Holly Golightly would not be pleased.

Tiffany & Co., the famed jeweler where Holly nibbled on croissants as she gazed into its Fifth Avenue windows, has lost its bid to protect the precious items on display from the mass market of the internet, where "genuine" sometimes doesn't mean that at all.

A federal judge has shot down Tiffany's bid to hold eBay accountable for trademark infringement for what it claims were hundreds of thousands of counterfeit silver jewelry items offered for sale by third parties on the eBay website from 2003 to 2006.

At a two-day trial last November before Judge Richard Sullivan of the Federal District Court in Manhattan, most of the facts at issue were not in dispute. eBay admitted that counterfeit items are sold on the site, and argued that it has instituted a program to police the illegal acts of those in the "eBay community" who chose to hawk fake goods, taking postings down when given proper notice by retailers such as Tiffany.

Whatever eBay is doing, Tiffany argued, it is not enough—and it sought to hold the auction site accountable for "contributor trademark infringement"—because eBay could have anticipated that knockoffs would be sold and did nothing to prevent the problem in the first place.

The case grabbed the attention of the entire retail industry: If Tiffany had succeeded, Judge Sullivan's ruling would have imperiled the business model of internet retailing. Alas, Tiffany failed to persuade him: "Tiffany must ultimately bear the burden of protecting its trademark," Sullivan wrote. "Policymakers may yet decide that the law as it stands is inadequate to protect rights owners in light of the increasing scope of internet commerce." But under the law as it stands, eBay is, in fact, doing enough to stanch the flow of counterfeit items, despite Tiffany's characterization of the website as a worldwide, online version of the swap meets of bootleg eight-track cassettes in parking lots that were once the rage. (There's case law on this, if you can believe it: The record companies are every bit as zealous about their copyright as Tiffany is about its trademark silver, wrapped in a turquoise box.)

"The court finds that when eBay possessed the requisite knowledge, it took appropriate steps to remove listings and suspend service. Under these circumstances, the court declines to impose liability for contributory trademark infringement," Sullivan declared in his 66-page decision, issued this afternoon.

The lengthy opinion offers a revealing window into how eBay works its phenomenally successful empire: More than 6 million new listings are posted on eBay daily, and at any given time, some 100 million listings appear on the site. eBay works closely with sellers to foster increased sales, including the sellers of Tiffany jewelry, offering them seminars and workshops. At the trial, Tiffany's lawyers presented these features to show that eBay was in league with the counterfeiters, and therefore could not possibly claim that it was, as they say, shocked, shocked to find gambling going on in the casino.

Judge Sullivan, after the trial, asked both sides to brief him on a case that dates back to a time before computers, much less the dawn of internet commerce: It is a 1946 ruling from a Massachusetts federal district court called Coca-Cola Co. v. Snow Crest Beverages, in which Coca-Cola asserted that Snow Crest, a distributor, had contributed to infringing the Coca-Cola mark by selling "Polar Cola" to bartenders who sometimes mixed that fake soda into customers' "rum and Coke drinks." An investigation by  Coca-Cola found the practice went on in 82 bars. Coca-Cola passed that information along to Snow Crest's president. Coca-Cola tried to argue that this "generalized knowledge" was sufficient to establish a claim for trademark infringement.

The Massachusetts court was unimpressed by Coca-Cola's arguments, and today, Judge Sullivan was unimpressed by similar claims made by Tiffany.

The decision was no surprise to those following the case, for Sullivan hewed to the established caselaw.

"This is definitely a go-go status quo decision," says says Susan Scafidi of Fordham University School of law, the first U.S. professor to offer a course in fashion law in the country, and blogger on the subject. "The other way would have been huge."

Scafidi was disappointed by Sullivan's conservative approach, especially with respect to dusting off the Coca-Cola decision. "He wants not to be overturned," she says. " Had there been a little bit more judicial activism, or a little bit more sympathy for Tiffany's or a bit broader reading of the knowledge standard, we would have had a very different decision."

Luxury retailers aren't ready to give up the fight.  Milton Petraza, the chief executive of the Luxury Institute, which is pressing for policy changes or corporate changes at sites like eBay by demanding they authenticate goods before listing them on on their sites for purchase by consumers, didn't hide his disgust for the ruling. "The U.S court, just like the French courts, side with whatever company they have," he says. "But I think this is a bigger issue, a global issue. Eventually authentication will be demanded, not by the courts, not by the luxury brands, but by consumers who are buying those brands."

For now, eBay has won. In the absence of "actual knowledge" or "reason to know" that goods are counterfeit, eBay will not be held liable for fake goods hawked on its site. Something more than "generalized knowledge" is needed, so says Sullivan's decision.

Just what is anybody’s guess. Perhaps legislation. Or perhaps a trip to the brick and mortar store on Fifth Avenue for some retail therapy.

Holly would surely have approved of that.