By  on November 14, 2007

The long anticipated trial between Tiffany & Co. and eBay kicked off Tuesday in Manhattan federal court with the case centering on online duties and responsibilities in regard to intellectual property structures.

At issue in the lawsuit is whether eBay is liable for the sale of counterfeit merchandise through its Web site. In the lawsuit, initially filed in 2004, Tiffany charged eBay with direct and contributory trademark infringement as well as other claims.

"Potentially this case has a wide-ranging impact; it may define what duties an online seller has to a trademark owner with regards to policing counterfeits," said Scott Christie, partner, McCarter & English, and a former federal prosecutor of computer crime who is not involved in the case.

"We've never seen a case like this before. We have seen vicarious liability for landlords in the past, which is the premise here, that eBay is the landlord for all these auctions," said Susan Scafidi, law professor at Fordham University, who is also observing the case.

Vicarious liability has been used with some success in prosecuting building landlords from New York's Chinatown in cases involving the sale of counterfeit goods. The approach has also been applied in markets in China to hold landlords responsible.

The approach is analogous to the copyright cases that have arisen around the duties of YouTube and Google to police proprietary videos posted on their sites, Christie said. So far, the body of case law has said the sites don't have to take affirmative action to determine the source of videos, but the companies should remove the videos if notified of a copyright violation. Google has been more aggressive in removing videos lately, he said.

If Tiffany prevails in the lawsuit, eBay could be held responsible for counterfeit items being sold through its Web site. EBay has argued that it has done a lot to work with brand owners, primarily through its Verified Rights Owner Program, which allows brand owners to report and knock down auctions that are reportedly selling counterfeits.

Brand owners have argued that they bear the burden under the VERO system to find the Web sites, and that eBay is shirking the full extent of its responsibilities.In the past Tiffany has said it spends well over $1 million a year tracking and pulling down counterfeit auctions from Web sites. Other trademark owners have said they spend considerable time and effort using the VERO system, but that results never seem to improve.

Many luxury brands have said over the past year that they are watching the case with interest as to how it will affect their own efforts at brand protection. Indeed, Tiffany is not the only luxury goods company to file a lawsuit against eBay.

Hermès has a case pending against eBay France and eBay International AG in the Tribunal de Grande Instance in Troyes, France, for allegedly selling counterfeit Hermès products. LVMH Moët Hennessy Louis Vuitton filed a lawsuit last year with the commercial court in Paris against eBay Inc. and its Swiss subsidiary, eBay AG, also for the alleged sale of counterfeits.

Most likely Tiffany hopes the trial will take away a vending point for counterfeiters and drive them into darker corners and less desirable online locations, Scafidi said. The fear, she cautioned, is that a ruling could make it too expensive for eBay to continue to do business.

All direct testimony in the case was filed in a written format. Cross-examination started Tuesday before U.S. District Judge Richard Sullivan. There is no jury in the trial. Cross-examinations are scheduled to continue for the rest of the week.

In a statement released this week by Tiffany, the company said it looked forward to the trial and to presenting its case to the court.

"Tiffany has made valiant efforts to work with eBay to seek the removal of counterfeit goods from its Web site. However, eBay has not been willing to confront and prevent the massive fraud on its site in any meaningful way," Tiffany said in a statement about the litigation.

An eBay spokesman said that the company was disappointed that the matter had gone to trial and that the company felt it had actively supported Tiffany's brand protection efforts, but that it would vigorously defend itself.

"EBay has long been a pioneer in the fight against counterfeits on the Internet. We have gone above and beyond what is required by the law," said Hani Durzy, director, corporate communications.Following the first day of trial eBay said it was pleased with how things went. Tiffany declined to comment on the courtroom specifics of the ongoing case.

The outcome of the trial is still hard to predict. "This is a clash of the Titans, it's really hard to call," Scafidi said.

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