The decision in this case should be of great concern to trademark owners who face the widespread counterfeiting by eBay and other online marketplaces, like uBid, iOffer, Craigslist, and Amazon, to name just a few. But should it also be of concern to copyright owners whose pirated products are offered by sellers on eBay?

While this case may have some bearing on any copyright infringement case brought by a copyright owner against eBay, in fact, the standards applied are likely to be very different. Unlike trademark law, the copyright statute actually addresses this issue to some degree under the Digital Millennium Copyright Act (DMCA). The DMCA establishes explicit standards for ISPs to eliminate their potential liability for contributory and vicarious copyright liability that is quite different from the Inwood “reason to know” standard. The DMCA states that an ISP (such as eBay) may not be liable if it did not have “actual knowledge” of the infringing activity and was “not aware of facts or circumstances from which infringing activity is apparent.”

In applying the Inwood “reason to know” standard Judge Sullivan acknowledged that “eBay had generalized notice that some portion of the Tiffany goods sold on its website might be counterfeit.” He reasoned that “[g]iven the presence of authentic goods on eBay, it therefore cannot be said that generalized knowledge of counterfeiting is sufficient to impute knowledge to eBay of any specific acts of actual infringement.”

This rationale is quite troubling. In essence Judge Sullivan is saying that all a service like eBay needs to do is offer one or two legitimate products -- thereby establishing “the presence of authentic goods” -- and they can avoid liability for what is otherwise rampant counterfeiting on the site. The Judge never attempts to draw a line to determine at what point there exists so many infringements on the site that the site operator’s generalized knowledge should amount to “reason to know.” In fact, the Judge does quite the opposite by seeming to say that no matter how egregious the infringements and how many infringements take place on the site so long as there exists a “presence of authentic goods” on the site, the site operator cannot be liable if it has a mere generalized notice of these infringements. If Judge Sullivan’s interpretation of Inwood proves correct, then he may have just created an enormous loophole for infringers and online sites.