Internet Auction Sites: Is Immunity from Infringement Claims Going..Going..Gone?

by Mark S. Sommers and Susan M. Freedman

Originally published in IP Litigator, Counterfeit Corner column, June/July 2001

Internet auction sites have become a preferred venue for sales of counterfeit goods. Since they were first introduced, these enormously popular sites have provided a virtual flea market to purchase or sell any good or service, no matter how unique. The vast majority of goods and services offered through these sites are legitimate, yet there is a growing number that are not.

The increase of counterfeits offered through auction sites damage intellectual property owners by diverting sales, causing confusion and frustrating consumers. Counterfeits distributed through auction sites fail to meet the quality standards of the genuine articles, are not covered by the warranties offered by the manufacturer, and cannot be returned to the manufacturer for a refund or repair. Consumers purchasing these illegitimate goods, not surprisingly, are often unable to locate the seller to seek redress if a product fails to fulfill its intended purpose or injures someone. As such, combating the sale of counterfeits on auction sites has become a top priority for intellectual property owners and federal and state law enforcement officials, many of whom have grown impatient by the perceived lax attitude of some auction-site owners.

Most auction sites prescribe terms and conditions for sellers on their sites, including prohibiting the sale of counterfeit goods. Many will investigate a complaint lodged by an intellectual property owner and remove the offering if they determine that the allegation has merit. Some also have buyer-feedback bulletin boards where duped consumers may post complaints about purchases. Even so, auction sites generally do not monitor sales to ensure that sellers are complying with the obligations set forth under the site's terms and conditions.

Auction sites offer two basic reasons justifying less aggressive procedures. First, they do not want to interfere in the seller's First Amendment right, and second, they simply cannot monitor every sale.

Enforcement Measures Against Counterfeit Goods

As a result, intellectual property owners and law-enforcement officials have sought not only to fill the enforcement void left by the auction-site owners, but also to test whether they might be able to shift some liability for losses sustained through sales on these sites to the site owners themselves. In July 1999, the Department of...