No. 10-300

OCT "I ,.9 20’~0

uoreme ;ourt of nitel tate

TIFFANY (NJ) INC. and TIFFANY AND COMPANY,Petitioners,

Vo

EBAY, INC.Respondent.

ON PETITION FOR A WRIT OF CERTIORARITO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF AMICUS CURIAE OF THEINTERNATIONAL ANTICOUNTERFEITING COALITION

IN SUPPORT OF PETITIONERS

BARBARA A. SOLOMON

Counsel of RecordCRAIG S. MENDEANNA P. LEIPSlC

FROSS ZELNICK LEHRMAN &

Zissu, P.C.Counsel for Amieus Curiae866 United Nations PlazaNew York, NY 10017(212) 813-5900bsolomon@frosszelnick.com

October 19, 2010

DICK BAILEY SERVICE (212)608-7666 (718)522-4363 (516)222-2470 (914)682-0848 Fax: (718)522-40241-800-53 1-2028

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TABLE OF CONTENTS

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Table of Authorities ................................................iii

INTEREST OF AMICUS CURIAE ........................1

PRELIMINARY STATEMENT ...............................3

SUMMARY OF ARGUMENT .................................4

REASONS FOR GRANTING THE WRIT ..............6

I. THE SERIOUS THREAT CAUSED BYCOUNTERFEITING IN THE INTERNETAGE ..................................................................6

A. The Threat to Public Health andSafety .......................................................7

B. The Drain on the U.S. Economy ............10

C. The Harm to Brand Owners ..................12

D. The Escalation of Counterfeiting throughOnline Marketplaces .............................. 12

II. THE CONTRIBUTORY LIABILITY DOCTRINEESTABLISHED BY THIS COURT ACHIEVEDEFFICIENCY AND EQUITY ........................... 14

III. THE COURT OF APPEALS’ DECISIONFRUSTRATES THE PURPOSES OF THISCOURT’S CONTRIBUTORY TRADEMARKINFRINGEMENT DOCTRINE ........................16

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A. The Court of Appeals’ Decision ..............17

B. The Decision of the Court of Appeals IsOut of Step with Recent Case Law ........19

IV.THE STANDARDS FOR ESTABLISHINGCONTRIBUTORY TRADEMARK LIABILITYMUST BE CLARIFIED FOR THE INTERNETAGE ................................................................ 22

CONCLUSION .......................................................27

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TABLE OF AUTHORITIES

FEDERAL CASES

Arista Records, Inc. v. Flea World, Inc., No. 03-2670(JBS), 2006 WL 842883 (D.N.J. Mar. 31,2006) ..................................................................20

Fare Deals, Ltd. v. World Choice Travel.corn, Inc.,180 F. Supp. 2d 678 (D. Md. 2001) ...................20

First Jewellery Co. of Canada, Inc. v. InternetShopping Network LLC, No. 99 Civ.11239(LMM), 2000 WL 122175 (S.D.N.Y. Feb. 1,2000) .................................................................. 24

Hard Rock Care Licensing Corp. v. ConcessionServices, Inc., 955 F.2d 1143(7th Cir. 1992) ...................................... 19, 20, 23

Inwood Laboratories, Inc. v. Ives Laboratories, Inc.,456 U.S. 844 (1982) ..................... 4, 15, 16, 18, 19

Louis Vuitton Malletier, S.A. v. Akanoc Solutions,Inc., 591 F. Supp. 2d 1098(NOD. Cal. 2008) .......................................... 19, 20

Metro-Goldwyn-Mayer Studios Inc. v. Grokster,Ltd., 545 U.S. 913 (2005) ..................................22

Newborn v. Yahoo/, Inc., 391 F. Supp. 2d 181(D.D.C. 2005) .....................................................21

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Perfect 10, Inc. v. Amazon.corn, Inc.,508 F.3d 1146 (9th Cir. 2007) ...........................21

Solid Host, NL v. NameCheap, Inc.,652 F. Supp. 2d 1092 (C.D. Cal. 2009) .............20

Sony Corp. of America v. Universal City Studios,Inc., 464 U.S. 417 (1984) ...................................23

Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463(S.D.N.Y. 2008) ................................................. 22

Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93 (2d Cir.2010) .................................................................. 14

William R. Warner & Co. v. Eli Lilly & Co., 265 U.S.526 (1924) .......................................................... 15

FEDERAL RULES AND STATUTES

Sup. Ct. R. 37 ...........................................................1

H.R. Rep. No. 104-556 (1996), reprinted in 1996U.S.C.C.A.N. 1074 ............................................11

S. Rep. No. 1333, 79th Cong., 2d Sess. (1946) ........12

TREATISES

4 J. Thomas McCarthy, McCarthy on Trademarksand Unfair Competition § 25:23(4th ed. 2005) .................................................... 14

MISCELLANEOUS

George W. Abbott, Jr. & Lee S. Sporn, TrademarkCounterfeiting § 1.03[A][2] (2001) .................... 11

Mark Bartholomew, Copyright, Trademark andSecondary Liability after Grokster, 32 ColumbiaJ. L. & Arts 445 (2009) ..................................... 23

Mark Bartholomew & John Tehranian, The SecretLife of Legal Doctrine: The Divergent Evolution ofSecondary Liability in Trademark and CopyrightLaw, 21 Berkeley Techo L. J. 1363 (Fall 2006) 15

Guido Calabresi, The Cost of Accidents: A Legal andEconomic Analysis (1970) ................................. 15

City of New York Office of Comptroller, BootlegBillions: The Impact of the Counterfeit GoodsTrade on New York City 1 (Nov. 2004),http ://www.comptroller. nyc. gov/bureaus/bud/04reports/Bootleg-Billions.pdf. ................................ 11

Jessica Dye, Defense Contractors Steel forCounterfeit Crackdown, Law 360: The Newswirefor Business Lawyers (Oct. 11, 2010)http://ip.law360.com/articles/199569 ............... 10

Fees for Selling on eBay,http://pages.ebay.com/help/sell/fees.html ........17

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Fox, 7 on Your Side: Counterfeit Cords (Mar. 11,2009),http://wwwomyfoxaustin.com/dpp/news/7_on_your_side/031109 70n_Your_Side_Counterfeit_Cords ................................................................ 9

GAO Report to Congressional Committees,Intellectual Property: Observations on Efforts toQuantify the Economic Effects of Counterfeit andPirated Goods, GAO-10-423 (Apr. 2010),http://www.gao, gov/new.items/d 10423opdf ..... 6-7

Global Intellectual Property Center,http://www.theglobalipcenter.com/news/knock-offs-catch ........................................................... 14

IACC, Facts on Fakes 3,http://counterfeiting.unicri.it/docs/The%20International% 20Anti-Counterfeiting% 20 Coalition. Facts%20on%20Fakes.pdf ......................................... 11

IACC Membership,http://www.iacc.org/membership/member-companies.php ....................................................1

Internet Fraud Statistics, January-June 2004,http://www.fraud.org/j anj une2004ifw.htm ......13

Knock-offs Catch On: Fake Goods Are Proliferating,to the Dismay of Companies and Governments,The Economist (Mar. 4, 2010),http ://www.economist.com/business-finance/displaystory.cfm?story_id=15610089&source=hptextfeature ............................................. 14

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Thomas H. Koenig & Michael L. Rustad, In Defenseof Tort Law 22 (2001) ........................................ 15

National Association of Manufacturers,http ://www. nam.org/Issues/Technology/Intellectual-Property-Rights.aspx .................................... 11

National Consumers League, Internet FraudStatistics, January-December 2003,http ://www.fraud.org/2003internetscams.pdf.. 13

Paul N. Newton, et al., Murder by Fake Drugs: Timefor International Action, Brit. Med. J. (Apr. 6,2002), http://www.bmjocom/content/324/7341/800.extract ............................................................... 10

Richard C. Noble, From Brakes to Plugs to Engines,Counterfeiters Produce, Push Parts, Flint J. (Sept.3, 1995) .............................................................. 11

Office of the U.S. Trade Representative, The Anti-Counterfeiting Trade Agreement: Summary of KeyElements under Discussion 1, http://www.ustr.gov/ site s/ d e fa ul t/files/up loa ds/fa ctshee ts/ 2 OO9/asse t_upload_file917_15546.pdf ................................. 26

Office of the U.S. Trade Representative, WeeklyTrade Spotlight: The Anti-Counterfeiting TradeAgreement (Aug. 16, 2010),http://www.ustr.gov/about-us/press-office/blog/2010/august/weekly-trade-spotlight-anti-counterfeiting-trade-agreement-ac .......... 26

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Organization for Economic Cooperation &Development, The Economic Impact ofCounterfeiting and Piracy 14 (2007),http://www.oecd.org/dataoecd/13/12/38707619.pdf .....................................................13

Recall Alert, U.S. Consumer Product SafetyCommission, Asurion Recalls CounterfeitBlackBerry®-branded Batteries Due to Burn andFire Hazards (Aug. 10, 2010),http://www.cpsc.gov/cpscpub/prerel/prhtmllO/10752.html ................................................................ 8

Recall Alert, U.S. Consumer Product SafetyCommission, Miami Breaker Recalls CounterfeitSquare D Circuit Breakers Due to Fire Hazard(Aug. 2, 2010),http ://www. cp sc. gov/cp scp ub/p re rel/p rht m110/10749.html ................................................................ 9

Restatement (Second) of Agency § 212, cmt. a(1958) .................................................................15

Stopfakes.gov,http://www.stopfakes.gov/sf_why.asp ..............11

U.S. Chamber of Commerce, PreventingCounterfeiting and Piracy (Nov. 2005),http://www.uschambermagazine.com/article/preventing-counterfeiting-and-piracy ..................... 10

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U.S. Customs and Border Protection,http://www.cbp.gov/xp/cgov/trade/priority_trade/ipr/overview_ipr.xml ............................................ 7

U.S. Customs and Border Protection, U.S. CustomsAnnounces International Counterfeit CaseInvolving Caterpillar Heavy Equipment (May 29,2002),http://www.cbp.gov/xp/cgov/newsroom/news_releases/archives/legacy/2002/52002/05292002.xml ....................................................................... 11

U.S. Intellectual Property Enforcement Coordinator,http ://www.whitehouse. gov/omb/intellectualproperty/ipee/ .................................................................... 4, 8

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INTEREST OF AMICUS CURIAE

The International AntiCounterfeitingCoalition ("IACC") files this amicus curiae brief insupport of the petition of Tiffany (NJ) Inc. andTiffany and Company (collectively, "Tiffany") for awrit of certiorari to review the judgment of theUnited States Court of Appeals for the SecondCircuit. In compliance with Rule 37 of this Court,the IACC has notified and obtained the consent ofPetitioners and Respondent to file this arnicus brief.

The IACC, a non-profit organization based inWashington, D.C., was established in 1979 to combatthe spread of counterfeit goods, a scourge thatthreatens consumer health and safety and drainsbillions of dollars from the economy. The IACC isthe largest organization in the United States devotedexclusively to combating counterfeiting on behalf oftrademark owners. Today the IACC’s membersinclude companies in the pharmaceutical, health andbeauty, automotive, fashion, food and beverage,computer and electronics, and entertainmentindustries among others. See http://www.iacc.org/membership/member-companies.php for a list of theIACC’s members.

The IACC and its members help coordinategovernment actions to enforce intellectual propertyrights, and educate the public about how to detectand avoid counterfeit products. The IACC’s missionalso includes promoting the development of stateand federal law to address the threat posed by piracyand related thefts of intellectual property. TheIACC’s members collectively spend millions of

dollars each year on anti-counterfeiting investigationand enforcement. Despite these efforts,counterfeiting has exploded in recent years, duelargely to the advent of electronic commerce. TheInternet allows anonymous counterfeiters to plytheir illegal goods on an unprecedented scale, 24/7,in a seemingly unregulated marketplace.

Having focused on efforts to combatcounterfeiting activity for three decades, the IACChas a unique perspective and particular interest inthe issues raised in this case, namely when andunder what circumstances a defendant who operatesan online marketplace that it knows is being used tosell a substantial quantity of infringing goods - andwho both facilitates and benefits from the sales - canbe held liable for contributory trademarkinfringement. Indeed, the IACC’s members face thepotential consequences of Internet-basedcounterfeiting on a daily basis, consequences thatinclude the loss of control over their brands, the lossof the hard-earned reputation and goodwill embodiedby their trademarks, the loss of sales of genuineproducts, and the crushing financial burden ofhaving to monitor and take action against an ever-growing army of anonymous counterfeiters. TheCourt of Appeals’ decision, relieving eBay and byextension other online marketplace operators ofresponsibility for halting the open and notoriousdistribution of counterfeit goods on a massive andunprecedented scale, has caused grave concernamong the IACC’s membership.

PRELIMINARY STATEMENT

In 2005, the Court in its historic Groksterdecision brought the application of contributoryinfringement rules in copyright law in line with theneeds of the 21st century. The same attention isnow needed for contributory infringement rules intrademark law. Rampant online trademarkcounterfeiting of everything from toothpaste andshampoo to pharmaceuticals to electronics used bythe Defense Department to parts for airplanes affectevery American, from suburban soccer morns tothose men and women serving in the armed services.Counterfeits not only threaten consumers’ healthand safety but also erode the very purpose oftrademarks: to protect consumers from deceptionand confusion as to the source of the goods theypurchase and to ensure consumers that the productsthey purchase are genuine goods backed by thetrademark owner. Given the harm to the public, tothe U.S. economy, and to brand owners, it isimperative for the Court to bring the doctrine ofcontributory trademark liability established in thelast century into the Internet age. The stakes are toohigh to leave matters of such import to the type ofsimplistic and insensitive rule-making engaged in bythe Court of Appeals for the Second Circuit.

As demonstrated below, eBay and otherscreated the platforms that now allow for unbridledillegal online commerce, eBay and other facilitatorscontrol these platforms and profit from them. eBayand other online marketplace operators are bestsituated to address the problem, and under well

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reasoned precedent in other circuits should berequired to do so.

SUMMARY OF ARGUMENT

As set forth in Point I below, counterfeitsthreaten consumer health and safety and create amajor drain on the U.S. economy. The recentlyappointed U.S. Intellectual Property EnforcementCoordinator noted: "The examples are almostendless: counterfeit car parts, illegal software,pirated video games, knockoff consumer goods,dangerous counterfeit medicines, and many othertypes of products - including very sophisticatedtechnology.’’1 And the trade in counterfeits hasincreased exponentially due to the availability ofonline marketing sites like eBay that enablecounterfeiters to operate on a previously unknownscale remotely, anonymously and out of view oftraditional law enforcement personnel.

The facilitation of such infringing conduct hasbeen held unlawful since at least 1924, when theSupreme Court applied principles of contributorytort liability to the federal trademark laws, ensuringthat trademark owners can seek relief from thosewho enable infringers’ conduct. As explained inPoint II, the application of this principle, which theSupreme Court affirmed and expanded in the 1982Inwood decision, fosters efficiency by allowingintellectual property owners to target the parties

~ About the Office of the U.S. Intellectual PropertyEnforcement Coordinator, http ://www.whitehouse.gov/omb/intellectualproperty/ipec/(last visited Oct. 14, 2010).

that are often in the best position to stop infringingconduct carried out by disparate individuals (theleast cost avoiders), while also fostering equity byimposing liability on those who may be benefitingthe most from the unlawful activity.

As elaborated in Point III, in the Tiffany caseat issue, the Court of Appeals interpreted andapplied the contributory liability standard in amanner that undermines the efficiency and equitypreviously achieved by contributory liability law.The Court of Appeals accepted that there is a largevolume of counterfeit and infringing "Tiffany"products for sale on the eBay website, that eBay iswell aware of this fact, that eBay profits from thesales of such products, and that eBay controls themarketplace. Yet the Court of Appeals held thateBay not only was shielded from liability for the veryinfringing sales it facilitates, but also bore noobligation to take steps to prevent such sales beyondaddressing those particular infringing listings aboutwhich it received notice. Given the volume ofelectronic transactions consummated on eBay, thisruling makes it impossible for Tiffany or any othertrademark owner to stop even a fraction of theunlawful sales that eBay profits from - and thateBay could easily prevent (or greatly circumscribe)by taking the types of measures expected of fleamarket operators and others operating in the "brickand mortar" world.

As elaborated in Point IV, this Court appliedthe calculus of efficiency and equity in its 2005Grokster decision involving contributory liability foronline copyright infringement. There is now an

urgent need to do the same for contributorytrademark infringement in the Internet era to onceagain achieve the goals of efficiency and equityserved by this Court’s prior adoption and applicationof the contributory trademark infringement doctrine.

REASONS FOR GRANTING THE WRIT

THE SERIOUS THREAT CAUSED BYCOUNTERFEITING IN THE INTERNETAGE

Counterfeits are being offered for sale everyminute of every day. Counterfeiting is neither avictimless crime nor a harmless pastime. It hasgrave consequences to public health and safety andto the nation’s economic vitality.

In an April 2010 report commissioned byCongress, the U.S. Government Accountability Office("GAO") found that consumers are harmed bycounterfeiting due to health and safety risks and lowquality goods; industries are harmed due to lostsales and brand value and increased intellectualproperty protection costs; the U.S. government isharmed due to lost tax revenue, increasedenforcement costs and risks to supply chains withnational security or safety implications; and theoverall U.S. economy is harmed due to lower growthand innovation and declining trade with countrieshaving weak intellectual property rightsenforcement.2

2 GAO Report to Congressional Committees, Intellectual

Property: Observations on Efforts to Quantify the Econo~nic

The Threat to Public Health andSafety

Counterfeiting affects all people, sophisticatedand unsophisticated, and all industries. Reports ofthe public health and safety hazards posed bycounterfeit products are legion, as counterfeitershave expanded their offerings.3 U.S. Customs andBorder Protection ("CBP") has seized an increasingnumber of counterfeit products that pose safetythreats, ranging from poorly made "power cords andlights that can catch fire or shock consumers, tobatteries that may explode or leak mercury, topersonal care items such as toothpaste and shampoothat may contain harmful bacteria, to computernetwork components and semiconductors that cancripple infrastructure vital for national security.’’4

U.S. Intellectual Property Enforcement CoordinatorVictoria Espinel observed that

[c]ounterfeit products can pose asignificant threat to the health and safetyof us all .... [For example,] U.S. Customsofficials have seized several shipments ofcounterfeit toothpaste containing a

Effects of Counterfeit and Pirated Goods, GAO-10-423 (Apr.2010) ("GAO Report"), at 9-10http://www.gao.gov/new.items/d 10423.pdf.

3Id. at 10.

4 U.S. Customs and Border Protection ("CBP"),

http://www.cbp.gov/xp/cgov/trade/priority_trade/ipr/overview_ip

r.xml (last visited Oct. 14, 2010).

dangerous amount of diethylene glycol, achemical used in brake fluid, and that insufficient doses is believed to cause kidneyfailure. All of these are reasons why yourgovernment has renewed its efforts tochallenge this illegal activity .... 5

Other reported examples include:

Counterfeit aviation parts, including fakedata plates and history cards to make oldparts look new, pose a significant risk tothe safety of commercial aircraft;6

Counterfeit automotive parts, such astiming belts that do not meet industrystandards, impair the safety of vehicles;7

Approximately 470,000 counterfeitBlackBerry-branded batteries wererecently recalled because they overheated,causing burn and fire hazards;s

~ About the Office of the U.S. Intellectual PropertyEnforcement Coordinator, http ://www.whitehouse.gov/omb/intellectualproperty/ipec/(last visited Oct. 14, 2010).

~ GAO Report at 13, supra n. 2 (citing Federal AviationAdministration reports).

7Id. at 11.

s Recall Alert, U.S. Consumer Product Safety Commission,

Asurion Recalls Counterfeit BlackBerry®-branded BatteriesDue to Burn and Fire Hazards (Aug. 10, 2010),http ://www.cpsc. gov/cp scp ub/p rerel/p rhtml 10/10752. html.

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Over 40,000 counterfeit circuit breakerswere recently recalled because they failedto trip when overloaded, posing firehazards;9

Counterfeit extension cords have been soldthat in minutes caused an iron, a hairdryer and a toaster to go up in flames;1°

Counterfeit electronic parts haveinfiltrated the U.S. Department of Defense,which faces a potential counterfeit threaton virtually every type of item it procures,from high-level electronic components tobasic rivets and fasteners. Nearly 40% ofthe 387 defense companies andorganizations surveyed by the U.S.Department of CommerceBureau ofIndustry and Security’s Office ofTechnology Evaluation hadencounteredcounterfeit electronics between 2005 and2008. Moreover, the number of counterfeitincidents being detected at all levels of thedefense supply chain increased from 3,868reported incidents in 2005 to more than

9 Recall Alert, U.S. Consumer Product Safety Commission,

Miami Breaker Recalls Counterfeit Square D Circuit BreakersDue to Fire Hazard (Aug. 2, 2010),http ://w ww. cp sc. gov/cp scp ub/p re rel/p rhtml 10/10749. htm I.

Fox, 7 on Your Side: Counterfeit Cords (Mar. 11, 2009),http ://www.myfoxaustin.com/dpp/new s/7_on_your_side/031109_

On Your_Side_Counterfeit_Cords.

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twice that - 9,356 incidents - in 2008;11

and

¯ Counterfeit pharmaceutical products havecaused consumer injury and death.12

B. The Drain on the U.S. Economy

Government and private entities haveestimated that counterfeiting and piracy stripapproximately $200 billion to $250 billion annuallyfrom the U.S. economy, resulting in the loss of morethan 750,000 jobs.1~ For example, counterfeit

11 Jessica Dye, Defense Contractors Steel for Counterfeit

Crackdown, Law 360: The Newswire for Business Lawyers(Oct. 11, 2010), http://ip.law360.com/articles/199569; see alsoGAO Report at 13, supra n. 2 (citing U.S. Department ofCommerce, Bureau of Industry and Security, Office ofTechnology Evaluation, Defense Industrial Base Assessment:Counterfeit Electronics (Jan. 2010)).

12 Id. at 10-11, 11 n.12 (the FDA has found a counterfeit

HIV/AIDS drug containing nonsterile tap water instead of anactive ingredient; a fake schizophrenia medication thatcontained only aspirin; a counterfeit influenza vaccine; and amisbranded cough suppressant that caused the death of atleast five consumers). Other counterfeits have includedneomycin eye drops and meningococcal vaccine made of tapwater; paracetamol syrup made of industrial solvent; ampicillinconsisting of turmeric; contraceptive pills made of wheat flour;

and antimalarials, antibiotics and snake antivenom thatcontain no active ingredients. Paul N. Newton, et al., Murderby Fake Drugs: Time for International Action, Brit. Med. J.(Apr. 6, 2002), http://www.bmj.com/content/324/7341/800.extract.

13 U.S. Chamber of Commerce, Preventing Counterfeiting and

Piracy (Nov. 2005), http:/ /www.uschambermagazine.com/

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automobile parts, such as brake pads, have cost theauto industry alone over $12 billion in lost sales; ifthese losses were eliminated the auto industry couldhire 200,000 additional workers.14

The economic impact of counterfeiting is notlimited to industry; in New York City alone, thecomptroller’s office has estimated that thecounterfeit trade costs the city $1 billion a year inlost sales tax revenue.15

article!preventing-counterfeiting-and-piracy; CBP, U.S.Customs Announces International Counterfeit Case InvolvingCaterpillar Heavy Equipment (May 29, 2002),http ://www.cbp. gov/xp/cgov/newsroom/news_releases/archive s/1egacy/2002/52002/05292002.xml; National Association ofManufacturers, http://www.nam.org/Issues/Technology!Intellectual-Property-Rights.aspx (last visited Oct.14, 2010);Stopfakes.gov, http://www.stop fakes.gov!sf_why.asp (lastvisited Sept. 17, 2010).

14 IACC, Facts on Fakes 3, http://counterfeiting.unicri.it/docs/The%20International%20Anti-Counterfeiting%20Coalition.Facts%20on%20Fakes.pdf (last visited Oct.14, 2010) (citingGeorge W. Abbott, Jr. & Lee S. Sporn, TrademarkCounterfeiting § 1.03[A][2] (2001); Richard C. Noble, FromBrakes to Plugs to Engines, Counterfeiters Produce, Push Parts,Flint J. (Sept. 3, 1995); H.R. Rep. No. 104-556 (1996), reprintedin 1996 U.S.C.C.A.N. 1074, 1075). While the GAO was unableto substantiate these numbers, it concluded that "It]he U.S.economy as a whole may grow more slowly because of reducedinnovation and loss of trade revenue" as a result ofcounterfeiting and piracy, and that "the problem is sizeable."GAO Report, cover, supra n. 2.

15 City of New York Office of Comptroller, Bootleg Billions: The

Impact of the Counterfeit Goods Trade on New York City 1(Nov. 2004), http://www.comptroller.nyc.gov/bureaus/bud!04reports/Bootleg-Billions.pdf.

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There also is a cost that is not as easy toquantify but is no less serious: the consumerdeception caused by counterfeiting underminesconsumers’ confidence in the integrity of brands andin consumers’ ability to trust that the products theypurchase are the products they mean to purchase.This is one of the essential purposes of thetrademark laws.lG

C. The Harm to Brand Owners

The effects of counterfeiting on brand ownersare widespread. Brand owners face the erosion ofgoodwill in the brands that they have painstakinglyworked to develop. Brand owners face the loss ofsales to counterfeiters. Brand owners face theerosion of consumer confidence in their brands whencounterfeiters pass off inferior products under thebrand owners’ name. And brand owners face thecrushing financial burden required to monitor, on aregular basis, counterfeit listings that appear oneBay and on other websites, a task that has provento be largely ineffective in stemming counterfeitingactivities.

The Escalation of Counterfeitingthrough Online Marketplaces

Online forums such as eBay do not merelyfacilitate the trade in counterfeits, they create and

~ S. Rep. No. 1333, 79th Cong., 2d Sess., 3 (1946) ("One [of thepurposes of the Lanham Act] is to protect the public so that itmay be confident that, in purchasing a product bearing aparticular trade-mark which it favorably knows, it will get theproduct which it asks for and wants to get.").

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foster it. In fact, in 2003, online marketplaces suchas eBay generated 89% of all complaints of Internetfraud reported to the National Consumers League.17

Counterfeit sales, previously confinedprimarily to rogue retail stores, street vendors andflea markets, have moved online for several reasons:anonymity (the ease with which counterfeiters canconceal their true identity), flexibility (the ease andspeed with which counterfeit offerings can be postedand taken down), ease of entry into the market(there is no need to set up a legitimate company, tolease space or to incur other traditional businessexpenses), the size of the market (eBay recorded 596million new listings in the second quarter of 2006),market reach (a global audience around the clock),and deception (the ability to disguise the counterfeitnature of offerings to consumers who must relyexclusively on an individual seller’s online productphotographs and descriptions without anopportunity to inspect the goods),is Sales of

17 National Consumers League, Internet Fraud Statistics,January-December 2003, http ://www.fraud.org!2003internetscams.pdf (last visited Oct.14, 2010). Tellingly,after 2003, eBay removed a link from its website to theNational Consumers League’s fraud center, where users couldregister complaints. Id., Internet Fraud Statistics, January-June 2004, http://www.fraud.org/janjune2004ifw.htm (lastvisited Oct. 14, 2010).

~8 Organization for Economic Cooperation & Development, TheEconomic Impact of Counterfeiting and Piracy 14 (2007),http://www.oecd.org/dataoecd/13/12/38707619.pdf (last visitedOct.14, 2010).

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counterfeit goods via the Internet are expected toreach $135 billion in 2010.~9

The scale of this illegal commerce simply wasnot possible before the development of onlinemarketplaces. While the scope of the problem hasexploded, decisions like the Court of Appeals’affirmance in this case tie the hands of trademarkowners to effectively and efficiently take action tostop it. The ultimate loss is borne by the consumer,who ends up with a product that is fake and wholoses trust in the marketplace.

II. THE CONTRIBUTORY LIABILITYDOCTRINE ESTABLISHED BY THISCOURT ACHIEVED EFFICIENCYAND EQUITY

Contributory trademark liability is a judiciallycreated doctrine that derives from the common lawof torts. See, e.g., Tiffany (NJ) Inc. v. eBay, Inc., 600F.3d 93, 103 (2d Cir. 2010) (Pet. App. A at 19a)20; 4J. Thomas McCarthy, McCarthy on Trademarks andUnfair Competition § 25:23 (4th ed. 2005). Efficiency

19 Knock-offs Catch On: Fake Goods Are Proliferating, to theDismay of Companies and Governments, The Economist (Mar.4, 2010), http://www.economist.com/business-finance/disp laystory, cfm ?story_id= 15610089&source=hptextfeature; see also Global Intellectual Property Center,http ://www.theglobalipcenter.com/news/knock-offs-catch (lastvisited Oct. 14, 2010).

20 The decision of the Court of Appeals is hereinafter cited as"Pet. App. A."

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and equity are the twin pillars on which contributoryliability rests.2~

The application of contributory liability totrademark infringement claims dates to this Court’s1924 decision in William R. Warner & Co. v. Eli Lilly& Co., 265 U.S. 526 (1924). In finding a drugmanufacturer contributorily liable for the infringingconduct of pharmacists, this Court - emphasizingthe equity rationale - held that "[o]ne who inducesanother to commit a fraud and furnishes the meansof consummating it is equally guilty and liable forthe injury." Id. at 530-31. Fifty-eight years later,when this Court re-visited the doctrine in InwoodLaboratories, Inc. v. Ires Laboratories, Inc., 456 U.S.844 (1982), it expanded the test and held that adistributor may be contributorily liable fortrademark infringement "if it continues to supply itsproduct to one whom it knows or has reason to knowis engaging in trademark infringement." Id. at 854(emphasis added). Such expansion recognized that it

21 See, e.g., Mark Bartholomew & John Tehranian, The SecretLife of Legal Doctrine: The Divergent Evolution of SecondaryLiability in Trademark and Copyright Law, 21 Berkeley Tech.L. J. 1363, 1366 (Fall 2006) ("Courts often rationalizesecondary liability on economic efficiency grounds, viewing it asa means to shift injury costs to those who are in a position toprevent future injuries. Others justify secondary liability on amoral basis: those who intentionally act to bring about tortiousconduct should be held accountable, even if their actions arenot the direct cause of harm to the victim.") (citing Thomas H.Koenig & Michael L. Rustad, In Defense of Tort Law 22 (2001);Guido Calabresi, The Cost of Accidents: A Legal and EconomicAnalysis (1970); Restatement (Second) of Agency § 212, cmt. a(1958)).

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may be more efficient for the entity in the bestposition to know of the infringement (whether or notit has actual knowledge) to prevent or stop theinfringement.

As a matter of efficiency, those distributors,manufacturers, online hosts, flea market operators,landlords and others who facilitate counterfeiting byproviding a forum for the sale of infringing productsare in the best position to investigate and takemeasures to prevent the distribution of infringinggoods. The theory of contributory trademark liabilityensures that these facilitators are required to takeaction. As a matter of equity, imposing contributorytrademark liability on the facilitators ofcounterfeiting ensures that those who enable andprofit from direct acts of infringement by others areheld accountable. Without contributory liability,these facilitators are immune from the consequencesof causing harm to consumers and trademarkowners.

III. THE COURT OF APPEALS’ DECISIONFRUSTRATES THE PURPOSES OFTHIS COURT’S CONTRIBUTORYTRADEMARK INFRINGEMENTDOCTRINE

In neither Eli Lilly nor Inwood did the Courtstate that the alleged contributory infringer musthave knowledge of specific instances of infringementbefore liability could be imposed. Yet the Court ofAppeals in the case at bar did. Specifically, informulating the standard for liability forcontributory infringement, the Court of Appeals held

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that eBay had no duty to investigate or otherwiseaddress counterfeiting that it had facilitated on itswebsite, unless it has knowledge of specificinfringing listings. Pet. App. A at 27a-28a. Thisdecision undermines the purposes of contributoryliability and is out of step with recent case law.

A. The Court of Appeals’ Decision

The Court of Appeals acknowledged that a"significant portion" of the "Tiffany" sterling silverjewelry listed on eBay was counterfeit, Pet. App. Aat 6a, that "eBay had generalized notice that someportion of the Tiffany goods sold on its website mightbe counterfeit," id. at 26a (emphasis in original), andthat "eBay clearly possessed general knowledge as tocounterfeiting on its website," id. The Court ofAppeals also acknowledged that eBay profited: eBaytakes a percentage of each sale, earning $4.1 millionin revenue from complete listings with "Tiffany" inthe listing title in the Jewelry & Watches categorybetween April 2000 and June 2004. Id. at 5a. Infact, the more items that are listed, the more moneyeBay makeso22 eBay profits while brand owners areharmed. Thus, considerations of efficiency and

22 Even when counterfeit items are removed, eBay reaps

rewards, eBay collects an "insertion fee" for simply placing thelisting on its search engine, charges a "final value fee," taking afiat rate plus a percentage of the selling price for auctioneditems, and assesses extra fees for the option of upgrading aseller’s listing so that it stands out when retrieved in a searchquery and for purchasing "selling tools" subscriptions to makeoffered products more enticing. Pet. App. A at 5a; see alsoeBay, Fees for Selling on eBay,

http://pages.ebay.com/help/sell/fees.html (last visitedOct.14,2010).

equity should dictate that eBay be required to takesteps to stop and to prevent ongoing and futureinfringing conduct.

Yet the Court of Appeals held that "If]orcontributory trademark infringement liability to lie,a service provider must have more than a generalknowledge or reason to know that its service is beingused to sell counterfeit goods." Pet. App. A at 27a.The Court of Appeals then went beyond the "reasonto know" standard of Inwood and concluded that"[s]ome contemporary knowledge of which particularlistings are infringing or will infringe in the future isnecessary." Id. at 27a-28a (emphasis added). In thecontext of an Internet marketplace such as eBay,this construction of the contributory infringementdoctrine puts trademark owners in an impossiblesituation. They cannot possibly be able to identifyeach "particular listing" of infringing items. Theycannot possibly identify what listings "will infringein the future." They cannot possibly identify sellerswho only have to reveal their identity to eBay.Indeed, it is eBay, and only eBay, as the gatekeeperof the marketplace, who has all of the information atits disposal necessary to review the postings on itssite, to bar counterfeiters from its site, to removelistings from its site, to set up filters on its site, toreview the identity of sellers on its site, and tootherwise impose conditions for entry to its site thatwill discourage infringements in the future.

By its holding, the Court of Appeals frustratesthe very purposes of contributory liability. Thedecision allows the party who can most efficientlyaddress counterfeiting to escape liability for the

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sales of infringing products it facilitates whilecontinuing to profit from those sales at the expenseof brand owners and the consuming public.

The Decision of the Court of AppealsIs Out of Step with Recent Case Law

While this Court has not addressed thedoctrine of contributory trademark liability sinceInwood, the doctrine has continued to evolve, aslower courts have recognized both the need to imposeduties on those who profit from infringement andwho are in the best position to stop counterfeitingand the unique situation caused by the Internet.Thus, while the Court of Appeals held thatgeneralized knowledge did not create liability, othercourts have held otherwise. For example, the Courtof Appeals for the Seventh Circuit imposedobligations on a flea market operator once itsuspected or had reason to suspect counterfeitactivity by vendors. Hard Rock Cafe Licensing Corp.v. Concession Servs., Inc., 955 F.2d 1143, 1149 (7thCir. 1992). The Seventh Circuit, unlike the Court ofAppeals here, did not require the operator to knowwhich specific items sold at the flea market wereinfringing before imposing an obligation to act. Seealso Louis Vuitton Malletier, S.A. v. AkanocSolutions, Inc., 591 F. Supp. 2d 1098, 1106-08, 1111(N.D. Cal. 2008) (in denying summary judgment toan Internet service provider on a claim forcontributory trademark infringement, the courtrecognized that if defendant should have known thatdirect infringement was occurring on its site, it couldbe liable).

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Likewise, generalized knowledge ofwrongdoing and a failure to investigate have beenheld sufficient to establish contributory liability inother intellectual property cases. For example,generalized knowledge of copyright infringement byan Internet service provider was held to give rise toa claim for contributory copyright infringement.Louis Vuitton Malletier, 591 F. Supp. 2d at 1106-08.See also Arista Records, Inc. v. Flea World, Inc., No.03-2670(JBS), 2006 WL 842883 (D.N.J. Mar. 31,2006), where the district court rejected thedefendant’s contention that it needed to haveknowledge of "specific infringement(s)" to be heldcontributorily liable for copyright infringement. Id.at "14.

While the Court of Appeals imposed no dutyon eBay other than to address specific infringementsknown to it, Pet. App. A at 26a-27a, other courtshave imposed a duty to investigate. See Hard Rock,supra; Fare Deals, Ltd. v. World Choice Travel.corn,Inc., 180 F. Supp. 2d 678, 690 (D. Md. 2001) (noticeto Internet service provider of cybersquatting may"give~ rise to an obligation on the part of [serviceprovider] to investigate the matter") (citing HardRock, 955 F.2d at 1149); Solid Host, NL v.NameCheap, Inc., 652 F. Supp. 2d 1092, 1116 (C.D.Cal. 2009) (notice of the illegitimate use of a domainname may trigger a "duty to investigate" on the partof the Internet service provider).

In a similar vein, while the Court of Appealsimposed no duty on eBay to take proactive measures,other courts have stressed the duty of serviceproviders to prevent future infringement from

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occurring. For example, one court has held, withrespect to a search engine’s contributory liability forcopyright infringement, that once there is knowledgeof infringing uses of its technology a search enginemust "act to prevent future such infringing uses."Newborn v. Yahoo!, Inc., 391 F. Supp. 2d 181, 186(D.D.C. 2005) (quotation marks and citation omitted)(emphasis added). Another court held that a"computer system operator" such as Google

can be held contributorily liable if it hasactual knowledge that specificinfringing material is available usingits system, and can take simplemeasures to prevent further damage tocopyrighted works, yet continues toprovide access to infringing works.

Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146,1172 (9th Cir. 2007) (quotation marks and citationomitted) (emphasis added).

eBay’s efforts to combat counterfeiting fall farshort of the obligations imposed by other courts.While both the district court and the Court ofAppeals commented on the efforts eBay hasundertaken to combat counterfeiting on its auctionsite, those efforts are notable for their failure toeradicate counterfeiting from eBay’s site. Further, itis evident from the district court’s opinion that eBaycould have done much more:

it is clear that eBay did not conduct aseparate investigation into the extent ofcounterfeit Tiffany jewelry on itswebsite, eBay did not analyze its data,

or research and evaluate the number of"Tiffany" listings removed from itswebsiteo Nor did it track the number ofsellers suspended because they hadposted infringing listings.

Tiffany (NJ) Inc. v. eBay, Inc., 576 F. Supp. 2d 463,514-15 (S.D.N.Y. 2008) (citations omitted) (Pet. App.B at 144a). eBay is far more than a landlord or theonline version of a flea market operator. It createdthe platform being exploited by counterfeiters. Ithelps advertise the counterfeit goods. It controlsaccess to and listings on its site. Yet eBay did noteven take the steps a flea market or landlord wouldtake, such as insisting on proof of the seller’sidentity, obtaining security deposits or taking otheraction that would discourage unlawful sales byanonymous sellers.

IV. THE STANDARDS FORESTABLISHING CONTRIBUTORYTRADEMARK LIABILITY MUST BECLARIFIED FOR THE INTERNETAGE

When this Court last addressed contributorytrademark liability twenty-eight years ago, therewas no electronic commerce, no vast reach of theInternet, no online marketplaces and nothingcomparable to the scope and extent of counterfeitingactivity that is prevalent today. In MetrooGoldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913(2005), addressing indirect copyright infringement

liability against a software company, this Courtrecognized that the Internet changed everything:

The argument for imposing indirectliability in this case is . . . a powerfulone, given the number of infringingdownloads that occur every day usingStreamCast’s and Grokster’s software[on the Internet]. When a widelyshared service or product is used tocommit infringement, it may beimpossible to enforce rights intheprotected work effectively againstalldirect infringers, the only practicalalternative being to go against thedistributor of the copying device forsecondary liability on a theory ofcontributory or vicarious infringement.

Id. at 929-30.23 The Court recognized that given theextensive number of transactions that occur on theInternet and the inability of intellectual propertyowners to enforce their rights against myriad far-flung direct infringers, considerations of efficiency

23 While some courts have stated that the standards for

contributory liability for trademark and copyright infringementare different, see, e.g., Sony Corp. of America v. Universal CityStudios, Inc., 464 U.S. 417, 439 n.19 (1984); Hard Rock, 955F.2d at 1150, no court to our knowledge has provided anyrationale for such a difference and it is not clear why thestandards should be different. See Mark Bartholomew,Copyright, Trademark and Secondary Liability after Grokster,32 Colum. J. L. & Arts 445, 454 (2009) (calling into doubt anydoctrinal difference between contributory trademark andcontributory copyright liability).

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mandate imposition of liability on the party in thebest position to stop the infringement. See also FirstJewellery Co. of Canada, Inc. v. Internet ShoppingNetwork LLC, No. 99 Cir. 11239(LMM), 2000 WL122175, at *7 (S.D.N.Y. Feb. 1, 2000) (trademarkowner has no obligation to "police the Internet").

This reasoning applies with even more force inthe instant case where eBay has created theenvironment that allows for the large scale offeringof counterfeit goods and that allows counterfeiters togenerally be anonymous, provide invalid contactdetails, change their online identities frequently,and sell products in massive quantities twenty-fourhours a day, seven days a week, making itimpossible for the rights owner to take direct legalaction. Under these circumstances, the marketplaceoperator is in a better position - if not the onlyposition - to know the counterfeiters’ identity, totrack their activity, and to put into place systemsdesigned to stop counterfeiting. By holding thatestablishing contributory trademark infringementliability requires "contemporary knowledge of whichparticular listings are infringing or will infringe inthe future," Pet. App. A at 27a-28a, the Court ofAppeals ignores the reality of the Internetmarketplace.

More troubling is that the decision by theCourt of Appeals protects the profits earned by eBayand others from the sale of counterfeits whileinequitably shifting all of the costs of controllingonline counterfeiting to the rights owners who arelosing money and brand equity from counterfeiting.Further, the Court of Appeals has essentially

required trademark owners to institute some form ofclaim against every direct infringer in order toprovide eBay notice of each "particular listing" ofinfringing goods as demanded by the Court ofAppeals, a challenge that this Court has recognizedis all but impossible. See Grokster, 545 U.S. at 929-30.

In light of the strong policy arguments infavor of requiring eBay to exercise someresponsibility over its listings - policy argumentsthat this Court has already acknowledged inGrokster - the IACC urges this Court to review theCourt of Appeals’ decision and clarify the duties ofeBay and similar electronic commerce site operatorsto investigate their listings and take action toprevent future infringements once they have generalknowledge of counterfeiting activity on their sites.As a judicially created doctrine with an eighty-plusyear evolution through federal case law, contributorytrademark liability must be adapted to keep pacewith online commerce and to achieve its bedrockgoals of efficiency and equity. Marketplace operatorslike eBay should not be permitted to reap all therewards of e-commerce and absolve themselves fromliability for facilitating the online sale of counterfeitssimply by taking limited measures that have proveninsufficient and that have not adequately addressedthe large-scale shift of the costs (both monetary andreputational) created by their business model ontotrademark owners. In a country that has urgedother nations to proactively stem the tide of

infringing activity,24 why should the Court ofAppeals have asked any less of eBay?

24 For example, since 2006 the United States has urged other

nations to agree to a new international treaty, the Anti-Counterfeiting Trade Agreement ("ACTA"), which wouldobligate its signatories to implement strong anti-counterfeitingmeasures. The completion of negotiations and execution ofACTA remain a priority of the United States. See, e.g., Office ofthe U.S. Trade Representative ("USTR"), Weekly TradeSpotlight: The Anti-Counterfeiting Trade Agreement (Aug. 16,2010), http://www.ustr.gov/about-us/press-office/blog/2010/august/weekly-trade-spotlight-anti-counterfeiting-trade-agreement-ac; USTR, The Anti-Counterfeiting Trade Agreement." Summary of Key Elementsunder Discussion 1,http://www.ustr.gov/sites/default/files/uploads/factsheets/2OO9/asset_upload_file917_15546.pdf (last visited Oct.14, 2010)(explaining that ACTA was launched by the United States andJapan in 2006 in an effort to expand anti-counterfeitingprotections worldwide).

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CONCLUSION

For the foregoing reasons, the petition for awrit of certiorari should be granted.

Respectfu!l~y~bmitted,

BYa)~aara A. Solom~on~/

Counsel of RecordCraig S. MendeAnna P. LeipsicFROSS ZELNICK LEHRMANZISSU, P.C.866 United Nations PlazaNew York, New York 10017(212) 813-5900bsolomon@frosszelnick.comCounsel for Amicus Curiae

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