A federal appeals court ruling earlier this month has laid down the law for how far e-commerce businesses must go to enforce trademark protections—and the victory goes to the e-commerce shops.

The closely watched ruling, Tiffany v. eBay, is the first to address trademark law in the world of virtual retailers. Tiffany & Co., the iconic maker of luxury jewelry, accused online auction house eBay of contributing to trademark infringement by turning a blind eye to scads of online sellers peddling counterfeit Tiffany goods. Specifically, Tiffany said, it had eBay terminate more than 19,000 auctions in 2003 and 2004 that ...