Intellectual property

Ebay to pay LVMH a record amount

Published in Bulletin INTA August 15th 2008, Volume 63 n°15

The Paris commercial court rendered on June 30th, 2008, three judgments holding eBay liable for the online auction sale of counterfeit goods and the breach of exclusive channels of distribution. The total indemnity amounts to €40m, payable immediately to Parfums Dior, Kenzo Parfums, Parfums Givenchy, Guerlain SA, Christian Dior Couture and Louis Vuitton Malletier.

eBay claimed the benefit of the protective status of hosting (as provided for in the Directive 2000-31/EC on e-commerce), under which it could have avoided direct liability subject to the withdrawal of listings on counterfeit goods after the receipt of a formal notification.

This position did not convince the French judges. They considered that eBay qualified as a provider of intermediation services between sellers and buyers in consideration of a commission. The judges expressly denied the protection of the status of hosting, for eBay takes an active role in the information published on its website. As a result, eBay was submitted to civil law (non contractual) liability.

The judges blamed eBay for not having secured that its activity was not generating illegal acts, such as the sale of counterfeit goods or the violation of exclusive channels of distribution. They also considered that eBay breached its duty to check that sellers making a great amount of transactions were duly registered with the Trade Register. This latter ground may cause eBay additional trouble in the future, for buyers might claim the benefit of consumer laws for sales by professionals ? and blame eBay for not providing this information.

In the Christian Dior Couture and Louis Vuitton Malletier cases, the judges observed that eBay should have set up effective measures against the infringement, such as (i) the duty for the sellers to provide on demand a receipt or a certificate of authenticity of the goods in sale, or (ii) the immediate and definitive closing of the account of sellers in fault or (iii) the immediate withdrawal of the listings reported as illegal by the claimants. They also underlined that the listings related to sales of counterfeiting goods could be easily identified, either by the ?fake? or ?imitation? quotes which often appear, or by the low price of the goods.

The judges concluded that eBay was liable for both the wrongful use of the claimants' rights and the damage caused on their image. Interestingly, the indemnity awarded is an indemnifying royalty based on a percentage of eBay's commissions. This type of indemnity is unusual, for under French civil law the amount of the indemnity may not exceed the prejudice actually suffered ? which is in most cases limited to lost profits and the compensation of lost investments. The concept of indemnifying royalty was introduced in France by law n°2007-1544 of 29 October 2007 implementing the 2004-48/EC Directive on intellectual property rights enforcement. Lastly, the judges released an injunction for eBay to stop auctions on the perfumes, under a restriction of € 50 000 per day of delay.

Although eBay immediately filed an appeal, these judgments may be perceived as an incentive to sue eBay to seek indemnification. The short-term future of eBay is gloomy: in November 2007, the French regulator of public auctions took action against eBay for failure to comply with French rules applicable to public auctions. Another ?big? judgment expected this year.