In a significant decision, the Court of Justice of the European Union (CJEU) has struck a balance between brand owners and operators of online marketplaces, in relation to the sale of trade mark infringing goods. Although it decided that online marketplaces are not under a general obligation to police items sold via their sites, the CJEU has ruled eBay didn’t do enough to deal with infringements they should have known about. Rosanna Foster and Emily Devlin report on the ruling.
Who: L'Oréal SA and others v eBay International AG and others
When: 12 July 2011
Where: Court of Justice for the European Union, Luxemburg
Law as stated at: 29 July 2011
L'Oréal brought proceedings in England against eBay over sales on the eBay site that L'Oreal alleged infringed its trade marks, including those of its luxury brand Lancôme. In the High Court, Mr Justice Arnold held that eBay was not liable for infringing items sold on its site. However, the judge felt that eBay could, or perhaps even should, be doing more to prevent those sales.
As he was unable to determine eBay's liability for the use of sponsored links that direct search traffic to infringing listings, he decided to refer a number of questions to the Court of Justice of the European Union ("CJEU"). Those questions covered:
- the availability of defences under the E-Commerce Directive (2000/31) for "intermediaries", including online marketplaces;
- whether eBay's current Verified Rights Owner (VeRO) programme was adequate and what else, if anything, online marketplaces should do to prevent infringements in the future;
- the use of keywords and sponsored links; and
- issues around the sale of tester and sample products, and unboxed and reboxed products.
Under the E-Commerce Directive, intermediaries will avoid liability for the information they host or store if "upon obtaining [actual] knowledge or awareness of [illegal activities they act] expeditiously to remove or to disable access to the information" (Article 14(1)). However the CJEU's ruling in L'Oréal v eBay means that online marketplaces will no longer be able to rely on the hosting defence provided by Article 14(1), where:
- they have taken an active role in the relationship between buyers and sellers – this will occur where a marketplace has "…provided assistance which entails, in particular, optimising the presentation of offers for sale … or promoting those offers" (para 116). Having gone beyond a purely neutral or merely technical or administrative position, the online marketplace will be deemed to have knowledge of or control over an auction's content; or
- they are aware of facts or circumstances on the basis of which "a diligent economic operator should have identified" an unlawful activity and did not act to remove or disable the infringing information.
The CJEU identified two ways in which a marketplace operator may be deemed to have the necessary "awareness" to put the hosting defence at risk:
1. where that operator undertakes monitoring activities that pick up infringements – however, the CJEU made it clear that marketplaces do not have to actively monitor the content of all the listings on their website; and
2. where an operator receives notification of infringements from rights holders and fails to act expeditiously to remove/disable the infringing information.
The adequacy of eBay's VeRO Programme
eBay's VeRO Programme provides a mechanism for rights owners to notify the site of alleged acts of infringement. On receiving a notification, eBay will remove offending items. At the same time it will provide the rights owner's contact details to the alleged infringer if the latter wishes to query why the owner has questioned the listing.
Online marketplaces have maintained that schemes such as the VeRO programme are sufficient to maintain protection from liability under the hosting defence. However, the CJEU has held that national courts may grant injunctions against online marketplaces requiring them to take action to restrain future infringements if they do not take action voluntarily themselves.
Those injunctions must be effective, proportionate and dissuasive and must not create barriers to legitimate trade. As such, injunctions requiring online marketplaces to monitor the content on their websites would not be proportionate. Similarly, an injunction restraining the sale of any goods under a particular trade mark would create barriers to legitimate trade and so would not be acceptable. However an injunction requiring an online marketplace to suspend a trader who had been found to be trading in infringing goods would be appropriate.
The CJEU has followed the decision in joined Cases C-236/08 to C-238/08 Google France and Google  ECR I-0000 and stated that trade mark proprietors are entitled to prevent an online marketplace operator from advertising trade marked goods where the advertising does not enable average internet users, or enables them only with difficulty, to ascertain whether the goods originate from the proprietor.
Sales of testers and re-packaged products
In previous cases the court has been consistent in deciding that it is essential that a proprietor of a trade mark registered in a Member State or a Community trade mark can control the first placing of goods bearing that trade mark on the market in the EEA. However once the goods are put on the market by the trade mark proprietor or with his consent, the rights are exhausted and the goods can be resold in the EEA.
The CJEU was asked if tester and dramming products are "put on the market" such that the trade mark owner's rights are exhausted. These products are normally intended by the proprietor to be distributed for free by authorised retailers and are often marked with the words 'demonstration' or 'not for sale'. The CJEU followed C-495/07 Silberquelle  ECR I-137, in which it was decided that when these sorts of promotional items are given away for free, they are not "put on the market" and therefore the brand owner's rights are not exhausted. In those circumstances, any unauthorised offer for sale will be infringing.
In relation to the resale of unboxed goods, two particularly interesting points were made.
1. The CJEU decided that whether the removal of such packaging damaged the products reputation should be examined on a case-by-case basis. It referred to the Advocate General's Opinion that in some cases the removal of packaging will have a detrimental effect on a product's prestigious image, while in other cases the opposite will be true. An example of packaging eliciting a prestigious or luxurious image might be Elizabeth Arden's skin care range bearing the famous red door mark. On the other hand Marc Jacobs' perfume bottles are of such unique designs, that the bottles themselves convey a luxurious image regardless of the box in which it is sold.
2. The CJEU decided that a proprietor can oppose the resale where essential information as required by Article 6(1) of Directive 76/768 (the Cosmetics Directive), is missing. This information includes the identity of the manufacturer, a list of the contents and ingredients, the use of the product and a 'best before' date.
Liability of a trader outside the EEA for offering infringing goods for sale on an online marketplace accessible in the EEA
The CJEU was also asked to rule on whether a trader based outside the EEA, who offers for sale on an online marketplace accessible in the EEA trade marked goods that have only been put on the market with the trade mark proprietors' consent outside the EEA, would be liable for trade mark infringement. The CJEU held that, in these circumstances, the offer for sale will only be an infringement if it is targeted at consumers in the EEA.
It went on to say that it is for the national courts to assess on a case-by-case basis whether relevant factors exist that indicate consumers within a particular state are being targeted. Factors such as whether the offer for sale was accompanied by geographical areas to which the seller was willing to dispatch the goods will be relevant to this assessment.
Why this matters:
Although there are no clear winners in this case, both brand owners and online marketplaces will have to consider its implications, as from now on:
- there will be a greater onus on online marketplaces to act "diligently" in the fight against counterfeits and other infringing goods, including an obligation to act when they have knowledge of the sellers engaged in offering infringing and counterfeit goods;
- however, acting "diligently" will not require online marketplaces to actively police their sites;
- brand owners may oppose sales of goods where re-packaging has damaged the reputation of its trade mark, or where essential information is missing; and
- for liability for trade mark infringement to arise in the European Union, it is sufficient for the infringing goods to be offered for sale through an online marketplace if that offer for sale is targeted at consumers in the European Union.