Online marketplaces, such as eBay, enable users to advertise for sale a vast range of products. Some of those products (such as counterfeits and certain parallel imports) inevitably infringe the trade marks of brand holders. To what extent is the operator of the online marketplace required to provide assistance or bear responsibility for dealing with such infringement, including, ultimately, being liable for the infringement? A long awaited judgment from the Court of Justice of the European Union provides an answer.

Background: a referral to the Court of Justice of the European Union

In May 2009 the High Court gave its judgment in the case of L’Oréal v eBay [2009] EWHC 1094 (Ch). Our Law Now article on the decision can be viewed here. By way of summary, L’Oreal alleged that eBay:

  1. should be jointly liable for its involvement in the trade mark infringements being committed by individual sellers through the eBay marketplace;
  2. was infringing L’Oreal’s trade marks by using them (via referencing services such as Google’s AdWords and in its user’s adverts on the ebay.co.uk website) to direct consumers to infringing goods on the marketplace; and, •
  3. hat eBay’s efforts to prevent the sale of counterfeit goods and parallel imports are inadequate.

In his judgment, Arnold J. (High Court) rejected the first allegation, but in relation to the others he requested – despite being minded not to support all of L’Oreal’s allegations – guidance on interpreting the relevant law from the Court of Justice of the European Union.

Following an Opinion given by Advocate General Jääskinen (reported in our Law Now article of November 2010, which can be viewed here), the Court of Justice has now handed down its judgment. A summary of the guidance this provides to the High Court (and to those potentially affected by the implications of the judgment) is set out below.

Private sellers: not infringing

The Court of Justice started its judgment by reminding trade mark proprietors that they may only rely on their rights (including, as against those who sell trade-marked goods online) in the context of commercial activity. So, for example, a trade mark proprietor could not pursue an individual re-selling a few unwanted birthday presents over eBay. Only if the sales go beyond the realms of private activity (perhaps, owing to their volume, frequency or other characteristics) will the seller be caught by trade mark law.

Parallel importing – when does it breach EU trade mark law?

In regards to parallel imports, the Court confirmed that EU trade mark laws apply to offers for sale relating to trade-marked goods located in third states (i.e. non-EU/EEA states) as soon as it is clear that those offers for sale are targeted at consumers in the EU. So, for example, an advertisement placed on eBay containing L’Oreal trade marks and advertising genuine L’Oreal products that the seller (who holds those goods in China) is willing to have delivered to the UK would infringe the relevant L’Oreal trade marks because the seller has no permission from L’Oreal to do so and those same products have not yet been placed on the market in the EU/EEA by L’Oreal.

The Court noted that it is for national courts to assess, in each case, whether an offer for sale is targeted at consumers in the EU. We would expect that national courts will continue to take a common sense view to this, taking into account all relevant factors, including shipping destinations, language and billing currency.

In addition, the Court confirmed that merely supplying sample products does not amount to the proprietor of the trade mark having put those goods on the market within the meaning of the Community Trade Mark Regulation. Thus, trade mark proprietors do not need to worry that putting out samples will give parallel importers a legitimate reason to resell such goods without the proprietor’s consent.

Unboxed/unpackaged products: a warning to re-sellers

Thirdly, the Court agreed with the Advocate General’s Opinion that, where a re-seller of branded products removes the boxing/packaging prior to re-sale, that may harm the image of the product and thus the reputation of the trade mark that the boxing/packaging and product bears. It may also mean that essential information required as a matter of law (such as the identity of the manufacturer under the Cosmetics Directive) is no longer on the product. In such situations, the proprietor of the trade mark is entitled to seek prevention of the sale of those unboxed/unpackaged products.

Third party trade marks used as keywords – lawful?

Applying its Google France rationale (see our Law Now on that case here), the Court re-confirmed that, where an online marketplace operator advertises (through an internet referencing service, e.g. Google’s AdWords) the sale (by its users) of trade mark bearing goods on its marketplace, using a keyword which is identical to that trade mark, then that operator may be liable for infringing the proprietor’s trade mark unless the advertising enables a reasonably well-informed and reasonably observant internet user to ascertain – without difficulty – whether the goods concerned originate from the proprietor of the trade mark or, on the contrary, a third party.

The practical impact of this is that marketplace operators making use of trade mark protected keywords on internet referencing services will need to ensure that their online advertisements make it clear, in some way, that the goods being re-sold on the marketplace are being sold by persons other than the actual brand owners.

Operators liable for their users’ offers for sale?

Ordinarily speaking, in providing an online marketplace, operators may expect to benefit from an exemption from liability (including, for trade mark infringement committed by their users) contained in the E-Commerce Directive (Directive 2000/31). Essentially, the E-Commerce Directive exempts an “information society service” provider (such as an online marketplace operator) from liability for information/data stored by it on behalf of the recipient of its services. In making its reference, the High Court sought clarification from the Court of Justice as to whether this exemption applies to online marketplaces where sellers upload offers for sale (i.e. product descriptions) that infringe brand holders’ trade marks.

The Court confirmed that if a seller uploads an offer for sale that contains signs similar or identical to a registered trade mark, such that it would amount to trade mark infringement, the marketplace operator may escape liability through the E-Commerce exemption, except where:

(i)  it has provided the seller with some sort of “active” assistance, such as optimising the presentation of the offer for sale or promoting the offer for the seller; or

(ii)  the operator was aware of factors or circumstances on the basis of which it should have realised that the offer for sale in question was unlawful, and upon becoming aware, it failed to act expeditiously to remove or prevent access to the offer for sale.

This is probably the most concerning part of the judgment for marketplace operators. It poses questions such as, what is “active” assistance? Does providing users with templates or formatting tools fall within the ambit of “active” assistance? What level of awareness would the operator need to have for it to have realised that the offer for sale was unlawful?

These questions will be answered as national courts apply the judgment to the disputes that come before them, as the High Court will now have to do in this dispute. Marketplace operators may take some comfort from the statement by the Court that the measures to be taken “… cannot consist in active monitoring of all the data of each of its customers in order to prevent any future infringement of intellectual property rights…”. This seems to echo the comments made by Arnold J. at first instance. Just because the operator could do more does not reasonably mean that they should.

Injunctions – what should an operator do to prevent infringement by its users?

Finally, the Court ruled that, in issuing an injunction against a marketplace operator that has committed trade mark infringement (for example, because it has provided active assistance to the seller in producing an infringing offer for sale), national courts must ensure that the injunction does not create barriers to legitimate trade. This means that the injunction can not have, as its object or effect, a general and permanent prohibition on the sale of goods bearing the relevant trade mark on that marketplace. Rather, any injunction must be effective, proportionate and dissuasive.

An effective, proportionate and dissuasive injunction would mean, perhaps, one that requires the operator to prevent specific sellers (whose infringing activities are known) from continuing their activities on the website both now and in the future – for example, by deleting an infringing seller’s account.

In addition, the Court stated that national courts could order operators to take measures to make it easier to identify sellers (presumably, so that trade mark proprietors can go after them directly if they sell infringing products). Such measures may themselves have implications for data protection and contractual issues between operators and their users.

A fair judgment?

To some extent, the judgment of the Court of Justice is as anticipated. L’Oreal, and others like it, wish (quite legitimately) to prevent online sellers of counterfeit goods or parallel importers from circumventing established principles of trade mark law through the use of the internet. Without an application of the law that provides protection for European businesses, those businesses and the European economy could be adversely affected.

Nevertheless, because the Court’s judgment places more of an onus on online marketplaces (who provide a legitimate and economically useful service), it is foreseeable that they will be concerned that this judgment could be used to attempt to force them to put in place sophisticated and potentially costly mechanisms to prevent intellectual property infringement by their users. Indeed, the users themselves (if they become aware of this decision) may be concerned that online marketplace operators will pass on such costs to users.

However, the extent to which online marketplace providers will be burdened by this judgment will not become completely clear until national courts (including the High Court in this dispute) begin applying the Court’s judgment in disputes that come before them.

Essentially, there are a number of ways of dealing with the issue of online infringement and the relationships between online marketplace operators and brand holders. In many ways, constructive dialogue aimed at finding a consensual solution is just as important. To that end, a memorandum of understanding (“MoU”) was signed last year by notable players such as Amazon, Nokia, eBay, Lacoste, Nike, Richemont and Unilever, under which they agreed a number of principles regarding notice and take-down procedures, as well as commitments to take commercially reasonable pro-active and preventative measures to fight counterfeiting and improve co-operation and information exchange.  The alternative is of course litigation such as this. The future is likely to continue to involve both carrot and stick in brand infringement.