French High Court Says eBay Liable
For Counterfeit Sales; eBay Claims Victory
By Rick Mitchell
PARIS--EBay is liable for sales of counterfeit and otherwise illicit goods on its websites, but the online auctioneer only violates selective distribution networks when eBay sellers of genuine goods are “professional” merchants, according to a trio of linked May 3 decisions by France's highest appeals chamber (eBay Inc. v. LVMH, Cour Cass., No. 11-10508, 5/3/12).
In the rulings, the Cour de Cassation upheld the Paris Appeals Court's September 2010 finding that eBay played an active role in optimizing and otherwise promoting sales of illicit perfumes, cosmetics, and handbags violating the intellectual property rights of subsidiary companies of LVMH Moët Hennessy Louis Vuitton. The high court agreed that eBay consequently does not qualify for the liability exclusion regime for simple website hosts under French and EU e-commerce law.
Bradley Joslove of the Franklin law firm, Paris, told BNA May 10 that the court's finding could imperil innovation by internet companies in France.
But Victoriano Melero of the Clifford Chance law firm, Paris, told BNA May 11 that he thinks internet companies will find ways to adapt to the ruling.
Damages Likely to Be Reduced
The attorneys noted that the court also overturned the Paris Appeals court's finding that it could include eBay.com sales when calculating damages in the case. And Joslove noted that the Cassation found the lower court failed to distinguish individual sellers of genuine goods from professional sellers when it assessed damages for eBay's alleged violation of LVMH's selective distribution networks.
" EBay issued a statement welcoming the “partial quashing” of the Court of Appeals rulings in the cases pitting the San Jose, Calif-based company against Louis Vuitton Malletier, Christian Dior Parfums and Christian Dior Couture.
“We are pleased that the ability of lower Courts to impose an injunction against eBay has been lifted and that the damages against eBay are likely to be further reduced,” eBay said.
Joslove said two of the Cassation Court's findings are likely to force the Paris Appeals court to reduce damages in the cases. The Court of Appeals already slashed damages in the cases in 2010, from 39 million euros ($50.5 million) to 5.6 million euros ($7.24 million).
“When you parse things out, they [eBay] are certainly better off right now than they were before the Cassation decisions, but it's a mixed bag for them, really,” said Joslove, adding that negatives outweigh positives for the company.
LVMH France did not immediately respond to emailed requests for comment on the cases.
Biggest Negative
The biggest negative is the court's finding that eBay does not qualify for the site host liability exclusion under the European Union E-Commerce Directive, and France's 2004 Law to Establish Confidence in the Digital Economy (LCEN), which transposed the directive into French law, Joslove and Melero said.
“I think that question is now pretty much settled,” said Melero.
Echoing language in the EU Court of Justice's 2011 EBay v. L'Oreal decision (16 ECLR 1199, 7/20/11), the Cassation Court found that eBay companies did not exercise a simple activity of site hosting.
“[Rather] they, independently of any option chosen by the vendors, played an active role of a nature to give them knowledge or control of data that they stored and [so] to deprive them of the liability exclusion regime [under the LCEN and the directive].”
The ECJ's decision said the mere fact that the operator of an online market place stores offers for sale on its server, sets terms for that service, is remunerated for it and provides information to its customers cannot have the effect of denying it the exemptions from liability provided by the directive.
By contrast, the ECJ goes on to say that helping customers to optimize or promote sales, or otherwise exercising knowledge or control of offers is not taking a neutral role, said Joslove.
Risk to Innovation?
“I think the French court is trying to apply [the ECJ's] language but I think it is taking a rather strict, punitive approach,” in contrast to approaches taken by some other EU countries, Joslove said.
He said eBay's web sites offer sellers many tools to help sell certain types of goods, like blue jeans, or perfume, but the tools are not personalized for every item sold. For example, a seller of purses gets advice to include photographs. “There's nothing illicit about selling a Kenzo purse, and I haven't seen anything on eBay that indicates they can identify when an item for sale is a counterfeit or not,” Joslove said.
Joslove said that eBay may well appeal that part of the ruling at EU level, where it could seek a decision that would apply at EU level rather than just in France. Meanwhile in France, the Cassation ruling could potentially cause internet companies like eBay to scale back the kinds of services they offer customers, in order to avoid later being judged liable of illicit content and goods.
“A lot of monetizing on the Web is through finding ways to make money off of other people's content, by added value services, advertising, click-through and other things like that. But if making money off [this content] makes you an accomplice to whatever underlying problem there is with the content, I think that is dangerous for the continued success of so much of the new creative services on the web,” said Joslove.
Tiffany Case
Joslove contrasted the French approach to what he called a “much more pragmatic approach taken by a U.S. court in the 2008 case of EBay v. Tiffany & Co. In that case, a federal district court in New York ruled that eBay's general knowledge that counterfeit products were sold on its site was not enough to make eBay contributorily liable for trademark infringement.
“Generally courts in France have been much tougher on eBay than other courts [even] in the European Union have,” he said.
Melero disagreed. “I think French Cassation court [in these decisions] has applied the EU COJ language pretty closely, and pretty much in line with what other EU member state courts have done. I don't see any major difference,” he said.
The Clifford Chance attorney said he did not think the decisions would have a major effect on creative internet companies, because damages awarded tend to be very low in comparison to U.S. damages.
He said the original high damages awarded to LVMH in its 2008 Paris Commercial Court case against eBay were due to LVMH's “luck” of finding a very sympathetic hearing in Commerical Court, which he said is not made up of professional judges.
“That awards decision is not typical in France and has since been much reduced [at appeals levels,]” Melero said.
Limiting Risks Possible
Melero said eBay could limit its legal risks, possibly by revising their terms and conditions, and by working more effectively with resellers. “I don't think they will take a step backwards on the services of their sites. The risk is part of doing business.”
For its part eBay said it will “continue building constructive partnerships with brand owners to expand the range of top brands being sold on eBay by trusted sellers and manufacturers themselves.”
Joslove said the findings in favor of eBay came in one case involving sales, not of counterfeit goods, but of genuine perfumes (by LVMH subsidiaries Christian Dior, Givenchy, and Kenzo) allegedly in violation of LVMH's selective distribution network.
The Cassation Court upheld the Paris Appeals court's finding that, in calculating damages, the French court could include not only illicit sales on the ebay.fr site, but also on the ebay.co.uk site. But it rejected the lower court's justification for also including ebay.com in the calculations.
Joslove noted that the ebay.fr site invites potential buyers to expand their searches to include sellers outside of France, from ebay.com and ebay.co.uk sites. “So there was certainly a legitimate argument that these sites are targeting the French public because they are integrated, complementary and linked with the French site.”
But he said the appeals court went on to state that .com is a generic top-level domain, accessible to everyone. The Cassation said that justification was irrelevant and sent that point back to the lower court.
“But the [lower court] could just excise that part of the language out and make the same holding it made for eBay.co.uk. So that may just be a temporary victory for eBay,” he suggested.
Melero agreed, “I think we will have further discussion about that issue.”
Selective Distribution Argument
Joslove said a bigger victory for eBay was the high court's overturning, on two grounds, of the Paris Appeals court's finding that eBay had violated LVMH's selective distribution networks.
Under European law, selective distribution agreements violate various free competition rules, except in cases meeting certain exemption criteria. “eBay raised an argument that LVMH's selective distribution network [did not meet these criteria] because its purpose is really to fix prices, a big no-no. The Court of Appeals didn't address that argument,” and now it will have to do that, said Joslove.
More important, the Cassation Court said resale of goods by non-professional individuals does not violate selective distribution networks, but sales by professional merchants do.
Joslove said a big issue eBay faces in France is determining which sellers are non-professionals and which are merchants. “At what point do you cross the line from being a part-time seller for extra income to being a merchant, when you sell five goods per month, 10 goods, 100 goods?
“Most sellers on eBay are non-professionals The problem is how are you going to separate out the two. The Paris Appeals court did not make a distinction [in 2010]. That is going to be a messy thing to figure out and will certainly reduce the damages again,” Joslove added.
(May 16, 2012)
