The Court of Justice of the European Union has given judgment in the long-standing dispute between L’Oréal (and various subsidiaries) and eBay (and some of the sellers on eBay), concerning the sale, without L’Oréal’s consent, of L’Oréal products on the online marketplace operated by eBay. It is bad news for eBay but it may have much wider implications.
In response to a reference from the High Court two years ago (L'Oréal v eBay  EWHC 1094 (Ch)), the ECJ has finally (12 July) provided clarification on the liability of companies operating internet marketplaces for trade mark infringements committed by users and on the specific questions referred to it by Arnold J. In summary the Court rules that the duty on eBay and similar entities is much more onerous than was generally thought and that not only any active role but a negligent failure can be the basis of liability. Further the ECJ states that national courts must be able to order companies to take measures intended not only to bring to an end infringements of intellectual property rights but also to prevent further infringements of that kind.
Comments and views on this important ruling are very much encouraged.
As SCL members are well aware, eBay operates an electronic marketplace on the Internet, where a wide variety of goods and services are sold. L'Oréal is the owner of a wide range of well-known trade marks. Its products (especially cosmetics and perfumes) are distributed through a closed distribution network, in which authorised distributors are restrained from supplying products to other distributors.
L'Oréal brought an action, complaining that eBay was involved in trade mark infringements committed by its sellers and various individual sellers were joined. L'Oréal also claimed that, by purchasing keywords corresponding to the names of L'Oréal trade mark from paid Internet referencing services (principally Google's AdWords), eBay directed its users towards goods on its site that infringe L'Oréal trade marks. eBay's efforts to prevent the sale of counterfeit goods on its service were considered by L'Oréal to be inadequate and L'Oréal highlighted various forms of infringement, including so-called parallel importation.
The High Court referred questions to the ECJ which concerned the obligations to which a company such as eBay might be subject in order to prevent trade mark infringements by its users (see the 'More Questions than Answers' news story for details).
The ECJ states, as a preliminary point, that the proprietor of the trade mark may rely on his exclusive right as against an individual who sells trade-marked goods online only when those sales take place in the context of a commercial activity. That is the case, in particular, if the sales, owing to their volume and frequency, go beyond the realms of a private activity.
As to commercial activities directed towards the EU by means of online marketplaces such as eBay, the ECJ states that the EU trade mark rules apply to offers for sale and advertisements relating to trade-marked goods located in third States as soon as it is clear that those offers for sale and advertisements are targeted at consumers in the EU. It is for the national courts to assess, on a case-by-case basis, whether there are any relevant factors on the basis of which it may be concluded that an offer for sale or an advertisement, displayed on an online marketplace, is targeted at EU consumers. For example, the national courts will be able to take into account the geographic areas to which the seller is willing to dispatch the product.
The ECJ goes on to hold that the operator of an internet marketplace does not itself 'use' trade marks within the meaning of the EU legislation if it provides a service consisting merely in enabling its customers to display on its website, in the course of their commercial activities, signs corresponding to trade marks.
Crucially, the ECJ then deals with certain matters concerning the liability of the operator of an online marketplace. Whilst making clear that it is for the national courts to carry out the assessment concerned, the ECJ considers that the operator plays an active role of such a kind as to give it knowledge of, or control over, the data relating to the offers for sale, when it provides assistance which entails, in particular, optimising the presentation of the online offers for sale or promoting those offers. When the operator has played an 'active role' of that kind, it cannot rely on the exemption from liability which EU law confers, under certain conditions, on online service providers such as operators of internet marketplaces. Moreover, even in cases in which the operator has not played an active role of that kind, it cannot rely on that exemption from liability if it was aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the online offers for sale were unlawful and, in the event of it being so aware, failed to act promptly to remove the data concerned from its web site or to disable access to them.
Finally, the Court rules on the question of injunctions which may be granted against the operator of an online marketplace when it does not decide, on its own initiative, to bring to an end infringements of intellectual property rights and to prevent further such infringements occurring. It finds that the operator may be ordered to take measures making it easier to identify the sellers who are its customers. Although it is necessary to respect the protection of personal data, the fact remains that when the perpetrator of the infringement is operating in the course of trade, and not in a private matter, that person must be clearly identifiable. Consequently, the Court holds that EU law requires the Member States to ensure that the national courts with jurisdiction in relation to the protection of intellectual property rights are able to order the operator to take measures which contribute, not only to bringing to an end infringements of those rights by the users, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, and dissuasive and must not create barriers to legitimate trade.
Kirsten Gilbert, Partner at Marks & Clerk Solicitors, comments:
'Brand owners like L'Oréal will be jubilant at today's ruling. Trade mark owners are no longer alone in their fight for online brand protection. Instead, as is the case on the High Street, companies which facilitate sales can be held accountable for the goods which pass through their hands. Brands have been concerned for years now that the internet has facilitated the trade of counterfeit goods. Items which would otherwise be available only from back-street traders have become instantly available to consumers in the privacy of their own homes. L'Oréal and other brand owners will be hoping that online marketplaces like eBay now sit up and pay attention to the sales of counterfeit items which go through their sites.
European trade mark law has been straining under the pressure of dealing with the internet age. The information revolution and the rise of online commerce have created a host of scenarios never envisaged when our laws were drafted. Today's ruling will give national courts guidance on how to approach just one of these scenarios.
We have seen over the past years different national courts finding in favour of opposing parties in similar cases. Inconsistency in the area of the online counterfeiting trade will be reduced following this ruling. Brand owners will now be working with a legal system which protects one of their key assets – their brand identity.'
The ECJ's final ruling is set out below verbatim. The judgment can be read in full here.
… the Court (Grand Chamber) hereby rules:
1. Where goods located in a third State, which bear a trade mark registered in a Member State of the European Union or a Community trade mark and have not previously been put on the market in the European Economic Area or, in the case of a Community trade mark, in the European Union, (i) are sold by an economic operator on an online marketplace without the consent of the trade mark proprietor to a consumer located in the territory covered by the trade mark or (ii) are offered for sale or advertised on such a marketplace targeted at consumers located in that territory, the trade mark proprietor may prevent that sale, offer for sale or advertising by virtue of the rules set out in Article 5 of First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trade marks, as amended by the Agreement on the European Economic Area of 2 May 1992, or in Article 9 of Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark. It is the task of the national courts to assess on a case-by-case basis whether relevant factors exist, on the basis of which it may be concluded that an offer for sale or an advertisement displayed on an online marketplace accessible from the territory covered by the trade mark is targeted at consumers in that territory.
2. Where the proprietor of a trade mark supplies to its authorised distributors items bearing that mark, intended for demonstration to consumers in authorised retail outlets, and bottles bearing the mark from which small quantities can be taken for supply to consumers as free samples, those goods, in the absence of any evidence to the contrary, are not put on the market within the meaning of Directive 89/104 and Regulation No 40/94.
3. Article 5 of Directive 89/104 and Article 9 of Regulation No 40/94 must be interpreted as meaning that the proprietor of a trade mark may, by virtue of the exclusive right conferred by the mark, oppose the resale of goods such as those at issue in the main proceedings, on the ground that the person reselling the goods has removed their packaging, where the consequence of that removal is that essential information, such as information relating to the identity of the manufacturer or the person responsible for marketing the cosmetic product, is missing. Where the removal of the packaging has not resulted in the absence of that information, the trade mark proprietor may nevertheless oppose the resale of an unboxed perfume or cosmetic product bearing his trade mark, if he establishes that the removal of the packaging has damaged the image of the product and, hence, the reputation of the trade mark.
4. On a proper construction of Article 5(1)(a) of Directive 89/104 and Article 9(1)(a) of Regulation No 40/94, the proprietor of a trade mark is entitled to prevent an online marketplace operator from advertising – on the basis of a keyword which is identical to his trade mark and which has been selected in an internet referencing service by that operator – goods bearing that trade mark which are offered for sale on the marketplace, where the advertising does not enable reasonably well-informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods concerned originate from the proprietor of the trade mark or from an undertaking economically linked to that proprietor or, on the contrary, originate from a third party.
5. The operator of an online marketplace does not 'use' – for the purposes of Article 5 of Directive 89/104 or Article 9 of Regulation No 40/94 – signs identical with or similar to trade marks which appear in offers for sale displayed on its site.
6. Article 14(1) of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market ('Directive on electronic commerce') must be interpreted as applying to the operator of an online marketplace where that operator has not played an active role allowing it to have knowledge or control of the data stored.
The operator plays such a role when it provides assistance which entails, in particular, optimising the presentation of the offers for sale in question or promoting them.
Where the operator of the online marketplace has not played an active role within the meaning of the preceding paragraph and the service provided falls, as a consequence, within the scope of Article 14(1) of Directive 2000/31, the operator none the less cannot, in a case which may result in an order to pay damages, rely on the exemption from liability provided for in that provision if it was aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the offers for sale in question were unlawful and, in the event of it being so aware, failed to act expeditiously in accordance with Article 14(1)(b) of Directive 2000/31.
7. The third sentence of Article 11 of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights must be interpreted as requiring the Member States to ensure that the national courts with jurisdiction in relation to the protection of intellectual property rights are able to order the operator of an online marketplace to take measures which contribute, not only to bringing to an end infringements of those rights by users of that marketplace, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, and dissuasive and must not create barriers to legitimate trade.