Tide, logic turn on eBay counterfeit cases

Originally posted 2009-03-23 22:32:29. Republished by Blog Post Promoter

Choose the quote that was actually attributed to a leading business magazine:

  1. “If Ford shoulders too much of the burden, its ability to wring a profit from the sales of cars with easily-ignited gas tanks could be compromised,” wrote BusinessWeek.
  2. “If the financial institutions shoulder too much of the burden, their ability to wring a profit from the fees and interest generated by money laundering could be compromised,” wrote BusinessWeek.
  3. “If the Web companies shoulder too much of the burden, their ability to wring a profit from the sales or the advertising that appears alongside the commerce [in counterfeit goods] could be compromised,” wrote BusinessWeek.

Did you guess?  Somehow I missed this:

The Swiss luxury watchmaker Rolex has lost an eight-year legal battle in Germany against eBay, the online auctioneer, over fake Rolex watches allegedly sold by third parties on eBay’s Web site, report a number of business press outlets, including Bloomberg News. . . .

The Feb. 24 German court ruling said eBay had removed counterfeit watches, was actively monitoring for flagrant trademark violations posted on it, and that Rolex couldn’t show that additional fake Rolexes were offered on eBay, after Rolex learned of the alleged sales, reported business media. A court spokesman was quoted in those reports as saying that eBay didn’t have to review every item posted on its site, “because it would jeopardize the whole business model.”

Put otherwise:

“If the Web companies shoulder too much of the burden, their ability to wring a profit from the sales or the advertising that appears alongside the commerce could be compromised,” wrote BusinessWeek.

What is the logic here?  It’s okay to commit a tort, or tortiously contribute to it, because preventing the harm done — while technologically and administratively possible — could be expensive and upset your business?

Why is such reasoning applied to only trademark counterfeiting?

Why is eBay entitled to a presumption of staying in business, but asbestos manufacturers aren’t?

UPDATE:  Some good give-and-take from the important people on this topic.  Hat tip to @dnball (Dan Ballard).  While I’m at it, here are some earlier thoughts from LOC here — excerpt:

The problem for Tiffany is that American courts are simply flabby on this issue: They are easily swayed by the argument that it’s “just too hard” for eBay to “police” a million zillion auctions. “Just too hard,” though, really means “just too expensive” — but does eBay has a constitutional right to a billion dollars in profits on over $6 billion in revenues? . . .

There is no reason under that law that eBay should be allowed to profit so profoundly from creating a market in counterfeits, including a piece of the action for every sale of a fake that takes place.

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Author:Ron Coleman

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7 Responses to “Tide, logic turn on eBay counterfeit cases”

  1. Paul Keating
    March 24, 2009 at 12:35 pm #

    “What is the logic here? It’s okay to commit a tort, or tortiously contribute to it, because preventing the harm done — while technologically and administratively possible — could be expensive and upset your business?

    Why is such reasoning applied to only trademark counterfeiting?

    Why is eBay entitled to a presumption of staying in business, but asbestos manufacturers aren’t?”

    For the same reason that owners of shopping malls are not responsible (nor should they be) for the sales activities of tenants. The fact that they may charge rent on the basis of tenant revenues does not change this. The fact that it is more efficient for tm holders to pursue the likes of Ebay (or Google)but it is the actual sellers (or advertisers in the case of Google) that are actually undertaking the conduct. Why should tm holders be relieved of the obligation to go after the individual infringers?

    Thus, my question is: Why has it taken so long for courts to recognize this and why don’t they just come out and say it.

    • March 24, 2009 at 12:42 pm #

      Fair enough, Paul. You strike a different balance in what are, after all, merely policy choices. But to do so, as you say, you have to acknowledge that the logic of the “landlord cases” and the “flea market cases” does not apply and that in fact these rulings should be overturned. The fact is, though, that they haven’t been, and the extant state of the law on third-party liability has not changed at all — except when applied to eBay.

      I’d sure like a court to come out and say that.

      That is not to say that I agree with your argument on the proper allocation of the costs of enforcement, by the way. While we can agree that policymakers could choose to assign liability on either side of the line, I am not compelled by your “every man for himself” approach by which a party (any party, not only eBay) would be allowed to profit knowingly from infringing or other tortious activity directed against a third person.

  2. Paul Keating
    March 25, 2009 at 6:36 am #

    Ron, Thanks for your reply. I have always enjoyed reading your thoughtful comments even if we do not always agree. First, I am not an anti-trademark radical. Rather, I believe that tms should be restrained within the scope intended. Tms are after all a form of monopolistic right and although there are sound reasons based in fairness to support protecting one’s investment in good will, the reasons do not support an expansion to a “God-Given” right to act without limitations.

    You are correct that I do see the matter as a policy decision. Obviously there are lines to be drawn (even if not always bright). On the far end of the spectrum, there should be room for a neutral platform where transactions may take place without involving liability as a general rule on the part of the platform provider. While the platform provider may be earning money, the fees are earned in connection with making the neutral platform available for use. I do see a logical basis for an assumption that the revenues are earned from knowingly participating or even encouraging in infringement activities. If we were to make such a presumption in the tm arena, then the same logic could be used to create a presumption whenever a third party was earning money from a third party who was acting contrary to the law (using an extreme example, a car rental company whose rental car is used in a robbery or whose driver recklessly killed a third party).

    While a line exists on basis of knowledge, care must be taken not to treat online platforms (such as EBay) any differently from physical platforms (such as the local mall or newspaper publishing want-ads). Even though leases require tenants to abide by the law, such does not impose upon the mall owner the obligation to police the tenants’ activities. Nor does the lease expose the mall owner to a claim by a tm holder based upon the activities of the tenant. That online platform may attract more problematic transactions; such is a function of ease of access and low-capital thresholds and not any active marketing activities on the part of Ebay. If anything policing is more complex for online platforms than for mall owners. Something more – along the lines of active participation by the platform provider – should be required.

  3. March 25, 2009 at 8:50 am #

    Paul, I really appreciate your thoughtful comments. I believe you have enunciated the issues very well. This is actually one of the few issues in trademark regarding which I am still anything of a right-winger.

  4. Spot the Penguin
    March 26, 2009 at 1:47 pm #

    1. Those selling fake goods using someone else’s trademark do so because they sell for more than similar goods made without ripping of someone else’s IP. (Otherwise they wouldn’t do it.)

    2. eBay’s fees (“rent”) are graduated based on the sale price of items sold on their website (“premises”).

    Ergo, eBay’s profits are greater than they otherwise would be without the sales of counterfeit goods and the unauthorized use of trademarks.

    I would hold eBay liable, and I would hold any similarly situated brick-and-mortar enterprise liable as well.

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