Posts tagged Ebay
By Jay R. McDaniel
They disappear like fog in the wind. Those web sites that appear suddenly selling counterfeits can simply vanish when the manufacturer of a branded good discovers their activities, along with the profits, only to pop up again somewhere else. Manufacturers may have recourse, however, against the lifeblood of these internet entities by suing their credit card processors.
The fashion giant Gucci did just that in a recent lawsuit in the Southern District of New York in which the court held that under the facts of that case the designer could proceed with its lawsuit against a credit card processor and two banks that supplied services to and acknowledged seller of “replica” Gucci items on the theory that the defendants had contributed to trademark infringement. Gucci America, Inc. v. Frontline Processing Corp., Civil Action No.: 09-cv-6925 (June 23, 2010)
Counterfeiters and gray marketers are wily and elusive. Every week there are numerous default judgments entered against these companies. They simply disappear when they get caught.
Gucci America, Inc., the plaintiff in this litigation, pursued a different tact. The company filed suit alleging that the defendants, banks and processors, targeted high-risk websites, including soliciting sellers of replica goods. Moveover, according to Gucci, they had direct knowledge of the nature of the infringement. Thus, Gucci claimed, they knew they were doing business with counterfeiters, but continued to process the sales.
The defendants sought to dismiss the complaint. District Judge Harold Baer held that Gucci could bring such a claim if it could show that the defendants either “intentionally induced” the website to infringe or “knowingly supplied services” and “had sufficient control over infringing activity to merit liability.” Moreover, the element of knowing conduct could be satisified by a showing wilfull blindness.
The judge went found that the allegations in Gucci’s complaint were sufficient to defeat a motion to dismiss because they alleged that defendants’ participation in efforts to reduce chargebacks, their review of the website’s content and because – in the case of one of the defendants – the targeting of high-risk replica vendors in the market for credit card services.
Judge Baer’s decision in the Gucci lawsuit is significant. Similar attempts to pursue third party service providers have failed. Of particular note is Tiffany v. E-Bay, Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008), in which the high-end retailer sued E-Bay for failing to block sellers of counterfeit Tiffany jewelry. Unlike in the Tiffany case, however, the court held in this action that Gucci’s allegations provided a clear factual basis from which to find the direct involvement of the defendants.
The case has since settled. On October 1, 2010, the court entered a judgment on consent in which the defendants agreed to be enjoined against future acts of infringements. The specific terms of the settlement were not included in the consent judgment.