UK: Behind The Headlines: Brand Owners v Online Marketplaces

Last Updated: 11 August 2011
Article by Jeremy Harris

The Court of Justice of the European Union has recently issued its long awaited judgment in the case of L'Oreal v eBay. The judgment provides clarification on when companies who operate online marketplaces will be liable for trade mark infringements committed by users of their websites.

Background

In 2009, L'Oréal issued proceedings against eBay in a number of EU countries, including the UK, for trade mark infringement on the basis that eBay's operation of its online marketplace infringed various trade marks registered by L'Oréal for perfume and cosmetics products.

L'Oréal's claim centred around three allegations: (i) eBay should be liable for trade mark infringements committed by users of its website, (ii) eBay should also be liable for infringement as a result of its purchase of keywords corresponding to the names of L'Oréal trade marks and use of those keywords to direct users towards infringing goods, and (iii) even if eBay itself is not liable for trade mark infringement, L'Oréal should be entitled to an injunction against eBay to prevent its services being used to commit infringements.

In May 2009, the UK High Court gave judgment referring various questions to the EU Court of Justice (the "Court"), including in relation to whether:

  • online marketplace operators should be liable for trade mark infringement as a result of users' advertisement/sale of infringing goods;
  • injunctions can be ordered against online marketplace operators to prevent existing infringements and stop similar infringements occurring in the future;
  • private sales of trade-marked goods constitute an infringement;
  • brand owners can prevent the sale of products (through online marketplaces) which are put on the market in non-EU states;
  • operators of online marketplaces 'use' trade marks within the meaning of the EU trade mark law;
  • whether demonstrator products/tester bottles are put on the market;
  • trade mark owners can prevent the sale of goods under their trade marks, where the packaging of the goods has been removed; and
  • online marketplace operators should be liable for the purchase of keywords corresponding to registered trade marks and their use to advertise infringing products.

The Court's judgement was handed down on 12 July 2011.

Decision

In our view, the most significant parts of the Court's judgment relate to the issues of whether online marketplace operators should be liable for trade mark infringement as a result of users' advertisement/sale of infringing goods and whether injunctions can be ordered against online marketplace operators to prevent existing infringements and stop infringements occurring in the future.

Should online marketplace operators be liable for trade mark infringement as a result of users' sale/advertisement of infringing products? The Court found that the answer to this question depended on whether the online marketplace operator could rely on the exemption from liability in the E-Commerce Directive (i.e. the "Hosting Defence")1 . In order to fall within the exemption, the marketplace operator must be an 'intermediary provider' e.g. by merely providing the service neutrally through the technical and automatic processing of data provided by customers. However, the marketplace operator would not be entitled to rely on the Hosting Defence where it plays an active role in the process thereby giving it knowledge of, or control over, the data relating to the offers for sale.

The Court went on to support the UK Government's assertion that the acts of storing offers for sale, setting the terms of service, receiving remuneration for use of that service and providing general information to its customers, would not be sufficient to establish an 'active role' and deny the availability of the Hosting Defence.

However, where the operator provides assistance in the marketing/sale of infringing products, e.g. by optimising the presentation of offers for sale or promoting those offers, it will not have taken a neutral position between the seller and buyer. In such circumstances, the operator will be deemed to have played an active role so as to give it knowledge of, or control over, the data relating to those offers for sale. It would not therefore be entitled to rely on the Hosting Defence and could be held liable for trade mark infringement.

Even where the operator has not played an active role, it will only be entitled to rely on the Hosting Defence if it did not have 'actual knowledge of illegal activity or information'. Further, in relation to a damages claim, the Hosting Defence will only apply where the operator was not aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the online offers for sale were unlawful and, in the event of being aware, failed to act promptly to remove the data concerned or disable access to it.

Can injunctions be granted against online marketplace operators? On this issue the Court referred to Article 11 of the Directive on Enforcement of IP Rights (Directive 2004/48) which provides that Member States must allow national courts to order an online service provider (e.g. an online marketplace provider) to take measures that contribute not only to bringing to an end infringements committed through that marketplace, but also to preventing similar infringements occurring in the future. The Court recognised that the UK had not adopted specific rules to implement Article 11 and that the High Court would need to do so when applying national law to this case.

The Court held that if the operator of an online marketplace does not decide, of its own initiative, to suspend a user's account in order to prevent further infringements of that kind by the same seller in respect of the same trade marks, it may be ordered to do so by means of an injunction.

Therefore, national courts can grant injunctions against marketplace operators forcing them take measures making it easier to identify infringers on their sites and to prevent such infringements occurring again. However, the Court said that such an injunction:

  • must not create a general and permanent prohibition on the selling, on that marketplace, of goods bearing the trade marks in question;
  • cannot consist of the requirement to actively monitor all the data of each of its customers in order to prevent any future infringement of intellectual property rights via the website.
  • must be effective, proportionate, and dissuasive; and
  • must not create barriers to legitimate trade.

Other issues - In addition to the above issues, the Court also ruled on various other matters. In particular, the Court found that:

  • Private sales through the online marketplace would not infringe a brand owner's rights. However, sales that go beyond the realms of a private activity, owing to their volume and frequency, would infringe.
  • EU trade mark law applies to offers for sale and advertisements relating to trade-marked goods which emanate from outside the EU, providing that the offers for sale and advertisements are targeted at consumers within the EU.
  • The operator of an online marketplace does not itself 'use' trade marks within the meaning of the EU trade mark law if its service merely enables customers to display on its website, in the course of their commercial activities, signs corresponding to trade marks.
  • Demonstrator products/tester bottles are not 'put on the market' for the purposes of the Trade Mark Directive.
  • A trade mark owner can oppose the sale of goods whose packaging has been removed if the identity of the manufacturer or person responsible for marketing is missing, or where removal of the packaging damages the product and hence reputation of mark.
  • Online marketplace operators' liability for the purchase/use of keywords follows the Court's decision in Google France i.e. the operator would be liable where it does not enable the reasonably well-informed/observant user (or enables them with difficulty) to ascertain whether goods emanate from proprietor of the mark or a third party.

Commentary

Brand owners are likely to welcome this decision as it will put them in a stronger position to take action against online marketplace operators. The Court has made it clear that online marketplaces cannot avail themselves of the Hosting Defence (and could be liable for trade mark infringement) where they go beyond the provision of a neutral service and play a more active role in facilitating the advertising/sale of infringing goods. In addition, brand owners will (in some circumstances) be entitled to obtain injunctions against online marketplace operators, forcing them to take action to prevent further infringements.

However, while brand owners will be pleased with the ruling, on a closer assessment, it is perhaps not the victory that some might believe. Firstly, it must be noted that online marketplace operators will have to go quite far in order to fall outside the Hosting Defence, as the Court stated that the traditional functions carried out by such providers (e.g. storing offers for sale, setting the terms of service, receiving remuneration for use of that service and providing general information to its customers) will not constitute an 'active role'. Where the provider does not play an active role, the presence (and timely operation) of a robust notice and takedown procedure is likely to avoid liability.

Secondly, the injunctions available to brand owners must not create a general and permanent prohibition on the selling of goods bearing the trade marks in question and cannot require the active monitoring of the data of each customer in order to prevent future infringement of intellectual property rights. Therefore, the fact that a brand is being infringed on a particular online marketplace does not, on this ruling, entitle the brand owner to force the operator to monitor all advertisements/sales of goods under that brand on the site. Accordingly, the Court's decision does not pave the way for the blanket removal of potentially infringing goods being sold/advertised through a particular online marketplace and brand owners will still have to identify particular infringements/sellers in order to force operators to act. For that reason it remains to be seen what impact the availability of such injunctions will have on brand owners' ability to police online infringements.

In conclusion, it is clear that online marketplace operators will have to be more careful in the way they provide services in the future and must avoid taking an active role, in particular ensuring that they do not provide services such as optimising the presentation of offers for sale or promoting those offers. If marketplace operators fail to do so then they risk losing the right to rely on the Hosting Defence and will potentially open themselves up to liability for trade mark infringements committed by users of their websites.

The case will now return to the UK High Court, which will apply the Court's ruling to the facts of the case.

Footnote

1. Article 14 of the E-Commerce Directive (2000/31/EC) – excludes liability of providers of "information society services" where such services consist of the "storage of information" provided by a recipient of the services. The defence will only apply where the provider: (i) does not control or have knowledge of the illegal activity or information; and (ii) acts expeditiously to remove the offending information when alerted to it.

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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