eBay Steals the Jewels

The jury is still out on how tonight's earnings numbers will move eBay (Nasdaq: EBAY  ) tomorrow, but at least the verdict is in when it comes to giving the leading online marketplace a good start this week.

A federal judge ruled in favor of eBay in a pivotal case in which Tiffany (NYSE: TIF  ) was suing the auction site. The upscale jeweler argued that eBay was responsible for the exchange of counterfeit Tiffany items on the site, but the judicial ruling found that the trademark owner is the one that must police its brands. Tiffany is welcome to go after the sellers of the fake goods, of course, but eBay cannot be held liable for the trademark infringement crime, even if it's profiting from the transaction through its listing fees. The lawsuit had been flapping about in the court system for more than three years.

The favorable ruling for eBay comes as a sharp contrast to the company's defeat in Europe last month, when eBay lost a similar case in France against luxury goods specialist LVMH (OTC BB: LVMH.PK).

When a retailer sells allegedly bogus goods -- like when Coach (NYSE: COH  ) went after Target (NYSE: TGT  ) two years ago -- it's usually a pretty cut-and-dried decision. If it's counterfeit, it's illegal. An online marketplace complicates matters, though, because eBay is simply serving as the handshake enabler between two parties. The eBay site has safeguards in place to boot fraudulent sellers, but a buyer has to get burned to get to that point.

This is obviously welcome news for eBay, as well as any site like Overstock.com (Nasdaq: OSTK  ) or Latin America's MercadoLibre (Nasdaq: MELI  ) that dabbles in consumer-to-consumer auctions. Court decisions can be overturned. New cases can take new tactical attacks.

For now, at least, eBay is a winner. Now let's see if tonight's quarterly numbers keep it that way.  

If "buy it now" doesn't work, try "read it now":

eBay and Coach are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 173 positive feedbacks to show for it. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


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  • Report this Comment On July 16, 2008, at 1:12 PM, Patricia013 wrote:

    " An online marketplace complicates matters, though, because eBay is simply serving as the handshake enabler between two parties."

    Well...as a seller on Ebay I don't quite see it this way. Ebay shares in the sale price of every item on its site...in effect "partnering" with a seller. I feel they need to take just as much responsibility as the seller. Here is a company that hides behind "only a venue" whenever they need to...but have a hand in just about every aspect of a seller's listing and sale. If Ebay were only a venue they would simply rent me space for my listing and keep their hands out of my business.

    www.ACEOart.net

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