Tiffany & Co. v. eBay, Inc.

Last week eBay released some pretty good preliminary numbers for Q406 and 2006 as a whole:

• $6B in revenues
• $2B in operating income
• $3.5B in cash
• $1.7B in stock repurchases

• 220M eBay users, 41M new accounts
• 133M PayPal users, $38B in payment volume, 37M new accounts
• 171M Skype users, 32B minutes of dialog

Those are some pretty stunning stats. The 220M eBay users really blows me away.

There was no mention in the eBay call or in the press about the lawsuit Tiffany’s filed against eBay back in 2004, which eBay said in their Q305 10-Q was “scheduled for January 2007.” Tiffany’s is suing eBay for damages incurred from sales of knock-off Tiffany’s jewelry being sold on eBay and want to limit the number of Tiffany items any one seller can have for sale at one time. While a ruling in the favor of Tiffany’s would probably not even register on eBay’s radar screen (there are only 22 Tiffany & Co. items currently for sale on the site), it is likely that a avalanche of money hungry plaintiffs would follow. If any damages are awarded, hypothetically, any brand that has ever had a knock-off item sold on eBay would stand to get some cash.

In 2001, the landmark case of ecommerce, Hendrickson v. eBay, the court found eBay to not be liable for stolen or counterfeit items sold on its site. The site was found to be in the safe harbor of the DMCA, and differentiated from the classic case of the flea market proprietor found liable for selling stolen goods. eBay was found to be in the safe harbor, including robust terms of service and links for users to flag inappropriate content. At the end of the day, Hendrickson required manufacturers to be on notice and proactively search and flag stolen goods on eBay. This was a big change from the flea market paradigm of the past, but there were a lot of strange things happening in 2001. Conversely, after Hendrickson, Napster & Grokster came through, which were about copyright but pondered a similar unchartered realms of e-commerce and trade. Napster couldn’t keep 100% pirated work off the site per court order, and were forced to shut down.

There currently an interesting stirr with YouTube, where it seems NBC and Viacom have not reached agreeable terms with YouTube since the Google acquisition and are ordering 100% take down compliance. YouTube has not yet responded to either and has not taken any videos off their site. It is possible that they may actually be able to comply 100% if necessary. If eBay were put in a position where they need to comply 100% as well, they would be put in an extremely difficult place, because while it is easy to recognize a NBC TV clip, it is not so easy to recognize a knock-off Tiffany & Co. ring by looking at a grainy photograph. This distinction may be what in the end saves eBay and sinks YouTube like Napster before it. However, while Hendrickson and Napster both made trademark claims, they were overshadowed by the copyright issues in the cases which call to the DMCA. Tiffany’s has made a claim strictly within trademark, so it will be interesting to see how things turn out. eBay’s 10-Q for Q406 should be out soon. If they settled, expect a ton more suits, and if it’s going to court, it will probably be another 3 years before we know anything!

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