Court tells eBay to crack down on sellers of counterfeit goods

EBay suffered a surprise legal blow yesterday after Europe's highest court said it could be liable for vendors selling knock-off goods through its site, potentially paving the way for a slew of lawsuits against it.

The case against the online retail giant had been brought by cosmetic group L'Oreal, which complained that users of the site had infringed on its trademarks. The French group also condemned eBay's efforts to prevent the sale of fake goods on its site as "inadequate".

The European Court of Justice (ECJ) has ruled that an operator such as eBay could be liable if it is aware, or should have been aware, of illegal activity on its site and failed to act promptly.

Dominic Batchelor, intellectual property partner from law firm Ashurst, said the decision would be a concern to eBay. "The practical and cost implications could be extensive, and any additional costs will presumably be passed on to eBay's users."

He added: "The problem for eBay is that there is still uncertainty over what they have to do." The ECJ's ruling left it up to individual countries to enforce the measures against such sites.

Marks & Clerk, solicitors specialising in intellectual property law, said the ruling opened the door for brands to sue online marketplaces if counterfeit goods are sold on their sites.

Its partner Kirsten Gilbert said brand owners would be "jubilant" at the ruling, adding they 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".

L'Oreal claimed that eBay bought search engine keywords relating to its products. It would then advertise to users searching on sites such as Google and direct them to goods that infringe on the cosmetics group's trademarks. L'Oreal's brands include Garnier, Maybelline New York, and Softsheen-Carson.

The case was originally referred to the ECJ by the English High Court in 2009 after Mr Justice Arnold had found in favour of eBay. L'Oreal's complaints – beyond the sale of counterfeit goods on eBay's site – also included the sale of unpackaged products, samples and products from outside Europe. Yesterday's ruling was seen as a blow to eBay after a senior legal adviser to the court recommended in December that in most circumstances eBay should not be held liable for trademark infringements.

In 2008, the auction site was ordered to pay €38.5m (£33.9m) by a French court following a separate action brought by LVMH, the parent of Louis Vuitton, over sales of counterfeit goods on its site. The sum was later cut to €5.7m on appeal.

Google fought off another from LVMH last year. Following a seven-year legal battle, the ECJ cleared the search engine of violating trademarks related to its AdWords systems.

Ms Gilbert of Marks & Clerk said: "European trade mark law has been straining under the pressure of dealing with the internet age."

She continued: "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."

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