United Kingdom: L'Oréal v/ eBay: advocate general opines on High Court referral

L'Oréal v eBay: advocate general opines on High Court referral

Contributed by Reynolds Porter Chamberlain LLP

Summary

In the opinion of the advocate general of the European Court of Justice (ECJ), online marketplace operator eBay can be liable for its users' actions. The advocate general recommended that eBay should not be held primarily liable for trademark infringements committed by eBay users; rather, eBay could become liable in cases where:

• it knew that its users were selling infringing goods; and
• the same infringing activity was likely to continue in future by the same users in respect of the same or similar goods.

In these circumstances eBay will be deemed to have information or actual knowledge of the user's infringing activities.

Under its verified rights owner (VeRO) programme,(1) eBay has always been able to take down a particular listing when a rights owner complains. However, there is nothing to prevent an eBay user from relisting an infringing item at a later date or from committing other infringements. If the ECJ follows the opinion, eBay will have to implement procedures to avoid liability for known infringers who are likely to infringe in future.

Facts

Luxury cosmetics company L'Oréal brought proceedings in the High Court against eBay and seven individuals who L'Oreal claimed had sold products allegedly infringing its trademarks through eBay Europe. The allegedly infringing products included:

• counterfeit products;
• products which L'Oreal had not intended to be sold in the European Economic Area (EEA);
• cosmetics testers and dramming bottles; and
• products which were sold without their original packaging.

L'Oréal claimed that eBay was liable for the infringing and parallel imported goods sold through its website. In the case of each of the seven individuals, eBay had repeatedly removed listings, imposed listing restrictions, suspended accounts and required the completion of VeRO tutorials - some of the alleged infringers had been required to complete such a tutorial up to six times. L'Oréal argued that eBay Europe could do more to prevent - or at least minimise - sales of counterfeit and other infringing products.

In a High Court judgment in May 2009, eBay was held not to be jointly liable for trademark infringements committed by individuals who sold infringing goods on eBay (for further details please see "Taking action against eBay fakes"). However, the court felt unable to decide all of the issues before it and - taking an increasingly common approach to IP matters - asked the ECJ for guidance on:

• whether eBay had infringed L'Oreal's trademarks by using them in sponsored links and on eBay's website in relation to the counterfeit products, cosmetic tester and dramming bottles, unpackaged products or non-EEA source products;
• whether eBay had a defence on the basis that it simply stored information listed by eBay users; and
• the scope of the right to obtain injunctions against intermediaries like eBay, whose services were used by eBay users to infringe IP rights.

Questions were referred regarding the interpretation of the EU Trademarks Directive (89/104/EEC) and the corresponding EU Community Trademark Regulation (40/941), the EU E-commerce Directive (2000/31/EC) and the EU Enforcement of IP Rights Directive (2004/48/EC).

Advocate general's opinion

On December 9 2010 the advocate general published his opinion, which can be summarised as follows:

• In line with a previous ECJ decision,(2) the advocate general unsurprisingly held that testers and dramming bottles which are not intended for sale and are supplied free of charge to authorised distributors are not put on the market in the European Union with the trademark owner's consent. As such sales of these products on eBay constitute trademark infringement and L'Oreal is entitled to prevent such sales.(3)
• Although the ECJ had not specifically addressed the issue of parallel imports of unboxed cosmetics, Boehringer Ingelheim(4) set out conditions for selling repackaged and relabelled pharmaceutical products. Applying these principles to unboxed cosmetics,(5) a trademark owner is entitled to oppose sales of unboxed cosmetics where the removal of packaging without the trademark owner's consent:
• removes information required by the EU Cosmetics Directive (76/768/EEC) or other EU measure;
• could be considered to change or impair the condition of the goods - it was noted that packaging can be considered part of the condition of luxury cosmetics; or
• damages or is likely to damage the image of the goods and therefore the trademark's reputation. This will be presumed where the sales of unboxed cosmetics on eBay are in the course of trade. This is likely to be the case where more than one or two unboxed items are sold on eBay.
• A trademark owner is entitled to prevent goods from being advertised or offered for sale on eBay where EEA consumers are being targeted and where such goods have not been put on the market by the trademark owner (or with its consent) in the EEA. The question of what amounts to 'targeting' consumers is being assessed in cases pending before the ECJ.(6)
• Distinguishing the present case from Google France and Google,(7) the advocate general noted that eBay is not a paid internet referencing service; rather, it is an electronic marketplace operator. Applying the analysis used in Google France and Google, the advocate general opined that eBay's use of trademarks as keywords in sponsored links to its website (Scenario 1) was trademark use;(8) however, it was not infringing use if the reasonable average consumer would understand that the goods displayed on the sponsored link were not being advertised or offered for sale by eBay. In these circumstances, eBay would not be liable for infringement, even if some of those goods displayed through sponsored links were counterfeits.
• Where a trademark is displayed on the electronic marketplace website, rather than through a search engine's sponsored link (Scenario 2), there is no trademark use by the electronic marketplace operator. Rather, the marketplace user is using the trademark.
• Under Article 14 of the E-commerce Directive (ie, the hosting exception), eBay is not liable for infringing listings under Scenario 2, provided that such listings were uploaded by eBay users without eBay's inspection or control. In these circumstances, eBay is simply storing information provided by a third party. Conversely, eBay cannot rely on the hosting exception under Scenario 1, where it uses trademarks as keywords in sponsored links to its website - in this case, eBay is not simply storing information, as this is being done by the paid internet referencing service provider.
• Where eBay's activities include activities covered by the hosting exception and activities not covered thereby (ie, its use of trademarks as keywords in sponsored links on search engines), eBay remains liable for uses not covered by the exception.
• eBay is deemed to have information or actual knowledge of an illegal activity - and is unable to rely on the hosting exception - if it knows that an eBay user has sold infringing goods and is likely to continue to infringe the same trademark regarding the same or similar goods in subsequent listings. Knowledge may therefore be deemed 'actual' if it relates to a likely future event. However, measuring actual knowledge by a future event (which may not subsequently occur) and by a likelihood of occurrence makes it difficult to establish when 'actual knowledge' exists.
• Injunctions can be awarded against intermediaries such as eBay whose services are used by a third party to infringe IP rights.(9)

Comment

The advocate general's recommendations are accepted in most cases and none of the recommendations in the opinion is unexpected - the recommendations on the sale of testers, dramming bottles, unboxed cosmetics and exhaustion of rights are consistent with existing case law. The recommendations on whether eBay's use of trademarks in sponsored links, advertisements on its website and listings amounts to infringement recalled the recent Google France and Google judgment, but made clear that, in this case, eBay is not a paid internet referencing service provider like Google, but an electronic marketplace operator.

The practical effect of these recommendations is likely to be eBay's biggest concern. VeRO focuses on infringing listings, not infringing users. In order to avoid having actual knowledge of infringements, eBay will need procedures that prevent known infringers who are likely to continue infringing activities from subsequently infringing.

It is unclear when eBay will be deemed to have actual knowledge of infringements by users that it knows have previously infringed. This, in turn, makes it unclear when eBay will be liable for its users' infringements. eBay has more than 300 million registered users and hosts millions of transactions every day; as such, it is difficult to see how eBay can develop a procedure that is sophisticated enough to differentiate between a one-off unintentional infringer and persistent infringers who will continue to infringe.

For further information on this topic please contact Jeremy Drew or Tamar Shafran at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (jeremy.drew@rpc.co.uk or tamar.shafran@rpc.co.uk).

Endnotes

(1) VeRO is a notice and takedown system under which rights owners can report listings that infringe their rights; eBay can then impose various measures.

(2) Case C-127/09, Coty Prestige Lancaster Group [2010] ECR I-0000.

(3) Within the meaning of Article 7(1) of the EU Trademarks Directive and Article 13(1) of the EU Trademarks Regulation.

(4) C-348/04, [2007] ECR I-3391.

(5) Within the meaning of Article 7(2) of the EU Trademarks Directive and Article 13(2) of the EU Trademarks Regulation.

(6) C-585/08 Pammer and C-144/09 Hotel Alpenhof.

(7) Joined Cases C-236/08 to C-238/08, [2010] ECR I-0000.

(8) Within the meaning of Article 5(1)(a) of the EU Trademarks Directive and Article 9(1)(a) of EU Trademarks Regulation.

(9) Under Article 11 of the EU Enforcement of IP Rights Directive.