whom it knows or

has reason to know is engaging in trademark in-

fringement.” Jd. at 508 (emphasis in original). The

court also noted that plaintiffs “bear a high burden

in establishing ‘knowledge’ of contributory infringe-

ment,” and that courts have

been reiuctant to extend contributory trade-

mark liability to defendants where there is

some uncertainty as to the extent or the na-

ture of the infringement. In Inwood, Justice

White emphasized in his concurring opinion

that a defendant is not “require[d] ... to re-

2la

fuse to sell to dealers who merely might pass

off its goods.”

Id. at 508-09 (quoting Inwood, 456 U.S. at 861

(White, J., concurring) (emphasis and alteration in

original). 19

Accordingly, the district court concluded that for

Tiffany to establish eBay’s contributory liability, Tif-

fany would have to show that eBay “knew or had

reason to know of specific instances of actual in-

fringement” beyond those that it addressed upon

learning of them. /d. at 510. Tiffany failed to make

such a showing.

On appeal, Tiffany argues that the distinction

drawn by the district court between eBay’s general

knowledge of the sale of counterfeit Tiffany goods

through its website, and its specific knowledge as to

which particular sellers were making such sales, is a

“false” one not required by the law. Appellants’ Br.

28. Tiffany posits that the only relevant question is

“whether all of the knowledge, wher taken together,

puts [eBay] on notice that there is a substantial

problem of trademark infringement. If so and if it

fails to act, [eBay] is liable for contributory trade-

mark infringement.” Jd. at 29.

We agree with the district court. For contribu-

tory trademark infringement liability to lie, a service

provider must have more than a general knowledge

or reason to know that its service is being used to sell

counterfeit goods. Some contemporary knowledge of

10 The district court found the cases Tiffany relied on for the

proposition that general knowledge of counterfeiting suffices to

trigger liability to be inapposite. Jd. at 510.

28a

which particular listings are infringing or will in-

fringe in the future is necessary.

We are not persuaded by Tiffany’s proposed in-

terpretation of Inwood. Tiffany understands the “les-

son of Inwood” to be that an action for contributory

trademark infringement lies where “the evidence [of

infringing activity] — direct or circumstantial, taken

as a whole — ... provide[s] a basis for finding that

the defendant knew or should have known that its

product or service was being used to further illegal

counterfeiting activity.” Appellants’ Br. 30. We

think that Tiffany reads Jnwood too broadly. A\l-

though the /nwood Court articulated a “knows or has

reason to know” prong in setting out its contributory

liability test, the Court explicitly declined to apply

that prong to the facts then before it. See Inwood,

456 U.S. at 852 n.12 (“The District Court also found

that the petitioners did not continue to provide drugs

to retailers whom they knew or should have known

were engaging in trademark infringement. The

Court of Appeals did not discuss that finding, and we

do not address it.”) (internal citation omitted). The

“ourt applied only the inducement prong of the test.

See id. at 852-59.

We therefore do not think that /Jnwood estab-

lishes the contours of the “knows or has reason to

know” prong. Insofar as it speaks to the issue,

though, the particular phrasing that the Court used

— that a defendant will be liable if it “continues to

supply its product to one whom it knows or has rea-

son to know is engaging in trademark infringement,”

id. at 854 (emphasis added) — supports the district

court’s interpretation of Inwood, not Tiffany’s.

We find helpful the Supreme Court’s discussion

of Inwood in a subsequent copyright case, Sony Corp.

29a

of America v. Universal City Studios, Inc., 464 U.S.

417 (1984). There, defendant Sony manufactured

and sold home video tape recorders. Id. at 419.

Plaintiffs Universal Studios and Walt Disney Pro-

ductions held copyrights on various television pro-

grams that individual television-viewers had taped

using the defendant’s recorders. Jd. at 419-20. The

plaintiffs contended that this use of the recorders

constituted copyright infringement for which the de-

fendants should be held contributorily liable. Jd. In

ruling for the defendants, the Court discussed Jn

wood and the differences between contributory liabil-

ity in trademark versus copyright law.

If Inwood’s narrow standard for contributory

trademark infringement governed here, [the

plaintiffs] claim of contributory infringement

would merit little discussion. Sony certainly

does not ‘intentionally induce|]’ its customers

to make infringing uses of [the plaintiffs’

copyrights, nor does it supply its products to

identified individuals known by it to be en-

gaging in continuing infringement of [the

plaintiffs] copyrights.

Id. at 439 n.19 (quoting Inwood, 456 U.S. at 855;

emphases added).

Thus, the Court suggested, had the Jnwood stan-

dard applied in Sony, the fact that Sony might have

known that some portion of the purchasers of its

product used it to violate the copyrights of others

would not have provided a sufficient basis for con-

tributory liability. Inwood’s “narrow standard”

would have required knowledge by Sony of “identi-

fied individuals” engaging in infringing conduct. Tif-

fany’s reading of /nwood is therefore contrary to the

interpretation of that case set forth in Sony.

30a

Although the Supreme Court’s observations in

Sony, a copyright case, about the “knows or has rea

son to know” prong of the contributory trademark

infringement test set forth in Jnwood were dicta,

they constitute the only discussion of that prong by

the Supreme Court of which we are aware. We think

them to be persuasive authority here.!!

Applying Sony’s interpretation of Inwood, we

agree with the district court that “Tiffany’s general

allegations of counterfeiting failed to provide eBay

with the knowledge required under /nwood.” Tif

fany, 576 F. Supp. 2d at 511. Tiffany’s demand let

ters and Buying Programs did not identify particular

sellers who Tiffany thought were then offering or

would offer counterfeit goods. /d. at 511-13.!2 And

although the NOCIs and buyer complaints gave eBay

reason to know that certain sellers had been selling

counterfeits, those sellers’ listings were removed and

repeat offenders were suspended from the eBay site

Thus Tiffany failed to demonstrate that eBay was

supplying its service to individuals who it knew or

had reason to know were selling counterfeit Tiffany

goods.

ll In discussing /nwood’s “knows or has reason to know’ prong

of the contributory infringement test, Sony refers to a defen

dant’s knowledge, but not to its constructive knowledge, of a

third party’s infringing conduct. Sony, 464 U.S. at 439 n.19

We do not take the omission as altering the test /nwood articu

lates

l2 The demand letters did say that eBay should presume that

sellers offering five or more Tiffany goods were selling counter

feits, id. at 511, but we agree with the district court that this

presumption was factually unfounded, id. at 511-12

dla

Accordingly, we affirm the judgment of the dis

trict court insofar as it holds that eBay is not con

tributorially liable for trademark infringement

3. Willful Blindness.

Tiffany and its amici express their concern that if

eBay is not held hable except when specific counter

feit listings are brought to its attention, eBay will

have no incentive to root out such listings from its

website. They argue that this will effectively require

Tiffany and similarly situated retailers to police

eBay’s website — and many others like it — “24 hours

a day, and 365 days a year.” Council of Fushion De

signers of America, Inc. Amicus Br. 5. ‘They urge

that this is a burden that most mark holders cannot

afford to bear.

First, and most obviously, we ure interpreting

the law and applying it to the facts of this case. We

could not, even if we thought it wise, revise the exist

ing law in order to better serve one party’s interests

at the expense of the other's.

But we are also disposed to think, and the record

suggests, that private market forces give eBay and

those operating similar businesses a strony incentive

to minimize the counterfeit goods sold on their web

sites. eBay received many complaints from users

claiming to have been duped into buying counterfeit

Tiffany products sold on eBay. Tiffany, 576 F. Supp

2d at 487. The risk of alienating these users pives

eBay a reason to identify and remove counterfeit list

32a

ings.13 Indeed, it has spent millions of dollars in

that effort.

Moreover, we agree with the district court that if

eBay had reason to suspect that counterfeit Tiffany

goods were being sold through its website, and inten-

tionally shielded itself from discovering the offending

listings or the identity of the sellers behind them,

eBay might very well have been charged with knowl-

edge of those sales sufficient to satisfy Jnwood’s

“knows or has reason to know” prong. Tiffany, 576

F. Supp. 2d at 513-14. A service provider is not, we

think, permitted willful blindness. When it has rea-

son to suspect that users of its service are infringing

a protected mark, it may not shield itself from learn-

ing of the particular infringing transactions by look-

ing the other way. See, e.g., Hard Rock Café, 955

F.2d at 1149 (“To be willfully blind, a person must

Suspect wrongdoing and deliberately fail to investi-

gate.”); Fonovisa, 76 F.3d at 265 (applying Hard

Rock Café’s reasoning to conclude that “a swap meet

can not disregard its vendors’ blatant trademark in-

fringements with impunity”).!14 In the words of the

13 At the same time, we appreciate the argument that insofar

as eBay receives revenue from undetected counterfeit listings

and sales through the fees it charges, it has an incentive to

permit such listings and sales to continue.

14 To be clear, a service provider is not contributorially liable

under Inwood merely for failing to anticipate that others would

use its service to infringe a protected mark. Inwood, 456 U.S.

at 854 n.13 (stating that for contributory liability to lie, a de-

fendant must do more than “reasonably anticipate” a third

party’s infringing conduct (internal quotation marks omitted)).

But contributory liability may arise where a defendant is (as

was eBay here) made aware that there was infringement on its

site but (unlike eBay here) ignored that fact.

33a

Seventh Circuit, “willful blindness is equivalent to

actual knowledge for purposes of the Lanham Act.”

Hard Rock Café, 955 F.2d at 1149.15

eBay appears to concede that it knew as a gen-

eral matter that counterfeit Tiffany products were

listed and sold through its website. Tiffany, 576 F.

Supp. 2d at 514. Without more, however, this knowl-

edge is insufficient to trigger liability under Jnwood.

The district court found, after careful consideration,

15 The principle that willful blindness is tantamount to knowl-

edge is hardly novel. See, e.g. Harte-Hanks Comme’ns, Inc. v.

Connaughton, 491 U.S. 657, 659, 692 (1989) (concluding in pub-

lic-official libel case that “purposeful avoidance of the truth” is

equivalent to “knowledge that [a statement] was false or [was

made] with reckless disregard of whether it was false” (internal

quotation marks omitted)); United States v. Khorozian, 333

F.3d 498, 504 (3d Cir. 2003) (acting with willful blindness satis-

fies the intent requirement of the federal bank fraud statute);

Friedman v. Comm’r, 53 F.3d 523, 525 (2d Cir. 1995) (“The ‘in-

nocent spouse’ exemption [from the rule that married couples

who file a joint tax return are jointly and severally liable for

any tax liability found] was not designed to protect willful

blindness or to encourage the deliberate cultivation of igno-

rance.”); Mattingly v. United States, 924 F.2d 785, 792 (8th Cir.

1991) (concluding in civil tax fraud case that “the element of

knowledge may be inferred from deliberate acts amounting to

willful blindness to the existence of fact or acts constituting con-

scious purpose to avoid enlightenment.”); Morrow Shoe Mfg. Co.

v. New England Shoe Co., 57 F. 685, 694 (7th Cir. 1893) (“The

mind cannot well avoid the conclusion that if they did not know

of the fraudulent purposes of Davis it was because they were

willfully blind. Such facility of belief, it has been well said, in-

vites fraud, and may justly be suspected of being its accom-

plice.”); State Street Trust Co. v. Ernst, 278 N.Y. 104, 112, 15

N.E.2d 416, 419 (1938) (“[H]eedlessness and reckless disregard

of consequence [by an accountant] may take the place of delib-

erate intention.”).

34a

that eBay was not willfully blind to the counterfeit

sales. Jd. at 513. That finding is not clearly errone-

ous.!6 eBay did not ignore the information it was

given about counterfeit sales on its website.

Ill. Trademark Dilution

A. Principles

Federal law allows the owner of a “famous mark”

to enjoin a person from using “a mark or trade name

in commerce that is likely to cause dilution by blur-

ring or dilution by tarnishment of the famous mark.”

15 U.S.C. § 1125(c)(1).

“Dilution by blurring” is an “association arising

from the similarity between a mark or trade name

and a famous mark that impairs the distinctiveness

of the famous mark.” ZJd. § 1125(c)(2)(B). It can oc-

cur “regardless of the presence or absence of actual

or likely confusion, of competition, or of actual eco-

nomic injury.” Jd. § 1125(c)(1). “Some classic exam-

ples of blurring include ‘hypothetical anomalies as

16 Tiffany's reliance on the “flea market” cases, Hard Rock

Café and Fonovisa, is unavailing. eBay’s efforts to combat

counterfeiting far exceeded the efforts made by the defendants

in those cases. See Hard Rock Café, 955 F.2d at 1146 (defen-

dant did not investigate any of the seizures of counterfeit prod-

ucts at its swap meet, even though it knew they had occurred);

Fonovisa, 76 F.3d at 265 (concluding that plaintiff stated a

claim for contributory trademark infringement based on allega-

tion that swap meet “disregardled] its vendors’ blatant trade-

mark infringements with impunity”). Moreover, neither case

concluded that the defendant was willfully blind. The court in

Hard Rock Café remended so that the district court could apply

the correct definition of “willful blindness,” 955 F.2d at 1149,

and the court in Fonovisa merely sustained the plaintiffs com-

plaint against a motion to dismiss, 76 F.3d at 260-61, 265.

35a

Dupont shoes, Buick aspirin tablets, Schlitz varnish,

Kodak pianos, Bulova gowns, and so forth.” Star-

bucks Corp. v. Wolfe’s Borough Coffee, Inc., 588 F.3d

97, 105 (2d Cir. 2009) (quoting Mead Data Cent., Inc.

v. Toyota Motor Sales, U.S.A., Inc., 875 F.2d 1026,

1031 (2d Cir. 1989)). It is not a question of confu-

sion; few consumers would likely confuse the source

of a Kodak camera with the source of a “Kodak” pi-

ano. Dilution by blurring refers instead to “the

whittling away of {the] established trademark’s sell-

ing power and value through its unauthorized use by

others.” Jd. (quoting Mead Data Cent., 875 F.2d at

1031).

Federal law identifies a non-exhaustive list of six

factors that courts “may consider” when determining

whether a mark is likely to cause dilution by blur-

ring. These are: (1) “[t]he degree of similarity be-

tween the mark or trade name and the famous

mark”;17 (2) “[t}he degree of inherent or acquired dis-

tinctiveness of the famous mark”; (3) “[t]he extent to

which the owner of the famous mark is engaging in

substantially exclusive use of the mark”; (4) “[t]he

degree of recognition of the famous mark”; (5)

“[w]hether the user of the mark or trade name in-

tended to create an association with the famous

mark”; and (6) “[a]ny actual association between the

17 We have recently expiained that under the Trademark Di-

lution Revision Act of 2006 (“-TDRA”), Pub. L. No. 109-312, 120

Stat. 1730, 1731 (Oct. 6, 2006), the similarity between the fa-

mous mark and the allegedly blurring mark need not be “sub-

stantial” in order for the dilution by blurring claim to succeed.

See Starbucks Corp., 588 F.3d at 107-09. The district court con-

cluded that the TDRA governs Tiffany’s claim. See Tiffany, 576

F. Supp. 2d at 522-23. We agree and note that Tiffany does not

dispute this conclusion on appeal.

36a

mark or trade name and the famous mark.” 15

U.S.C. § 1125(c) (2) (B) (i-vi) .

In contrast to dilution by blurring, “dilution by

tarnishment” is an “association arising from the

similarity between a mark or trade name and a fa-

mous mark that harms the reputation of the famous

mark.” 15 U.S.C. §1125(c)(2)(C). This “generally

arises when the plaintiffs trademark is linked to

products of shoddy quality, or is portrayed in an un-

wholesome or unsavory context likely to evoke un-

flattering thoughts about the owner’s product.”

Deere & Co. v. MTD Prods., Inc., 41 F.3d 39, 43 (2d

Cir. 1994).

New York State law also “provide[s] for protec-

tion against both dilution by blurring and tarnish-

ment.” Starbucks Corp., 588 F.3d at 114; see N.Y.

Gen. Bus. Law § 360-l. The state law is not identical

to the federal one, however. New York “does not([, for

example,] require a mark to be ‘famous’ for protec-

tion against dilution to apply.” Starbucks Corp., 588

F.3d at 114. Nor are the factors used to determine

whether blurring has occurred the same. “Most im-

portant to the distinction here, New York law does

not permit a dilution claim unless the marks are

‘substantially’ similar.” Jd.

B. Discussion

The district court rejected Tiffany’s dilution by

blurring claim on the ground that “eBay never used

the TIFFANY Marks in an effort to create an asso-

ciation with its own product, but instead, used the

marks directly to advertise and identify the avail-

ability of authentic Tiffany merchandise on the eBay

website.” Tiffany, 576 F. Supp. 2d at 524. The court

concluded that “just as the dilution by blurring claim

fails because eBay has never used the [Tiffany]

37a

Marks to refer to eBay’s own product, the dilution by

tarnishment claim also fails.” Jd. at 525.

We agree. There is no second mark or product at

issue here to blur with or to tarnish “Tiifany.”

Tiffany argues that counterfeiting dilutes the

value of its product. Perhaps. But insofar as eBay

did not itself sell the goods at issue, it did not itself

engage in dilution.

Tiffany argued unsuccessfully to the district

court that eBay was liable for contributory dilution.

id. at 526. Assuming without deciding that such a

cause of action exists, the court concluded that the

claim would fail for the same reasons Tiffany’s con-

tributory trademark infringement claim failed. Jd.

Tiffany does not contest this conclusion on appeal.

We therefore do not address it. See Palmieri v.

Allstate Ins. Co., 445 F.3d 179 (2d Cir. 2006) (issues

not raised on appeal are treated as waived).

IV. False Advertising

Finally, Tiffany claims that eBay engaged in

false advertising in violation of federal law.

A. Principles

Section 43(a) of the Lanham Act prohibits any

person from, “in commercial advertising or promo-

tion, misrepresentling] the nature, characteristics,

qualities, or geographic origin of his or her or an-

other person’s goods, services, or commercial activi-

ties.” 15 U.S.C. § 1125(a)(1)(B). A claim of false ad-

vertising may be based on at least one of two theo-

ries: “that the challenged advertisement is literally

false, t.e., false on its face,” or “that the advertise-

ment, while not literally false, is nevertheless likely

to mislead or confuse consumers.” Time Warner Ca-

dda

ble, Inc. v. DIRECTV, Inc., 497 F.3d 144, 153 (2d Cir.

2007) .

In either case, the “injuries redressed in false ad-

vertising cases are the result of public deception.”

Johnson & Johnson * Merck Consumer Pharm. Co. v.

Smithkline Beecham Corp., 960 F.2d 294, 298 (2d

Cir. 1992) (“Merck”). And “{uJ]nder either theory, the

plaintiff must also demonstrate that the false or mis-

leading representation involved an inherent or mate-

rial quality of the product.” Time Warner Cable, 497

F.3d at 153 n.3.18

Where an advertising claim is literally false, “the

court may enjoin the use of the claim without refer-

ence to the advertisement’s impact on the buying

public.” McNeil-P.C.C., Inc. v. Bristol-Myers Squibb

Co., 938 F.2d 1544, 1549 (2d Cir. 1991) (internal quo-

tation marks omitted). To succeed in a likelihood-of-

confusion case where the statement at issue is not

literally false, however, a plaintiff “must demon-

strate, by extrinsic evidence, that the challenged

commercials tend to mislead or confuse consumers,”

and must “demonstrate that a statistically signifi-

cant part of the commercial audience holds the false

belief allegedly communicated by the challenged ad-

18 We recently adopted “the ‘false by necessary implicaticn’

doctrine,” under which “a district court evaluating whether an

advertisement is literally false ‘must analyze the message con-

veyed in full context.” Time Warner Cable, 497 F.3d at 158; ef.

S.C. Johnson & Son, Inc. v. Clorox Co., 241 F.3d 232, 238 (2d

Cir. 2001) (“In considering a_ false-advertising claim,

[f}!undamental to any task of interpretation is the principle that

text must yield to context.” (quoting Avis Rent A Car Sys., Inc.

v. Hertz Corp., 782 F.2d 381, 385 (2d Cir. 1986) (internal quota-

tion marks omitted)).

39a

vertisement.” Merck, 960 F.2d at 297, 298; Time

Warner Cable, 497 F.3d at 153 (“(W]hereas plaintiffs

seeking to establish a literal falsehood must gener-

ally show the substance of what is conveyed, ... a

district court must rely on extrinsic evidence [of con-

sumer deception or confusion] to support a finding of

an implicitly false message.” (internal quotation

marks omitted and emphasis and alterations in

original)).

B. Discussion

eBay advertised the sale of Tiffany goods on its

website in various ways. Among other things, eBay

provided hyperlinks to “Tiffany,” “Tiffany & Co. un-

der $150,” “Tiffany & Co.,” “Tiffany Rings,” and “Tif-

fany & Co. under $50.” Pl.’s Exs. 290, 392, 1064,

1065. eBay also purchased advertising space on

search engines, in some instances providing a link to

eBay’s site and exhorting the reader to “Find tiffany

items at low prices.” Pl.’s Ex. 1065 (bold face type in

original). Yet the district court found, and eBay does

not deny, that “eBay certainly had generalized

knowledge that Tiffany products sold on eBay were

often counterfeit.” Tiffany, 576 F. Supp. 2d at 520-

21. Tiffany argues that because eBay advertised the

sale of Tiffany goods on its website, and because

many of those goods were in fact counterfeit, eBay

should be liable for false advertising.

The district court rejected this argument. Id. at

519- 21. The court first concluded that the adver-

tisements at issue were not literally false “[b]ecause

authentic Tiffany merchandise is sold on eBay’s web-

site,” even if counterfeit Tiffany products are sold

there, too. Jd. at 520.

The court then considered whether the adver-

tisements, though not literally false, were nonethe-

40a

less misleading. It concluded they were not for three

reasons. First, the court found that eBay’s use of Tif-

fany’s mark in its advertising was “protected, nomi-

native fair use.” Jd. Second, the court found that

“Tiffany has not proven that eBay had specific

knowledge as to the illicit nature of individual list-

ings,” implying that such knowledge would be neces-

sary to sustain a false advertising claim. Jd. at 521.

Finally, the court reasoned that “to the extent that

the advertising was false, the falsity was the respon-

sibility of third party sellers, not eBay.” Id.

We agree with the di. trict court that eBay’s ad-

vertisements were not literally false inasmuch as

genuine Tiffany merchandise was offered for sale

through eBay’s website. But we are unable to affirm

on the record before us the district court’s further

conclusion that eBay’s advertisements were not

“likely to mislead or confuse consumers.” Time War-

ner Cable, 497 F.3d at 153.

As noted, to evaluate Tiffany’s claim that eBay’s

advertisements misled consumers, a court must de-

termine whether extrinsic evidence indicates that

the challenged advertisements were misleading or

confusing. The reasons the district court gave for re-

jecting Tiffany’s claim do not seem to reflect this de-

termination, though. The court’s first rationale was

that eBay’s advertisements were nominative fair use

of Tiffany’s mark.

But, even if that is so, it does not follow that

eBay did not use the mark in a misleading adver-

tisement. It may, after all, constitute fair use for

Brand X Coffee to use the trademark of its competi-

tor, Brand Y Coffee, in an advertisement stating that

“In a blind taste test, 9 out of 10 New Yorkers said

they preferred Brand X Coffee to Brand Y Coffee.”

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But if 9 out of 10 New Yorkers in a statistically sig-

nificant sample did not say they preferred X to Y, or

if they were paid to say that they did, then the ad-

vertisement would nonetheless be literally false in

the first example, or misleading in the second.

There is a similar difficulty with the district

court’s reliance on the fact that eBay did not know

which particular listings on its website offered coun-

terfeit Tiffany goods. That is relevant, as we have

said, to whether eBay committed contributory

trademark infringement. But it sheds little light on

whether the advertisements were misleading insofar

as they implied the genuineness of Tiffany goods on

eBay’s site.

Finally, the district court reasoned that if eBay’s

advertisements were misleading, that was only be-

cause the sellers of counterfeits made them so by of-

fering inauthentic Tiffany goods. Again, this consid-

eration is relevant to Tiffany’s direct infringement

claim, but less relevant, if relevant at all, here. It is

true that eBay did not itself sell counterfeit Tiffany

goods; only the fraudulent vendors did, and that is in

part why we conclude that eBay did not infringe Tif-

fanys mark. But eBay did affirmatively advertise

the goods sold through its site as Tiffany merchan-

dise. The law requires us to hold eBay accountable

for the words that it chose insofar as they misled or

confused consumers.

eBay and its amici warn of the deterrent effect

that will grip online advertisers who are unable to

confirm the authenticity of all of the goods they ad-

vertise for sale. See, e.g., Yahoo! Inc. Amicus Br. 15;

Electronic Frontier Foundation et al. Amicus Br. 18-

19. We rather doubt that the consequences will be so

dire. An online advertiser such as eBay need not

A2a

cease its advertisements for a kind of goods only be-

cause it knows that not all of those goods are authen-

tic. A disclaimer might suffice. But the law prohib-

its an advertisement that implies that all of the

goods offered on a defendant’s website are genuine

when in fact, as here, a sizeable proportion of them

are not.

Rather than vacate the judgment of the district

court as to Tiffany’s false advertising claim, we think

it prudent to remand the cause so that the district

court, with its greater familiarity with the evidence,

can reconsider the claim in light of what we have

said. The case is therefore remanded pursuant to

United States v. Jacobson, 15 F.3d 19 (2d Cir. 1994),

for further proceedings for the limited purpose of the

district court’s reexamination of the false advertising

claim in accordance with this opinion. We retain ju-

risdiction so that any of the parties may seek appel-

late review by notifying the Clerk of the Court within

thirty days of entry of the district court’s judgment

on remand. See, e.g., Galviz Zapata v. United States,

431 F.3d 395, 399 (2d Cir. 2005). Such notification

will not require the filing of a new notice of appeal.

Id. If notification occurs, the matter will be referred

automatically to this panel for disposition.

If circumstances obviate the need for the case to

return to this Court, the parties shall promptly no-

tify the Clerk of the Court. Jd.

CONCLUSION

For the foregoing reasons, we affirm the judg-

ment of the district court with respect to the claims

of trademark infringement and dilution. Employing

a Jacobson remand, we return the cause to the dis-

trict court for further proceedings with respect to Tif

fany’s false advertising claim.

APPENDIX B

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

N® 04 Civ. 4607 (RJS)

TIFFANY (NJ) INC. AND TIFFANY AND COMPANY.

Plaintiffs,

VERSUS

Defendant

OPINION AFTER BENCH TRIAI

July 14, 2008

RICHARD J. SULLIVAN, Distmct Judge

Tiffany, the famous jeweler with the coveted blue

boxes, brings this action against eBay, the prominent

online marketplace, for the sale of counterfeit Tiffany

silver jewelry on its website. Specifically, Tiffany al

leges that hundreds of thousands of counterfeit

silver jewelry items were offered for sale on eBay’s

44a

website from 2003 to 2006. ‘Tiffany seeks to hold

eBay liable for direct and contributory trademark in

fringement, unfair competition, false advertising, and

direct and contributory trademark dilution, on

the grounds that eBay facilitated and allowed these

counterfeit items to be sold on its website

Tiffany acknowledges that individual sellers,

rather than eBay, are responsible for listing and sell

ing counterfeit Tiffany items. Nevertheless, Tiffany

argues that eBay was on notice that a problem

existed and accordingly, that eBay had the obliga

tion to investigate and control the illegal activities of

these sellers -—- specifically, by preemptively refusing

to post any listing offering five or more Tiffany items

and by immediately suspending sellers upon learning

of Tiffany’s belief that the seller had engaged

in potentially infringing activity. In response, eBay

contends that it is Tiffany’s burden, not eBay’s, to

monitor the eBay website for counterfeits and to

bring counterfeits to eBay’s attention. eBay

claims that in practice, when potentially infring

ing listings were reported to eBay, eBay immediately

removed the offending listings. It is clear that Tiffany

and eBay alike have an interest in eliminating coun

terfeit Tiffany merchandise from eBay Tiffany to

protect its famous brand name, and eBay to pre

serve the reputation of its website as a safe place to

do business. Accordingly, the heart of this dis-

pute is not whether counterfeit Tiffany jewelry

should flourish on eBay, but rather, who should bear

the burden of policing ‘Tiffany’s valuable trademarks

in Internet commerce.

Having held a bench trial in this action, the

Court issues the following Findings of Fact and

Conclusions of Law, as required by Rule 52(a) of the

45a

Federal Rules of Civil Procedure. Specifically, after

carefully considering the evidence introduced = at

trial, the arguments of counsel, and the law

pertaining to this matter, the Court concludes that

Tiffany has failed to carry its burden with respect to

each claim alleged in the complaint. First, the Court

finds that eBay’s use of Tiffany’s trademarks in its

advertising, on its homepage, and in sponsored links

purchased through Yahoo! and Google, is a protected,

nominative fair use of the marks.

Second, the Court finds that eBay is not liable

for contributory trademark infringement. In

determining whether cBay is liable, the standard is

not whether eBay could reasonably anticipate possi

ble infringement, but rather whether eBay continued

to supply its services to sellers when it knew or had

reason to know of infringement by those sellers

See Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S

844, 854 (1982). Indeed, the Supreme Court has spe

cifically disavowed the reasonable anticipation stan

dard as a “watered down” and incorrect standard. /d.

at 854 n.13. Here, when Tiffany put eBay on notice

of specific items that Tiffany believed to be infring

ing, eBay immediately removed those listings. eBay

refused, however, to monitor its website and pre

emptively remove listings of Tiffany jewelry before

the listings became public. The law does not impose

liability for contributory trademark infringement on

eBay for its refusal to take such preemptive steps in

light of eBay’s “reasonable anticipation” or general

ized knowledge that counterfeit goods might be sold

on its website. Quite simply, the law demands more

specific knowledge as to which items are infringing

and which seller is listing those items before requiring

eBay to take action

46a

The result of the application of this legal stan-

dard is that Tiffany must ultimately bear the burden

of protecting its trademark. Policymakers may yet

decide that the law as it stands is inadequate to pro-

tect mghts owners in light of the increasing scope of

Internet commerce and the concomitant rise in

potential trademark infringement. Never-

theless, under the law as it currently stands, it does

not matter whether eBay or Tiffany could more

efficiently bear the burden of policing the eBay

website for Tiffany counterfeits — an open question

left unresolved by this trial. Instead, the issue is

whether eBay continued to provide its website

to sellers when eBay knew or had reason to know

that those sellers were using the website to traffic in

counterfeit Tiffany jewelry. The Court finds that

when eBay possessed the requisite knowledge, it

took appropriate steps to remove listings and sus-

pend service. Under these circumstances, the Court

declines to impose liability for contributory trade-

mark infringement.

Third, the Court finds that Tiffany has failed to

meet its burden in proving its claims for unfair com-

petition. Fourth, in regard to Tiffany’s claim for

false advertising, the Court concludes that

eBay’s use of the Tiffany trademarks in ad-

vertising is a protected, nominative fair use of the

marks. Finally, the Court finds that Tiffany has failed

to prove that eBay’s use of the TIFFANY Marks is

likely to cause dilution. Even assuming ar-

guendo that Tiffany could be said to have made out

a claim for trademark dilution, the Court finds

that eBay’s use of the marks is protected by the statu-

tory defense of nominative fair use.

47a

Accordingly, the Court hereby enters judgment

for eBay. The Court’s judgment is supported by the

following Findings of Fact and Conclusions of Law.

I. PROCEDURAL HISTORY

Plaintiffs Tiffany (NJ) Inc. and Tiffany and

Company! commenced this action on June 18,

2004.2 The Amended Complaint, filed on July 15,

2004, alleges that defendant eBay, Inc. (“eBay”) is

liable, inter alia, for direct and contributory in-

fringement of Tiffany’s trademarks by virtue of

the assistance that it provides to, and the profits it

derives from, individuals who sell counterfeit Tiffany

goods on eBay. Specifically, Tiffany’s Amended

Complaint asserts the following six causes of action:

(1) direct and contributory trademark infringement

of Tiffany’s trademarks in violation of Sections 32(1),

15 U.S.C. § 1114(1), and 34(d), 15 U.S.C. § 1116(d), of

the Lanham Act; (2) trademark infringement and the

use of false descriptions and representations in viola-

tion of Sections 43(a)(1)(A) and (B) of the

Lanham Act, 15 U.S.C. § 1125(a)(1)(A) and (B); (3)

direct and contributory trademark infringement un-

der common law; (4) direct and contributory unfair

competition under common law; (5) trademark

dilution in violation of Section 43(c) of the Lanham

Act, 15 U.S.C. § 1125(c); and (6) trademark dilu-

1 The two Tiffany corporate entities are hereinafter

collectively referred to as “Tiffany.”

2 The case was originally assigned to the Honorable

Naomi Reice Buchwald, District Judge. On November 3,

2005, the case was reassigned to the Honorable Ken-

neth M. Karas, District Judge. On September 4, 2007, the

case was reassigned to my docket.

48a

tion in violation cf New York General Business Law

§ 360-1.

In anticipation of trial, the parties filed a Joint

Pretrial Order (“PTO”) on October 6, 2006, including

those facts to which both parties stipulated. In April

2007, the parties filed Proposed Findings of Fact and

Law (“Pr. Findings”) as well as Pretrial Memoranda

(“Pretrial Mem”)?

The case proceeded to trial on November 13,

2007. The trial was conducted without objection in

accordance with the Court’s Individuai Rules for the

conduct of non-jury proceedings. The parties submit-

ted affidavits containing the direct testimony of their

respective witnesses, as well as copies of all the ex-

hibits and deposition testimony that they intended

to offer as evidence in chief at trial. eBay chose to

cross-examine only four of Tiffany’s seventeen wit-

nesses,* noting in opening arguments that the facts

of the case were not complicated and indeed, that

many were not in dispute. (Trial Transcript (“Tr.”)

28:18-29:7.) Tiffany cross-examined all three of

3 Defendant eBay also filed two motions in limine,

seeking to exclude 1) expert witness testimony from

George Mantis, and 2) evidence relating to trademarks identi-

fied for the first time in Tiffany’s Proposed Findings of

Fact. The motions were, respectively, denied and

granted on November 9, 2007. See Tiffany (NJ) Inc. v. eBay,

Inc., 75 Fed. R. Evid. Serv. 109, 109 (S.D.N.Y. 2007) (denying

motion); Tiffany (NJ) Ine. v. eBay, Inc., No. 04 Civ. 4607

(RJS), 2007 WL 4104037, at *1 (S.D.N.Y. Nov. 9, 2007)

(granting motion).

4 At the Court’s request, a fifth witness for the Plaintiff, Mi-

chael Kowalski, Chairman of the Board of Directors and Chief

Executive Officer of Tiffany, was cross-examined by the Defen-

dants before the close of the evidence.

49a

eBay’s witnesses. Closing arguments took place

on November 20, 2007. The parties each submitted a

post-trial memorandum (“Post-Trial Mem.”) on

December 7, 2007.

By letter dated July 3, 2008, Tiffany requested

that the Court recognize a decision issued on June

39, 2008, by the Commercial Court of Paris, France,

and give preclusive effect to factual determinations

made therein. A conference regarding this request

was held with the Court on July 8, 2008. Tiffany

subsequently withdrew the request by letter dated

July 9, 2008.

Ii. FINDINGS OF FAcT®

A. The Parties

Plaintiff Titfany and Company is a New York

corporation with its principal place of business in

New York, New York. (PTO at 7.) Plaintiff Tiffany

(NJ) Inc. is a New Jersey corporation with its

principal place of business in Parsippany, New

Jersey. (Id.) Defendant eBay, Inc. is a Dela-

ware corporation with its principal place of

business in San Jose, California. (Jd.)

B. Tiffany and Its Business

1. Tiffany’s Famous Marks

Over its 170-year history, Tiffany has achieved

great renown as a purveyor of high-quality and lux-

ury goods under the TIFFANY Marks (defined below),

including jewelry, watches, and home items such

2 To the extent that any Finding of Fact reflects a legal con-

clusion, it shall to that extent be deemed a Conclusion of

Law, and vice-versa.

50a

as china, crystal, and clocks. Ud.; Kowalski Decl. {J

4,7.) The TIFFANY Marks are indisputably famous,

and are a valuable asset owned by Tiffany. (Naggiar

Decl. 7 4.) The protection of the quality and integrity

of the brand and the trademarks is critical to Tif-

fany’s success as a retailer of luxury goods. (Kowalski

Decl. ¥ 4.)

Tiffany is the exclusive licensee and user of the

TIFFANY, TIFFANY & CO., and T & CO. trade-

marks, including those trademarks registered on the

Principal Register of the United States Patent and

Trademark Office bearing Registration Nos. 23,578,

133,063, 1,228,189, 1,228,409, and 1,669,335 for jew-

elry, watches and decorative art objects. (PTO at 7.)

In addition, Tiffany & Co. is the exclusive licensee

and user of trademarks for the design of jewelry, reg-

istered on the Principal Register of the United States

Patent and Trademark ‘**} bearing Registration

Nos. 1,804,353 and 1,785,ZU4. (PTO at 7.) The first

of these two marks is registered for a kidney bean-

shaped design, to be used for jewelry, namely,

earrings, necklaces, bracelets, pendants, cuff-

links, and rings. (Am. Compl. { 12.) The second

design mark is registered for a cross design, to be

used for jewelry, namely, pins, pierced earrings, ear

clips, bracelets, necklaces, rings, and

brooches. (d.) The foregoing marks are collec-

tively referred to herein as the “TIFFANY

Marks.” (PTO at 7.)

6 The TIFFANY Marks are valid and subsisting. (PTO at

7.) The marks bearing Registration Nos. 1,228,189, 1,228,409,

1,804,353, and 1,785,204 have become incontestable. (/d.)

5la

2. Tiffany’s Quality Control and Distribution

Because the issues disputed at trial in-

cluded (1) the effectiveness of Tiffany’s authentica-

tiun and quality control procedures, and (2) the integ-

rity of Tiffany’s distribution channels, the Court

makes the following factual findings with respect to

these issues. The first issue is relevant to which

party is best able to identify counterfeit jewelry. The

second issue is arguably relevant to the availability

of authentic Tiffany merchandise in secondary mar-

kets such as eBay.

In order to maintain its reputation for high-

quality jewelry, Tiffany quality control personnel in-

spect Tiffany merchandise before it is released for dis-

tribution. (Callan Decl. 79 5, 8, 10.) Before a silver

jewelry item can be released to Tiffany’s channels of

trade, the item must satisfy Tiffany’s exacting stan-

dards for, inter alia, composition, quality, shape,

and polish of the metal, as well as the quality and

integrity of the TIFFANY Marks appearing on

the item. Ud. at {J 8, 12.) To determine if an item is

authentic Tiffany silver jewelry, Tiffany quality in-

spectors must be able to physically inspect each

item.’ (Tr. 32: 5-6; 64:18-23.) Tiffany closely pro-

7 By contrast, in some circumstances, it is possible to

determine if an item is counterfeit without physically inspect-

ing the item. For example, if one or more of the TIFFANY

Marks appeared on a piece of silver jewelry bearing a “dou-

ble heart” design, someone who is familiar with Tif-

fany’s products could instantly determine that the

piece is a counterfeit based on a photograph, because

Tiffany does not make that particular “double heart”

design. (Zalewska Decl. { 22.) As another example, some-

one who is familiar with Tiffany’s products could see from a

photograp:: that the TIFFANY Marks were in the wrong

[Footnote continued on next page]

52a

tects its quality standards and does not make them

available to the public or to other jewelry manufac-

turers. (Tr. 35:5-36:4.)

Tiffany closely controls the distribution of Tiffany-

branded goods. (Kowalski Decl. 7 20; Zalewska

Decl. {1 9-10.) Since 2000, all new Tiffany jewelry

sold in the United States has been available only

through Tiffany retail stores, Tiffany catalogs, the

Tiffany website (www.tiffany.com), and through Tif-

fany’s Corporate Sales Department.? (Kowalski

Decl. { 8; Cepek Decl. J 10; Shibley Decl. J 3.) Tif-

fany does not sell or authorize the sale of Tiffany

merchandise on eBay or other online marketplaces.

More generally, Tiffany does not use liquidators, sell

overstock merchandise, or put its goods on sale a+

discounted prices. (Zalewska Decl. 7] 8, 10.) In ad-

dition, Tiffany has a general policy of refusing to sell

more than five of the same new items to any individ-

ual customer at any given time without the approval

of the retail store manager. However, as noted be-

[Footnote continued from previous page}

place on a given piece of jewelry, and thus determine that

the product was counterfeit. (Tr. 66:11-25.) Of course,

in many instances, determining whether an item is coun-

terfeit will require a physical inspection of the item, and some

degree of expertise on the part of the examiner.

8 Tiffany closed its domestic wholesale division in the fall

of 1999, and by mid-2000, all of the United States accounts in

that division had been closed. (Cepek Decl. J 10.) There is

no evidence of any diversion of silver jewelry from the do-

mestic wholesale accounts. (Cepek Decl. 49 12-13.) Tif-

fany defines diversion as “the act of taking legitimate

product from authorized sales channels, by legitimate

or illegitimate means, and making it available for sale

through unauthorized sales channels.” (PIl.’s Ex. 3, at 2.)

53a

low, the five-or-more policy has been sporadically ap-

plied on a case-by-case basis. (Tr. 134:17- 18.)

There are only two ways in which Tiffany sells

significant quantities of merchandise at discounted

or wholesale prices. First, the Tiffany Corporate

Sales Department sells certain Tiffany items to cor-

porate accounts. (Shibley Decl. J 4.) Second, Tiffany

sells merchandise to its international trade

accounts at wholesale prices. (Chen Decl. J] 3, 4.)

The evidence does not show, however, that Tiffany’s

international trade accounts or corporate sales pro-

grams are responsible for the diversion of silver jew-

elry or for counterfeiting of any kind. (Cepek Decl.

{@ 15; Chen Decl. J] 13-16; Shibley Decl. {{ 7- 9.)

Nor is there evidence that during the time at issue,

from 2003 to 2006, the prices of Tiffany jewelry

pieces sold in various locations have differed such

that there would be incentives for purchasers to buy

jewelry at a low price in one location and sell it

in another country (or on eBay) for higher

prices. (Zalewska Decl. J] 8; Chen Decl. { 15.)

eBay does not seriously contest the fact that Tif-

fany’s distribution chain is tightly controlled. Nor

has eBay presented evidence of diversion of silver

jewelry during the relevant time period, 2003

to 2006. Nevertheless, the relative merits of Tif-

fany’s internal diversion controls are of marginal

relevance to this litigation, as they provide little in-

sight into the actual size and scope of the legitimate

secondary market in authentic Tiffany silver jewelry.

Indeed, the trial record contains virtually no testi-

mony, expert or otherwise, on the crucial topic of the

size of the legitimate secondary market in Tiffany

goods. This deficiency is significant, since the law

clearly protects such secondary markets in au-

54a

thentic goods. See Polymer Tech. Corp. v. Mim-

ran, 975 F.2d 58, 61-62 (2d Cir. 1992) (“As a gen-

eral rule, trademark law does not reach the sale of

genuine goods bearing a true mark even though the

sale is not authorized by the mark owner.”). Thus,

while rights holders such as Tiffany may have obvious

economic incentives to curtail the sale of both coun-

terfeit and authentic goods on the Internet — after

all, every sale of Tiffany jewelry on eBay po-

tentially represents a lost sales opportunity

via Tiffany’s own authorized distribution

channels — the law provides protection only from the

former, not the latter. Clearly, eBay and other

online market websites may properly promote

and facilitate the growth of legitimate secondary

markets in brand-name goods. See Dow Jones & Co.

v. Int ’l Sec. Exch., Inc., 451 F.3d 295, 308 (2d Cir.

N.Y. 2006) (“While a trademark conveys an exclu-

sive right to the use of a mark in commerce in

the area reserved, that right generally does not pre-

vent one who trades a branded product from accu-

rately describing it by its brand name, so long as the

trader does not create confusion by implying an affilia-

tion with the owner of the product.”). Un-

fortunately, the trial record offers little basis from

which to discern the actual availability of authentic

Tiffany silver jewelry in the secondary market.9

9 Tiffany's return policy provides that with a receipt, Tiffany

merchandise can be returned in saleable condition within

thirty days for a full cash refund. Without a receipt or after

thirty days, Tiffany jewelry can be returned in saleable condi-

tion for a store credit (Zalewska Decl. J 21.) In light of this pol-

icy, it would not be difficult to imagine the development of an

efficient secondary market involving buyers willing to pay cash

for unwanted and otherwise non-returnable retail Tiffany mer-

[Footnote continued on next page]

55a

C. eBay and Its Business

1. eBay’s Listings, Buyers, and Sellers

eBay is a well-known online marketplace, located

at www.ebay.com, that allows eBay sellers to sell

goods directly to eBay buyers. (PTO at 7.) The

listings are created and posted by third-party us-

ers, who register with eBay and agree to abide

by a User Agreement. (/Jd.) While users often go

by descriptive user names instead of their real

names, users are required to supply identi-

fying information to eBay when registering.

(Briggs Decl. | 13.) Sellers can also use multiple

user names. (Tr. 671:18- 672:2.)

To conduct a transaction on eBay, regis-

tered sellers choose the appropriate category for

their listed item, including, for example, Jewelry and

Watches, Toys and Hobbies, Collectibles, or Health

and Beauty. (Briggs Decl. 7 15.) Sellers then

create a listing for the item that they wish to sell.

Ud. at [J 10, 12.) A listing can include either a sin-

gle item or several items (also known as a “Dutch

auction”). (Ud. at J 16; Zalewska Decl. J 27.) In

addition, sellers can post multiple listings at any

given time, including multiple listings for the same

type of item or one listing with multiple quantities

of the same item. (Def.’s Ex. 77 at 3; Zalewska

Decl. { 80.)

[Footnote continued from previous page]

chandise, which might then be offered for resale in larger quanti-

ties via eBay and other distribution channels. However, the

scope and extent of such a secondary market was not developed

at trial.

56a

While eBay is perhaps best known for auction-

style listings, sellers can also choose to sell their

goods through fixed price or “Buy It Now” listings.19

(Briggs Decl. (919, 15.) Sellers are responsible

for setting the parameters and conditions of

the sale, including the minimum acceptable bid, the

Buy It Now price (if applicable), and the duration of

the listing. Sellers are also responsible for the con-

tent of the listings, including the titles and descrip-

tions of the items. (Def.’s Ex. 77; Briggs Decl. 4] 12.)

Separately, eBay offers a classified ad service,

through which sellers can publish the availability of

goods for sale. (Tr. 399:6 - 401:4.) This classified ad

service is available only for certain categories and

subcategories of goods, and is priced differently than

eBay’s ordinary listings. Unlike the previously de-

scribed eBay listings, the classified ad service is a

straightforward service analogous to the classified

ad section of a local newspaper. (Jd. at 401:2-4.)

Potential buyers can view listings on eBay in

several ways. Buyers can click on keywords

on the eBay home page, which bring them to pages

of listings for products including those keywords.

Buyers can also browse through eBay categories or

use keywords to search through listing titles and de-

scriptions. To bid on items, buyers, like sellers,

must register with eBay. (Briggs Decl. | 13.)

eBay’s role is to connect buyers and sellers

and to enable transactions, which are carried out di-

10 A “Buy It Now” option is a hybrid between an auction and a

fixed price sale. In such a listing, the item sells at a fixed

price only if a buyer is willing to meet the Buy It Now price be-

fore the first bid comes in.

57a

rectly between eBay members. When a buyer pur-

chases an item, the buyer and seller contact each

other to arrange for payment and shipment of the

goods. (/d. at J 19.) While eBay provides the venue

for the sale and support for the transaction, it does

not itself sell the items. (d.) Indeed, items sold

on eBay are never in eBay’s physical possession.

(PTO at 7; Chesnut Decl. J 41; Briggs Decl. 74 10-

11.) eBay generally does not know whether or

when an item is delivered to the buyer. (Briggs

Decl. 44 10- 11.)

eBay has become very successful: more than six

million new listings are posted on eBay daily, and at

any given time, some 100 million listings appear on

the website. Ud. J 9.)

2. eBay’s Business Model and Support to Sellers

eBay’s business model is based on two compo-

nents: first, the creation of listings, and second, the

successful completion of sales between the seller and

the buyer. For each posted listing, sellers pay an ini-

tial insertion fee, ranging from $0.20 to $4.80 de-

pending on the starting price. If the item is

successfully sold, sellers pay a final value fee based

upon the final price for the item. Final value fees

range from 5.25% to 10% of the final price of the

item. (Briggs Decl. | 20; Pl.’s Ex. 1151.) In addi-

tion, sellers who opt for various additional features to

differentiate their listings, such as a border or bold-

faced type, are charged additional fees. (Briggs

Decl. J 20.)

In this way, eBay’s revenue is based on sellers

using eBay to list their products and successfully

completing sales through eBay. Gary Briggs, eBay’s

Chief Marketing Officer, testified that in 2006, ap-

proximately 33% of eBay North America’s income

5a

was derived from listing fees and approximately 45%

from final value fees. (Tr. 407:3-407:9.) eBay also

profits from fees charged by PayPal, an eBay com

pany, to process the transaction. (Ud. at 393:4-

393:16.) PayPal charges the eBay seller a fee

ranging from 1.9% to 2.9% of the sale price, plus

$0.30. (PlL.’s Ex. 1156.)

Because eBay’s revenue and profit growth is de-

pendent, in significant part, on the completion of

sales between eBay sellers and eBay buyers, eBay

works closely with sellers to foster the increase of

their sales on eBay, including the sales of Tiffany

jewelry. (Zeig Dep. Tr. 141:21-145:4; Tr. 406:18-

407:25; Pl.’s Exs. 124, 129.) As Briggs testified, eBay

“want(s] to have [its] sellers understand what buyers

are interested in, and [it] feels that [il is] very much

in the business of trying to help [its] sellers succeed.”

(Tr. 406:23- 407:2.)

This assistance includes seminars and workshops

to educate sellers on growing their business. (Ud. at

403:11-403:14; Pl.’s Exs. 981, 989.) eBay also offers

marketing advice about creating the “perfect” listing

to attract buyers (Tr. 415:20-417:1; Pl.’s Ex. 1015),

and offers an “Advanced Selling” program that pro-

vides its sellers with data and research to help them

identify “hot sales opportunities” (Tr. 406:4-406:16;

Pl.’s Ex. 987). In addition, eBay distributes market-

ing calendars so that its sellers can list goods to coin-

cide with eBay promotions (Tr. 409:2-409:19; Pl.’s Ex.

985), as well as “expert” consultants, whom eBay

sellers may call to receive advice on growing their

business (Tr. 409:25-411:4; Pl.’s Ex. 990). eBay also

has a “Main Street Program,” which encourages sell-

ers to lobby government officials regarding regulations

59a

and legislation that may affect their sales and

eBay’s business. (‘T'r. 413:7-413:22; Pl.’s lex. 1024.)

Some users who regularly sell large quantities of

merchandise through eBay are designated as “Pow-

erSellers.” eBay provides PowerSellers with more

assistance and benefits. (Tr. 401:10-401:23.) As

Briggs testified, the bigger the seller, the more

support eBay provides. (/d.) During the rele-

vant time period, eBay provided’ Pow-

erSellers with dedicated account” managers;

special newsletters with further information on eBay

promotions; advanced selling education; reimburse-

ments of 25% of the cost of qualifying advertise-

ments; and access to health care benefits, business

liability insurance, and working lines of credit to fi-

nance their business. Ud. at 423:6-423:12,

423:17-424:4, 427:7-427:14, 438:19-439:20, 440:3-

440:20; Pl.’s Exs. 52, 62, 129, 397, 406.)

3. eBay’s Control Over Sales Made On Its Website

eBay is an electronic marketplace, not a re-

tailer. Thus, eBay itself never takes physical

possession of the goods sold through its website; in

stead, it facilitates a transaction between two inde-

pendent parties. (Chesnut Decl. 4 41; Briggs

Decl. W4 10-11.) Nevertheless, eBay exercises

some limited control over those who trade on its web-

site by requiring all users to register with eBay and

sign eBay’s User Agreement. (Briggs Decl. 4 13;

Def.’s Ex. 77.) The User Agreement requires users to

refrain from violating any laws, third party rights,

including intellectual property rights, and eBay poli-

cies. If a user violates the terms or conditions of the

User Agreement, eBay may take disciplinary action

against the seller, including removing the seller’s

60a

listings, issuing a warning, and/or suspending the

user. (Briggs Decl. J 14.)

In addition to exercising some control over us-

ers, eBay also restricts the types of items which can

be listed on its website. For example, eBay main-

tains a list of prohibited items, e.g., drugs, firearms,

and alcohol, for which it routinely screens in order to

prevent such items from being offered for sale on

eBay. (PIl.’s Ex. 4.)

4. eBay’s Anti-Fraud Efforts

a. Trust and Safety Department

eBay has made substantial investments in anti-

counterfeiting initiatives. (Tr. 686:14-15, 687:5-8.)

eBay has invested as much as $20 million each year

on tools to promote trust and safety cn its website.

(id. at 687:21-25.) One quarter of eBay’s workforce

of roughly 16,000 employees is devoted to trust and

safety. Ud. at 691:18-692:7.) Of these 4,000 indi-

viduals, approximately 2,000 serve as eBay Cus-

tomer Service Representatives “(CSRs”). (Chesnut

Decl. J 20.) More than 200 of these individuals focus

exclusively on combating infringement, at a signifi-

cant cost to eBay. (Tr. at 597:24-580:8, 687:9-14.)

eBay also employs 70 persons who work exclusively

with law enforcement. (/d. at 599:1-2, 746:21-747:19;

Chesnut Decl. 49 56- 57.) In several instances, in-

formation that eBay has provided to law en-

forcement agencies has led to the arrest of counter-

feiters. (Chesnut Decl. 7756-57.)11

11 Congress has criminalized trafficking in counterfeit

goods. See 18 U.S.C. § 2320. However, according to the

Clerk of this Court, from 2003 to the present date, the

United States Attorney’s Office for the Southern District

[Footnote continued on next page]

6la

b. Fraud Engine

Between December 2000 and May 2002, eBay

manually searched for keywords in listings in an ef-

fort to identify blatant instances of potentially in-

fringing or otherwise problematic activity. (Ud. at J

34.) In May 2002, eBay began using technology to

perform that function. (Ud.) These technological

tools are known as the eBay fraud engine. Ud.) The

fraud engine uses rules and complex models that

automatically search for activity that violates eBay

policies. Ud.) eBay spends over $5 million per year

in maintaining and enhancing its fraud engine,

which is principally dedicated to ferreting out illegal

listings, including counterfeit listings. (Tr. 687:15-

18.)

The fraud engine currently uses more than

13,000 different search rules, and was de-

signed in part to capture listings that contain

indicia of counterfeiting apparent on the face of the

listings without requiring expertise in rights owners’

brands or products. (Chesnut Decl. J 35.) The fraud

[Footnote continued from previous page]

of New York has prosecuted only 24 cases under this

statute. Moreover, the United States Attorney’s Of-

fice for the Southern District of New York has appar-

ently adopted a policy of declining prosecutions against

“mere sellers” of counterfeit goods. See, e.g., United States

v. Huang, No. 06 Crim. 1006 (RJS), Transcript of May 20,

2008 Conference at 17-21. This suggests that law enforce-

ment efforts have been relatively modest in addressing what

has been characterized as a multi-hundred-billion dollar

problem. See Matthew Benjamin, A World of Fakes, U.S.

News and World Report, July 14, 2003, at 46-47 (annual

cost of counterfeit goods to the U.S. economy estimated at $200-

250 billion).

62a

engine thus was developed to monitor the website

and flag or remove listings that, among other things,

explicitly offered counterfeit items, contained blatant

disclaimers of genuineness, or included statements

that the seller could not guarantee the authenticity of

the items. For example, at all times relevant to this

litigation, eBay monitored its website for and re-

moved listings that expressly offered “knock-off,”

“counterfeit,” “replica,” or “pirated” merchandise, and

listings in which the seller stated he “cannot guaran-

tee the authenticity” of the items being offered. (d.;

Tr. 581:11-584:22; Def.’s Exs. 125, 135.) For obvious

reasons, the fraud engine could not determine

whether a listed item was actually counterfeit.

(Chesnut Decl. J 35.) However, the fraud engine also

contained numerous other data elements designed to

evaluate listings based on, for example, the seller’s

Internet protocol address, any issues associated with

the seller’s account on eBay, and the feedback the

seller has received from other eBay users. (Ud. at J

36.) Between 2003 and the close of discov-

ery in 2006, eBay modified and updated its

fraud engine at least weekly. (d.)

At all times relevant to this case, eBay’s fraud

engine flagged thousands of listings on a daily basis

that contained obvious indicia of infringing or other-

wise fraudulent activity. (Ud. at J 38.) Listings

flagged by the fraud engine were sent to eBay’s CSRs

for review and possible further action. (d.)

In reviewing the flagged listings, CSRs exam-

ined multiple factors according to eBay guidelines in

order to make a decision as to whether a violation of

eBay policies had occurred, including the language

and sophistication of the listing, the seller’s his-

tory and feedback rating from past buyers, the

63a

seller’s business model, and the seller’s eBay regis-

tration information. (/d.)

This text is long and has been trimmed here. Open the source document for the complete record.