• by Wendy Davis  @wendyndavis, July 15, 2008

In a sweeping decision, a federal judge Monday dismissed a trademark infringement lawsuit brought by jewelry retailer Tiffany & Co. against eBay for hosting sales of knock-offs.

Judge Richard Sullivan in New York rejected Tiffany's claim that eBay should have done more to proactively foil counterfeiters. "Tiffany must ultimately bear the burden of protecting its trademark," Sullivan wrote in the 66-page decision.

In addition, Sullivan dismissed Tiffany's claim that its trademark was violated when eBay or affiliates used the store's name to trigger paid search ads on Google and Yahoo.

eBay called the ruling "a victory for consumers." "The ruling confirms that eBay acted reasonably and has adequate procedures in place to effectively address counterfeiting," said spokesperson Nichola Sharpe.

For its part, Tiffany criticized the decision. "We are shocked and deeply disappointed in the district court's erroneous reading of the law," said spokesperson Mark Aaron. "The ruling allows sellers of counterfeit goods on eBay to victimize consumers." Aaron said he expects Tiffany will appeal.

Tiffany, which filed suit against eBay in 2004, argued that the auction site should have taken specific measures to root out counterfeiters. Specifically, Tiffany wanted eBay to prohibit sellers from listing five or more Tiffany items. eBay countered that it immediately removed counterfeits once it had reason to know the pieces were fake, but need not prevent people from selling goods that could be legitimate.

Sullivan, who presided over a trial last November, found in eBay's favor, ruling that eBay had no obligation to impose broad limits on sellers' ability to use the site. Instead, he found that eBay's practice of removing potentially infringing items in response to notices from Tiffany was sufficient to ward off liability.

Tiffany also wanted eBay to immediately ban sellers suspected of offering fakes rather than first issue warnings. But Sullivan approved of eBay's more lenient approach. "This Court finds that eBay's refusal to use a hard-and-fast, one-strike rule was appropriate," he wrote.

Although Tiffany alleged trademark infringement, its arguments were comparable to those in Viacom's copyright infringement lawsuit against Google's YouTube. Viacom, like Tiffany, wants to hold a site liable for material placed on it by users. And like Tiffany, Viacom argues that Google should be required to police the site for intellectual property infringement.

Given the similarities, Sullivan's decision COULD INFLUENCE THE COURT IN Viacom's $1 billion lawsuit against Google, said Eric Goldman, director of the High Tech Law Institute at Santa Clara University. "It's possible," Goldman said, adding that the 9th Circuit Court of Appeals has already taken the position that copyright owners, not Web sites, are responsible for policing sites for intellectual property violations. "Courts might see this case as reinforcing that general view," he said.

At the same time, Goldman said, copyrights are governed by a different statute than trademarks, so courts might treat the cases differently.

Sullivan also ruled that using the term "Tiffany" to trigger search ads does not violate the jeweler's trademark rights. "eBay's use of the term Tiffany in advertisements is a protected, nominative fair use," he wrote. In general, use of a trademark is considered "nominative" when it's necessary to describe an item.

Other courts also have ruled that using a trademark to trigger search ads does not constitute infringement, but for different reasons. A federal judge in Virginia ruled in 2004 that Google did not violate the trademark of insurance company Geico by allowing rivals to use the word "Geico" to trigger search ads. In that case, the judge found that consumers weren't confused by such ads.

A court in New York went even further, dismissing a lawsuit against Google by computer repair shop Rescuecom on the theory that using a company's name to trigger an ad wasn't the type of "use in commerce" that's governed by trademark law. The 2nd Circuit Court of Appeals is currently considering that case.