Yesterday, Gregory Fair, a 46-year-old man from Falls Church, Virginia, was sentenced to three years and five months in federal prison and was ordered to pay $743,098 in restitution to Adobe for selling at least $1.4 million in pirated Adobe software on eBay.  This past April Fair pled guilty to charges of criminal copyright infringement and mail fraud for selling the pirated software since 2001.  In addition to restitution and jail time, Fair also had to forfeit a BMW, a Hummer, a Mercedes, a 1969 Pontiac GTO and $144,000 in cash seized from a safe deposit box, all of which were obtained from his sale of the pirated software. 

The case was originally brought to the attention of federal authorities by SIIA-member Adobe in 2007.  Once alerted to the problem, undercover U.S. postal inspectors made several "test" purchases of the pirated software from Fair.  After verifying the illegal nature of the software, they then raided Fair's home where they found a CD burner and label printer that Fair was using to make copies of the illegal software.  The case was prosecuted by federal prosecutors Marc Miller and Glenn Leon.  Miller has been at the forefront of many of these eBay software piracy cases, including the case of Jeremiah Mondello, who comtinues to serve his four year prison term for selling pirated software on eBay.

About ten days prior to Fair's sentencing, another Gregory, Gregory Bambo, a 47 year-old-man from Richmond, California was also sentenced to prison for engaging in software piracy.  Bambo pled guilty to selling pirated software online during a three-year period beginning in 2004 and was sentenced to prison for one year and one day.  During the three years he engaged in the piracy, Bambo sold at least 1,400 cracked software programs having a combined retail value of just over a half million dollars. 

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.”

More...

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.

More...

On Monday, July 14th, eBay prevailed in a much-anticipated case brought by the famous jeweler Tiffany before the U.S. District Court in the Southern District of New York on the very same issue decided against eBay in a French court.  Judge Sullivan of the New York court held that eBay is not liable for trademark infringement because, although eBay generally knew that there were substantial amounts of counterfeit products available on its site, it did not know or have reason to know which specific listings or sellers were responsible for those counterfeits until it was alerted by Tiffany, at which time eBay promptly removed the listings^.

Judge Sullivan concluded that, based on the facts in the case, "a significant portion of Tiffany" sterling silver jewelry listed on the eBay website … was counterfeit" and that "eBay generated substantial revenue from the sale of "Tiffany" silver jewelry on its website." However, according to the Judge that was not enough to make eBay liable under trademark law standards because: (i) Tiffany, not eBay, is responsible for policing infringements on the site; (ii) under existing case law, "Tiffany’s generalized assertions of trademark infringement are insufficient to establish that eBay knew or had reason to know of the infringement at issue;" and (iii) to the extent eBay knew about any specific infringement of Tiffany’s jewelry it promptly removed the infringements from its site.

 More...

On June 30th, a French court ordered eBay to pay six Louis Vuitton brands almost 40 million euros ($63 million) in damages for infringement resulting from the sale of counterfeit goods by its users on its site and also prohibits eBay from selling four perfumes -- Christian Dior, Kenzo, Givenchy and Guerlain -- on its websites.  The court also ordered eBay to post the ruling on all its websites in English and French for three weeks and to pay for its publication in three French or international publications of Louis Vuitton’s choice.  The court held that eBay is not qualified to sell Louis Vuitton perfumes, saying that LV perfumes should only be distributed through selected retailers with trained staff.  eBay will appeal the ruling.  (Three weeks ago, a French court found eBay liable for 20,000 euros for selling counterfeit Hermes handbags)

On June 10^th, in UMG Recordings Inc. v. Augusto, the U.S. District Court for the Central District of California held that the recipient of promotional CDs distributed by a record label was allowed to resell the CDs on eBay under the first sale doctrine without infringing the record company’s copyright.  In so holding the court concluded that licensing language prohibiting the sale of the CDs that was contained on the CDs’ labels was not binding, and as soon as the record company distributed the promotional CDs, it relinquished ownership of them, and lost control of future sales and distributions.  According to the court, the defendant Augusto must meet four requirements for the sales to fall under the first sale doctrine: (1) the CDs must have been lawfully manufactured with plaintiff UMG’s authorization; (2) UMG must have transferred title to the CDs; (3) Augusto must have been the lawful owner of the CDs; and (4) Augusto must have disposed of, but not reproduced, the CDs.  As for factors two and three (the only factors in dispute), the court explained that

“UMG’s distribution of Promo CDs to the music industry insiders is properly characterized as a gift or sale, not a license, and title to the CDs transferred to the insiders.” 

More...

It is well established that software and content piracy is a big problem on auction and classified ad sites like eBay and Craigslist. SIIA is pleased to note, however, that eBay has taken a couple of steps in the past few weeks to crack down on fraud - an in particular, software piracy - taking place on its site.

Specifically, a few weeks ago eBay removed the "Digital, Downloadable Software" category, which will make it more difficult to sell downloadable software on the site. Although the sale of downloadable software has not been prevalent on eBay, when it did occur (in every instance I came across) it was always pirated software that was being sold.

More...

On May 13th, in Pearson Education v. Liao, the U.S. District Court for the Southern District of New York held defendants liable for copyright infringement for their sale of 166 copyrighted educational textbooks that were manufactured and purchased by defendants outside the United States and then resold by them in the United States. Defendants sold the foreign editions of books on Internet bookselling sites without plaintiffs' permission. The foreign editions were manufactured and intended for sale outside the United States by the plaintiff publishers (SIIA members Pearson and McGraw-Hill, joined by Cengage and John Wiley & Sons). Because of this, the foreign editions were substantially identical to the U.S. editions, but were produced using inferior ink, paper and binding material. Defendant argued that reselling of the books was permitted by the first sale defense in section 109 of the Copyright Act. The court disagreed, explaining that "the first sale doctrine does not necessarily protect persons who purchase copies of copyrighted works outside the United States and then import them in to the United States for resale." To hold otherwise "would vitiate section 602(a)" of the Copyright Act, which provides that "[i]mportation into the United States … of copies of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies…" Accordingly, the court concluded that the first sale defense does not allow resale in the United States of copies manufactured outside the United States and awarded plaintiffs $124,500 in statutory damages.

More...