The luxury goods industry is one of the most exposed and has taken legal action on a global scale against auction sites, such as eBay. It would like to see auction sites implementing improved measures that would prevent the infringement of intellectual property (IP) rights.

In the European Union, auction sites use the E-Commerce Directive as their answer to such complaints. It provides that an internet service provider which is acting as a ‘mere conduit’ (which most auction sites claim to be) is not liable for the infringing activities of its users. To draw an analogy with a traditional market, the auction site is the owner of the premises, but the users are the stall holders selling counterfeit goods. Most auction sites claim they are obliged to take action only when they are alerted to specific instances of infringing activity, but they are not under a duty to check and monitor every transaction.

In general, the courts have disagreed. In three separate actions brought in France by Louis Vuitton Moët Hennessy (LVMH), the Paris Commercial Court awarded damages of €40m against eBay. LVMH submitted evidence indicating that 90% of the 150,000 Louis Vuitton handbags and 300,000 Dior products (another LVMH brand) sold on eBay in the second quarter of 2006 were fake.

The French court held that eBay receives commission for its role as intermediary between sellers and buyers and ‘offers a service which, by its very nature, does not imply a lack of knowledge and control of information transmitted on its sites’. As such it ruled that eBay did not provide a service that was merely of a ‘technical, automatic and passive nature’ to allow it to benefit from the exemption of service providers under the Directive.

It also found that eBay had failed in its duty to supervise the products on its site, saying it had ‘deliberately refused to set up effective and appropriate measures in order to combat infringement’, such as requiring certificates of authenticity, terminating the accounts of those selling counterfeits and withdrawing illicit advertisements.

More recently, in 2008, Hermès International obtained judgement against eBay in the French courts for its failure to take any preventive measures against the sale of Hermès handbags. eBay was ordered to pay €20,000 damages and publish the decision in four magazines and on its home page, ebay.fr. The court found that the information and tools provided by eBay were insufficient.

In a similar action brought by Rolex in Germany in 2008, the German Supreme Court held that eBay was liable for trademark infringement as a ‘contributor’, having failed to take reasonable measures to filter and remove infringing listings.

However, not all national courts have agreed with this reasoning. In Lancôme’s action for the sale of fake cosmetics in Belgium, the courts accepted that eBay was under a duty to act promptly once notified by the brand owner of unlawful activities on its site, but held that, in this case at least, it had acted prudently and taken reasonable measures to protect its site from counterfeiters and to cooperate with brand owners.

Likewise, in 2004, the US District Court for the Southern District of New York found in favour of eBay against Tiffany & Co. The court held that brand owners bear the burden of protecting their trademarks and that eBay could not be held responsible for infringement based solely on its general knowledge that such infringement might be occurring on its site.

To prove eBay’s complicity in the infringement, Tiffany would have to show that eBay had the requisite knowledge of specific infringements and failed to suspend those offending listings. In this case, the court was satisfied that when eBay was made aware of a specific infringement it took appropriate steps to remove the offending listing.

Where to next?

There is too much at stake for brand owners to not pursue such actions and further litigation is inevitable on both sides of the Atlantic as fresh cases appear and appeals get underway. The legal position is finely balanced and there will be many more conflicting decisions before a unified approach becomes prevalent. It would appear from past decisions that the cases turn on the detail of the particular facts. In response to the litigation, eBay has modified its review procedures. The question remains whether to the satisfaction of all jurisdictions, these refinements to eBay’s protocols and procedures will be sufficient

Robert Cumming is a solicitor and trademark attorney in the Leeds office of UK law firm Walker Morris

This article first appeared in IP Review, issue 27