ECJ issues warning to online marketplace operators

European Union
In L’Oréal SA v eBay International AG (Case C-324/09 July 12 2011), the Court of Justice of the European Union (ECJ) has provided clarification on the liability of companies operating internet marketplaces for trademark infringement committed by users, holding that, in certain circumstances, the operator can be liable for trademark infringement as a result of the postings of its users. This may be so where, for example:
  • the operator uses sponsored links, such as Google AdWords, which are identical to trademarks, without making it clear whether the goods for sale bearing that mark originate from the proprietor of the mark or, on the contrary, from a third party;
  • the operator plays an active role which gives it knowledge of, or control over, the information relating to the unlawful offers for sale on its marketplace, such as when it provides assistance which entails optimising the presentation of the offers for sale or promoting those offers; or
  • the operator has gained knowledge of facts or circumstances which should have put it on notice that the offers for sale on its marketplace were unlawful and it failed to act promptly.
National courts must be able to order those companies to take measures intended not only to bring to an end infringements of IP rights, but also to prevent further infringements of that kind.
 
L'Oréal SA brought proceedings against eBay and a number of its users in various member states, including in the High Court of England and Wales, alleging widespread infringement of its IP rights on eBay's European websites. In particular, L'Oréal sought a ruling in the High Court that:
  • eBay and the individual defendants infringed L'Oréal's trademark rights by the sales of counterfeits, samples provided to distributors free of charge, unboxed products and non-EEA products;
  • by purchasing keywords corresponding to the names of L'Oréal’s marks from paid internet referencing services (eg, Google AdWords), eBay directed its users towards goods that infringe L'Oréal's marks which are offered for sale on its website; and
  • even if eBay was not liable for the infringements of its trademark rights, L'Oréal should be granted an injunction against eBay by virtue of Article 11 of the IP Rights Enforcement Directive (2004/48/EC).
In May 2009 Arnold J held that eBay was not liable as a joint tortfeasor for acts of trademark infringement through the sale of infringing products by its users, despite there being, in the judge's opinion, more that eBay could have done to prevent such sales from occurring. However, the judge felt that he could not make a decision as to whether eBay was liable for trademark infringement as a result of its use of sponsored links on third-party search engines and its own site, insofar as they led people to postings for infringing products, without a reference to the ECJ. Guidance was also sought as to whether sales of testers and unboxed goods constituted trademark infringement, as well as to the scope of injunctive relief available under Article 11 of the Enforcement Directive (for further details please see “eBay is not liable for trademark infringement by its users, says court”).
 
In December 2010 the advocate general issued an opinion stating that eBay was not liable for the trademark infringements of its customers, but could become so if it failed to take further action once notified of the infringing use and the use continues or is repeated. Further, under Article 11 of the Enforcement Directive, injunctions may be available against marketplace operators in order to prevent continued or repeated infringements by the same user in relation to the same trademark (for further details please see “eBay may be liable for trademark infringement by its customers”).
 
In its decision of July 12 2011, the ECJ first stated that the proprietor of a trademark may rely on its exclusive right as against an individual who sells trademarked goods online only when those sales took place in the context of commercial activity.
 
EU trademark rules apply to offers for sale and advertisements relating to trademarked goods not previously marketed within the EEA with the proprietor's consent as soon as it is clear that those offers for sale and advertisements are targeted at consumers in the European Union. It is for national courts to assess whether there are any factors on the basis of which it may be concluded that an offer for sale on an online marketplace is targeted at consumers in the territory covered by the mark.
 
The ECJ found that, in the absence of evidence to the contrary, testers and other sample products provided to distributors free of charge and marked "not for sale" are not "put on the market" within the meaning of the First Trademarks Directive (89/104/EEC) or the Community Trademark Regulation (40/94).  
 
Further, the proprietor of a trademark may, by virtue of the exclusive right conferred by the mark, oppose the resale of luxury goods on the grounds that the reseller has removed their packaging, where the consequence of that removal is that essential information, such as information relating to the identity of the manufacturer, is missing. Where the removal of the packaging has not resulted in the absence of that information, the trademark proprietor may nevertheless oppose the resale of an unboxed perfume or cosmetic product bearing its mark, if it establishes that the removal has damaged the image of the product and, hence, the reputation of the mark.
 
The ECJ then considered the proper construction of Article 5(1)(a) of the First Trademarks Directive and Article 9(1)(a) of the Community Trademark Regulation. It held that a trademark proprietor is entitled to prevent an online marketplace operator from advertising for sale goods bearing its mark using a keyword which is identical to the mark, where that advertising does not enable reasonably well-informed and observant internet users to ascertain (easily) whether the goods concerned originate from the proprietor of the mark or from a linked business or, on the contrary, originate from a third party.
 
Insofar as eBay used keywords corresponding to L'Oréal’s marks to promote its own services as an online marketplace, that use was not made in relation to goods or services identical or similar to those for which those for which the mark is registered. However, use by eBay of keywords corresponding to L'Oréal’s marks to promote its users' postings was use in relation to identical goods or services. That use was not just by the eBay users, it was also by eBay itself in order to promote goods which its customer was marketing with the assistance of that service, where the use was such that a link was established between the sign and the service.
 
The ECJ further held that,insofar as an operator of an online marketplace merely enables its customers to display signs corresponding to trademarks on its website in the course of their commercial activities, it does not itself "use" those signs. That use is made by its customers. Accordingly, the role of the online marketplace operator in enabling the use made by its customers must be examined by reference to laws other than trademark law.
 
Article 14(1) of the E-Commerce Directive (2000/31/EC) restricts the liability of service providers in relation to the "hosting" of information provided by the recipients of its services. The ECJ had previously held that this article applies to the operator of an online marketplace where that operator has not played an active role that would allow it to have knowledge or control of the data stored.
 
While it is for national courts to carry out the assessment concerned, the ECJ considered that the operator plays an "active role" which gives it knowledge of, or control over, the data relating to the offers for sale when it provides assistance such as optimising the presentation of the online offers for sale or promoting those offers. When the operator has played an active role of that kind, it can no longer rely on the exemption from liability which Article 14(1) confers.
 
Moreover, even where the operator has not played an active role of that kind, it cannot rely on that exemption if it was aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the online offers for sale were unlawful and, in the event of it being so aware, failed to act promptly to remove the data concerned from its website or to disable access to it.
 
The final question referred to the ECJ was whether Article 11 of the Enforcement Directive requires member states to afford the proprietors of IP rights with the right to obtain an injunction against operators of websites by means of which their rights have been infringed, such as an online marketplace, requiring that operator to take measures to prevent future infringement of those rights.
 
In this regard, the ECJ held that, when an operator of an online marketplace does not itself decide to end infringements of IP rights, and to prevent further such infringements occurring, the operator may be ordered to take measures making it easier to identify those customers responsible. Although it is necessary to respect the protection of personal data, when the perpetrator of the infringement is operating in the course of trade, not in a private matter, that person must be clearly identifiable. Consequently, the ECJ found that EU law requires member states to ensure that national courts are able to order a website operator to take measures which contribute, not only to bringing to an end infringements, but also to preventing further infringements. Those injunctions must be effective, proportionate and dissuasive, and must not create barriers to legitimate trade.
 
The business impact of the decision is as follows:
  • Online marketplace providers can no longer hide behind the ‘hosting’ defence/exception to liability provided by Article 14 of the E-Commerce Directive if they have:
    • played an active role in the promotion or sale of the trademarked goods; or
    • gained knowledge of facts or circumstances which should have put them on notice that the offers for sale were unlawful and they failed to act expeditiously.
  • Injunctions will now be available against future, as well as past, infringing activity on online marketplaces. We can expect further developments in the move by rights holders to prevent file-sharing by the users of major internet service providers (eg, the proceedings between the MPA and BT concerning Newzbin).
  • Although the United Kingdom has not adopted specific rules to implement Article 11 of the Enforcement Directive in full (in relation to the ability to apply for an injunction against intermediaries whose services are used by a third party to infringe an IP right), the High Court nevertheless will have to abide by the full text of Article 11 when granting an injunction and can injunct intermediaries such as marketplace operators. The injunctions must be effective, proportionate and dissuasive - which may not be straightforward for the courts to ascertain.
Joel Smith and Joanna Silver, Herbert Smith LLP, London

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