Court Says eBay Not to Blame for Tiffany Counterfeits

April 8, 2010 — -- It's enough to give Holly Golightly the mean reds: Tiffany silver jewelry sold on eBay is often counterfeit, but there's not much the online auction site can do about it.

That's the message a U.S. appeals court sent last week by ruling in favor of eBay in a lawsuit brought by the famous Fifth Avenue jeweler.

Trademark experts say the ruling is likely to discourage other luxury retailers from suing eBay for letting fake goods through its gates.

"It's a big decision in the trademark world," says Sally Abel, a trademark lawyer at Fenwick & West. "It's a frustrating decision for brand owners who have significant counterfeiting issues like Tiffany, but it's one that's not surprising given the realities of online commerce."

Mostly Fake

Tiffany claimed that most of the silver Tiffany offerings on eBay were fraudulent and blamed eBay for not doing more to prevent the sales. The jeweler also accused eBay of deliberately misleading customers about the authenticity of merchandise on its site in order to make a profit.

But in its ruling, the three-judge panel for the Second U.S. Circuit Court of Appeals said eBay only acts as a facilitator of sales and doesn't actually ever own the goods. It also cited eBay's efforts in working with brand owners to purge fakes as they appear and put the onus on Tiffany to do more to protect its own brand.

Pricey Fight

EBay said it spends about $20 million each year fighting frauds on its Web site and has hired 200 full-time workers who spend their days purging fraudulent listings from the site. EBay also has automated programs that scour the site for suspicious sellers and works quickly to act on brand owners' complaints about frauds.

As the world's largest online market, eBay users post six million new listings each day. The company says less than 1 percent of those are suspected to be counterfeit.

However, sections carrying popular luxury brands such as Rolex and Coach are likely to see more fraud, experts say.

Bruce Rich, the lawyer who defended eBay in this case, told ABC News.com he was "pleased" with the court's decision.

"The moral of the story is that being a good corporate citizen and doing more than the law requires in this area, as eBay has done, is a very good prescription for avoiding legal encumbrance," he said.

The International Anti-Counterfeiting Coalition estimated that counterfeiting has grown more than 10,000 percent in the past 20 years and that the industry now generates $600 billion in revenues, or 5 to 7 percent of world trade, each year.

EBay was founded in 1995 by French Iranian computer programmer, Pierre Omidyar, and has since grown into one of the Internet's most successful ventures.

In 2009, eBay, which also owns Skype and Paypal, earned $8.7 billion in revenue and $2.4 in net income. Its "marketplace" unit, which includes the online auction site, posted $1.5 billion in revenue during the fourth quarter alone.