France — eBay Ordered to Pay Damages to Hermès and LVMH

A French court has ordered eBay to pay damages to Hermès, after determining that eBay did not sufficiently ensure that its website would not be used for illegal activities. Hermès had sued eBay and the user who sold two fake Hermès handbags on eBay. It alleged that eBay had participated in trade-mark infringement by allowing the sale to occur through its website.

eBay had argued that it could not be held responsible because it was acting solely as a host and thus was not involved in the sale of the counterfeited items. As a host, it had neither an obligation to monitor all information hosted on its servers, nor an obligation to track down illicit activities. eBay relied on Section 6 I-2 of the Loi pour la confiance dans l’économie numérique (LCEN) and asserted that it was not liable unless it became aware of the illicit nature of such information and did not remove or deny access to it. In this case, Hermès had not notified eBay of the counterfeited product, so eBay was not aware of it.

eBay also pleaded that it had put in place several measures to protect intellectual property (IP) rights of third parties, including a prohibition on illegal activities in its website terms of use and implementing the Verified Rights Owner (VeRO) program, which allows IP owners to easily report listings that infringe their rights.

The court analyzed the role of eBay as a firm specializing in online brokerage services. It determined that even though eBay organizes the display of the listings, eBay is not an editor of content since the content of the listings is provided by the users. At the same time, the court concluded that eBay is not simply a host; it is also an editor of communication services specializing in online brokerage. As such, eBay does not have an obligation to confirm that all goods sold through its services are genuine, but it is required to ensure that its website will not be used for illegal activities.

In that regard, the court found that eBay’s preventive and detection programs were limited and not sufficient to meet its obligations. According to the court, eBay should have been more active in taking all means in order to force sellers using its services to identify their products as precisely as possible (e.g., serial number, make, origin, etc.), which would assist IP rights owners in verifying if the products for sale are genuine. Moreover, mere mentions in the eBay terms of use about illegal activities, which cannot be distinguished from the other terms of use of the services, were not sufficient. eBay should have emphasized, on a separate webpage and in sufficient clarity, that civil and penal consequences can be imposed on those who sell or buy counterfeits.

Therefore, the court ordered the seller and eBay to jointly pay €20,000 in damages to Hermès, and ordered the publication of the judgment on eBay’s website, Hermès’ websites and up to four magazines selected by Hermès. An appeal of this decision has not yet been lodged.

Critics of the decision contend that the court has created a new liability regime for editors of communication services; one that is not set out in the LCEN. Further, although the court concluded that eBay had committed trade-marks infringement activities, its reasoning seems to base the liability of eBay on the common liability regime. Therefore, the source of liability of eBay in that case remains unclear.

Shortly after the Hermès decision, the Tribunal de Commerce de Paris ordered eBay to pay to the French luxury goods company LVMH and its affiliates damages in the amount €38.6 million in three separate judgments. Unlike in the Hermès case, the source of liability of eBay in the LVMH case is clear. The court concluded that eBay was not solely acting as a host but also as a broker. As such, eBay was subject to the common civil liability regime. In that regard, the court determined that eBay had committed a gross fault by allowing counterfeited goods to be sold through its website. eBay has indicated that it intends to appeal those decisions.

U.S. — eBay Not Liable to Tiffany for Trade-mark Infringement

Across the pond, a US district court recently dismissed a trade-mark infringement claim brought by the famous jeweller Tiffany against eBay. The court found that eBay was not liable for either direct trade-mark infringement or contributory trade-mark infringement.

The court pointed out that the law does not impose on eBay a duty to take pre-emptive steps to prevent sales of counterfeit goods, even if eBay may have a general knowledge that counterfeit goods might be sold on its website. The court noted that when eBay was specifically advised that a specific item was infringing the rights of Tiffany, eBay immediately removed the listing.

The court also found that the use of Tiffany’s marks by eBay to advertise that Tiffany’s items were offered for sale on its website was protected by the doctrine of nominative fair use. This allows one who trades a branded product to describe it by its brand name. The result of this ruling is that Tiffany, and not eBay, must ultimately bear the burden of protecting its trade-mark.

Another US district court reached a similar conclusion in 2001. The court dismissed a copyright infringement lawsuit against eBay, where the plaintiff alleged that unauthorized DVD copies of its work were sold on eBay. The US court concluded that, under the Digital Millennium Copyright Act, eBay was not liable since the company did not have the ability to control the authenticity of all items auctioned on its site and that, in this case, eBay did not have actual knowledge that pirated copies were being sold.

McCarthy Tétrault Notes:

In Canada, the potential liability of an auction firm may vary depending if trade-marks or copyrights are involved.

Copyrights

Authorization

The Copyright Act not only grants to the owner of a copyright certain exclusive rights, such as the right to copy the work, but also the right to authorize these exclusive rights. Such authorization right constitutes a distinct right granted to the copyright holder. Therefore, a person may be held liable for an infringement of that right, if he or she authorizes another person to perform an exclusive right in breach of the Copyright Act. The courts have interpreted the term "authorize" to include anyone who "sanctions, approves and countenances" the infringing activities.

So far, to our knowledge, the Canadian courts have not dealt with the concept of "authorization" in the context of an online auction firm such as eBay. However, the Canadian courts have ruled on whether an Internet service provider (ISP) that provides online services or network access is authorizing, encouraging, inducing or promoting infringement by the fact that it provides Internet access to users who commit infringement activities.

The Supreme Court of Canada has recognized that an ISP’s knowledge that someone might be using its services to violate copyright is not necessarily sufficient to constitute "authorization." However, it added that if the ISP has received notice of the infringing content, the failure to respond by "taking it down" may lead, in some circumstances, to a finding of "authorization."

Obviously, to avoid the finding of "authorization," the services or equipment made available by the provider should also have a non-infringing use. In that regard, the courts should presume that a person who authorizes a third party to use its services does so only so far as the conduct of the third party is in accordance with the law. The fact that the operator implemented certain types of prevention and detection programs to prevent infringing material from being sold through its website should not be sufficient to rebut this presumption.

Therefore, in Canada, the mere fact of operating an online auction system, which could be used for legitimate sale activities, should not be sufficient to conclude that the operator has authorized the infringement activities conducted through the website.

Further, the federal government recently released Bill C-61, An Act to Amend the Copyright Act, which proposes certain exceptions and immunities for search engines and for ISPs where the latter provide means for telecommunications or reproduction of work through the Internet. Unlike in the US and under the LCEN, Bill C-61 does not adopt "a notice and takedown regime," but rather obliges the ISP to pass on an infringement notice received from the copyright owner to the subscriber of its services. Because "providing services related to the operation of Internet" can encompass various types of services, it will be interesting to see whom the courts will allow to shelter under these exceptions if this bill is passed.

Secondary infringement

Under Section 27 of the Copyright Act, any person who distributes a copy of a work that the person knows or should have known infringes copyright may be held liable for secondary infringement. Therefore, one may consider that an online auctioneer might be held responsible for secondary infringement if counterfeited items are sold through its website.

Unlike a traditional auction house, online auction services providers are not actively involved in the listing, bidding, sale and delivery of the items offered for sale on their websites. In such a case, the online website provider does not have possession of, or the opportunity to inspect, the counterfeited item, which is only in the possession of the seller. When an item is sold, it passes directly from the seller to the buyer without the auctioneer’s involvement. Therefore, it might be difficult to prove that the online auctioneer is indeed involved in the distribution of the counterfeited goods or has knowledge of the infringement activities conducted by a user of its services.

Trade-marks

For trade-mark infringement to occur, the infringer must have used the other party’s trade-mark. The concept of "use" is therefore central and occurs if, in the normal course of trade, at the time of the transfer of property, the mark appears on the product or its packaging. Unlike copyright, trade-mark law does not have the concept of secondary infringement or the concept of "authorization." Since the regimes are different, it remains to be seen whether analogies may be drawn between copyright and trade-marks in this context.

As noted above, the online auction provider is not involved in either the sales or the transfer of property occurring between the seller and the buyer. Thus, one may conclude that the auctioneer has not used the third-party mark. However, courts have already decided that an intermediary such as a selling agent can be liable for "passing off," if it knowingly and deliberately aided and abided an act of passing off.

Ultimately, the potential liability of an online auctioneer, under trade-mark law or copyright law in Canada, will remain a matter of fact and the court will have to examine the involvement of the auctioneer in the sale and its knowledge of counterfeited goods being sold through its services. The French court’s finding, to the effect that an online auctioneer must take better measures to ensure that services are not used for illegal activities, not only impacts companies offering services over the Internet, but also other service providers or producers of goods in the "real" world.