eBay and the Battle of the Brands: Exclusive Blog Article

Following the recent decision from a French court ordering eBay to pay 40m euros (£31.6m; $63m) to luxury goods group LVMH for allowing online auctions of fake copies of its goods, the combined issues of conterfeiting and brand reputation proves to be a salient topic.

The penalty follows a number of others recently imposed on eBay by French courts.  Georgie Collins, a leading IP and brand protection lawyer at business law firm LG, has written an exclusive blog article on the issues that arise from these decisions and looks into how eBay could be forced to have a major rethink on how it polices and sells luxury goods on its website.

Collins writes:

“On 30 June the French Commercial Court of Paris gave its judgment in two key cases which have been eagerly awaited.  Louis Vuitton was awarded damages of €19.28m and Christian Dior €17.3m in respect of eBay’s sale of counterfeit goods on a number of its websites.  eBay was also ordered to pay €3.3m to four perfume brands, namely Christian Dior, Givenchy, Guerlain, and Kenzo for the illicit sale of perfumes which infringed the provisions of exclusive distribution contracts.  eBay has said it will appeal the decision.

The decision is significant because it is the largest fine imposed on eBay to date in respect of the sale of counterfeit and unauthorised product appearing on a number of its websites in different jurisdictions.  The ruling has serious implications, not just for eBay and whether it will be forced to rethink its policing policy in relation to the goods made available on its site, but also for buyers and sellers on eBay who may be hit with higher costs if the company decides it has to spend more money beefing up its policing and monitoring policy.

eBay has said it will appeal the decision and Vanessa Canzini, an eBay spokeswoman said : “The big issue here doesn’t seem to be to do with counterfeiting – if it was, they would have gone after the counterfeiters. It’s about saying we are a luxury brand, we don’t want others selling our goods, even if they are real. That’s why we will appeal this decision”.

On 4 June, a French Court ordered eBay to pay €20,000 in damages to Hermes owing to the sale of two counterfeit handbags on eBay’s website. The decision is seen as an important precedent having regard to a number of other decisions pending against eBay.

eBay has responded to the decision by saying that it takes counterfeiting seriously and since the Hermes case was first started in the French Court, it has toughened its procedures for dealing with sales of counterfeit goods.

This decision follows the success of LVMH last year when it was awarded $400,000 in damages, also by a French Court, against Google, in respect of adverts that appeared on Google promoting websites that sold counterfeit LVMH goods. Whilst the legal issues involved in these two cases are different (the application of trade mark law to counterfeit products opposed to the use of ad words on internet search engines), they both concern trade mark infringement and are indicative of the pro-brand owner approach the French courts take to issues of infringement.

Pressure is mounting on eBay to change its policy and take a more active role in policing its website for counterfeit items. eBay counters such arguments by saying that it cannot be an expert in all categories of goods, since it never takes possession of the goods and it does not have the knowledge to assess if an item is in fact counterfeit. eBay says that it already works with brand owners through its Verified Rights Owner Program and this goes above and beyond what the law requires.
A number of brand owners disagree:

They insist that eBay is fully aware of the problem with counterfeit items being listed on its website and has not done enough to deal with this.

There are current three significant pending legal decisions that may well force a change in e eBay’s policy. Two of these cases are pending in France. Both Louis Vuitton and Christian Dior has sued eBay in relation to the sale of counterfeit goods on eBay. The sums involved are significant, LVMH is claiming €20 million and Dior €17 million.

Tiffany has also sued eBay in the US and following a Court hearing in November 2007, a decision is eagerly awaited. The Judge in the Tiffany case has already commented that he considers that there is a body of evidence to show that eBay is liable for contributory infringement. eBay has argued that auction sites should not be held liable for the sale of counterfeit products. It says it is merely an intermediary in an online. eBay says it has terms and conditions that stating that sellers cannot sell infringing products on its website and must not list products if they cannot verify their authenticity.

Furthermore, eBay argues that it maintains procedures for monitoring products sold through its sites, including allowing brand owners to inform eBay of infringing products and request their removal through its VeRO programme. eBay maintains that to do what Tiffany (and other brand owners) are asking the court to do would have a detrimental effect, not just on its business but on internet business as a whole.

Countering this, Tiffany argues that an online auction site is comparable to a virtual flea market where goods are sold and traded just like at a physical flea market. Specific to this case is the fact that Tiffany says eBay ignored the counterfeiting occurring on its site, notwithstanding the notifications Tiffany sent to eBay and that counterfeiting activity occurred on its site on multiple occasions. In effect, eBay is choosing to turn a blind eye towards online counterfeiting on its site.

So far as the law is concerned, Tiffany alleges that eBay’s behaviour constitutes gross negligence, making eBay contributorily liable for counterfeiting and trade mark infringement.

Tiffany has also argued that eBay is liable for direct trade mark infringement. Another feature of this litigation is that eBay purchased advertising links on internet search engines such as Google and Yahoo, so that when an internet user types in “tiffany”, eBay’s links appear as a search result. Tiffany argues that these links from the search results lead internet users to the counterfeit goods sold on eBay.

To compound matters for eBay, there are a further four pending cases against it all bought by L’Oreal, again in relation to the sale of counterfeit products on eBay, in the UK, Spain, Belgium and France.
The sums involved in these cases mentioned above are significant. If eBay loses one or all of these decisions it could force a major rethink on how eBay policies and sells luxury goods on its website, otherwise eBay risks facing a deluge of lawsuits. All of these cases go to the very heart of the issue of how IP rights fit in the web 2.0 age and whether brand owners can successfully stop information and content providers for the consequent infringement of their IP rights.

Against the backdrop of these cases, the European Commission is also undertaking a review of the E-Commerce Directive, one of the areas for review is the liability of intermediaries on the internet. The Commission’s report was expected mid 2008 so is expected shortly. Whilst the report will only cover Europe, it is eagerly awaited and hoped it will bring the law more up to date with the realities of internet business.”