L’Oréal v. eBay: European courts rule eBay not liable for sales of counterfeit goods

L’Oréal v. eBay: European courts rule eBay not liable for sales of counterfeit goods

It is no secret that counterfeit goods have been sold over the internet for years. Your relation to someone who has purchased some form of counterfeited good over the internet most probably follows the six degrees of separation rule. As a prominent source of the sale of counterfeit goods, U.S.-based eBay has been sued by many brand owners around the world for a failure to make reasonable efforts to keep counterfeit goods off its site.

In a recent French court case, Paris-based L'Oréal failed to win a claim against eBay that the online auctioneer should be liable for the trademark infringements committed by their users and was profiting from the sales of counterfeit goods. Thousands of L'Oréal-branded cosmetic and beauty products are listed for sale on eBay on a daily basis. The world's largest cosmetics and beauty company claimed that eBay had not made reasonable measures to stop users from selling counterfeit goods through its website. They argued that the model of surveillance utilized by eBay - only investigating suspicious goods or sellers after they have been posted for auction - was insufficient. The model used by Priceminister, a French competitor to eBay's service, was argued to be more responsible and effective as it does all of its screening before items are posted online. By virtue of taking commission from each sale, eBay was thus profiting from sales of counterfeited goods.

EBay insisted that it was merely a trading platform and had no direct involvement with the sales. EBay stated that they dedicate several thousand staff members and spend millions of dollars a year on worldwide efforts to prevent the sale of counterfeit goods through their service. As a result, eBay claimed that of the 2.7 billion auction listings hosted globally in 2008, only 0.15 percent of the listings were identified as potentially counterfeit.

The French courts on May 13, 2009 cleared eBay from liability, stating that eBay had fulfilled its obligation in good faith and had done its due diligence to prevent counterfeit goods being sold through its site. The French High Court has given the two parties until May 25, 2009 to resolve their differences through mediation.

L'Oréal had filed similar lawsuits against eBay in 2007 in four other European countries - Belgium, Germany, Spain and the UK. Decisions favouring eBay were similarly made in the UK and Belgium. However, the German court ruled in L'Oréal's favour and at the time of writing, the ruling in Spain is still pending.

Although three of the five countries have so far ruled in favour of eBay, eBay's history with lawsuit decisions on this issue has been rather fragmented. On June 30, 2008, the Tribunal de Commerce in France held that eBay was liable to LVMH Möet Hennessy Louis Vuitton for facilitating the sale of counterfeit goods on its site. The Tribunal ordered eBay to pay US$61.3 million in compensation to LVMH for allowing the sale of counterfeit goods trademarked by Louis Vuitton and Christian Dior (LVMH). The Tribunal agreed with LVMH's argument that eBay's efforts to prevent the sale of counterfeit goods were insufficient and amounted to negligence. EBay is set to appeal the decision.

In a similar case in June 2008, the French courts found eBay liable to Hermès for trademark infringements via sales of counterfeit goods. The decision cost eBay €35,000 in damages and additional remedies.

In the month following these rulings, a U.S. court held that eBay was not liable to Tiffany & Co. for the sales of counterfeit jewellery on its website. The court ruled eBay had done enough to reasonably police its auctions for counterfeit products and the removal of such products upon notification. The court also stated that Tiffany had not spent enough time or effort in aligning with eBay to combat the problem.

The series of lawsuits against eBay showcases the fragmented state of the law concerning the sale of counterfeit goods and internet commerce. In light of these recent decisions and pending appeals, the future of eBay's liability for counterfeit goods around the world is still uncertain. With the increase of internet commerce, intellectual property owners have undergone increasing strife in their efforts to protect and enforce their rights and have increasingly sought legal remedy from internet commerce hosts. As the world's largest online auctioneer service, eBay is taking the brunt of these lawsuits, but the decisions will certainly set the precedent for the rest of the internet commerce providers.

As economies around the world continue to suffer, it is predicted that the global trade in counterfeit goods (e.g. medicines, cigarettes, branded apparel, and pirated media) will increase to nearly US$1 trillion worldwide, up from $800 billion in 2007. Security experts suggest that trade in counterfeit goods has already exceeded the global narcotics trade (US$400 billion a year) and may be funding terrorist groups around the world as they are considered high profit and low-risk. As eBay and other internet commerce services may be seen to increase security risks as an indirect consequence of counterfeit sales, they may see unfriendly developments in the courts and in public policy in the near future.