The Court of Justice of the European Union has handed down its judgment in the case of L'Oréal v eBay and overall it is good news for brand owners.

The factual background

L'Oréal is the world famous manufacturer and supplier of perfumes, cosmetics and hair-care products. It is the proprietor of a number of national (i.e. UK) and community trade marks. L'Oréal operates a closed selective distribution network, whereby authorised distributors are not permitted to supply products to other distributors.

eBay is the well-known online marketplace on which registered sellers can sell products either by auction or fixed price (known as "buy it now"). Sellers can either sell products on an ad hoc basis, or can set up online shops. To participate as a seller, users must sign up to an agreement which prohibits selling counterfeit items or otherwise infringing trade marks.

eBay assists sellers by providing guidance on enhancing the offers for sale, by helping to set up online shops, and by advertising some of the products sold on its marketplace using keyword advertising on the sites of search engine operators such as Google. If a user clicked on the advertisement by eBay on the search engine's website, they would be taken to a page that may include genuine products and/or infringing products.

eBay operates a programme called VeRO (Verified Rights Owner), which is a notice and take-down procedure designed to assist intellectual property owners in removing infringing listings. L'Oréal has refused to participate in VeRO, as it is of the view that the programme is unsatisfactory.

L'Oréal brought an action in the High Court in London against eBay and the individual sellers involved in 17 particular transactions conducted on the eBay website at ebay.co.uk. eBay did not contest that two of the items sold were counterfeit. Of the other 15 items, they were either not intended for sale (such as tester or dramming products - containers from which small amounts can be taken to be supplied to consumers as free samples), or were intended for sale outside the European Economic Area (EEA). Further, some of the items were sold without packaging. It was not in dispute that L'Oréal did not consent to these transactions.

The High Court referred a number of questions to the Court of Justice (ten in all, plus various sub-questions). The full text of the questions can be found here.

The Court of Justice's judgment

In relation to the individual sellers, the Court of Justice held that when a transaction does not take place in the context of commercial activity, it is not "in the course of trade" for the purposes of trade mark law. However, if the sales made on the marketplace go beyond the realms of a private activity ("owing to their volume, their frequency or other characteristics") then the seller will be acting "in the course of trade".

Question seven: is it sufficient for infringement that goods that would infringe the trade mark of a particular territory have been offered for sale by a website to consumers in that territory, or must the trade mark owner show that the goods in question will be put on the market in the relevant territory?

Under UK law, it has been established ever since the Crate & Barrel (Euromarket Designs v Peters) case that you cannot avoid infringement by basing your servers and "infringing" products outside the jurisdiction of the trade mark in question. This judgment confirms that the view of Jacob J (as he then was) in that case now applies at an EU level. If the products are based outside the relevant territory but offered for sale to consumers within the territory, that constitutes targeting the relevant consumers. Otherwise, e-commerce sellers based outside the territory would be able to avoid compliance with EU intellectual property laws simply by keeping the goods outside the territory of the relevant rights. The website offers for sale must be targeted at consumers in the relevant territory of the trade mark; if the website is merely accessible by those consumers but targeted at others (e.g. an Australian .com.au website offering goods to consumers in Australia but accessible by users in the UK) then the offer for sale would not be within the ambit of EU trade mark law.

Question one: does the provision of tester bottles and dramming products constitute their having been "put on the market" by the trade mark proprietor, or with its consent?

When tester bottles and dramming products were provided free of charge by L'Oréal to its distributors, they cannot, "as a rule", be regarded as being put on the market by the trade mark proprietor. Where the products are marked as "not for sale", "tester" or similar, the proprietor cannot be found to have impliedly consented to those items being put on the market. They were not distributed with the aim of penetrating the market, and as such the proprietor can prevent others from putting these types of products on the market.

Questions two to four: the marketing of unboxed goods

L'Oréal objected to the sale of products that had been removed from their packaging. It is implied that had the products been sold in their packaging, the trade mark owner would have exhausted its rights. The basis of the objection was three-fold.

First, the removal of packaging of luxury products such as cosmetics may harm their image, and thus the reputation of the associated trade marks. The court agreed, provided the trade mark proprietor can establish that the removal of the packaging has damaged the "image of the product" (which is likely to be a finding of fact, as it noted that in some cases it is the product, rather than the packaging, that conveys the prestige). This is interesting as it equates harm to the image of the product with harm to the trade mark.

Secondly, the essential function of a trade mark is to provide the consumer with an assurance as to the identity of the product's origin. Therefore if certain information such as the identity of the manufacturer or promoter is required by law but is missing, then that function of the trade mark is impaired and as such falls within trade mark law.

However, the final objection that the product may no longer comply with other legislation (which could amount to a criminal offence - in this case under the Cosmetics Regulations (Directive 76/768)), was not accepted. The questions of compliance that do not affect the function of the trade mark should be dealt with under the relevant legislation, not under intellectual property law.

Questions five and six: advertisement by the operator of an online marketplace of its website and the products offered on it

As referred to above, eBay bought keywords on Google's website that corresponded to some of L'Oréal's trade marks. As such, as soon as a user typed these words into Google's search engine, a sponsored link advertisement would appear with a link to http://www.ebay.co.uk/ and a message that users had the opportunity to buy -via that site - goods bearing the trade mark searched for.

The Court of Justice has already ruled on this issue more generally in the Google France and BergSpechte cases. It held that a keyword is the means used by an advertiser to trigger the display of an advertisement and is therefore "use in the course of trade" of the sign. In order to establish whether there has been infringement, the court must consider whether the advertisements are in relation to goods or services identical with those for which the trade mark is registered and whether such advertisements have an adverse effect on one of the functions of the trade mark (or are liable to do so).

To the extent that the advertisement by eBay had the effect of promoting its own service of making an online marketplace available to sellers and buyers, this would be unlikely to be 'use in relation to the relevant goods or services'.

Where the advertisement by eBay is in relation to goods being offered by its customer-sellers, this is use in relation to the goods protected by the trade mark. Just because they are not being sold by eBay does not in itself prevent them from falling within the relevant provisions of trade mark infringement law. In this case, the court held that eBay's advertisements created an obvious association between the trade marked goods referred to in the advertisements and the possibility of buying those goods through eBay.

Following the Google France judgment, the Court of Justice held that where the advertisement in question does not enable reasonably well-informed and observant internet users, or enables them only with difficulty, to ascertain whether the goods concerned originate from the proprietor of the trade mark (or economically linked undertaking) or from a third party, then such advertisement will be an infringement. This is likely to be a problem for eBay, as the advertisement will, by definition, link through to sales of genuine and non-genuine goods bearing the relevant trade mark.

Question eight: use of signs corresponding to trade marks in offers for sale displayed on the website of an operator of an online marketplace

Where advertisements are placed on the eBay website itself, the Court of Justice held that although eBay permits them to be made (by providing the facility for customer-sellers to create and post the advertisements) it is not itself "using" the trade marks for the purposes of trade mark law. Rather, the test is under Directive 2000/31 (the E-Commerce Directive), and in particular section 4 of Chapter II, which concerns the liability of intermediary service providers in electronic commerce. The Court of Justice simply cross-referred to Google France on this issue.

Question nine: the liability of an operator of an online marketplace

This question concerned Article 14 of the E-Commerce Directive. Although the Court of Justice noted that it is for the national court to decide whether liability arises under this directive, the Court of Justice would provide a view on whether eBay could rely on the exemption from liability of "hosting". For an internet service provider to fall within the scope of Article 14, it is essential that the provider be an "intermediary provider". It is not going to be such a provider if it plays an active role of such a kind as to give it knowledge of, or control over the data stored on its systems (see Google France paragraphs 114 and 120).

The Court of Justice held here that the mere fact that eBay stores offers for sale, sets the terms of its service, is remunerated for that service and provides general information to customers cannot have the effect of denying it the exemption. On the other hand, where eBay has provided assistance which entails optimising the presentation of the offers and/or promoting the offers, it could be said that it has played an active role. It is for the national court to decide whether eBay played such a role in this case.

Should the national court decide that eBay has not played an active role, it must decide whether eBay can still avoid liability by virtue of the fact that it did not have "actual knowledge of illegal activity or information". It is sufficient for a finding of actual knowledge that a diligent economic operator should have identified the illegality in question, and will cover "every situation in which the provider concerned becomes aware, in one way or another, of such facts and circumstances". The Court of Justice went on to say that, as a general rule, notification of illegal activity represents a factor that the national court should take into account.

Question ten: injunctions against operators of online marketplaces

Should such injunctions only relate to specifically identified infringements (eBay's position) or to the prevention of future infringements within certain limits (L'Oréal's position, together with the UK, French, Italian, Polish and Portuguese governments)?

The Court of Justice held that the measures required of the online service provider cannot consist in an active monitoring of all the data of each of its customers in order to prevent any future infringement of IP rights. Furthermore, a general monitoring obligation would be contrary to Article 3 of Directive 2004/48 (the IP Enforcement Directive). This states that measures must be fair and proportionate, must not be excessively costly and must not create barriers to legitimate trade.

However, injunctions that are proportionate may well be appropriate. For example, there could be an injunction to order the operator of the online marketplace to suspend a particular trader from further use of the marketplace, and as such prevent further infringements by that trader. It may also be ordered to take measures to make it easier to identify its customer-sellers that are acting in the course of trade.

Comment

This judgment will be welcomed by trade mark owners, but could cause some concern to eBay and other online marketplaces as to the extent to which they will now be required to act on notifications of infringement. As soon as they are deemed to be aware of an infringement, they could be liable. We await the UK court's response to the judgment handed down by the Court of Justice.

None of this should be a huge surprise to followers of recent trade mark decisions. The judgment also takes us a little further down the road of ascertaining the precise scope and effect of trade mark law to the internet. With hundreds of millions of users posting advertisements of (one assumes) billions of products, eBay and other operators face a significant challenge to create a system by which they can effectively deal with notifications that comply with all the requirements of this judgment. It is in their interest, as well as that of trade mark owners, for such a system to be developed quickly and effectively. Otherwise it would be a surprise if this marks the end of eBay's involvement with the courts on this issue.