Court of Appeal confirms eBay's liability, but reduces damages significantly

In Louis Vuitton Malletier v eBay Inc (September 3 2010), the Court of Appeal of Paris has confirmed, in three decisions, that eBay was liable for not taking appropriate measures to prevent the sale of counterfeits and of products reserved for selective distribution on its auction sites.
In 2006 French company Louis Vuitton Malletier and several companies of the LVMH group, including Parfums Christian Dior, sued eBay International AG and eBay France (collectively eBay) before the French courts. Importantly, the claims were not based on trademark law, but only on the civil responsibility provisions and the Law on Trust in the Numeric Environment. Moreover, the suit targeted only eBay (no eBay user was involved).
The plaintiffs sought a court order prohibiting eBay from:
  • carrying out auctions for fake Vuitton products, or carrying out auctions under usernames that reproduced the plaintiffs' trademarks, or carrying out auctions using descriptions that included the plaintiffs' trademarks for the sole purpose of attracting potential buyers; and
  • carrying out auctions for perfumes and cosmetic products manufactured by the plaintiffs or presented by the sellers as being manufactured by the plaintiffs.
On June 30 2008 the court of first instance, in three decisions, found that eBay was liable for infringement. eBay was ordered to pay a total of €40 million to the plaintiffs (for further details please see "eBay ordered to pay almost €40 million in damages to LVMH").
Before the Court of Appeal, eBay argued that it did not control the content of the auctions, which remained in the hands of the sellers. In response, the plaintiffs argued that eBay was not merely a provider of hosting services, but also a broker - regardless of its knowledge of, and control over, the content of the auctions. 
The Court of Appeal confirmed that eBay's activities were not purely technical, automatic and passive, as eBay played an active role in helping sellers present the items put up for auction. The court pointed out that eBay's activities could not be artificially split into hosting and brokerage services. These activities had to be considered as a whole and, as a broker, eBay was required to determine whether the items for sale on its auction platforms were fake or genuine.
The court concluded that eBay was liable for infringement because:
  • it had failed to warn users against the presence of fakes and to implement filter systems, in breach of its obligation of vigilance;
  • it had not withdrawn, in the shortest possible time, auctions which the plaintiffs had repeatedly complained of; and
  • it had infringed the selective distribution networks of the plaintiffs, as it was obliged to ensure that its activities did not involve illegal behaviour.
However, the court decided to reduce the amount of damages awarded to the plaintiffs to €5.7 million due to an adjustment of the factors used to evaluate the prejudice in the first place.
Following a decision of the Court of Appeal of Reims dated July 20 2010 (for further details please see "First court of appeal decision on eBay's liability issued"), this is the second appeal decision to confirm eBay's liability. It remains to be seen whether the rest of the French courts will follow this approach, bearing in mind that the facts of the case go back to 2006 and that eBay’s system has evolved significantly in four years.
Franck Soutoul and Jean-Philippe Bresson, INLEX IP EXPERTISE, Paris

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