By Xenia P. Kobylarz
IP Law & Business/June 2007

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Brand owners are keen to shift some of the burden of policing their trademark and copyrights online to third-party providers such as auction site eBay. In the last few years luxury goods makers Tiffany and LVMH Mo‘t Hennessy Louis Vuitton SA have filed suits in the U.S. and France against eBay, hoping to hold it liable for the sale of thousands of counterfeit and pirated goods on its sites. LVMH claims that 99 percent of all LVMH products sold on eBay are counterfeit. "Trademark owners are spending millions of dollars annually on a problem that didn't exist until eBay created the online auction marketplace," says trademark and copyright enforcement attorney Brian Brokate, a partner at New York's Gibney, Anthony & Flaherty. Brokate says that some of his clients are thinking of filing similar lawsuits against eBay as part of their online enforcement. "We'll soon find out who ultimately is going to pay," Brokate adds.

Courts have so far held third parties liable only if they have knowledge of ongoing copyright and trademark infringement and do nothing to stop such actions. eBay did not respond to calls for comments for this story, but the company has consistently argued that it cannot police the 6 million or so new postings it receives daily. It also says that it is doing everything possible to help companies protect their intellectual property. Last year the auction site streamlined the process of stopping counterfeit auctions by tweaking its nearly ten-year-old Verified Rights Owner, or VeRo programme, which allows trademark owners to automatically contact eBay to get auctions for counterfeit goods shut down. The company now requires additional verification from the sellers of items that are frequently reported as being counterfeited. It also made it harder for people to sell their items overseas. For example, sellers in the United States, Germany, and the United Kingdom can not ship to Hong Kong and China, and sellers in China and Hong Kong may not list items on any U.S.Ðbased eBay site.

But many brand owners see eBay's attempt as half-measures. For instance, many companies complain that eBay has allowed sellers of fakes to continue selling by simply relisting under another name. Brand owners also say that eBay does have the technology to filter goods and in some cases managed to take down infringing auctions if enough pressure was applied. "It is just not in eBay's best interest to stop counterfeit sales," Brokate says. "They make too much money off of it."

In February, Harry Potter author J.K. Rowling and Warner Bros., which owns the movie rights to the book, won a rare court injunction from a Delhi court in India against eBay. The court ordered the auction site to remove all listings of illegal electronic copies of Harry Potter books. Experts say that if the company succeeds in removing all infringing listings, it will have a harder time arguing that it cannot monitor its site for infringing content. If it fails, it will be in contempt of court.

Some companies have also filed suits in China, one of the fastest-growing markets for online auctions. But Chinese courts have so far been unreceptive to holding Internet service providers and auction sites responsible for any copyright or trademark infringement. At least two cases, one filed by a Danish company against eBay's China unit and the other filed by Puma AG against Chinese auction site Taobao.com, were already dismissed by two separate courts. The Chinese judges held that the auction sites had no direct involvement in the sales of infringing products and had no duty to investigate all its users. But brand owners are still planning to pursue similar cases, hoping that the courts will apply a 2006 landmark ruling by the Beijing Higher Court that held landlords liable with their tenants for counterfeit goods sold on their premises.

On the copyright front, it's a growth business to sue YouTube and Google for copyright infringement. In May a class action suit was filed by two content owners, following up on Viacom's individual suit filed in March asking for $1 billion in damages.

Meanwhile, trademark owners are finding new deep pockets to sue: credit card companies. Greenberg Traurig partner Harley Lewin says he is preparing to file a suit on behalf of one of his luxury goods clients against financial firms that are processing credit card transactions for online counterfeiters. "These companies obviously know what's going on," Lewin says.