UK: eBay Not Liable For The Sale Of Counterfeits

Last Updated: 29 May 2009
Article by Susan Barty, Phillip Carnell and Isabel Davies

The High Court has ruled that eBay was not liable for the sale of counterfeit L'Oréal products on its UK website.

L'Oréal believed that eBay was not doing enough to prevent the sale of counterfeit goods displaying its trade marks. L'Oréal had instructed an agency to carry out test purchases which had found that, of 287 products purchased, only 84 were legitimate products intended for sale in the EEA.

However, eBay had refused to perform an active policing role by pre-checking every item, although it would respond to take down notices submitted through its VeRO (Verified Rights Owner) programme. L'Oréal refused to participate in the VeRO programme and instead commenced legal action against eBay.

L'Oréal commenced legal action in the High Court against three European subsidiaries of eBay Inc, the First to Third Defendants, and seven eBay sellers, the Fourth to Tenth Defendants. The eBay sellers were included in the proceedings as it was alleged by L'Oréal that they had sold infringing products through eBay. L'Oréal claimed that eBay should be jointly liable for the sale of those infringing products.

L'Oréal, which has brought similar proceedings in a number of other European countries, argued that eBay did not do enough to prevent the sale of counterfeit goods, in particular perfumes and cosmetics. However, the court decided that, although eBay sellers could liable for the sale of infringing products, eBay itself should not be liable for such sales. eBay was under "no legal duty or obligation to prevent infringement of third parties' registered trade marks" and the "fact that it would be possible for [eBay] to do more does not necessarily mean that they are legally obliged to do more".

In addition to its claims that eBay should be jointly liable for trade mark infringement, L'Oréal also claimed that: (a) eBay should be liable in respect of its use of sponsored links featuring L'Oréal's trade marks; and (b) an injunction should be awarded against eBay in respect of the infringing sales made by the eBay sellers (Fourth to Tenth Defendants). In respect of these claims, which required two EC Directives to be interpreted, the court did not make a decision and referred questions to the European Court of Justice.

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Full Article

The High Court has ruled that eBay was not liable for the sale of counterfeit L'Oréal products on its UK website.

L'Oréal believed that eBay was not doing enough to prevent the sale of counterfeit goods displaying its trade marks. L'Oréal had instructed an agency to carry out test purchases which had found that, of 287 products purchased, only 84 were legitimate products intended for sale in the EEA.

However, eBay had refused to perform an active policing role by pre-checking every item, although it would respond to take down notices submitted through its VeRO (Verified Rights Owner) programme. L'Oréal refused to participate in the VeRO programme and instead commenced legal action against eBay.

L'Oréal commenced legal action against three European subsidiaries of eBay Inc, the First to Third Defendants, and seven eBay sellers, the Fourth to Tenth Defendants. The eBay sellers were included in the proceedings as it was alleged by L'Oréal that they had sold infringing products through eBay. L'Oréal claimed that eBay should be jointly liable for the sale of those infringing products.

In addition to its claims that eBay should be jointly liable for trade mark infringement, L'Oréal also claimed that eBay should be liable in respect of its use of sponsored links featuring L'Oréal's trade marks which resolved to what L'Oréal alleged were infringing auction listings.

L'Oréal's three principal claims against eBay were as follows:

  1. that eBay was jointly liable for the infringements allegedly committed by the Fourth to Tenth Defendants (i.e. the eBay sellers);
  2. that eBay was liable on its own for the use of L'Oréal's trade marks: (a) in sponsored links on third party search engines; and (b) on www.ebay.co.uk, in both cases only in so far as such use is in relation infringing goods; and
  3. if the court found that the Fourth to Tenth Defendants were liable, that L'Oréal should be entitled to an injunction against eBay to restrain future infringements.

(1) Joint Liability

In respect of the first claim, L'Oréal did not claim that eBay should be liable on its own for the advertisement, offer for sale, exposure for sale or sale of the infringing goods, but argued that such acts (committed by eBay sellers) were subject to the control of eBay, which profited from the infringing sales, and that eBay should therefore be found jointly liable for the infringements.

Although the laws on trade marks are largely harmonised within Europe as a result of the Trade Marks Directive, the law relating to accessory (e.g. joint) liability is not dealt with in the Directive and is therefore a matter for national law. The judge, Mr Justice Arnold, decided that the relevant legal precedent dealing with accessory liability was the 1986 case, Amstrad Consumer Electronics -v- The British Phonographic Industry. In that case, Amstrad, the producer of a tape cassette recording machine, was held not to be jointly liable for copyright infringement even though it knew the machine would likely be used to infringe copyright. This was because there was no "common design" with the persons using the machine to infringe copyright.

L'Oréal claimed that eBay did act in a common design with its sellers to infringe trade mark rights: eBay took steps to promote listings, it profited from both the making of the listing and the eventual sale, and it exercised control over the platform which allowed the sales to take place. L'Oréal sought to distinguish eBay's actions from those of Amstrad, which sold a machine which was capable of infringing rights at a later date, because eBay was involved in the infringement at every stage of the transaction and profited from each infringement.

In response, eBay argued that it was under no duty or obligation to prevent third parties from infringing L'Oréal's (or anyone else's) trade marks. eBay claimed that its website was operated in a neutral and impartial manner, irrespective of whether it was being used by sellers to sell infringing or non-infringing goods, and, to the extent that eBay did intervene in sales, it did so to prevent or minimise infringements. This latter claim was a reference to eBay's VeRO (Verified Rights Owner) programme, which allows right holders to inform eBay of infringing items, which eBay then removes from the listings. eBay did concede that it might be guilty of facilitating infringements knowing that they were likely to occur. However, in the absence of knowledge of specific infringements, this was not enough to establish joint liability for those infringements.

The judge admitted that he found this a difficult issue to decide, in particular because it required the application of long-held principles to a new and different scenario. He said that he had some sympathy for L'Oréal's claim that, having created a new business model which massively increased the risk of infringement, eBay should be liable for the consequences of that increased risk. However, the judge found that eBay had a complete answer to L'Oréal's case: the evidence did not establish that eBay had procured the particular acts of infringement by the Fourth to Tenth Defendants, nor was there any participation in a common design.

The judge said "the right answer is that, as a matter of domestic common law, eBay Europe are under no legal duty or obligation to prevent infringement of third parties' registered trade marks." Going further, the judge said "...there is nothing in eBay's systems and policies which favours or encourages the listing or sale of counterfeit goods. On the contrary, [eBay takes] active steps to prevent or at least minimise such activities. The fact that eBay could take further steps does not affect this."

(2) Sponsored Links

In respect of the second claim the court considered it necessary to refer questions to the European Court of Justice (ECJ). This is not surprising given the facts, as the ECJ is currently considering a number of questions relating to trade marks and sponsored links (in particular Google Adwords), including whether use of a trade mark in a sponsored link by the service provider is use of a trade mark at all.

eBay contended that even if they were liable for the use of L'Oréal's trade marks in the sponsored links, then they had a defence under Article 14 of the E-Commerce Directive because they were merely hosting the advertisements on behalf of the advertiser (i.e. the eBay seller or eBay affiliate placing the advertisement). Article 14 provides that a service provider is not liable for information hosted by it at the request of a recipient of the service on the condition that the provider does not have knowledge of the illegal activity or information. Article 14 was designed primarily to provide a defence to ISPs that store date on behalf of their customers, so the judge also felt it necessary to refer a question to the ECJ on this issue.

The questions to be put to the ECJ, the wording of which is still to be agreed by the parties, can be summarised as follows:

  • Whether eBay infringed L'Oréal's trade marks by using them in sponsored links which related to infringing goods, in particular whether a sale within the jurisdiction was required before there could be an infringement.
  • If eBay has infringed L'Oréal's trade marks by using them in sponsored links, whether eBay has a defence under Article 14 of the E-Commerce Directive 2002.

(3) An injunction

The third claim concerned the grant of an injunction under Article 11 of the European Parliament and Council Directive 2004/48/EC on the enforcement of intellectual property rights (the "Enforcement Directive"). Article 11 allows an injunction to be granted where an infringement of an intellectual property right has been found and an injunction is needed to prohibit the continuation of the infringement.

In Germany, Article 11 has been used by the courts to grant an injunction against an intermediary (e.g. eBay) where third parties were using the intermediary to infringe rights. However, it was argued by eBay that the German courts had gone further than Article 11 allowed. In this case, the judge stated that the obligation Article 11 placed on Member States to provide for injunctions against intermediaries was unclear. The court therefore also sought guidance from the ECJ on this issue.

A global trend?

While the court felt it necessary to ask the ECJ some questions in relation to L'Oréal's claim, the court was able to make its key decision that eBay are not jointly liable for infringements committed by sellers using its platform. This is in line with judgments in France and Belgium where the courts have also recently found for eBay on the same issue (also against L'Oréal). The German courts, on the other hand, have found in favour of L'Oréal, while Spain is still to deliver its judgment.

In the United States, in a claim brought by Tiffany against eBay, the court made a similar judgment, holding that eBay was not liable and had acted reasonably to protect rights owners from counterfeiters. The US ruling similarly emphasised that the primary responsibility for protecting brands and trade marks on eBay was the brand owner's responsibility.

It seems clear that the courts, in so far the majority of jurisdictions, are not willing to impose a more burdensome role on eBay and similar websites. As a result, the present position is that websites such as eBay do not have to police their users or monitor every posting, nor will they be held jointly liable for trade mark or other intellectual property infringements. However, in this case, the judge was swayed by the fact that eBay operated a formal take-down system for brand owners (e.g. the VeRO programme) and websites that do not offer a similar system may be given a harder time by the courts.

In the meantime, brand owners wishing to crack down on the online sale of counterfeits should (in addition to working with customs and trading standards) continue to monitor sites such as eBay and to report any suspected infringements to ensure they are taken down as soon as possible.

A copy of the full judgment may be seen here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 29/05/2009.

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