By  on April 2, 2010

A federal appeals court ruling on Thursday largely favored eBay Inc. in its legal battle with Tiffany & Co. but left the jewelry firm with one leg to stand on.

In an opinion two years in the making, the U.S. Second Circuit Court of Appeals in Manhattan certified an earlier decision that eBay was not liable for trademark infringement or dilution for the sale of counterfeit jewelry on its site. The three-judge panel overseeing the case stood by a lower court’s finding that eBay had taken adequate measures to block known counterfeit dealers and that it is ultimately Tiffany’s responsibility to patrol its own trademarks.

Circuit Judge Robert Sack, who authored the opinion, wrote that Tiffany’s appeal sought too broad an understanding of current law. Sack further noted that eBay itself has an interest in keeping bogus wares out of its listings, writing that “…private market forces give eBay and those operating similar businesses a strong incentive to minimize the counterfeit goods sold on their Web sites.”

The appeals panel did grant a smaller victory to Tiffany by returning its previously dismissed claim of false advertising to the lower court for reconsideration. The jeweler has asserted that eBay misled consumers in ads on its own site and third-party search engines that linked to possibly fake Tiffany goods.

Tiffany chairman and chief executive officer Michael Kowalski said his firm was “very disappointed” by the overall decision. The company said its attorneys were reviewing the ruling and would consider an appeal to the U.S. Supreme Court.

“As an e-commerce leader, eBay has a responsibility to protect consumers and promote trust in its marketplace,” Kowalski said. “EBay knew that counterfeit merchandise was being sold on its site — and eBay took no effective steps to stop it. EBay deliberately misled consumers for profit and, unfortunately, the court has justified its actions. The consumer is the real loser today.”

Meanwhile, eBay general counsel Michael Jacobson said the opinion validated the San Jose, Calif.-based Web firm’s anticounterfeiting efforts.

“We continue to support cooperation, rather than litigation, as the best way to address these issues in everyone’s best interests and we remain confident that the one remaining issue in the case will be decided favorably on remand,” Jacobson said.

New York-based Tiffany first brought suit against the online marketplace in 2004. It alleged a majority of the “Tiffany” goods for sale on the site were counterfeit and that eBay was contributing to infringement by offering a venue for their sale. U.S. District Court Judge Richard Sullivan sided with eBay and dismissed the suit in July 2008 following a weeklong bench trial.

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