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The real deal: A Milo & Gabby dinosaur pillowcase, as pictured on the company’s site.

A federal appeals court held up a 2015 decision in favor of Amazon this week in a dispute over counterfeit goods sold by a third-party retailer on the e-commerce giant’s site.

It is a big win for Amazon as its third-party marketplace has become an important driver in the company’s bottom line in recent years. Third-party sellers on Amazon accounted for 49 percent of all paid units in 2016, the company said at its annual shareholder meeting this week.

The potentially landmark case was filed by Seattle-based novelty pillowcase maker Milo & Gabby in 2013. The boutique business said a Chinese manufacturer copied their designs, stole their product photos and began selling indistinguishable pillowcases on Amazon. The counterfeits were even stored in Amazon warehouses as part of the Fulfillment by Amazon program.

Milo & Gabby argued that Amazon was liable for the infringement because it made an “offer to sell” the counterfeit goods, even if it wasn’t the one who created the product listings.

But Amazon countered that its fulfillment, payment processing and product listing services don’t mean that Amazon is offering a product for sale. Instead, the company argued, those are services the company provides to third-party retailers, which are the ones making the offer of sale.

The four-year legal battle has been closely watched across the industry, with the potential to establish new rules about what online marketplaces must do to keep counterfeit goods from being listed on their sites. These decisions could help to protect companies like Amazon from future lawsuits in similar situations.

When U.S. District Court Judge Ricardo Martinez ruled in favor of Amazon in 2015, he said he was troubled by the decision and the impacts it might have on other small retailers. He called on Congress to take up the issue.

“There is no doubt that we now live in a time where the law lags behind technology,” Martinez wrote. “This case illustrates that point.”

In its decision, the appeals court didn’t wade into the big picture impact of the case, and instead focused on the granular details in the arguments of Milo & Gabby. The appeals court found that the district court had not erred in its decisions, and Gabby & Milo’s legal team had not proven Amazon was responsible for any issues of patent infringement, copyright infringement, or “palming off” — misrepresenting Gabby & Milo’s goods as its own.

Here is the full decision from the appeals court:

16-1290.Opinion.5-22-2017.1 by Nat Levy on Scribd

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