In the rush to respond to the UK courts' first judgment considering the potential liability of eBay for trade mark infringement, many commentators have published accounts which may be misleading.

A win for eBay?

"eBay Europe do facilitate the infringement of third parties' trade marks, including L'Oréal's Trade Marks, by sellers; they do know that that such infringements have occurred and are likely to continue to occur; and they profit from such infringements except where the rights owner makes a VeRO complaint in sufficient time."

"eBay and its competitors have created a new form of trade which carries with it a higher risk of infringement than more traditional methods of trade. I consider that there is much to be said for the view that, having created that increased risk and profited from it, the consequences of that increased risk should fall upon eBay rather than upon the owners of the intellectual property rights that are infringed."

This finding and viewpoint may lead one to suspect that the press reports eBay had won must be wrong. In fact it is true that in L'Oreal v eBay, the English High Court judge (Arnold J) held that eBay was not jointly liable for the trade mark infringements committed by several users of its website (named in the action as the fourth to tenth Defendants).

However he did so, on the basis of a strict application of the House of Lords judgment in CBS v Amstrad (1988) as the parties had all agreed that there was no conflict between the UK domestic law and EU Community law on the issue of secondary/accessory liability.

He acknowledged however that he could "conceive" that it might be argued the EU Trade Marks Directive had harmonized (and therefore possibly changed) the UK domestic law on this issue to some extent. It must accordingly be equally conceivable that a reference to the European Court of Justice (ECJ) may be made on this issue in a future case.

Furthermore if there has been no harmonization of secondary liability for infringements of harmonized Intellectual Property (IP) rights, then we can expect the EU to be lobbied to provide it. It is easy to see how legal disparities in this respect distort the freedom of movement of goods in the common market.

In any event eBay is far from off the hook in this dispute yet. Even though the judge held eBay was not liable as a joint tortfeasor he acknowledged that it may be subject to an injunction for acting as an intermediary in respect of these infringements. He decided to refer a question to the ECJ seeking guidance on the scope of the injunction which the IP Enforcement Directive required to be available to Member States against intermediaries. Was it an injunction merely to prevent the continuation of the specific act of infringement which he had found had been committed by the relevant eBay users (the fourth to tenth defendants)? Alternatively must it extend to preventing the same and/or similar infringements in the future?

The relevant provision in this Directive states: "Member States shall also ensure that rightholders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right, without prejudice to Article 8(3) of Directive 2001/29/EC."

Article 8(3) of Directive 2001/29/EC (the Copyright in the Information Society Directive) states "Member States shall ensure that rightholders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe a copyright or related right."

The judge noted that although injunctions against intermediaries to IP infringements who were not jointly liable for those infringement had not been granted by a UK court before, our law is already in compliance with this provision due to the wide-ranging equitable powers the UK courts have to grant an injunction where justice would be served by it. Nevertheless, the UK judge will still have discretion as to whether or not to grant such an injunction.

Furthermore, the judge decided he was unable to determine whether eBay was primarily liable for infringement by virtue of certain uses it made itself of the trade marks in question, until he had received guidance on the interpretation of the Trade Marks Directive from the ECJ - see further below.

Ebay should do more to prevent infringement?

On the flip side of the coin, it has also been reported that the judge had "agreed" with L'Oreal that eBay could do more to prevent its site being used to sell infringements; the implication being that it should do so.

In fact the judge made clear distinctions between what was technically "possible", what may be economically viable and what eBay was current legally required to do.

In respect of what was possible he noted that eBay could (but didn't):

i."filter listings before they are posted on the site;

ii.use additional filters, including filters to detect listings of testers and other not-for-sale products and unboxed products;

iii.filter descriptions as well as titles;

iv.require sellers to disclose their names and addresses when listing items, at least when listing items in a manner which suggests that they are selling in the course of trade;

v.impose additional restrictions on the volumes of high-risk products, such as fragrances and cosmetics, that can be listed at any one time;

vi.be more consistent in their policies, for example regarding sales of unboxed products;

vii.adopt policies to combat types of infringement which are not presently addressed, and in particular the sale of non-European Economic Area (EEA) goods without the consent of the trade mark owners;

viii.take greater account of negative feedback, particularly feedback concerning counterfeits;

ix.apply sanctions more rigorously; and

x.be more rigorous in suspending accounts linked to those of users whose accounts have been suspended."

However, the judge noted that PriceMinister (another online market place) had accepted through its General Counsel (who had given evidence for eBay) that the measures PriceMinister had agreed to take in response to L'Oreal's concerns were "uneconomic". Further the judge indicated that PriceMinister was "not a useful comparator...because it operates according to a different business model and on a different scale". The implication appears to be that should eBay be required to adopt similar measures in relation to all trade marks its business model would not be financially viable.

Finally the judge concluded that as long as eBay did not positively procure or authorise infringement, legally it was not required to do anything to prevent such use of its site (save to the extent it may be injuncted to stop a continuing infringement or prevent future ones under the IP Enforcement Directive - see above)

He concluded that "as a matter of domestic common law, eBay Europe are under no legal duty or obligation to prevent infringement of third parties' registered trade marks".

CBS v Amstrad

The judge concluded that for eBay to be jointly liable for the infringing acts of the fourth to tenth Defendants it needed to have procured those infringements (by inducement, incitement or persuasion) or to have at least participated in a common design to so infringe. This had not been established and "facilitation with knowledge and an intention to profit is not enough".

The other issues

In summary the judge held that the pleaded acts of the fourth to tenth Defendants (who had all settled their claims with eBay) did amount to trade mark infringement but eBay was not jointly liable for them. The judge then went on to decide that all the other key issues of the case required the guidance from the ECJ. These further issues are now explained below:

Primary liability

eBay admitted to having purchased keywords consisting of the some of the marks in issue. These keywords triggered sponsored links on third party search engines including Google, MSN and Yahoo. The effect of that was that a search on e.g. Google, using one of these marks as the search term, caused a sponsored link to the eBay website to be displayed. If the user clicked on the sponsored link, he or she was taken to a display of search results on the eBay website itself for goods by reference to that mark as a search term.

L'Oreal alleged that eBay listings search results produced in this way included both genuine and infringing products. Accordingly L'Oreal claimed this amounted to infringing use by eBay itself of L'Oreal's marks.

Additionally the eBay Europe website enables users to browse and search the website by clicking one of 17 goods' categories and then "drilling down" by sub-categories. One of these 17 is "Health & Beauty". Within each top level category is a number of sub-categories such as "Fragrances", "Hair Care" and "Skin/Face Care". Within these are sub-divisions such as "Women's Fragrances", "Conditioner" and "Cleansers". Various options are then offered to refine the search further, including by reference to a list of brand names. These brand names include several of the trade marks in issue.

As L'Oreal alleged that clicking on one of these led the eBay user to eBay search results which again included both genuine and infringing products, L'Oreal claimed this also amounted to infringing use by eBay itself of L'Oreal's trade marks.

The judge concluded that questions needed to be referred to the ECJ before he could determine whether or not eBay was directly liable for trade mark infringement as a result of these activities.

The issues the UK court needed guidance on:

1.Whether or not display of the sponsored link (which resulted from eBay's purchase of search engine keywords identical to the marks) involved "use" of the mark in question by eBay Europe albeit that the search result is displayed to the user by the search engine in response to a search request made by the user employing the sign in question?

2.If so, whether that use is use "in relation to" all the goods listed on the eBay site at the time when the sponsored link is displayed i.e. the listings which would be displayed if and when the user clicked on the hyperlink? Accordingly, where those listings include both infringing and non-infringing goods, was such use, "use" in relation to both infringing and non-infringing goods (and therefore an infringement in so far as it is in relation to infringing goods)?

3.Whether or not the display of sub-category links on the eBay website, in order to assist users with their searches, involved "use" of the mark in question by eBay Europe albeit that it was the user who chose to click on the link in order to view a goods list?

4.If so, whether that use is use "in relation to" all the goods listed on the eBay site at the time when the user clicked on the link? Accordingly, where those listings include both infringing and non-infringing goods, whether such use amounted to use in relation to both infringing and non-infringing goods (and therefore an infringement in relation to infringing goods)?

5.Did the use of the mark in an advertisement for genuine but non-EEA goods on a website which targeted consumers in an EEA member state (where the proprietor had not consented to them being put on the market in the EEA) constitute an infringing act if it was unclear whether this would lead to putting the goods on the market inside or outside the EEA?

6.If yes, then was eBay keyword or sub-category use of the mark, which led to a goods list which included such an advertisement, use in relation to infringing goods? The wording of the questions has yet to be decided.

An e-commerce defence?

Furthermore, even if eBay was otherwise so liable, it argued it had a defence under article 14 of the E-Commerce Directive EC/2000/31.

Article 14 states

1. Where an information society service is provided that consists of the storage of information provided by a recipient of the service, Member States shall ensure that the service provider is not liable for the information stored at the request of a recipient of the service, on condition that:

a.the provider does not have actual knowledge of illegal activity or information and, as regards claims for damages, is not aware of facts or circumstances from which the illegal activity or information is apparent; or

b.the provider, upon obtaining such knowledge or awareness, acts expeditiously to remove or to disable access to the information.

2. Paragraph 1 shall not apply when the recipient of the service is acting under the authority or the control of the provider.

3. This Article shall not affect the possibility for a court or administrative authority, in accordance with Member States' legal systems, of requiring the service provider to terminate or prevent an infringement, nor does it affect the possibility for Member States of establishing procedures governing the removal or disabling of access to information.

It appears from the above that this defence is intended to benefit an information service provider which passively receives and stores information from its users, without being aware of the contents of that information. Here, however, eBay itself provided information (i.e. the brand sub-categories) which at least in part resulted in its potential primary liability for infringement. Nevertheless, eBay argued it had a defence under this provision because whether or not its sub-category/keyword use could arguably infringe was contingent on the information which was provided by its users and stored passively by it on the eBay website.

Its own use of L'Oreal as a sub-category/keyword could only arguably infringe, eBay asserted, if some of its users had placed listings on its website for infringing products. Only then would clicking on the L'Oreal sub-category result in the display of a listing for an infringing product, and only then could its sub-category/keyword use of L'Oreal be argued to be "in relation to" infringing goods. As eBay claimed it did not have knowledge of the contents of such listings, unless and until it was notified about the alleged infringement, therefore it claimed this defence applied.

7. The judge considered it unlikely that this provision would apply to provide eBay with a defence in relation to its alleged primary liability but nevertheless considered the matter sufficiently unclear as to require guidance from the ECJ.

A no-liability injunction to prevent what?

8. The judge considered that a question should also be referred to the ECJ to determine the required scope of the injunction the UK courts had in their power to grant against eBay, as an "intermediary" to the infringements of the fourth to the tenth defendants.

9. In the light of this power, and the possibility that the injunction would be required to cover future "similar" infringements, it was necessary to determine:

a.Whether by providing retailers (assumed for this purpose to be within the EEA) with large tester bottles of genuine product which were not intended for sale but only to be used on customers to promote the sale of retail product, L'Oreal had put such goods on the market and hence had exhausted its rights to prevent their further commercialisation (i.e. such products could not be regarded as infringing goods)?

b.Whether in respect of goods (which for this purpose are to be assumed to have been put on the market by L'Oreal within the EEA or with their consent) but which were now offered for sale under the mark but unboxed resulting in them being in contravention of the Cosmetics Products Directive 76/768/EEC this provided L'Oreal with legitimate grounds to oppose their further commercialisation? If so, was this still true where no claim had been made that the sale of such unboxed goods harmed L'Oreal's reputation and therefore the seller's contravention of 76/768/EEC alone was relied upon?

In fact, of the 17 pleaded sales of allegedly infringing goods by the fourth to tenth defendants via the eBay site, only two had been held to be counterfeits. Four had been a tester product of the nature described above and the remainder had been of unboxed products. However all the sales in the latter two categories had been held by the judge to have been put on the market by L'Oreal outside the EEA and eBay had not been able to establish that L'Oreal had consented to their marketing in the EEA. Accordingly, the judge held that they all infringed without the need for further guidance from the ECJ. The clarification sought above in respect of whether EEA goods of this nature also infringed arose because, if they did, they may also be caught by an injunction granted on the basis of the past infringements if this was worded so as to catch "similar" future infringements.

Comment

Whether or not internet-based service providers (such as eBay, Google, Yahoo, P2P sites etc) may be jointly liable for the intellectual property infringements of their users is a significant issue perplexing the courts of many of the EU Member States. The fact the legal position in relation to such issues may differ legitimately from jurisdiction to jurisdiction is far from satisfactory in a common market.

Reports elsewhere that we can look forward to guidance from the ECJ on the issue of secondary liability as a result of the questions to be referred in this case are clearly incorrect. The only guidance we may receive in this case that relates to this very significant issue is in respect of the extent to which such an "intermediary" may be subjected to an injunction where it is not legally liable.

However a reference in a different case (one of several pending relating to Google's AdWord service for sponsored search results) may result in some guidance as to where such secondary liability has been alleged, there will be a defence under the E-Commerce Directive. The second question in Google France v Viaticum, Luteciel (C-237/08) is:

"In the event that such use [i.e. Google's own alleged "use" of the mark in issue] does not constitute a use which may be prevented by the trade mark proprietor under the directive... may the provider of the paid referencing service [i.e. Google] be regarded as providing an information society service consisting of the storage of information provided by the recipient of the service, within the meaning of Article 14 of Directive 2000/31 of 8 June 2000, so that that provider cannot incur liability before it has been informed by the trade mark proprietor of the unlawful use of the sign by the advertiser?"