Greg Beck’s HQ

by Greg Beck



In a comprehensive 66-page opinion, a federal district judge today rejected Tiffany's claims that eBay infringed its trademarks by allowing the sale of counterfeit Tiffany's goods on its site.



The court first held that eBay did not infringe Tiffany's trademark by advertising the availability of Tiffany's products. The court noted that there were many authentic pieces of Tiffany's jewelry for sale on eBay and that "the law clearly protects such secondary markets in authentic goods." eBay was entitled to advertise the availability of these pieces under the doctrine of nominative fair use, which holds that a reseller may use a product's trademarked name for the purpose of truthfully identifying that product.



Next, the court held that eBay was not contributorily liable for failing to prevent the sale of counterfeit Tiffany's products. Although eBay had generalized knowledge that counterfeit Tiffany's goods were being sold on its site, it was required only to block those sales that it knew or had reason to know were counterfeit. The court found that eBay made reasonable efforts to detect and terminate sales of counterfeit goods, and promptly terminated any counterfeit sales that Tiffany's brought to its attention.



Some may worry that this decision will hurt consumers by allowing sales of counterfeit products to continue. On the other hand, Tiffany's suit threatened to block the online sale of authentic, as well as counterfeit, products. This suggests that Tiffany's motives for bringing this case may not have been as simple as a desire to prevent counterfeiting. As the court noted, "rights holders such as Tiffany may have obvious economic incentives to curtail the sale of both counterfeit and authentic goods on the Internet -- after all, every sale of Tiffany jewelry on eBay potentially represents a lost sales opportunity via Tiffany's own authorized distribution channels." Not only would blocking online sales funnel more business to Tiffany's, it would force consumers to pay higher prices by reducing supply and eliminating Tiffany's need to compete with the market for its own used products.



eBay will never be able to successfully detect and block all counterfeit products sold through its site. That some fraud exists, however, does not justify blocking all sales, whether authentic or not. To do so would give Tiffany's and other companies a windfall at consumers' expense.

by Greg Beck

The Supreme Court yesterday issued an important decision involving patents that, although technical in nature, may end up becoming an important victory for consumers. In recent years, companies have increasingly attempted to use their patents on products to limit what people can do with those products after buying them. For example, companies attach "not for resale" labels on products, a practice that allows them to keep prices high by limiting competition from low-priced used goods. The same practice is used by copyright owners to limit the resale of software and music. In Vernor v. Autodesk, Public Citizen recently won an important victory against a software company that attempted to impose just such a limitation on the resale of software. In another case, the Electronic Frontier Foundation is challenging the recording industry's attempt to prohibit resale of promotional CDs by labeling them "promotional use only."

The Supreme Court's decision yesterday in Quanta v. LG Electronics should give some reassurance to consumers who purchase products that come with limited terms of use. The case involved the doctrine of "patent exhaustion," a legal rule providing that patent owners, once they have sold a patented product, have no further right to control what the purchaser does with it. LG had licensed its patented computer chip technology to Intel. The license agreement granted Intel the right to use the chips in its own products, but also provided that anyone who subsequently purchased the chips from Intel did not have the same right. When, in spite of the agreement, Intel sold the chips to Quanta, LG sued, arguing that Quanta had no license to use the patented technology.

The Supreme Court disagreed, holding that once LG had sold the chips to Intel, it had exhausted its rights in the chips and could no longer control what Intel did with them. Although the Court's decision did not rule out the possibility that different sorts of license agreements might be upheld in other cases, the outcome is a step in the right direction. The decision reinforces the principle that patent owners cannot use their rights to interfere with competition and limit what people can do with the things they own.

by Greg Beck



Robert Arkow runs a website at the domain names metrolinkrider.com and metrolinksucks.com (no longer active) where riders and employees of Metrolink, the Southern California commuter rail system, share their gripes about services and fares. Metrolink filed a complaint under the Uniform Domain Name Dispute Resolution Policy (UDRP), an agreement imposed by ISPs that subjects domain-name owners to mandatory arbitration for challenges to their ownership of domain names. Metrolink claimed that the domain names were confusingly similar to its own and were registered in bad faith. Metrolink was particularly peeved about postings on the site "with such statements as 'Stupid Metrolink Tricks---Seen something really dumb on Metrolink?' and 'Are the Engineers that stupid?'"



The arbitration panel denied the complaint, siding with the pro se domain name owner. Noting a split in past decisions on the issue, the panel held that noncommercial use of a trademark in a domain name for purposes of comment or criticism did not violate the UDRP. It wrote: "[S]omething more than criticism is required to establish illegitimacy and bad-faith for purposes of the [UDRP]."



Use of trademark law to squelch criticism is an ongoing problem, and is of particular concern when claims are brought in international tribunals that aren't bound by the First Amendment. Here, it looks like the panel reached the right result. Public Citizen successfully defended another web critic against a similar UDRP claim by a homebuilder earlier this year.



The Citizen Media Law Project drew my attention to this case, and has lots more background on the UDRP.

For years, the National Association of Realtors (NAR) blocked access to its multiple listing service, preventing online real estate agents from access to home listings. No longer. The Department of Justice's Antitrust Division settled today a 2005 lawsuit claiming that the NAR's practice was anticompetitive. DOJ says the settlement will lead to more competition and lower commissions. NAR admits no liability and calls the settlement a "win-win."



As a side note, NAR claims a trademark in the word "Realtor," so online competitors will still have to call themselves something else.



[via New York Times]

by Greg Beck

Trademark law was designed to protect consumers from being fooled by products that are passed off as something they are not. Too often, however, it is invoked by companies not to protect consumers, but to interfere with lawful competition. For example, in Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), the court found a trademark cause of action for "initial interest confusion" where a website had honestly advertised, using search engine keywords, the fact that it sold its competitor's tanning lotion. Although the defendant had said nothing that was inaccurate or misleading, the Tenth Circuit nevertheless thought that the defendant had “used the goodwill associated with Plaintiffs’ trademarks in such a way that consumers might be lured to the lotions from Plaintiffs’ competitors.” Maybe so, but luring away a competitor's customers is the essence of capitalism. Decisions like Australian Gold turn trademark law away from its consumer-protection function and into a system of corporate welfare.

Occasionally, though, a court will be thoughtful enough to to realize that trademark law is not designed to protect companies from unwanted competition. Ron Coleman of Likelihood of Confusion covers a recent decision where the District of Arizona, in a thoughtful opinion, rejected the Tenth Circuit's Australian Gold decision. The court was not convinced by the plaintiff's argument that truthful advertising infringes its trademark rights, holding that a website could truthfully advertise its sale of the plaintiff's products on the Internet. The court wrote: "[I]f this guileless, informative use of trademarks in metatags and as search-engine keywords constitutes initial interest confusion, then trademark law would be (to the extent it is not already) in the unenviable position of stymying access to the world of goods and services lawfully available on the internet.”

Unfortunately, cases like Australian Gold give companies enough ammunition to scare off competition without even having to go to court. It is the rare defendant that is willing to finance an expensive trademark battle against an aggressive and litigious competitor. Ironically, consumers are the ones who end up paying, in the form of less competition and higher prices.

Update: As other's have mentioned (see here and here), the court allowed an equally anti-competitive copyright claim to go forward. Well, at least the court got it half right.

When Seattle resident Tim Vernor put a used copy of software for sale on eBay, the software’s maker, Autodesk, demanded that eBay cancel the listing. Although Vernor was selling an authentic, original copy of Autodesk’s software, the company pointed to a “license agreement” contained in the software’s box that prohibited anyone from selling or giving the software away. Vernor had purchased the software at a garage sale and had never agreed to abide by Autodesk’s terms, but the company nevertheless argued that Vernor’s failure to abide by the licensing terms infringed its copyright.

These kinds of abusive licensing terms are increasingly common and are bad for consumers. When a company prohibits resale, it eliminates the secondary market for used copies of the product. And with fewer copies on the market, competition is reduced and prices go up.

Vernor, however, refused to back down, instead repeatedly putting Autodesk’s software up for sale on eBay. Each time, Autodesk demanded that the sale be terminated, until its repeated claims of copyright infringement caused eBay to shut down Vernor’s account entirely. Vernor then filed suit and, represented by Public Citizen, argued for a ruling that he did not need Autodesk’s permission to resell its software.

Today, a federal court agreed with Public Citizen, rejecting Autodesk’s expansive claims of copyright infringement and holding that the company cannot prevent Vernor from reselling authentic copies of its software. The decision is good news for consumers and signals that companies cannot use a form contract to restrict competition and curtail consumers’ traditional right to resell products that are lawfully theirs.

The court’s decision and other documents in the case are available here.