San Jose-based EBay might be violating false-advertising laws if it does not warn consumers that some items billed as upscale jeweler Tiffany Co.'s products by sellers on its Web site are not authentic, a federal appeals court said Thursday.
But online auction site operator won significant victories in rulings by the 2nd U.S. Circuit Court of Appeals that said it did not engage in trademark infringement or trademark dilution in its use of jeweler Tiffany & Co.'s trademarks. Those rulings upheld the findings of a lower court judge.
Tiffany sued eBay in 2004, saying eBay engaged in trademark infringement, trademark dilution and false advertising because most items that sellers list for sale as genuine Tiffany products on its sites were fakes.
The appeals court left in place a finding by the lower court that eBay did not violate false advertising laws but returned the case to the judge to consider that issue again.
The three-judge panel said in its written ruling that it had difficulty with the lower court's reliance in its ruling on eBay's assertions that it did not know which listings offered counterfeit Tiffany goods. The 2nd Circuit noted that eBay advertised the goods sold through its site as Tiffany merchandise.
"The law requires us to hold eBay accountable for the words that it chose insofar as they misled or confused consumers," the appellate panel wrote.
The company would not necessarily need to stop advertising goods such as Tiffany products if it knows some of them are counterfeit, the appeals court said.
"A disclaimer might suffice," it said. "But the law prohibits an advertisement that implies that all of the goods offered on a defendant's Web site are genuine when, in fact, as here, a sizable proportion of them are not."
EBay general counsel Michael R. Jacobson said in a statement that the ruling validates the company's work to squash counterfeiting. He said the company is "confident" that the advertising issue will be decided in its favor.
Meanwhile, Tiffany CEO Michael J. Kowalski said in a statement that Tiffany is "disappointed" with the decision.
Tiffany said its lawyers are reviewing the decision and may appeal it to the U.S. Supreme Court.
Shares of New York-based Tiffany fell 5 cents in after-hours trading, after finishing regular trading up 76 cents at $48.25. Shares of San Jose, Calif.-based eBay were unchanged in after-hours trading after falling 40 cents in regular trading to finish at $26.57.