In November of last year I predicted that Tiffany would lose its lawsuit against eBay. And more recently, when eBay lost a similar case in France, I again stated that American courts would not allow old commerce to stand in the way of new commerce.

Now a federal district judge in the Second Circuit has ruled in favor of eBay. In a nutshell the judge concluded that eBay was not to be held liable for its general knowledge of counterfeit Tiffany jewelry being sold on its auction website. Taking action against specific sellers for specific goods after being put on notice by a Tiffany was sufficient. The judge also rejected Tiffany's claim that any eBay seller of more than 5 Tiffany branded items was presumably selling counterfeit goods.

As has already been noted this case stands in contrast to the recent French court decision that obligated eBay to determine the validity of all goods sold on its site and prohibited eBay from even selling genuine goods if such goods were being resold against the wishes of the brand owner-and its established channels of distribution.

Undoubtedly Tiffany will appeal this US decision. And undoubtedly eBay will appeal the French court's decision. If so, let me make a further prediction: a European Union court will overturn much of the French court decision and side with eBay. And the Second Circuit Court of Appeals will also largely affirm the lower court decision.



In response to my negative post about the recent French Court's decision to penalize eBay for the sale of counterfeit and genuine goods one reader took issue with my comments. He challenged my comment that eBay was making real efforts to stop the sale of counterfeit goods. He reminded me that eBay makes a profit on the sale of the counterfeit goods. And he suggested that I was referring to an earlier decision involving Yahoo! when I referred to already existing limits on the sale of Nazi goods.
Since the issue of eBay's business model is so important I am responding to this reader. But because other facts have come to my attention I will also use this occasion to criticize eBay.

How much does eBay really try to stop counterfeiters? They spend over $20 million dollars each year finding and removing bogus goods. Over 2,000 employees are involved in ferreting out and removing improper goods. On a personal note I was part of a trademark enforcement team that worked with eBay to stop the sale of bogus goods. I always found them to be incredibly cooperative. In fact there were times when I wondered if eBay was almost too willing to side with a brand owner against a vendor.
As is often the case when rights collide, the real question is who must bear the largest share of the risk? In the early days of any new economic engine- whether it be an industrial engine or a post industrial engine- those fueling the engine cannot bear the risk- otherwise the economic engine will sputter and die.
Some estimate that over 60 billion dollars of goods crossed the Ebay platforms last year. If every brand owner holds eBay to the standards set by the French court one can ask: how does their business model survive? Put differently: do we want to preserve a marketplace with limitless choice, lowest market prices, essentially driven by consumers but with a certain degree of risk? Or do we want a marketplace controlled by manufacturers, with limited choice, price controls, very high profit margins and lower risk?
Most of the world has already cast its vote. And the French have lost. Note that the European Union is considering regulations to promote e-commerce in response to restrictive national trade practices.
Yes eBay makes a profit on the sale of counterfeit goods. But I am certain that they would gladly turn over all such profits to brand owners who could demonstrate that such sales were improper.
It is important to remember that the problem of counterfeit goods did not begin with eBay-it is a problem that has plagued luxury goods makers- because their own business model is so vulnerable.
As for the reference to Yahoo! The reader is half right. I was thinking of the Yahoo! decision involving Nazi goods. But it turns out that eBay has apparently self censored itself in response to that decision.
Now then to my criticism of eBay. Ebay owns PayPal, an online payment platform that makes paying for goods won at auction easy and fast. For the consumer. But eBay charges vendors a fee to use PayPal. So vendors can choose to offer PayPal or use Visa, MasterCard etc. Except in Australia. Apparently eBay is attempting to force all vendors in Australia to ONLY use PayPal as the means to pay for goods. Sounds like eBay is trying to create the market in Australia that they are complaining about in France.



Ah the French- they fight with their feet and..... well never mind. In yet another example of how the French are simply different, a French Court has ordered eBay to pay $61 million dollars to the luxury goods conglomerate LVMH. In the US another luxury goods manufacturer, Tiffany, has also filed suit against eBay.
Since I have predicted that Tiffany's will lose its case against eBay I note the French decision with more than a modicum of interest. Tiffany and LMVH complain that just by being in business eBay helps in the sale of thousands of knock off or counterfeit items. The luxury perfumier Givenchy also complained that even though its perfumes sold on eBay were legitimate, such sales were improper because they were outside the authorized distribution channels established by Givenchy.
In a sense the French decision was consistent with past decisions. French courts have already told eBay that it cannot allow sellers to offer Nazi paraphernalia to French citizens. But in a battle of old Europe against the new world economic order the French cannot long prevail.
I suspect that eBay will have much better results in the US courts. Why? Because they are making real efforts to stop counterfeit goods. And, in the end, eBay is nothing more than a conduit for such goods. There have always been channels for bogus knock offs. Especially when the cost of making such goods is pennies and they are sold for many, many, dollars. Almost pure profit.
As for the claims by Givenchy that it should be able to have absolute control over the distribution of its products. That is simply a non-starter in the US. Not that our companies haven't tried! But consumers benefit by getting goods at lower prices. And the manufacturers are not hurt since they have already made a sale.
When legal rules become an impediment to genuine economic or social change, those rules will be altered. Perhaps it will take the efforts of M Sarkozy to bring the French into the 21st century.