Poor eBay!

News item:

eBay just reported first quarter earnings today posting revenue of $2.5 billion, an increase of 16% from the same period of 2010. eBay’s net income on a GAAP basis of $475.9 million, or $0.36 per diluted share, and non-GAAP net income of $619.0 million, or $0.47 per diluted share, representing a 12% increase compared to the same period of 2010. The retail giant narrowly beat analyst expectations, which were 46 cents per share on revenues of $2.48 billion. eBay says that the first quarter increase in earnings was due primarily to sales growth and a lower effective tax rate.

Nice!  I wish I had one of those.

But it does bring to mind the following bunch of words I do have, and which I wrote on this very place in space, on the topic of eBay’s essentially unconditional non-liability for contributory trademark infringement in connection with the sale on eBay of counterfeit goods:

Willful blindness, evidently, is a good standard to spank flea market zhlubs who “should have known” vendors who rent tables from them are selling counterfeit goods.   It doesn’t apply, however, to billion-dollar companies that are “too big to be liable” as contributory infringers or even  accountable after the fact on some level (disgorgement?)  for the millions they rack up in commissions on counterfeit sales.

Ah, yes, but doesn’t the Circuit say, as quoted above?:

But we are also disposed to think, and the record suggests, that private market forces give eBay and those operating similar businesses a strong incentive to minimize the counterfeit goods sold on their websites. eBay received many complaints from users claiming to have been duped into buying counterfeit Tiffany products sold on eBay.  The risk of alienating these users gives eBay a reason to identify and remove counterfeit listings. Indeed, it has spent millions of dollars in that effort.

 

I’m disposed to think exactly the opposite–because:

  1. the law will not punish them for failing to do so;
  2. notwithstanding “many complaints” (it’s that Lanham Act “rigor” at work once again!),  most buyers of counterfeits want to buy counterfeits.  It’s not a matter of quality control:   These days, everyone except Archie Bunker who spends $45 for a “Romex” knows exactly what he’s buying.  But unless and until “private market forces” eliminate trademark law, notwithstanding that the sale of a fake Rolex or Tiffany item is entirely between “consenting adults,” it’s still an unlawful transaction;
  3. the “millions of dollars” spent by eBay was spent precisely to obtain an opinion like this by a court that doesn’t really “get it”; and
  4. eBay makes money selling counterfeits!  Even the Circuit had to acknowledge this fact, which it does in a little-bitty footnote and then completely ignores.

Yes, they make a lot of money, they do, at eBay.  Why the company is exempt from any responsibility to compensate victims of trademark infringement via a system it has established — notwithstanding their notice-and-takedown system — merely because it has spent “millions” on trying, a number that is both vague and which the court made no attempt to relate to the profits or the damages involved, remains beyond my understanding.

 

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Author:Ron Coleman

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6 Responses to “Poor eBay!”

  1. Roberta jacobs-Meadway
    April 28, 2011 at 10:32 am #

    If everyone who buys a ROMEX knows what he/she is getting, and I agree that is the case, then there is no confusion, and no likelihood of confusion as to source or sponsorship or affiliation. From the standpoint of the brand owner, isn’t this really a matter of dilution, if anything.

    • May 1, 2011 at 7:16 pm #

      No, it is still a counterfeit and a trademark infringement, Roberta, because it is not only the immediate consumer whose confusion is at issue. Others — either subsequent purchasers or those who come in contact with the counterfeit — may believe a counterfeit is the real thing, and when they experience the difference in quality it directly undermines the goodwill in the original mark.

  2. Paul Keating
    May 2, 2011 at 9:09 am #

    I honestly don’t believe that any market or third party service provider should be liable for contributory infringement unless the plaintiff can prove intentional conduct. Using a less stringent theory places a chilling effect in commerce. The correct process absent intent is to require that the third party provider deliver (subject to reasonable limits such as court orders, discovery, etc) whatever information they have about the actual seller so as to permit the plaintiff to pursue the correct defendant. To continue a non-intentional conduct standard makes no sense (as evidenced by the illogical decision noted above) and seems to grant immunity of sorts to outlets having a sufficient reputation (or size) such that one would be surprised that they sell counterfeit goods.

    PRK

    • May 3, 2011 at 4:42 am #

      And … drug dealers, for instance, would just say “We are simply providing a place-utility service of “the product” delivery to our customers”. A far-fetched analogy aside, ‘Qui prodest?’ here does include intermediaries fully aware of the benefits of being – the last and important – chain link of the counterfeit goods channeling. This infrastructure of this business is very complex; hence, it is quite hard to logically embrace the suggestion that the plaintiff should prove the intentional conduct. Commercially speaking, a retailer either does or doesn’t sell counterfeits.

  3. May 3, 2011 at 6:39 am #

    Nina,
    Your comment raises lots of straw men. First, selling drugs is a crime and possession let alone sale of the substance is illegal. Last time I looked, inducing infringement was a civil offense. Second, it is difficult to imagine anyone being confused as to whether or not they were selling cocaine as opposed, say, the retailer who purchases 100 bags labeled Gucci.
    Third, the fact that something is difficult to prove is not a logical reason for not requiring its proof. The law is full of examples running from “guilty beyond a reasonable doubt” to fraud which requires the proof of intent. Nor is there any evidence that legitimate claims are harmed by requiring a level of proof deemed difficult. Plaintiffs seem able to successfully bring fraud claims and to recover punitive damages. Fourth, a higher level of proof actually benefits society. The requirements imposed in criminal matters are intended to err on the side of innocence. The requirement of higher levels of proof in civil matters is intended to promote freedoms of expression, association, commerce, etc.

    What you really seem to complain of is the fact that such enforcement would be an expense to the TM owner. I have no sympathy for such positions. Nor am I moved by the “the costs will then be borne by the customers” argument as those customers remain free to accept or reject the cost increase.

    Further, the IP rights side of life has been gaining in the US (and other formerly industrialized countries) IMO thanks largely to the lack of industrial wealth and the need to rely upon IP. They have continued to shift the burden of enforcement from the IP rights holder side to the public/government side. This means that the entire society must foot the enforcement bill for a select group of tm holders who appear to be largely in the luxury brand side of the market and can well afford to foot the bill themselves.

    Finally, intent can in fact be proven in appropriate situations. The presence of knowledge and a failure to act can be evidence of intent. However, in cases such as market places, such knowledge should be specific and not general in nature. Thus, the failure to block the sale of counterfeit products could be evidence of intent but general knowledge that counterfeits are sold on your site by third parties would not. The DMCA was IMO an attempt to reach a balance for such issues in the copyright space. Unfortunately there is mounting evidence of abuse by copyright holders and over-reaction by service providers.

    In the end tm holders should focus more on delivering more value to their customers. As pointed out in the original blog post, the evidence overwhelmingly shows that people are not confused when they buy a fake. They know it is fake and they don’t care. They are not interested in purchasing an original. The power of the “brand” and the fabricated prestige surrounding owning the product is simply not sufficient. It is thus difficult to see how these are “lost” customers. The only logical basis for a damage claim resides in potential tarnishing. This of course assumes the fake is poorly manufactured – which in most cases it is not since it typically originates from the same factories as produced the originals.

    I know this is heresy to most of you but I honestly believe that the rights afforded IP in general are granted as exceptions. I am not anti-IP rights but I do fear that we are losing site of the fundamental need for balance.

    Paul

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