Tiffany & Company, the famous New York-based jewelry retailer, is suing San Jose, California-based online auction firm eBay for allowing its Web site to be used to sell counterfeit jewelry.
The landmark lawsuit also alleges that eBay, in addition to facilitating sales of fake Tiffany goods, also makes millions of dollars from fees charged for counterfeit sales.
Two years ago, Tiffany bought several hundred items on eBay and found that three quarters of the items purchased were counterfeit.
The Tiffany lawsuit, which originally was filed in 2004 in a New York State court, is expected to go to trial by the end of this year, according to press reports.
If Tiffany wins its case, eBay's business model could suffer a severe blow, as this would open the door for other brand owners to sue it over counterfeit sales.
But eBay claims it is only a marketplace that brings together buyers and sellers, and cannot be held responsible for sales of counterfeit items.
"We are disappointed that Tiffany filed the suit, given that we have cooperated with their brand-protection efforts for several years through our Verified Rights Owner (VeRO) program," said Hani Durzy, an eBay spokesperson. "Through VeRO, we have worked with Tiffany to develop substantial proactive monitoring efforts and given them the tools to report problem listings, which we promptly remove."
Durzy said that eBay will continue to cooperate with Tiffany along these lines but will fight the legal action because "its claims are without merit."
"If the court finds in Tiffany's favor, this would set a precedent and would place additional pressure on eBay to ascertain the provenance of goods sold," said Stacey Quandt, research firm Aberdeen Group's director of security solutions and services.
"Determining whether this would be a death blow depends on the damages and the number of fraudulent goods sold on eBay," said Quandt. "The outcome could also spark both legitimate and fraudulent insurance offerings to protect consumers."
Martin Reynolds, an analyst with research firm Gartner, said he suspects Tiffany has a hidden agenda in wanting to sue eBay. "Tiffany would really like to restrict secondary sales of its products, as this would then force people to buy exclusively from Tiffany," he said. "The net effect would be to increase Tiffany's sales."
It is not cost-effective for Tiffany to go after all the second-hand antique stores that sell genuine and counterfeit Tiffany products, Reynolds said. "But if this lawsuit scares eBay into taking all Tiffany products off its Web site, then Tiffany will have managed to strike a major blow against second-hand sale of Tiffany items."
Reynolds said that eBay has a policy of immediately taking action when it determines that counterfeit products are being sold on its Web site.
"EBay has a team of people and also computer systems, which trawl its site in search of counterfeit items," he said. "But it is not possible to catch everything. If someone displays a photograph of some Tiffany jewelry, how can eBay tell whether it is genuine?"
If Tiffany is going to sue eBay for profiting from counterfeit sales, then it should also go after the credit-card companies whose cards are used to pay for purchases of counterfeit items, Reynolds said.
"You could even argue that it should also sue the U.S. government, because people use U.S. banknotes to buy fraudulent items," he said.
"It becomes a slippery slope when a marketplace like eBay is held responsible for the products sold on the site," said Forrester analyst Sucharita Mulpuru. "It's like the Pasadena flea market at the Rose Bowl being held liable for every fake product or tchotchke sold through its venue."
The responsibility of policing items really rests with the buyer when products are being resold, said Mulpuru, whether it's a swap meet or an online auction.
"That said, I see Tiffany's point of view," said Mulpuru. "It diminishes their brand when fake products are sold under their name, especially when those products are positioned as genuine."
Mulpuru believes it will be impossible for Tiffany to succeed in getting every fake item removed from eBay. "I would be really surprised if eBay is ultimately held liable for misrepresented items on its site," Mulpuru said, suggesting that the lawsuit's main purpose might simply be to send a signal to illegal resellers that someone's watching.
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