Knock-offs, counterfeits and parallel importers represent brand enforcement challenges, wherever they occur. When goods are sold online, though, special questions arise in determining who is liable, and when. The ECJ considered some of these recently in the context of the sale of counterfeits, parallel imports and repackaged products in L'Oreal S.A. and Ors. v eBay International AG and Ors. (Case C-324/09).
L'Oreal Starts the Bidding
This case was a reference from the English High Court in an infringement action by L'Oreal against eBay and several of its individual customer-sellers.
The detailed background appeared in the Autumn 2009 issue of Make Your Mark. In brief, various individuals offered LANCÔME and other L'Oreal branded products for sale through the eBay online marketplace website. Some of these goods were counterfeits, others were real products whose packaging had been removed. Yet others were testers not intended to be sold, and others still were products placed on the market outside of the EU and not intended for sale here.
eBay itself bought keywords identical to L'Oreal trademarks from Internet search engines which, when keyed in, triggered sponsored ads that referred to the trademarks and indicated that deals on those branded goods could be had on the eBay website.
The English High Court referred questions on the liability issues to the ECJ, who handed down its judgment in July.
Just a Sideline?
The case raised a variety of issues, not least the fundamental one of whether individuals offering goods for sale through eBay were acting in the "course of trade" at all, without which there could be no infringement.
Given the populist nature of the website, this was an important question since many eBay customer-sellers are mere occasional sellers, offering unwanted items from time to time but not on a commercial scale. On this point, the ECJ confirmed that such occasional and intermittent sales were not in "the course of trade"; they were, in essence, no different to offering an unwanted item for sale to a neighbour over the garden fence. However, if the overall volume, frequency or other characteristics of the offers suggested that the activity went beyond the merely private, then the activity could be regarded as in "the course of trade".
In light of this, the question then became how to establish whether an offer of goods for sale through the eBay website is an offer for sale in particular jurisdictions, another sine qua non to a trademark infringement claim. In this case, in particular, L'Oreal needed to prove that eBay and its customer-sellers were offering goods for sale in the UK and EU, the territories where the relevant brands were protected.
On this point, the ECJ affirmed that an online offer is effectively made in a territory if the offer targets consumers there. The mere fact that a website is accessible from a territory is not enough; rather, national courts must consider, on a case by case basis, whether a website is actually targeting consumers there, taking into account in particular factors such as the currency in which prices are given and information on the geographical area in which purchases can be delivered.
The Actual Goods
The nature of the L'Oreal goods offered through eBay also raised special questions.
All the goods (apart from the counterfeits) were genuine L'Oreal products, but some, like the testers, were never intended for sale; others had been stripped of their packaging; and others still had been intended for sale elsewhere, but not in the EU. If L'Oreal were nonetheless to be regarded as having placed the goods on the EU market, or to have consented to their placement there, it would have exhausted its right to sue for infringement where others merely made onward sales of those same goods in the EU, including on eBay, unless there were legitimate reasons to oppose the further sales.
In relation to the products being offered from places like Hong Kong, which were outside the EU, it was clear that L'Oreal had not exhausted its rights since the goods had never been placed on the market in the EU by L'Oreal or with its consent.
The perfume testers, which had been distributed within the EU for promotional purposes but not actually marketed by L'Oreal here, were separately considered. The Court found, in line with its previous decisions in Silberquelle (Case C-495/07) and Coty Prestige Lancaster Group, that L'Oreal had not placed these goods onto any market for sale, but had rather intended that they be used only to promote sales of L'Oreal goods. Its trademark rights in respect of these goods had also not, therefore, been exhausted.
In relation to the products stripped of their packaging, the ECJ found that where such actions resulted in the removal of essential information relating to the identity of the manufacturer, L'Oreal would be entitled to oppose the further sales as a trademark infringement even where they had been placed on the EU market by L'Oreal or with its consent. This was because the loss of such information could impair the ability of a brand to identify and guarantee origin.
Even if the de-packaged products still identified the manufacturer, though, the ECJ ruled that L'Oreal could still object if it could prove that the removal of the packaging had in some other way damaged its brand image and reputation.
Safe Harbour for eBay?
Much of the ECJ's judgment applied to the alleged acts of infringement of customer-sellers, but eBay was the big game in this hunt and the Court trained its sights accordingly on the question of eBay's own liability.
On this, the Court noted that eBay's customer-sellers inevitably referred to L'Oreal's trademarks in their online eBay content in order to describe the goods being offered. Although it accepted that such references were "use in the course of trade" for the reasons already outlined, however, the Court was not persuaded that eBay was itself making the use, since its role was restricted to providing an online forum for its customers to display their own communications. As a result, eBay was held not to be "using" identical marks insofar as they appeared on the content of the site.
The waters became a little choppier for eBay, though, on the issue of sponsored links. On this, in line with its previous findings in Google (Joined Cases C-236/08 and C-238/08), the ECJ confirmed that in buying keywords identical to L'Oreal's trademarks that triggered advertisements including L'Oreal brands, eBay was using identical marks in the course of trade.
As in Google, however, such use would infringe only if the use of the keyword was liable to have an adverse effect on one of the functions of the mark, including where the sponsored ad triggered by the keyword "does not enable reasonably well-informed and reasonably observant Internet users, or enables them only with difficulty" to ascertain whether the advertised goods emanate from the brand owner or from a third party. This was, as ever, a question for the national court.
Further risks and opportunities lurk in the Court's ruling on the effect of the E-Commerce Directive. On this point, the Court confirmed that although eBay was providing an "information society service" through its on-line marketplace, it could not take refuge in the Directive's liability exemption unless it provided its services neutrally by the mere technical and automatic processing of data. In this case, there was evidence that eBay, on the contrary, was active in helping its customer-sellers to optimise visibility of their offers through the site. Whether eBay was acting neutrally was a matter for the national court to determine, but the ECJ was sceptical.
Even if eBay had acted neutrally, though, the Court ruled that it would still not be able to rely on the exemption in the E-Commerce Directive if it had "actual knowledge" of illegal activity or information or was aware of facts or circumstances pointing to that, unless once it acquired such knowledge it had acted expeditiously to remove or disable access to the content.
Here, though, whether a service provider like eBay was aware or should have been aware of infringing sales being made through its website is a difficult area. Actual discovery of wrongdoing clearly would qualify, but merely being notified of allegedly infringing use may not, since not all such notifications turn out to be accurate. Nonetheless, whether eBay was notified and had failed to investigate and to remove infringing material where a diligent operator would have done so was a factor that the national court would need to take into account.
The Internet is rife with unauthorised sales of branded goods, not only through eBay but also through many other online marketplaces. Attempts to stop them might seem as futile as Cnut's attempt to hold back the tide.
Yet owners of luxury brands, in particular, cannot afford to see such activities only in the light of what may be a merely paltry impact on overall revenue. Such sales have the potential to do deep and lasting damage to a brand's image, as well as to undermine commercial relationships in a selective distribution network like that of L'Oreal. Unchecked sales of de-packaged, shoddily re-packaged and counterfeit goods can undermine reputation, sap consumer trust, and make it difficult to enforce trademark rights against other third parties later, and selected distributors may resent restrictions on their own onward sale where such activities are carried out in broad daylight online.
Brand owners concerned by online activities can take heart from this judgment, which confirms that they may well have redress against individual customer-sellers where circumstances indicate that they are operating on a commercial level.
However, the most effective way to minimise the damage done by unauthorised online re-sales is to bring online marketplaces to heel, and to instil in them a greater sense of obligation to investigate and remove all potentially infringing uses notified to them or of which they become aware. The Court's findings on the "safe harbour" provisions of the E-Commerce Directive are likely to help with this, since it is now clear that failure to take such action can strip an information service provider like eBay of a defence to liability.
The Court's ruling on sponsored links should also focus the minds of executives at eBay and other online marketplaces on the nature and content of ads triggered by keywords, to ensure that they do not leave a consumer in doubt as to the identity of the advertiser or the origin of the goods being advertised.
The prevalence of online activities of the kind challenged by L'Oreal indicates that brand owners, and the courts, still have some way to go in combating online infringements, and how the English Court of Appeal applies the ECJ's guidance remains to be seen. However, the recent decisions in cases like Google and L'Oreal show that piece by piece, the ECJ is helping national courts to redress the balance.