eBay is not liable for trademark infringement by its users, says court

United Kingdom
The Chancery Division of the High Court of England and Wales has handed down its much-awaited judgment in L'Oréal SA v eBay International AG ([2009] EWHC 1094 (Ch), May 22 2009). 
L'Oréal SA brought proceedings against eBay and a number of its users for trademark infringement for the sale of infringing and counterfeit products on the auction site. In essence, the main issue was whether eBay:
  • is liable as a joint tortfeasor for acts of trademark infringement through the sale of infringing products by its users; and
  • is 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 lead people to postings for infringing products.
It also raised issues of whether eBay:
In advancing its case on joint tortfeasorship, L'Oréal relied on Unilever v Gillette (1989) and alleged that eBay had participated in a common design to infringe its trademarks because it had combined with the individual defendants to secure the doing of acts which proved to be infringements.
In finding that eBay was not jointly liable with the primary individual infringers (ie, eBay users posting infringing products), the court held that eBay:
  • facilitated the infringement of third-party trademarks;
  • knew that such infringements had occurred and were likely to continue to occur; and
  • profited from such infringements.
However, that was insufficient to make eBay liable as joint tortfeasor. eBay is not under any legal duty to prevent infringement of third-party trademarks (subject to such a duty arising for preventing future infringements as a result of Article 11 of the IP Rights Enforcement Directive).
L'Oréal came closest to winning on infringement by way of the sale of products originating from outside the European Economic Area (EEA) to UK consumers (ie, where L'Oréal's trademark rights are not exhausted). However, the court found that eBay facilities which allow sellers from outside the EEA to target buyers in the United Kingdom are capable of being used by sellers for non-infringing purposes. Therefore, such facilities, in themselves, did not inherently lead to infringement.
The court expressed sympathy for the proposition that eBay could and should do more to deal with the problem of trademark infringement - for example, by accepting liability and insuring against it by means of a premium levied on sellers. According to the court, there was much to be said for the view that eBay (and its competitors) have created and profited from a new form of trading which carries with it a greater risk of abuse and, therefore, should be responsible for policing it.
The case on infringement by use of sponsored links was put in this way: the appearance of L'Oréal's trademarks in eBay's sponsored links in the result pages on third-party search engines, and the links on eBay's site to help users refine their searches, constituted trademark infringement, but only to the extent that such use related to infringing goods.
The court considered that these issues turned on a number of questions of interpretation of the First Trademarks Directive (89/104/EEC) (now the Trademarks Directive (2008/95/EC)). In particular, the court considered that it was not acte clair whether such activity was:
  • 'use' in the sense of Article 5(3)(d) of the directive (using the sign on business paper and in advertising);
  • 'in relation to' the infringing goods; or
  • 'infringing use'.
The court also held that guidance was required from the ECJ on a related issue, namely whether eBay had a defence under the 'hosting' safe harbour provided for under Article 14 of the E-commerce Directive.
In addition, L'Oréal complained of four different types of infringing product sold by eBay users:
  • counterfeits;
  • samples and dramming products;
  • unboxed products; and
  • non-EEA products.
However, on the issue of whether the sale of sample products provided to distributors free of charge and unboxed products could amount to trademark infringement, the court considered that an ECJ reference would be required.
Prior to the hearing, L'Oréal resolved its claims against the seven individual defendants alleged to be the primary infringers selling infringing products on eBay. Nevertheless, as the issue was relevant to eBay's liability as joint tortfeasor, the court considered the liability of the individual defendants and held that the acts relating to counterfeit products and products originating from outside the EEA amounted to infringements of L'Oréal's trademarks. The court thus indicated that it had the power to grant an injunction against eBay to prevent further acts of infringement by those parties, even if eBay was not found jointly liable.
However, the scope of the injunctive relief which Article 11 of the IP Rights Enforcement Directive requires courts to grant in such circumstances was unclear. Again, the court found that guidance from the ECJ would be helpful.
This is the first major UK case to consider whether an online service provider is legally liable for individual users selling infringing or counterfeit products. This is an issue of great concern to big brand owners that are seeking to prevent the massive increase in the sale of counterfeits across the Internet.
Against the backdrop of the music and film industries' attempts to agree on a regime with online service providers to prevent file sharing, the ECJ ruling in this case should shed light on whether online service providers have any responsibility for file sharing by individual users or whether they can invoke immunity under the 'safe harbour' provisions of the E-commerce Directive. It may lead the UK government to push through legislation to oblige online service providers to monitor for infringing files and disconnect internet access to persistent offenders.
In similar proceedings in other jurisdictions, the results have been mixed. Having different courts reach different outcomes when applying substantially the same law is clearly undesirable and, to this extent, the referral of questions to the ECJ is to be welcomed.
Joel Smith and Duncan Ribbons, Herbert Smith LLP, London

Unlock unlimited access to all WTR content