Tuesday, September 14, 2010

eBay beats back false advertising claim

Tiffany (NJ) Inc. v. eBay, Inc. (SDNY 2010)

The Second Circuit remanded this case solely on the false advertising issue. As I predicted, eBay beat back the false advertising claims based essentially on Tiffany’s lateness in raising the issue/difficulties building a record, given that the case was litigated as a trademark case until the court of appeals ruled otherwise.

The false advertising claim is based on the allegation that, though eBay knew that a substantial percentage of “Tiffany” goods on its website was counterfeit, it nonetheless advertised that Tiffany goods were for sale there. Tiffany specifically identified (1) eBay’s reference to Tiffany merchandise on its “Jewelry and Watches” page, and (2) its purchase of the “Tiffany” keyword from search engines.

The court of appeals agreed that the ads were not literally false, but remanded on the issue of whether they were likely to mislead, which requires evaluation of extrinsic evidence. But there was insufficient evidence in the “extensive trial record” to find misleadingness. Typically, extrinsic evidence is survey evidence; there was none here. Tiffany instead offered (1) declarations from three eBay customers who believed they’d bought Tiffany counterfeits on eBay; (2) testimony from a Tiffany employee of customer complaints about counterfeits on eBay; and (3) 125 emails sent by customers to eBay complaining of Tiffany counterfeits. This evidence was deficient to show the effect of the ads on consumers in general—by which I suppose the court means that, given the volume of sales, 125 complaints isn’t enough to justify the inference that a substantial portion of the audience was deceived.

However, more vitally, none of this evidence reveals that any consumer was misled by eBay’s ads. The three declarations didn’t refer to any eBay ads for Tiffany goods: one customer came to eBay looking for a sterling silver charm bracelet, and two went straight to eBay’s site to look for Tiffany goods. Similarly, neither the Tiffany employee’s declaration nor the 125 emails referred to any eBay ads.

Tiffany’s alternative theories of liability were foreclosed. First, falsity by necessary implication was outside the scope of the remand because that’s “simply a means of analyzing whether an advertisement is literally false,” and the Second Circuit already affirmed the district court’s holding that the ads weren’t literally false. (Frankly, I don’t think the Second Circuit was being careful enough to consider falsity by necessary implication; if it had been, I doubt we would have gotten this rather pointless remand. But I don’t think the ads were false by necessary implication anyway.)

Finally, Tiffany argued that eBay intentionally misled customers. Where a plaintiff demonstrates intentional attempts to deceive, and the defendant’s conduct is egregious, there’s a presumption of deception. The burden then shifts to the defendant to show that consumers were not misled. Tiffany argued that eBay’s intent to deceive was proven because eBay continued advertising the availability of Tiffany products after it had been notified that many were counterfeit. Initially, the court found this argument waived since it wasn’t raised before, during, or after trial, or on appeal. But even aside from that, the record was clear that Tiffany failed to prove an intentional attempt to mislead.

Though eBay was aware that a portion of the Tiffany-labeled goods sold on its site were counterfeit, nothing in the record indicated that eBay was aware that its ads were misleading consumers. In addition, eBay took many steps to prevent and detect sales of counterfeit goods, including expending substantial resources on its trust and safety department and its fraud engine, instituting VeRO, and allowing rights holders to create an “About Me” page warning of the dangers of counterfeits. Thus, Tiffany failed to establish intentional deception, much less conduct of an egregious nature.

No comments: