L’Oreal recently launched a major legal challenge to eBay when it issued proceedings against eBay in France, Belgium, Germany, Spain and the UK in a bid to protect its brand.

The L’Oreal case follows on from a claim brought against eBay in the French courts last year by the company behind the Louis Vuitton and Moet Hennessey brands. eBay lost that case and was ordered to pay £31 million due to counterfeit goods being sold on its website.

In the UK proceedings, L’Oreal argued that eBay was jointly liable with the individual sellers on eBay for the sale of counterfeit goods on its website. In the event that eBay was not jointly liable, L’Oreal argued that they should be entitled to a court injunction which would have prevented future similar infringements by eBay.

Importantly, L’Oreal also argued that eBay had been infringing L’Oreal’s trademarks in certain words where they appeared as sponsored links from search engines.

L’Oreal justified its action by stating that it was issuing the claim to protect consumers from the potentially damaging effects of fake cosmetics which were not tested and were poorly made. eBay’s defence was that it merely provided a trading platform and had no direct involvement in the sale of the goods which therefore meant it was not responsible for the sale of any counterfeit goods.

The judge in the High Court ruled that eBay was not jointly liable with sellers for the sale of counterfeit L’Oreal goods. Although the judge found that some counterfeit goods were sold on eBay, he stated that eBay did not encourage the sale of counterfeit goods but instead took active steps to minimise such activity. The judge also recommended 10 steps that eBay could and should take to further reduce the sale of counterfeit goods. Amongst these were steps such as applying sanctions more rigorously and improving the filter systems on the auction site to detect counterfeit goods.

eBay stated that of the 2.7 billion listings it hosted globally in 2008, only 0.15% of them were identified as potentially counterfeit. Whether this is an accurate statistic remains to be seen, but this aspect of the ruling will provide some relief for eBay and other internet auction sites on which counterfeit goods are sold without the consent of the auction site. However, the fact that the judge recommended a number of steps that should be taken to reduce the sale of counterfeit goods may provide some incentive for an appeal and could encourage further litigation where other auction sites do not have such rigorous policies as eBay to counteract counterfeit goods being sold on their websites.

The outcome of the remaining issues has been referred to the European Court of Justice (ECJ). Of particular interest is the issue of trademark infringement in a sponsored link. eBay purchased various words to use as advertising words in sponsored links which were registered L’Oreal trademarks. This meant that an internet user using a search engine would come across the sponsored link directing the user to eBay when searching for the L’Oreal product. The judge considered that there was a sufficient degree of uncertainty in this area of law to refer the matter to the ECJ.

Earlier this year the same judge referred a similar point of law to the ECJ in a dispute between Interflora and Marks & Spencer. In that case the judge was again uncertain whether or not the use of the word “interflora” by Marks & Spencer as a sponsored link constituted a breach of the registered trademark owned by Interflora.

Whilst the ECJ is likely to take a considerable amount of time to provide guidance on this issue it is hoped that the high rate of referrals to the ECJ on this point may spur on the ECJ to act more swiftly than usual…

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