01/08/11

by Nick Philips, Partner & Head of Department at Barlow Robbins

A recent Court ruling has been heralded as blow to online marketplaces such as eBay and good news for brand owners. The ruling puts online marketplaces on more of an equal footing with the owners of physical stores and makes it more difficult for companies such as eBay to escape from liability where its sites are used to sell counterfeit or illegal goods. The judgment also puts the onus on national courts to grant orders that make the prevention of counterfeit and illegal goods easier.

The case

The case concerned the ongoing litigation between L’Oreal and eBay. L’Oreal had sued eBay in the English High Court complaining that the online giant was not doing enough to prevent traders from selling counterfeit and illegal L’Oreal products on its site. The English Court referred a number of questions on the construction of European trade mark law to the Court of Justice which has now given its view on those questions. It is now for the English Court to apply those answers to the facts of its own case and then give its own judgment. Almost inevitably that judgment will then be appealed so this case still has some considerable way to go.

Decision

The Court of Justice’s answers to the questions raised by the English Court can be summarised as follows;

1. The operator of an online marketplace does not infringe the trade marks of third parties such as L’Oreal where its site is simply used to display products which are counterfeit or other wise illegal.

2. Infringement does however occur where the site plays an active role in relation to those counterfeit or illegal goods. Where for example it plays a part in optimising the presentation of those goods or in promoting them.

3. Infringement also occurs where the site should have realised that the goods were counterfeit or illegal and failed to act promptly to remove them.

4. It is for the Courts to ensure that they are able to grant injunctions which are effective not only in bringing infringements of this kind to an end but also in preventing future infringements.

Practical affect

What this means in practical terms is that the operator of the internet marketplace cannot sit back and allow its site to sell illegal goods. There is now a positive obligation on the operator of the internet marketplace to do something about goods which it ought to have knownn were illegal.

This does not mean that eBay has to monitor every single customer but it does have to act as “a diligent economic operator” in ensuring that illegal goods are removed. It is likely to be argued by eBay that its Verified Rights Owner programme (VeRO) which allows brand owners to register their rights with eBay and then complain about listings that infringe their rights may already meet or come close to meeting this obligation. It is certain arguable that this eBay initiative is catching activities which one might expect the diligent economic operator to prevent.

However what is more difficult for eBay is the ruling that where eBay plays a part in optimising the presentation of these illegal goods then it is exposed to liability for trade mark infringement. This is potentially far more difficult for companies such as eBay to deal with because it is the organisation, grouping and presentation of products that is close to the heart of the effectiveness and success of these kinds of sites.

Where eBay does become liable that will of course mean that eBay is potentially exposed to actions for infringement and may have to pay damages to the brand owner. However another facet of the Court of Justice’s judgment is that the Court will be obliged not only to grant an order preventing the infringement but also to grant orders obliging the operator of the online marketplace to disclose the identity of a particular brand or category of goods.

How eBay will react remains to be seen. eBay itself has said that in fact in the two years or so that the case has taken its business has moved on and it now meets many of the conditions set out by the Court of Justice for it to successfully avoid liability. It is not immediately obvious that this is true and it does seem that eBay and the operators of sites like eBay have a considerable amount of work to do if they are going to avoid a larger number of complaints and potentially expensive law suits

Winners and losers

The reality is however likely to be good for brand owners in that eBay will be forced to work more closely with the brand owners to prevent counterfeits and illegal goods coming to or staying on the market and that therefore is a big step forward for the brand owners.

This decision is therefore important in that it will give brand owners a real helping hand in their fight against online infringements and it is therefore a decision that will be welcomed by brand owners everywhere. The loser is definitely eBay and operations like them who will need to be more vigilant and more pro-active in relation to the sellers of counterfeit and illegal goods. It is however likely that someone will have to pay for the extra effort that eBay has to put into policing its site and rather regretfully that someone is most likely to be eBay’s users.