From our archives: Originally published in November of 2007
On November 14, 2007, the Wall Street Journal ran an article describing the beginning of a long-anticipated trial, being litigated in the Southern District Federal court, in which Tiffany & Co. is claiming very substantial damages from eBay. Tiffany alleges that eBay bears responsibility to regulate the sale of counterfeit Tiffany branded products on its site. Other prominent trademark holders have filed similar actions against eBay. It seems that while these two goliaths wage their war, the public interest in maintaining a fair and informed market place on the Internet might be neglected.
A much simpler solution than the broken system now in place between eBay and trademark holders would be to simply require those who wish to sell trademarked goods on eBay to register with eBay, as sellers of trademarked goods, and to provide a verifiable identity and (terrestrial) address. While it's virtually impossible to authenticate goods in a virtual marketplace, it is feasible to identify and regulate those who gain access to that market.
Generally, our legal system works when there is in place a system of meaningful checks and balances. To maintain this equilibrium, the trademark holder is given a legal monopoly over the use of its rights and the person who might be affected by the assertion of those rights has the right to protect himself from abusive enforcement behavior. He has the rights to review any assertion of illegality, is provided with the opportunity to answer claims and is given the right to seek compensation if the rights holder acts abusively. When the legal system grants a legal monopoly, like a trademark, to a party, it does so cautiously, and generally imposes responsibilities on the monopoly holder designed to safeguard the public interest. In the area of trademarks, these responsibilities include a duty to protect one’s trademark, to maintain its distinctiveness and to enforce the trademark against those who infringe it. But there is no right given to the trademark holder to interfere with the lawful sale or resale of products bearing its mark.
In the terrestrial world, trademark holders police the use of their marks. When confronted with suspicious activity, the trademark holder traditionally begins enforcement by sending a notice to the infringer, a demand that the activity be stopped. He may sue for infringement and damages, and in certain circumstance he may resort to extraordinary measures like injunctive relief, to prevent a sale, or to the seizure of the counterfeit or gray market goods. When the law provides for extraordinary measures, it attempts to level the playing field by requiring that a bond be posted. This is designed to protect the targeted party and to induce the trademark holder to act responsibly. In all instances, the trademark holder acts at his peril; if he mistakenly seizes legitimate goods, or erroneously closes a selling establishment, he bears responsibility for the financial consequences of his actions.
On the Internet, this equilibrium is threatened by the broken system now in place with online auction sites like eBay and the trademark holders. EBay’s existing policy is to remove specific listings when it is notified by a trademark holder that the listing violates trademark law. There is no requirement that the holder establish that his claim is valid or even that it is likely to be upheld by a court.
Tiffany and other trademark holders, engaged in similar lawsuits, are seeking to deputize Ebay to become their trademark rights enforcer. They would like eBay to act even more aggressively to independently remove trademarked items that are offered for sale, whether or not the trademark holder calls these listings to eBay’s attention. In effect, the trademark holders would like to eliminate all of the usual checks and balances, which protect the public, and assume the position of judge and enforcer by deputizing eBay to do their enforcement work.
Where is the public interest in this scheme? Is it reasonable to assume that an individual eBay seller will pursue his remedies against abusive trademark enforcement through the legal system? Given the global nature of the Internet, an eBay seller in New York might be faced with challenging the actions of a trademark holder in Europe or Asia in order to re-list his items or sell similar items on eBay in the future. This is not very likely to occur. And, the trademark holder may unwittingly alienate its loyal customers, some of whom may have purchased the trademarked goods, relying on the owners promises that they are worth more, eventually become collectibles, and ultimately hold or increase their value. EBay looses potential revenues by reducing the volume of legitimate sales. So, no one really benefits from this regime.
It would be simpler and more in keeping with existing trademark law and practices if eBay would institute a registration procedure through which a seller who desires to offer trademarked goods for sale on the site, would be required to register with eBay. The seller would provide a verifiable address and identification. With this simple procedure, the trademark holder would be left to police potential sales over the Internet in the same manner it now does in the terrestrial world: it would be charged with implementing a monitoring and enforcement program to detect suspicious activity and to enforce its rights against those violating the law.
If the suspicious activity occurred on the Internet, the rights holder could either obtain the identity from eBay or eBay could contact the seller on behalf of the rights holder and make the normal demands. All parties would be left with their traditional legal remedies in tact. And, equally important, the public, in this case the eBay seller, would have the opportunity to meaningfully defend itself against inaccurate claims by the rights holder. Each party, eBay, the trademark holder and the public seller would have protections and remedies that are consistent with the economic consequences of their activity and therefor likely to be pursued.
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