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Online auction site eBay has "no legal duty" to protect other companies' trade marks or stop its sellers from infringing them, the High Court has said.

Cosmetics company L'Oréal has failed to show that eBay was jointly liable with the sellers of fakes and illegally imported goods and had "participated in a common design" to infringe its trade marks, the Court said.

L'Oréal has embarked on over 100 lawsuits in Europe over eBay trade in its goods. The company is taking action against sales of its products or counterfeits of them which it believes damage its business and reputation.

In its High Court case L'Oréal submitted evidence which showed that of 287 test purchases that it made on eBay, only 84 products were legitimate and intended for sale within the European Economic Area (EEA).

It said that the agency it employed to conduct the purchasing had not deliberately targeted auctions likely to carry fakes or grey imports, but that still 14 of the products were counterfeits, 49 were never intended for sale and 139 were put on the market outside of the EEA and not intended for import.

L'Oréal took a case against the sellers of the goods bought in the test purchases, and won its argument that those people had infringed its trade mark rights, either by selling fakes or by selling goods put on the market outside of the EEA and not intended for import.

It then sought to prove that eBay bore joint liability for these trade mark infringements because it did not do enough to prevent them.

eBay argued that it has a scheme that helps to police trade mark infringement. The scheme is called VeRO (Verified Rights Owner). L'Oréal does not participate in the scheme and said that it is unacceptable because it puts the onus of preventing infringement solely on the trade mark holder and does not punish rogue sellers enough.

Much of the case was argued on the basis of European Union law, but the question of eBay's liability, both sides agreed, was not one that was harmonised at EU level, but was simply a question of the law in England and Wales.

The judge in the case, Mr Justice Arnold, said that the most appropriate legal precedents for deciding the question of joint liability were those involving the sale of tape recording machines in the 1980s.

Record companies had said that Amstrad was liable for the copyright infringement of people who used the tape recording machines to duplicate commercial recordings.

"What were the consequences in law, first of Amstrad knowing that the majority of those who bought their machines would use them to copy unlawfully pre-recorded cassettes protected by copyright and, secondly, of their intention to supply that market?" said a ruling that the Court referred to, from a 1986 case. "I am satisfied that mere knowledge on the part of the supplier of equipment that it would probably be used to infringe someone’s copyright does not make the supply unlawful; nor does an intention to supply the market for such user."

"Mere supplying with knowledge and intent will not be enough to make the supplier himself an infringer or a joint tortfeasor with someone who is," it said.

In another case involving Amstrad referred to by the High Court, the question of what it meant to be a joint infringer of someone else's rights.

"Joint infringers are two or more persons who act in concert with one another pursuant to a common design in the infringement," it said. "The purchaser will not make unlawful copies because he has been induced or incited or persuaded to do so by Amstrad. The purchaser will make unlawful copies for his own use because he chooses to do so. Amstrad’s advertisements may persuade the purchaser to buy an Amstrad machine but will not influence the purchaser’s later decision to infringe copyright."

L'Oréal said that eBay did participate in a common design to infringe its trade mark rights because it acted along with the individuals selling the goods in an action which resulted in infringement.

It promoted the listings, exercised some control over the sale and over the sellers both legally and technically and profited from the sales. L'Oréal also argued that eBay was involved in the infringement as it went along, which is different to Amstrad which sold a machine which only later was used to infringe

"In the present case the infringing acts are acts of advertisement, offer for sale, exposure for sale and sale which are committed by means of the [eBay site]," said the ruling, outlining L'Oréal's case. "Thus, counsel argued, the infringing acts themselves are subject to the control of eBay Europe and eBay Europe profit from the infringing acts themselves."

L’Oréal also said that eBay should accept liability and deal with the consequences of it by insuring against it.

eBay argued that it had no obligation to protect other people's trade marks, and that the site was just a tool that did not distinguish between the sale of infringing and non-infringing goods. At worst, it said, it was guilty of facilitating sales that it knew might break trade mark laws, and that this was not sufficient to make it legally liable for those sellers' trade mark infringements.

Mr Justice Arnold said that it was not an easy case to rule on. "I have found this a difficult issue to decide," he said. "It requires the application of well-established principles to a new and rather different scenario to those to which they have previously been applied. In particular, I agree with counsel for L’Oréal that the situation in the present case is rather different to the situation which exists where the defendant sells a product or machine and the infringement is subsequently committed by the purchaser."

"I confess to having considerable sympathy with the suggestion that eBay Europe could and should deal with the problem of infringement by accepting liability and insuring against it by means of a premium levied on sellers. In characterising L’Oréal’s claim as an attack on eBay’s business model, it seems to me that counsel for eBay Europe came close to the heart of the issue," he said.

"As the evidence in this case graphically demonstrates, eBay and its competitors have created a new form of trade which carries with it a higher risk of infringement than more traditional methods of trade. I consider that there is much to be said for the view that, having created that increased risk and profited from it, the consequences of that increased risk should fall upon eBay rather than upon the owners of the intellectual property rights that are infringed."

"Nevertheless, I have concluded that the three main points made by counsel for eBay Europe are well founded and add up to a complete answer to L’Oréal’s case," he said.

"As a matter of domestic common law, eBay Europe are under no legal duty or obligation to prevent infringement of third parties’ registered trade marks," said Mr Justice Arnold.

The judge had said earlier in his ruling that eBay could do more to stop trade mark infringing sales going ahead. It could pre-filter listings; use better filters on more aspects of the listing; demand disclosure of sellers' identities; restrict volumes of high risk goods, such as perfumes; implement new anti-infringement policies; take better account of negative feedback; and take tougher action on infringers, he said.

But that does not mean that eBay is legally responsible for fakes and grey imports. "The fact that it would be possible for eBay Europe to do more does not necessarily mean that they are legally obliged to do more," he said.

The judge also dealt with L'Oréal's claims that eBay directly infringed its trade marks in its use of keyword advertising, an aspect of the case dealt with in another of today's OUT-LAW.COM reports.

See: The case

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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