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Intellectual Property Law

: IPKat

Letter from AmeriKat II - Tiffany v eBay (False Advertising)

By Johanna Gibson, David Pearce, Jeremy Phillips and Ilanah Simon.

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False Advertising

Under section 43(a) of the Lanham Act an individual is prohibited from

"in commercial advertising or promotion, misrepresenting the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services or commercial activities."

A claim of false advertising may be based on at at least one of two theories (Time Warner Cable v DIRECTV (2007)):

that the challenged ad is literally false

that the ad, while not literally false, is nevertheless likely to mislead or confuse consumers

The claimant must demonstrate that the false or misleading representation involved an inherent or material quality of the product and that the injuries to be redressed are the result of

"public deception" (Johnson & Johnson v Smithkline Beecham (1992)). Where an ad is literally false, the court has the power enjoin the use without reference to the impact of the ad on the buying public (McNeil-PCC v Bristol-Myers Squibb)(1991)). For Tiffany to succeed in a likelihood-of-confusion case where the ad is not literally false, they have to prove that the ads tend to mislead or confuse consumers and demonstrate that "a statistically significant part of the commercial audience holds the false belief allegedly communicated by the challenged advertisement" (Johnson & Johnson (above)).

eBay advertised the sale of Tiffany goods on its website by providing hyper-links to "Tiffany", Tiffany & Co under $150", "Tiffany & Co.", Tiffany Rings" and "Tiffany &Co. under $50." They also purchased sponsored-link ads on various search engines to promote the availability of Tiffany items on its site, including ads that stated "Tiffany on eBay. Find Tiffany items at low prices..." Tiffany alleged that because eBay advertised the sale of Tiffany goods on its website and that many of those goods were counterfeit, eBay should be liable for false advertising. The district court rejected this argument because first, the ads were not literally false because authentic Tiffany merchandise was also sold on eBay's website, despite counterfeit products also being available for purchase. Second, they stated that the ads not misleading either for three reasons:

eBay's use of Tiffany's mark was protected, nominative fair use

Tiffany has not proved that eBay had specific knowledge as to the illicit nature of individual listings. This finding by the district court implied that specific knowledge was necessary to sustain a false advertising claim.

To the extent that the ad was false, that falsity was the result of and the responsibility of the vendors, not eBay.

The Court of Appeals agreed with the district court on only one issue - that the ads did not satisfy the first category of being literally false. On the second category of ads, the court must determine whether extrinsic evidence indicates that the ads were misleading or confusion. The appeals court stated that the district court's three step reasoning process did not seem to reflect this determination, taking each in turn:

Just because eBay's use may have been nominative fair use does not mean that the use was not also in a misleading ad.

eBay's knowledge of infringing activity does not have an relevance on whether the ads were misleading "in so far as they implied the genuineness of Tiffany goods on eBay's site."

eBay affirmatively advertised goods sold through its site as Tiffany merchandise by hyperlinks and purchases of sponsored ads. This is the case irrespective of the counterfeit goods being supplied by the vendors, not eBay.

The court of appeals stated that the law prohibits an ad that implies that all of the goods offered on eBay's site are genuine, when in fact, as is the case with Tiffany's goods, a "sizeable proportion of them are not." This does not stop service providers like eBay from advertising goods. The court stated that a disclaimer citing that that not all of the goods on the site are genuine Tiffany products might suffice. They decided to remand the case back to the district court to reconsider the claim in light of what Circuit Court of Appeals said about the district court's 3-issue determination.

Tiffany will still have a difficult time in providing sufficient evidence that indicates that the

ads were misleading or confusing to consumers. Readers may recall that the other survey evidence produced by Tiffany during the summary judgment stage that indicated at about 71% of 'Tiffany' goods on eBay were counterfeit. This survey evidence was "methodologically flawed and of questionable value" and "provided limited evidence as to the total percentage of counterfeit goods available on eBay." Tiffany will have a massively high hurdle to surmount in ensuring that their evidence produced regarding the misleading or confusion nature of the ads does not fail where their other survey evidence did. Additionally how many consumers would really be mislead into thinking that an eBay ad stating "Tiffany on eBay (one such potential consumer - picture right). Find Tiffany items at low prices..." means that "all goods purporting to be Tiffany on eBay are genuine"? And how would Tiffany go about producing evidence that shows that which are not methodologically flawed? How could you phrase a question to a consumer that showed could show this evidence? Any statisticians out there with any thoughts?

Tiffany's CEO Michael J Kowalski said in a statement that Tiffany is "disappointed" with the ruling and may appeal to the US Supreme Court.

The AmeriKat thanks the IPKat's friend and esteemed trade mark blogger, Martin Schwimmer for alerting the Kat to the ruling.

Full post as published by IPKat on April 03, 2010 (boomark / email).