WASHINGTON (Reuters) - The Supreme Court said on Monday that it rejected an appeal by Tiffany & Co TIF.N arguing that eBay Inc EBAY.O should be held liable for trademark infringement for selling counterfeit goods on its website.

Visitors walk by a Tiffany & Co. Store at Santa Monica Place in Santa Monica, California November 26, 2010. REUTERS/Phil McCarten

The case has been widely viewed as a major legal challenge in the United States to Internet companies such as eBay, Google Inc GOOG.O and others that host services that other people provide. They have argued they should not be held responsible for users' trademark violations.

In appealing to the Supreme Court, Tiffany said the case presented an extremely important question about allocating trademark rights and burdens in the modern Internet economy.

Tiffany said a defendant can be held liable for operating a marketplace that it knows is used to sell substantial quantities of goods that infringe a trademark, even if it does not know which particular goods are being infringed.

Tiffany and other luxury brands have long argued that counterfeit merchandise bearing their names is sold on eBay. The Web commerce company, which does not itself put the items up for sale, has said it has spent millions of dollars to track down counterfeiters and remove such listings.

Tiffany sued eBay in 2004. A federal judge in New York and then a U.S. appeals court ruled that eBay was not liable for trademark infringement by allowing fake Tiffany goods to be sold on the website by individuals.

“It is true that eBay did not itself sell counterfeit Tiffany goods; only the fraudulent vendors did, and that is in part why we conclude that eBay did not infringe Tiffany’s mark,” the appeals court said in its ruling in April.

The appeals court said eBay and other companies have “a strong incentive to minimize the counterfeit goods sold on their websites.”

In appealing to the Supreme Court, Tiffany said the appeals court’s ruling was the latest in a series of cases around the world that have attempted to define whether Internet-based service providers can be held liable for infringing conduct of their users.

Tiffany said eBay earned $4.1 million from sales of purported Tiffany jewelry between April 2000 and June 2004.

EBay opposed the appeal and urged the Supreme Court to reject it, saying that if trademark law were to be changed for Internet commerce, then it should be done by lawmakers in Congress, not by the courts.

EBay said it has made substantial investments in anti-fraud measures, spending as much as $20 million a year.

The high court rejected Tiffany’s appeal without comment.

Tiffany is based in New York while eBay is in San Jose, California. The Supreme Court case is Tiffany & Co v. eBay Inc, No. 10-300.