On 12 July 2011, the Court of Justice of the European Union ("ECJ") handed down its highly anticipated decision in L'Oréal SA v eBay International AG.1 The judgment clarifies that companies operating internet marketplaces (such as eBay) can in certain circumstances themselves be liable for trade mark infringement as a result of their users' postings. The judgment also sets clear limits on the scope of the injunctions that may be granted against an intermediary such as eBay. Consequently, Japanese companies that own trade marks are now in a stronger position to take action against online marketplace operators and other internet intermediaries.

Background

L'Oréal is a supplier of perfume, cosmetics and hair care products. eBay operates an online auction site (an electronic marketplace). In summary, L'Oréal brought proceedings against eBay and a number of its users in various European countries, including in the English High Court, on the basis that they were not taking sufficient steps to stop the sale of counterfeit and other trade mark infringing goods. In particular, L'Oréal alleged that:  

  1. eBay and the individual defendants infringed L'Oréal's trade mark rights by the sales of (a) counterfeits; (b) samples provided to distributors free of charge; (c) unboxed products; and (d) non-European Economic Area ("EEA") products;
  2. by purchasing keywords corresponding to the names of L'Oréal trade marks from paid internet referencing services (e.g. Google AdWords), eBay directs its users towards goods that infringe L'Oréal's trade marks that are offered for sale on eBay's website; and
  3.  even if eBay were not liable for the infringements of its trade mark rights, L'Oréal should be granted an injunction against eBay (by virtue of Article 11 of the European Union Enforcement Directive 2004/482).

In 2009, Mr Justice Arnold of the English High Court made a preliminary reference to the ECJ, asking it to provide an opinion as to whether eBay was liable for trade mark infringement. Such infringement would arise from eBay's use of sponsored links on third party search engines and its own site, insofar as they lead people to postings for infringing products. The judge also sought guidance as to whether sales of testers and unboxed goods constituted trade mark infringement, as well as to the scope of injunctive relief available under Article 11 of the Enforcement Directive.

Decision

1. Sale of infringing products

The ECJ stated that a trade mark proprietor may rely on its exclusive right as against an individual who sells trade-marked goods online only when those sales took place in the context of commercial activity.  

EU trade mark rules apply to offers for sale and advertisements relating to trade-marked goods not previously marketed within the EEA with the proprietor's consent (i.e. goods located in non-EU countries such as Japan) as soon as it is clear that those offers for sale and advertisements are targeted at consumers in the EU. It is for national courts to assess whether there are any factors on the basis of which it may be concluded that an offer for sale on an online marketplace is targeted at consumers in the territory covered by the trade mark. For example, that national court will be able to take into account the geographic areas to which the seller is willing to dispatch the product.

The ECJ found that, in the absence of contrary evidence, testers and other sample products provided to distributors free of charge and marked "not for sale" are not "put on the market" within the meaning of the Trade Marks Directive 89/104 or Trade Marks Regulation 40/94.

Further, a trade mark proprietor may oppose the resale of luxury goods on the ground that the reseller has removed their packaging, if such removal results in (i) consumers being deprived of essential information, such as information relating to the identity of the manufacturer, or (ii) damage to the image of the product and, hence, the reputation of the trade mark.  

2. Infringement by use of sponsored links

The ECJ considered3 the circumstances in which a trade mark proprietor is entitled to prevent an online marketplace operator from advertising for sale goods bearing the proprietor's trade mark using a keyword that is identical to the trade mark. The ECJ held that a trade mark proprietor may do so where that advertising does not enable reasonably well-informed and observant internet users to ascertain (easily) whether the goods concerned originate from the trade mark proprietor or from a linked business or, on the contrary, originate from a third party.

To the extent that eBay used keywords corresponding to L'Oréal trade marks to promote its own services as an online marketplace, that use was not made in relation to goods or services identical or similar to those for which those for which the trade mark is registered. However, use by eBay of keywords corresponding to L'Oréal trade marks to promote its users' postings is use in relation to identical goods or services. That use is not just by the eBay users, it is also by eBay itself in order to promote goods which its customer is marketing with the assistance of that service, where the use is such that a link is established between the sign and the service.

3. Infringement by use of signs corresponding to trade marks on the website of an operator of an online marketplace

Where an operator of an online marketplace merely enables its customers to display signs corresponding to trade marks on its website in the course of their commercial activities, such an operator does not itself "use" those signs. That use is made by its customers.

An operator of an online marketplace may also benefit from the restrictions in liability set out in Article 14(1) of the European Union E-Commerce Directive4 in relation to the "hosting" of information provided by the recipients of its services. The ECJ has previously held that this Article applies to the operator of an online marketplace where that operator has not played an active role that would allow it to have knowledge or control of the data stored.

Here, the ECJ considered that an operator plays an "active role", which gives it knowledge of or control over the data relating to the offers for sale, when it provides assistance such as optimising the presentation of the online offers for sale or promoting those offers. When an operator has played an active role of that kind, it can no longer rely on the exemption from liability which Article 14(1) confers. Whether an operator plays an "active role" must be assessed by the relevant national court on a case-by-case basis.

Moreover, even where an operator has not played an active role of that kind, it cannot rely on that exemption if it were aware of facts or circumstances on the basis of which a "diligent economic operator should have realised" that the online offers for sale were unlawful and, in the event of it being so aware, failed to act promptly to remove the data concerned from its website or to disable access to them. Interestingly, the test ("what an operator should have realised") seems to suggest that hosting service providers may now need to investigate at some level the legality of the material they are hosting.

4. Injunctions against the operator of the online marketplace

The ECJ held that, when an operator of an online marketplace does not itself decide to end infringements of intellectual property rights, and to prevent further such infringements occurring, the operator may be ordered to take measures making it easier to identify those customers responsible. Although it is necessary to respect the protection of personal data, when the perpetrator of the infringement is operating in the course of trade, not in a private matter, that person must be clearly identifiable. Consequently, the ECJ found that EU law requires Member States to ensure that national courts are able to order the website operator to take measures which contribute, not only to bringing to an end infringements, but also to preventing further infringements. Those injunctions must be effective, proportionate and dissuasive and must not create barriers to legitimate trade.

Summary and Business Impact

  1. This is a decision in favour of brand owners: Japanese companies with relevant trade mark rights may have an action against internet marketplace operators where, for example:
  • the operator uses sponsored links, such as Google AdWords, which are identical to the trade marks, without making it clear whether the goods for sale bearing that trade mark originate from the proprietor of the trade mark or, on the contrary, from a third party;
  • the operator plays an active role that gives it knowledge of or control over the information relating to the unlawful offers for sale on its marketplace, such as when it provides assistance which entails optimising the presentation of the offers for sale or promoting those offers; or
  • the operator has gained knowledge of facts or circumstances which should have put it on notice that the offers for sale on its marketplace were unlawful, and it failed to act promptly.
  1. Online marketplace providers can no longer hide behind the "hosting" defence/exception to liability provided by Article 14 of the E-Commerce Directive 2000/31 if they have:
  • played an active role in the promotion or sale of the trade marked goods; or
  • gained knowledge of facts or circumstances which should have put them on notice that the offers for sale were unlawful and they failed to act expeditiously.
  1. Injunctions will now be available against future as well as past infringing activity taking place in online marketplaces and should be a tool considered by Japanese companies in their EU IP protection strategies. The injunctions must be effective, proportionate and dissuasive – which may not be straightforward for the national courts to ascertain. We can expect further developments in the move by rights holders to prevent file-sharing by the users of major internet service providers.