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Counterfeit Case Against eBay May Raise Web Policing Requirements

Posted Nov 14, 2007 4:46 PM CDT
By Martha Neil

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A federal judge in Manhattan has begun to hear a closely watched case between a renowned jeweler and an Internet auctioneer accused of turning a blind eye to the sale of fakes on its Web site.

If Tiffany & Co. is successful in its trademark infringement claim against eBay, not only the Internet auction site but many other Web-based companies could be required to police more closely the sale of goods by third parties, reports Reuters.

Although eBay isn't accused of directly violating Tiffany's trademark, it played a contributory role in Internet sales of counterfeit jewelry by turning a blind eye to what was being done on its own Web site, contended James Swire, counsel for the jeweler, in opening arguments yesterday. But Bruce Rich, eBay's lawyer, says the company does the best it can to stop such scams and spends $10 million annually on efforts to prevent counterfeiting.

Tiffany argues that it would be more economically efficient to require eBay to police its own auctions through automatic computer programming than to force each manufacturer to look out for its own individual merchandise. The jeweler contends that most of the "Tiffany" silver jewelry it randomly purchased on eBay was counterfeit.

However, U.S. District Judge Richard Sullivan isn't likely to decide the case based on this law-and-economics rationale, according to Geoffrey Potter, who chairs the anti-counterfeiting practice at Kramer Levin Naftalis & Frankel. Instead, he predicts, Sullivan will look at whether eBay's anti-counterfeiting efforts are "adequate under the law."

Although a trademark owner has the burden of showing that goods are counterfeit, the judge could set a precedent and hold that eBay was put on notice of counterfeiting problem if it accepts Tiffany's argument that such goods were routinely sold on eBay, says Bruce Sunstein, an intellectual property lawyer. "They have at least alleged ... that 95 percent of the goods going through the eBay virtual gateway are fake, at least vis a vis Tiffany," he tells Reuters. "And they are trying to use that fact to make new law."

The trial is expected to last about one week.

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