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EBay Faces Groundbreaking Case In Tiffany Counterfeit Suit
(TechwebNews.com Via Thomson Dialog NewsEdge) EBay Inc. could face a major change of its business model, if it loses a potentially groundbreaking lawsuit by Tiffany & Co., which claims the online marketplace has failed to take adequate steps to remove fake Tiffany jewelry from the site.
The suit, which was filed in the summer of 2004 in a New York state court, could begin by the end of the year, a legal expert said Monday. The case is currently at the discovery stage in which both sides seeks documents and other evidence from the other in an attempt to "discover" pertinent facts.
"If Tiffany wins, this is a ground-breaking case," intellectual property attorney Joseph Berghammer of Banner & Witcoff Ltd., said. "It changes the electronic marketplace. EBay would no longer just provide a tent, it would also have to provide police."
New York-based Tiffany is arguing that EBay in marketing Tiffany jewelry on the site should take more responsibility in authenticating items offered by sellers.
Tiffany has claimed that in 2003 and 2004 it got EBay to remove more than 19,000 auctions selling counterfeit goods. EBay, based in San Jose, Calif., claims it is only a marketplace that brings buyers and sellers together, and can't be responsible for the authenticity of the 78 million items for sale on the site.
Ina Steiner, editor and publisher of AuctionBytes.com, an online newsletter, said it's possible the court may begin to look more closely at EBay, now that it's been operating for a decade and has grown into a multi-billion-dollar business.
"In the early days, courts were lenient as the (business) model worked itself out," Steiner said. "But EBay has become such a market force, and so many consumers make purchases on EBay that the courts may view it differently as time goes on."
Even if the court doesn't side with Tiffany, any perception that EBay is not providing enough consumer protection could spark action by lawmakers.
"It really may come down to lawmakers getting involved if consumers feel they are not being protected in the marketplace. EBay may have regulation thrust upon them."
EBay spokesman Hani Durzy said the company was "disappointed" that Tiffany filed the suit, given that both companies have collaborated in removing auctions of fake Tiffany products.
"While we will continue to cooperate with Tiffany in these efforts, we will fight the legal action because its claims are without merit," Durzy said.
As a marketplace, it only provides the online real estate for goods to be sold and never sees or actually touches the items, Durzy said. Therefore, the responsibility lies with the trademark owners to watch for counterfeits. When an item is found to be fake, EBay immediately removes it from the site.
"(The trademark) owners are the only ones who can truly understand who owns the rights, and what is fake and what is real," Durzy said.
Tiffany, however, is arguing that EBay is not a neutral vendor offering an online mall. The company has advertised on its homepage on Mother's Day the availability of Tiffany silver among its sellers, James Swire, lead attorney for Tiffany and a partner in the law firm Arnold & Porter LLP, said. In addition, EBay has placed sponsored links on Google and Yahoo advertising the availability of Tiffany silver.
Unfortunately, most of the advertised items were fake, Swire said.
"Those are indicative of the kinds of things they are doing that show they are not just a renter of space," Swire said.
In advertising items on its site, EBay, Tiffany argues, has the responsibility for making sure the items are authentic. In addition, EBay makes millions of dollars through marketing goods on its site, Swire said.
The jewelry seller estimates that at least three out of four Tiffany products sold on EBay are counterfeit, and that the marketplace is aware of the problem, Swire said.
The judge has not set a date for trial, but it's "quite possible" it could begin by the end of the year, Swire said.
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