Following last month’s Marketinglaw.co.uk article on the fine handed down to Ebay for allowing fake Hermes bags, Ray Coyle examines two new, and conflicting, decisions from France and the US on similar issues.
Who: Tiffany and Louis Vuitton Moët Hennessy (LMVH) v EBay
When: July 2008
Where: New York and Paris
Law stated as at: 31 July 2008
There were three aspects to the LMVH case against EBay in France. The first two were in respect of fake copies of Louis Vuitton and Christian Dior bags. LMVH argued that EBay did not do enough to prevent the sale of fake goods and submitted in evidence that 90% of 450,000 bags sold on the auction site were found to be counterfeit. The third, more interestingly, involved what LVMH called "illicit sales" of four of their perfume brands. LVMH only authorises certain retailers to stock its perfumes, as is permitted under the EU Guidelines on Vertical Restraints, and sought to prevent EBay from selling even authentic perfumes online as those sales "breached" exclusive agreements between LVMH and their authorised retailers.
The French Court found in favour of LVMH and ordered EBay to pay damages of €31.5 million in respect of the fake bags and €3.3 million in respect of the perfume sale.
Tiffany brought US proceedings against in 2004 and the case finally made its way to the Federal Court this year. Tiffany argued that EBay should take responsibility for ensuring that items sold on the site are not counterfeit. Tiffany was not just concerned about the damage to its reputation caused by the counterfeit goods but also the expense incurred in employing a large number of staff to check listings of purportedly Tiffany products on EBay and inform EBay which ones appeared fake. At the heart of this case was the burden of responsibility for checking whether items were genuine. The court's position was clear:
"Given Tiffany's choice to sue Ebay, rather than individual sellers, and this Court's conclusion that Ebay does not continue to supply its services to those whom it knows or has reason to know are infringing Tiffany's trademarks, Tiffany's claims against Ebay must fail."
Why this matters:
EBay and other operators of web sites that allow users to post goods for sale certainly do not want to be responsible for ensuring that trade mark proprietors' rights are not infringed. To do so would involve very considerable expense and threaten the viability of their sites. In the EU, the E-Commerce Directive provides that site operators will not be under a "general obligation… to monitor the information which they transmit or store" if that information is provided by users of the service. EBay has a long-standing procedure called the Verified Rights Owner programme (VeRO) under which brand owners can report sales of fake goods which EBay will, on receiving notification, remove from the site. EBay does not monitor or remove goods from sale unless and until the notification is received. However, this not only places a significant burden on brand owners but also opens up opportunities for counterfeiters such as running short auctions that start on Friday night and end on Sunday when, typically, monitoring staff are not working.
The brand owners' preferred solution, that responsibility is placed on EBay seems equally problematic in that they have neither the resources (unless listing costs are raised to prohibitive levels) nor the expertise to determine which goods are genuine. The French and US courts have clearly taken opposing views on this issue but, given the global, internet based nature of EBay's business model, such a difference in legal position is as inevitable as it is unsatisfactory.
Had LVMH brought their claim in the English courts, it is difficult to imagine that it would have won. The provisions of the E-Commerce Directive are relatively unambiguous and EBay would clearly seem to fall within the definition of an "information society service provider" that is hosting information at the request of recipients of the service that takes steps to remove listings that it is told are infringing. The French decision, if allowed to stand, would provide the basis for a very different interpretation of EU law in France than we would expect in England.
The more puzzling aspect of the French decision is the prohibition on EBay from "broadcasting adverts of perfume or cosmetic goods" of four of LVMH's perfume brands. The well established doctrine of the exhaustion of trade mark rights (as set out in the Article 7 of the Trade Marks Directive on which French trade mark law is based) provides that a trade mark owner cannot use his trade mark rights to prevent the resale of goods that have been first put on the market in the EEA with his consent. The French judgment would appear to allow LVMH to do exactly this by stopping people from reselling genuine branded goods on EBay using competition law provisions.
The justification offered by the French Court was that such sales were inconsistent with LVMH's exclusive reseller agreements. As the court correctly pointed out, such agreements are permitted exceptions to Article 81 of the Treaty of the European Community. However, merely because such agreements are permitted does not mean that all those who are not party to them should abide by their terms. In this case, neither EBay nor the individual seller was party to any agreement with LVMH so have no obligation to respect its terms. It seems highly unlikely such a decision should be allowed to stand, particularly in the light of the European Union's commitment to free trade.
EBay has announced that it will appeal the French judgment and, for the sake of legal certainty if nothing else, we should hope that the appellate court will take a similar view to that of the New York Federal Court.