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Could Tiffany's lawsuit destroy eBay?

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As I wrote earlier this month, Tiffany and Co. (NYSE: TIF) and eBay (NASDAQ: EBAY) are embroiled in a landmark legal case.

Tiffany is suing the online auction house, arguing that eBay serves as a marketplace for illicit knockoffs of designer goods. According to the New York Times, "If Tiffany wins its case, not only could other lawsuits follow, but eBay's business model could be threatened because it would be difficult and extremely expensive for the company, based in San Jose, Calif., to police a site that now has 248 million registered users worldwide and approximately 102 million items for sale at any one time."

A loss here could be devastating for eBay: implementing procedures to eliminate knockoffs from auctions could kill eBay's juicy profit margins, and force the company to raise listing fees more than it already has. Alternatively, eBay could simply ban the sale of designer products that are a frequent target of counterfeiters. For its part, eBay's reaction is basically "Police your own merchandise, Tiffany!"

An interesting question is how harmful the counterfeiters really are to the designers' bottom lines. Is someone buying heavily discounted Tiffany or Louis Vuitton items that are probably fake really part of the company's target demographic anyway? Lawyers for Louis Vuitton have argued that the omnipresence of fakes has made the items less desirable as status symbols -- if 80%+ of the LV bags out there are fake, will people assume that yours is fake too? If so, it isn't exactly a good way to impress people.

This will be an interesting case to follow, and one that could have huge consequences for the parties involved.

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Last updated: July 11, 2009: 02:52 AM

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