Canada: ebay’s Legal Battles Continue: A French Victory And A Prudent English Test Case

While a French court found that eBay was not liable to L'Oréal for the sale of counterfeit cosmetics on its auction website, an English court determined it required guidance from the European Court of Justice (ECJ) on the interpretation of applicable directives before deciding key issues in a proceeding between the two parties. The English judge found that eBay was not jointly liable for trade-mark infringements committed by seven registered users of its site, but did not decide at this time whether eBay was primarily liable for infringement or had a service provider defence.

A French Victory for eBay

After suffering two legal setbacks against Hermès and Louis Vuitton Moet Hennessy (LVMH) respectively in June 2008, eBay finally obtained a favourable decision from a French court.

Less than a year ago, a French court ordered eBay to pay, jointly with the seller of the counterfeit products, €20,000 in damages for infringing property rights of the French high fashion house Hermès. Shortly thereafter, the Tribunal de Commerce de Paris rendered a similar decision, ordering the online auction giant to pay LVMH's and its affiliates' damages, totalling €36.8 million.

In contrast to the French court's conclusion in the LVMH case, the Tribunal de Grande Instance de Paris characterized eBay as a hosting service provider and not as an online broker. Consequently, eBay could benefit from the limitation of liability concerning hosted information included in the 2004 Loi pour la Confiance dans l'Économie Numérique (which implemented European Directive 2000/31/EC).

Indeed, the court found that eBay only plays an intermediary role in bridging buyers and sellers online and does not have any control or authority over the selling process. Therefore, it could not be responsible for the illegal nature of the goods sold by third parties through its website. The liability of the host could only be engaged if it is proved that it knew, de facto or in appearance, about the illegal nature of the goods and did not act promptly to restrict the access to or remove completely such listing from its website.

However, the court found that the means taken by eBay to promote its website and the goods sold through its website, such as sponsored links and ad banners on eBay's website, are not hosting activities and are, therefore, subject to the common liability regime.

As the court found that L'Oréal failed to specifically identify the specific listings and sellers that were selling counterfeit goods, L'Oréal's action was dismissed. However, since it has been shown that eBay's website regularly contains listings of goods infringing rights of the plaintiff, the court suggested that the parties hold a mediation to discuss a better means to prevent or diminish the sales of counterfeit goods over the eBay platform.

L'Oréal has since announced that it will appeal the ruling.

English Court Shows Prudence

On the other side of the Channel, L'Oréal and its subsidiaries brought a similar action before the High Court of Justice. In that case, they sued eBay and its subsidiaries, along with seven individuals who allegedly sold infringing products through eBay's website.

L'Oréal had made three principal claims against eBay, namely:

  1. eBay was jointly liable for the infringements committed by the individual sellers.
  2. eBay was liable for trade-mark infringement for its use of L'Oréal's trade-marks, in sponsored links on
    third-party search engines and on eBay's website, in relation to infringing goods.
  3. If the court found that the individual defendants had committed infringements, L'Oréal was entitled to an injunction against eBay to restrain future infringements by virtue of Article 11 of European Parliament and Council Directive 2004-48-EC (Enforcement Directive), even if eBay was not itself liable for trade-mark infringement.

1. Joint liability

Since the court concluded that there had been infringements in that case, L'Oréal contended that eBay had participated in a common design to infringe its trade-marks because eBay had combined with the sellers to secure the doing of acts that proved to be infringements. L'Oréal further argued that this common design was also based on the fact that eBay actually profits from these infringements and failed to take all reasonable measures to prevent the infringements. In addition, L'Oréal suggested that eBay already provides insurance for buyers through PayPal and therefore could, in the same way, insure its own liability.

While expressing sympathy for the notion that eBay could and should deal with the problem of infringement by accepting liability and insuring against it by means of a premium levied on sellers, the court rejected L'Oréal's arguments by acknowledging that (i) eBay is under no legal duty to prevent infringement, and (ii) facilitation with knowledge and an intention to profit is not enough to declare eBay a joint tortfeasor.

2. Trade-mark infringement

A) Use in sponsored links

In the judge's opinion, the display of L'Oréal's trade-marks in the sponsored links constituted "use" of those marks by eBay but he could not say that it is "acte clair." As the issue raised a number of questions of interpretation of the Trade-Marks Directive (EEC Directive 89/104), he required further guidance from the ECJ on this point.

B) Use on the website

As in the French decision, eBay claimed that it had a defence under Article 14 of the European Directive 2000/31/EC, which limits liability of hosting service providers. L'Oréal contended that eBay's activities go far beyond the mere passive storage of information provided by third parties, adding that eBay was well aware of the illegal activities occurring on its website. Even though the court seemed favourable to L'Oréal's argument, the judge declared that guidance from the ECJ was required on this issue as well.

3. Injunction

Finally, L'Oréal relied on Article 11 of the Enforcement Directive as entitling it to an injunction against eBay even if eBay were not liable for trade-mark infringement. L'Oréal argued that, having established a number of infringements by the individual defendants, Article 11 of the Enforcement Directive required the court to grant an injunction against eBay to prevent the same or similar infringement in the future.

The judge first noted that the United Kingdom has not taken any specific steps to implement Article 11 into United Kingdom law. Moreover, the judge noted that it would be difficult to issue an injunction against a person who does not have the allegedly infringing goods within its possession, custody or control. The judge concluded that the scope of Article 11 was unclear and was another matter upon which guidance from the ECJ was required.

McCarthy Tétrault Notes:

Although eBay's French victory brightened its legal horizon, the battle for establishing the legal independency of online auction service providers versus the property rights infringed by its users is far from won. As the English court pointed out, there are many other cases around Europe both between the same parties and between other parties raising the same or similar issues. Considering the lack of uniformity in past European court decisions, it will be very interesting to see if any trend emerges in the subsequent cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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