Were you worth it? L’Oréal v eBay

August 29, 2011 GS2LAW

Europe decided with quintessential clarity… We are still confused.

A European judgment has been given which is going to cause cyber ripples throughout the matrix with the ECJ ruling against eBay for permitting and promoting sales of L’Oréal product without L’Oréal’s consent.

Two years ago in [2009] EWHC 1094 (Ch) Arnold J. sitting in the High Court of England & Wales referred specific questions to the ECJ on liability for operating an online marketplace where trademark infringement is a necessary part of the sale.

Arguably, the Court has not only the baton but has also sprinted off the track in holding that an e-platform can be liable for negligently failing to prevent trademark infringement.

eBay’s Wrongdoing – Providing the platform and diverting Internet users

One of the main complaints arose from the strict distribution structure that L’Oréal employs where product reaches the consumer only via authorized distributors who are contractually bound from supplying other distributors. The eBay phenomenon permitted such market controls to be thwarted thereby denying distributors from the benefit of their contract. The diversion of business away from L’Oréal was further exacerbated by eBay’s purchase of trademarked keywords from the likes of Google AdWords which drove purchasers to buy products, including parallel imports, thereby giving rise to the basis for relief for L’Oréal under Article 5(1)(a) of Directive 89/104 and Article 9(1)(a) of Regulation No. 40/94.

Using versus Abusing Trademarks

The starting point for the ECJ is that the trademark owner may assert rights against an individual for reselling goods online if there is a pattern of sales that can demonstrate commercial activity. The Court states that Article 5 of Directive 89/104 and Article 9 of Regulation No. 40/94 demands the opposition to such commercial resale as part and parcel of the protection afforded to the trademark holder. The ECJ also endorses a wider extraterritorial right to sue those who offer for sale and target advertising to consumers within the European Union. However, with typically euro-helpful judicial guidance the national courts are left to determine the factors relevant to extraterritorial liability.

In order not to confuse matters however, the ECJ holds that under EU legislation if customers are enabled to display trademarks in the course of commercial activity, the marketplace is not ‘using’ the trademark itself. Instead liability for the operator, subject to the determination of the national courts, should derive from whether the website has knowledge of or controls data regarding infringing offers or sales, or promotes such sales via optimization or generally plays an active role. So that all are clear, even if the operators did not play an active role, an objective awareness of the lawfulness of sales and failure to remove them could form the basis of liability if they failed to act expeditiously as dictated by Article 14(1)(b) of Directive 2000/31. Therefore, the test will be whether a ‘diligent economic operator’ similarly situated would have known of the unlawfulness of the offers and if so, did the operator fail promptly to remove the offers or prevent users from accessing them.

Interlocutory or Injunctive Powers

If an operator decides not to curtail alleged infringements or put into place measures to stop them happening in the future, the court may order the identification of the sellers on the site. This could lead to an interesting conflict between the domestic courts and EU authorities on the issue of protection of personal data, and it might be that domestically there are other injunctive remedies that adhere to the effective, proportionate and dissuasive test of Article 11 of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 that do not infringe rights of privacy.

As clear as mud, n’est-ce pas?