European Court of Justice Holds eBay Can be Held Liable for Trademark Infringement Committed on its Website if it Plays an Active Role Affording Knowledge of or Control Over Data Regarding Infringing Offers and Sales

On July 12, 2011, the European Court of Justice (“ECJ”) held that an operator of an online marketplace–in this case, the Internet auction giant eBay Inc.–may be held liable for trademark infringement committed by sellers of infringing products offered on its website, if the operator plays an “active role” allowing it “to have knowledge or control” of data relating to the offers for sale.  L’Oréal SA, Lancôme parfums et beauté & Cie, Laboratoire Garnier & Cie, L’Oréal (UK) Limited v eBay International AG, eBay Europe SARL and eBay (UK) Limited, Case No. C-324/09 (ECJ July 12, 2011).

Cosmetics company L’Oréal SA filed a proceeding in the United Kingdom against eBay, claiming that it was involved in trademark infringements committed by users of its website. It was undisputed that some of eBay’s users sold without authorization products bearing L’Oréal marks, and that some of those products were counterfeit. Some eBay sellers also sold genuine L’Oréal products that were had been removed from their original packaging or that had been released as in-store testers that L’Oréal never intended for resale. It was also undisputed  that, as part of eBay’s Internet keyword advertising strategy, eBay purchased from Google AdWords keywords corresponding to L’Oreal trademarks. As a result, each time there was a match between a keyword and the word entered in Google’s search engine by an Internet user, a sponsored link to ebay.co.uk appeared next to the search results.

Among other things, eBay argued that it could not be held responsible for the actions of its online sellers because of a provision in Article 14(1) of the EU Information Society Services Directive. Upon fulfillment of certain conditions, that provision exempts defined providers of information storage services from liability when the information is used in an unlawful manner. The English court referred several questions to the ECJ for a preliminary reference, including questions relating to the Directive as well as the territorial reach of EU trademark law and the exhaustion of trademark rights.

The ECJ held that Article 14(1) of the Information Society Services Directive prevents the operator of an online marketplace from incurring liability for infringing items sold on the marketplace “where that operator has not played an active role allowing it to have knowledge or control of the data stored.” However, “[t]he 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.” Nevertheless, even when the marketplace operator does not play an active role, it still cannot rely on the 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 offers for sale in question were unlawful and, in the event of it being so aware, failed to act expeditiously,” as required in Article 14(1)(b) of the Directive. Accordingly, the ECJ declared that the referring court should “consider whether eBay has, in relation to the offers for sale at issue and to the extent that the latter have infringed L’Oréal’s trade marks, been ‘aware of facts or circumstances from which the illegal activity or information is apparent.'”

Among the other points made by the ECJ in its ruling–

  • EU trade mark rules apply to offers for sale and advertisements for trademarked goods located outside the EU as soon as it is clear that those offers for sale and advertisements are targeted at EU consumers.
  • A trademark owner may prevent an online marketplace operator from using Internet keyword advertising–through the use a keyword identical to its trademark—for goods bearing that trademark which are offered for sale on the marketplace, if the advertising does not enable reasonably well-informed and reasonably observant Internet users, or enables them only with difficulty, to determine whether the goods concerned originate from the trademark owner or from a business economically linked to the trademark owner or, on the contrary, originate from a third party.
  • National courts of EU member states must be able to order operators of online marketplaces 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.
  • “Where the proprietor of a trademark 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,” for purposes of exhaustion of the trademark owner’s rights.
  • A trademark owner may prevent the unauthorized resale of trademarked goods without their original packaging where, as a result of the removal of the packaging, information relating to the identity of the manufacturer or the person responsible for marketing the cosmetic product is omitted, or where the removal of the packaging damages the image of the product.
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