By and  on July 14, 2008

A key battle between the retail industry and eBay, the biggest online marketplace, appears to be near a flash point.

U.S. District Court Judge Richard Sullivan in Manhattan may rule as soon as today on a lawsuit in which Tiffany & Co. argued that eBay is a distribution network that allows the trading of counterfeit Tiffany merchandise. The auction site has defended itself as an online market that simply links buyers and sellers.

Should the luxury jeweler win the case, which was argued during a weeklong trial in November, eBay's business model could be rocked because of the burden of policing a site that had 83.9 million active users and 647 million new listings around the world, both in the first quarter of this year, according to a company report. It could also open the way for similar lawsuits against eBay, which is based in San Jose, Calif.

Tiffany has asked the court to mandate that eBay change its processes to eliminate counterfeit silver Tiffany merchandise. EBay has contended that it can't determine the authenticity of items up for sale because it never takes possession of any of the goods and does everything it can to keep counterfeits off the auction site.

EBay also has argued that policing is the obligation of Tiffany, the trademark owner, because the jewelry company has the ability to identify counterfeits of its products.

Both Tiffany & Co. and eBay declined comment until a ruling.

"It's a question of whether we shift the burden," said Susan Scafidi, a law professor at Fordham University who specializes in fashion and intellectual property law. "Do we place the majority of the burden on the intellectual property rights holder to police its own goods, or do we ask eBay to shoulder a much larger portion of that burden?"

Tiffany filed the lawsuit in 2004, contending that its employees found that 73 percent of 186 silver jewelry pieces they bought on eBay that purported to be from Tiffany were counterfeit.

"EBay recognizes that there are many things it cannot sell at its auction, such as human body parts, firearms, child pornography and so on, and has been effectively able to eliminate them from its site when it wants to," said Geoffrey Potter, head of anticounterfeiting practice at Kramer Levin Naftalis & Frankel LLP.

Other luxury goods brands have said they are being hurt by sales of counterfeit merchandise.

In France on Friday, Paris' Court of Appeal ordered eBay to stop selling all LVMH Moët Hennessy Louis Vuitton-owned fragrances and cosmetics on the French version of its online auction site, upholding a ruling handed down by Paris' Tribunal de Commerce on June 30.

While eBay's appeal against fines of almost 40 million euros, or $63.2 million, for allegedly selling counterfeit goods and unauthorized beauty products has yet to be heard in court, the auction site had requested an urgent hearing contesting the court's order to stop selling genuine products by LVMH-owned beauty brands or face a daily fine of 50,000 euros, or $79,000. LVMH argues that items by Parfums Christian Dior, Kenzo Parfums, Guerlain and Parfums Givenchy can be sold only in the selective distribution doors chosen by the company.

The court of appeal confirmed the injunction and fine, and also ordered eBay to pay an additional 10,000 euros, or $15,736 at current exchange, in legal costs.

LVMH said this decision confirms the significance of the legal precedent set by the previous judgment announced on June 30.

"The commercial court had ruled that eBay should prevent its Internet site users from using these brand names," the group stated on Friday. "This decision, which responds entirely to the demands of the LVMH group, confirms the seriousness of the faults committed by eBay's sites."

EBay said it would use all the means at its disposal to comply with the court's order. At press time, the number of Dior, Guerlain, Givenchy and Kenzo beauty products for sale on the site ran into the hundreds.

"It's obviously a big feat to say the least," a company spokeswoman said. "The team is trying to figure out how to do this, how to delay listings and tell the seller why he is not able to sell."

In a statement, eBay reiterated its accusation that LVMH is seeking to protect its commercial interests.

"Certain companies try to protect commercial anticompetitive practices, while eBay tries to protect the consumer's purchasing power," the company stated. "By allowing [consumers] access to the greatest choice of authentic products at competitive prices, with as a main result, the improvement of our users' purchasing power, we are confident that our appeal will be heard."

After a two-year legal process, eBay Inc. and eBay International were ordered last month to pay LVMH compensation totaling 38.9 million euros, or $61.3 million, for allowing the sale of counterfeit goods and for the unlawful sale of authentic fragrances.

The Tribunal de Commerce found eBay guilty of gross misconduct in failing to prevent the sale of fake Louis Vuitton leather goods and Christian Dior eyewear and handbags and ordered it to pay those businesses 19.3 million euros, or $30.5 million, and 16.4 million euros, or $27.5 million, respectively.

Meanwhile, Parfums Christian Dior, Kenzo Parfums, Guerlain and Parfums Givenchy were awarded 3.2 million euros, or $4.7 million.

A court date has not been set for the overall appeal hearing.

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