eBay ordered to pay almost €40 million in damages to LVMH

In two decisions, the Paris Commercial Court has ordered eBay to pay almost €40 million in damages to companies of the LVMH group (June 30 2008). A third decision issued by the same court on the same day dealt with exclusive distribution issues. In this case, eBay was also ordered to pay damages, but on different grounds. 
In the first two cases, the court had to decide whether US company eBay Inc and Swiss company eBay International AG (collectively eBay) had been negligent by allowing the sale of counterfeit goods on their auction sites between 2001 and 2006. LVMH requested damages in an amount of €21.18 million in relation to the sale of fake Louis Vuitton goods, and Dior requested damages of €15.3 million based on various legal grounds. Those amounts reflected the results of a report carried out by a financial expert commissioned by LVMH and Dior on an ex parte basis. The report took into account all sales of Dior and Louis Vuitton goods on eBay between June 2001 and June 2006, irrespective of where the sellers and buyers were located and which eBay websites were concerned. The expert concluded that almost 90% of those sales involved counterfeit goods.
In its defence, eBay raised the following arguments:
  • The court had no jurisdiction over the case as both defendants were foreign companies.
  • eBay is a hosting provider and should thus benefit from the defences set forth by the E-commerce Directive (2000/31/EC), as implemented in France by Law 2004-575.
  • eBay withdrew the counterfeit goods as soon as it became aware of their presence on its auction sites. It could not be held liable for infringing acts of which it was not aware.
The court found that it had jurisdiction over the case, holding that under French procedural rules and the Lugano Convention, a French entity may sue in France if it has suffered damage in that country. On the merits, the court ruled that eBay was not merely a hosting provider, but also a broker. Therefore, eBay could not benefit from the defences established by the directive. With regard to the damages suffered by Dior and LVMH, the court:
  • held that even though the report was compiled without any input from eBay, LVMH and Dior were entitled to the damages calculated by the expert;
  • ordered that eBay pay €1 million in moral damages to LVMH and Dior; and
  • ordered that the decision be published in three magazines and on each of eBay's websites in French and English for a period of three weeks.
In both cases, the court took it as a given that 90% of sales of Dior and Louis Vuitton goods during the relevant period involved counterfeit goods, even though the qualification and quantification of the infringing goods in the report was made by a financial expert, and not an expert on counterfeiting issues. Moreover, although the court held that eBay was not merely a hosting provider, it did not explain why the fact that eBay was also a broker prevented it from benefiting from the hosting provider defence. 
The decision would be understandable if French courts were able to rule in equity, but this is not the case. One may wonder why both eBay International and eBay Inc were held responsible, as eBay Inc is the parent company of eBay International. The court failed to give any reasons for this finding. In addition, the reasoning that the court had jurisdiction over the case because eBay's websites were accessible in France (even though the defendants and many of the third-party sellers were foreign entities) is surprising. 
Further, in the Louis Vuitton Case, eBay argued that Louis Vuitton did not own the LOUIS VUITTON trademarks and had failed to produce a licensing agreement. However, the court did not:
  • address this argument;
  • mention the trademarks at issue; or
  • rely on any legal provisions on IP rights. 
Therefore, the court did not recognize that there had been infringement of the LOUIS VUITTON trademarks, but found against eBay on the grounds that it had negligently allowed the sale of counterfeit goods on its auction sites. This ruling is perhaps understandable as only the civil courts have jurisdiction over trademark infringement issues. However, one may wonder why eBay did not raise that argument and decline the jurisdiction of the commercial court - did eBay expect that this court would be more lenient than the civil court? Moreover, in light of the significant damages imposed, it is surprising that the court failed to specify which IP rights had been infringed and how they had been infringed. 
eBay has announced that it will appeal the decision. It will be interesting to see which defences will be raised.
Richard Milchior, Granrut Avocats, Paris

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