Tiffany says eBay turned "blind eye" to fakes

NEW YORK (Reuters) - A lawyer for Tiffany & Co said that eBay turned a “blind eye” to the sale of counterfeit Tiffany jewelry on its Web site, as the trial in a closely watched trademark lawsuit opened on Tuesday.

Visitors walk past the Tiffany & Co. store on Rodeo Drive in Beverly Hills, March 22, 2006. A lawyer for Tiffany said that eBay turned a "blind eye" to the sale of counterfeit Tiffany jewelry on its Web site, as the trial in a closely watched trademark lawsuit opened on Tuesday. REUTERS/Fred Prouser

A lawyer for eBay countered that the online auctioneer had done what it was obligated to do to prevent the sale of counterfeit goods and that it was Tiffany’s responsibility to police its trademark.

Tiffany sued eBay in 2004, claiming the online auctioneer aided violations of the jeweler’s trademarks by letting counterfeit items be sold on its Web site.

At the heart of the lawsuit is who should be responsible for policing the Web site for counterfeit products -- eBay or Tiffany, experts said, adding that the decision could set a precedent.

The trial, which is being held without a jury before District Judge Richard Sullivan in Manhattan, is scheduled to go on through November 21.

“EBay has disclaimed the responsibility for sale of counterfeit items on its site,” James Swire, Tiffany’s lawyer, said in opening statements on Tuesday.

“EBay simply turned a blind eye,” Swire told the judge. “Because of that it is liable for contributory infringement.”

EBay spends more than $10 million a year to “cleanse its site of counterfeit merchandise,” Bruce Rich, the auction site’s lawyer, said in his opening statement.

He pointed to eBay’s VeRO, or verified rights owners, program that has been in place since 1998 and helps companies prevent fake goods from being sold on its site.

“EBay’s record in responding is exemplary,” Rich told the judge. “The mind-set of our client ... has been we want to work and find a way to fix it.”

Tiffany has argued in court papers that requiring it to police auctions was “less effective and more expensive than automatic screening by eBay.”

During 2003 and 2004, Tiffany had two employees policing eBay and forced the shutdown of about 19,000 auctions, the complaint said. Tiffany randomly bought silver “Tiffany” jewelry on eBay and found only 5 percent was genuine, while 73 percent was counterfeit, the court papers said.

“The issue will actually turn on the court’s interpretation of the law as to what eBay’s legal obligation is with respect to the counterfeit goods on sale on it,” Geoffrey Potter, chairman of the anti-counterfeiting practice at the law firm of Kramer Levin Naftalis & Frankel, said in an interview with Reuters.

“The cost to eBay for fulfilling its obligation will likely not be a factor in the judge’s decision,” said Potter, who was attending the hearing, but is not involved in the case. “The issue is “whether what they do is adequate under the law.”

Under U.S. law it is up to the trademark’s owner to establish that goods are counterfeit, another legal expert, Bruce Sunstein, co-founder of Bromberg & Sunstein, a Boston-based intellectual property law firm, told Reuters.

But in this case, the court could rule eBay was put on notice and so could be held liable for allowing the sale of counterfeit goods, he said.

“They have at least alleged ... that 95 percent of the goods going through the eBay virtual gateway are fake, at least vis a vis Tiffany,” Sunstein said. “And they are trying to use that fact to make new law.”

Such an outcome would lead to higher costs for Web sites as they are forced to dedicate more resources to monitor what is being sold, experts said.

“It is certainly a foundational case,” Eric Namrow, a partner at the law firm Jones Day who is not involved in the case, told Reuters. “What is the online auction house’s responsibility to police its own marketplace?”