Monday, 29 August 2011

L'Oréal v eBay: a warning to online marketplace operators

Authors: Joel Smith and Joanna Silver (Herbert Smith LLP)

L'Oréal SA v eBay International AG, Court of Justice of the European Union, Case C-324/09, 12 July 2011

Journal of Intellectual Property Law & Practice (2011), doi: 10.1093/jiplp/jpr144, first published online: 25 August 2011

The Court of Justice of the European Union (‘ECJ’) has provided clarification on the liability of companies operating internet marketplaces for trade mark infringement committed by users, holding that, in certain circumstances, the operator may be liable for trade mark infringement as a result of the postings of its users. National courts must be able to order those companies to take measures intended not only to bring to an end infringements of IP rights, but also to prevent further infringements of that kind.

Legal context

Directive 89/104 (the ‘Trade Marks Directive’) and Regulation No 40/94 (the ‘Trade Marks Regulation’) were repealed and replaced by Directive 2008/95 and Council Regulation 207/2009. However, by virtue of the material dates in this dispute, it continues to be governed by the Trade Marks Directive and the Trade Marks Regulation.

Article 5 of the Trade Marks Directive and Article 9 of the Trade Marks Regulation deal with the rights conferred by a trade mark.

Article 14(1) of Directive 2000/31 (the ‘E-Commerce Directive’) restricts the liability of service providers in relation to the ‘hosting’ of information provided by the recipients of its services.

Article 11 of Directive 2004/48 (the ‘Enforcement Directive’) provides that Member States must ensure that rights holders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an IP right, as well as against infringers.

Facts

L'Oréal brought proceedings against eBay and a number of its users in various Member States, including before the High Court of England and Wales, alleging widespread infringement of its IP rights on eBay's European websites. In particular, L'Oréal sought a ruling that:

  • eBay and its users infringed L'Oréal's trade mark rights by the sales of counterfeit products, samples provided to distributors free of charge, unboxed products, and non-EEA products;
  • by purchasing keywords corresponding to the names of L'Oréal trade marks from paid internet referencing services (such as Google AdWords), eBay directs its users towards goods that infringe L'Oréal's trade marks which are offered for sale on its website; and
  • even if eBay was not liable for the infringements of its trade mark rights, L'Oréal should be granted an injunction against eBay by virtue of Article 11 of the Enforcement Directive.

In May 2009 Arnold J held that eBay was not liable as a joint tortfeasor for acts of trade mark infringement, through the sale of infringing products by its users, despite there being, in the judge's opinion, more that eBay could have done to prevent such sales from occurring. However, the judge felt that he could not make a decision as to whether eBay was liable for trade mark infringement as a result of its use of sponsored links on third party search engines and its own site, insofar as they lead people to postings for infringing products, without a reference to the ECJ. Guidance was also sought as to whether sales of testers and unboxed goods constituted trade mark infringement, as well as to the scope of injunctive relief available under Article 11 of the Enforcement Directive.

In December 2010 the Advocate General issued an Opinion that eBay was not liable for the trade mark infringements of its customers, but could become so if it failed to take further action once notified of the infringing use and the use continues or is repeated. Further, under Article 11 of the Enforcement Directive, injunctions may be available against marketplace operators such as eBay in order to prevent continued or repeated infringements by the same user in relation to the same trade mark.

The ECJ gave its decision on 12 July 2011.

Sale of infringing products
The ECJ stated that the proprietor of a trade mark may rely on his exclusive right as against an individual who sells trade marked goods online only when those sales took place in the context of commercial activity.

EU trade mark rules apply to offers for sale and advertisements relating to trade marked goods not previously marketed within the EEA with the proprietor's consent as soon as it is clear that those offers for sale and advertisements are targeted at consumers in the EU. It is for national courts to assess whether there are any factors on the basis of which it may be concluded that an offer for sale on an online marketplace is targeted at consumers in the territory covered by the trade mark.

The ECJ found that, in the absence of evidence to the contrary, testers and other sample products provided to distributors free of charge and marked ‘not for sale’ are not ‘put on the market’ within the meaning of the Trade Marks Directive or Trade Marks Regulation.

Further, the proprietor of a trade mark may, by virtue of the exclusive right conferred by the mark, oppose the resale of luxury goods on the ground that the reseller has removed their packaging, where the consequence of that removal is that essential information, such as information relating to the identity of the manufacturer, 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 has damaged the image of the product and, hence, the reputation of the trade mark.

Infringement by use of sponsored links
The ECJ considered the proper construction of Article 5(1)(a) of the Trade Marks Directive and Article 9(1)(a) of the Trade Marks Regulation. It held that a trade mark proprietor is entitled to prevent an online marketplace operator from advertising for sale goods bearing its trade mark using a keyword which is identical to the trade mark, where that advertising does not enable reasonably well-informed and observant internet users to ascertain (easily) whether the goods concerned originate from the proprietor of the trade mark or from a linked business or, on the contrary, originate from a third party.

Insofar as eBay used keywords corresponding to L'Oréal trade marks to promote its own services as an online marketplace, that use was not made in relation to goods or services identical or similar to those for which the trade mark is registered. However, use by eBay of keywords corresponding to L'Oréal trade marks to promote its users' postings is use in relation to identical goods or services. That use is not just by the eBay users, it is also by eBay itself in order to promote goods which its customer is marketing with the assistance of that service, where the use is such that a link is established between the sign and the service.

Infringement by use of signs corresponding to trade marks on the website of an online marketplace operator
Insofar as an operator of an online marketplace merely enables its customers to display signs corresponding to trade marks on its website in the course of their commercial activities, it does not itself ‘use’ those signs. That use is made by its customers. Accordingly, the role of the online marketplace operator in enabling the use made by its customers must be examined by reference to laws other than trade mark law.

Article 14(1) of the E-Commerce Directive restricts the liability of service providers in relation to the ‘hosting’ of information provided by the recipients of its services. The ECJ has previously held that this Article applies to the operator of an online marketplace where that operator has not played an active role that would allow it to have knowledge or control of the data stored.

While it is for national courts to carry out the assessment concerned, the ECJ considered that the operator plays an ‘active role’ which gives it knowledge of or control over the data relating to the offers for sale when it provides assistance such as optimizing the presentation of the online offers for sale or promoting those offers. When the operator has played an active role of that kind, it can no longer rely on the exemption from liability which Article 14(1) confers.

Moreover, even where the operator has not played an active role of that kind, it cannot rely on that exemption if it was aware of facts or circumstances on the basis of which a diligent economic operator should have realized 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 website or to disable access to it.

Injunctions against the operator of the online marketplace
The final question referred to the ECJ was whether Article 11 of the Enforcement Directive requires Member States to afford the proprietors of IP rights with the right to obtain an injunction against operators of websites by means of which their rights have been infringed, such as an online marketplace, requiring that operator to take measures to prevent future infringement of those rights.

The ECJ held that, when an operator of an online marketplace does not itself decide to end infringements of IP rights and to prevent further such infringements occurring, that operator may be ordered to take measures making it easier to identify those customers responsible. Although it is necessary to respect the protection of personal data, when the perpetrator of the infringement is operating in the course of trade, not in a private matter, that person must be clearly identifiable. Consequently, the ECJ found that EU law requires Member States to ensure that national courts are able to order a website operator to take measures which contribute not only to bringing to an end infringements, but also to preventing further infringements. Those injunctions must be effective, proportionate, and dissuasive and must not create barriers to legitimate trade.

Analysis

This is a strong decision in favour of brand owners, as it places a much higher burden on online marketplace operators to police the content of their users' postings. Further, it endorses and applies the reasoning in Google France (Joined Cases C-236/08 to 238/08) in finding that liability for an online service provider is only triggered by advertising for sale goods bearing a trade mark, where that advertising does not enable a well-informed and observant internet user to understand if goods originate from the trade mark proprietor (or a linked business) or from a third party.

The issue will now be over the scope and breadth of the injunction that courts are prepared to grant. The ECJ has recognized that this is a matter for national law, but it remains to be seen whether Member States will apply this in a consistent manner.

Practical significance

Online marketplace providers can no longer hide behind the ‘hosting’ defence/exception to liability provided by Article 14 of the E-Commerce Directive to maintain that they do not have legal responsibility or liability for the acts of their users if they have:

  • played an active role in the promotion or sale of the trade marked goods; or
  • gained knowledge of facts or circumstances which should have put them on notice that the offers for sale were unlawful and they failed to act expeditiously.

Further, injunctions will now be available against future as well as past infringing activity on online marketplaces. We can expect further developments in the move by rights holders to prevent file-sharing by the users of major ISPs (such as proceedings between the MPA and BT concerning Newzbin) [Editor's note: on the Newzbin litigation, which was decided after this article went to print, click here].

Although the UK has not adopted specific rules to implement Article 11 of the Enforcement Directive in full, the High Court nevertheless will have to abide by the full text of Article 11 when granting an injunction and can injunct intermediaries such as marketplace operators. The injunctions must be effective, proportionate, and dissuasive—which may not be straightforward for the Courts to ascertain.

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