The long awaited decision of the Court of Justice of the European Union (CJEU) in L’Oréal v. eBay was handed down last month. The CJEU followed its brand-owner friendly approach by further tightening the liability of online marketplace operators, while at the same time strengthening brand owners’ rights. In doing so, the Court made it clear that trademark owners must be accorded effective measures to protect their trademarks.

The only good news for online operators such as auction sites is that the Court (following its earlier decision in Google France1) confirmed that online operators do not "use" a trade mark by merely allowing its customers to market goods with third party trade marks on its platform. Nevertheless, the Court found that online marketplace operators may be responsible for trademark infringements carried out by users on their platform if they played an "active role" in facilitating the infringing conduct (provided of course, secondary infringement provisions exist in the relevant jurisdiction). Even where the operator has not played an active role, the Court held that national courts should have powers to impose effective measures against the service provider, not only to prevent existing infringements, but also, more controversially, to prevent future infringements on the marketplace.  

The precise circumstances and the factors that will guide liability for advertisers and online operators have once again been left to the member states to determine. The effects of the judgment under national jurisdictions will therefore in many aspects depend on how the national courts interpret and implement this judgment. What is clear however, is that marketplace operators will have to assume more responsibility to prevent infringements on their platform. This is likely to have wide ranging impact on all online operators and Internet Service Providers (ISPs).  

Background

The judgment of the Court follows a request for a preliminary ruling by the English High Court, concerning proceedings in which L’Oréal complained that eBay was liable for certain trademark infringements committed by the users of its platform.2 The key issue concerned liability for keyword advertising, such as Google Adwords. These types of advertisements have been contentious because advertisers are able to select registered trademarks of their competitors as keywords to prompt advertisements for its goods and services.  

The English High Court was unable to decide whether eBay was liable for certain keyword advertising or for trademark infringements carried out by the users of its marketplace and referred various questions to the CJEU. Moreover, the Court sought guidance as to whether brand owners could legitimately prevent the offering for sale of testers, product samples and the resale of goods without their original packaging in view of the established European exhaustion of rights principles.    

Sales Without the Brand Owner’s Consent; Testers, Dramming Products and Resales: No Exhaustion of Rights

The first issue that the Court considered was whether brand owners are entitled to prevent the sale of product testers, dramming products (products which are not intended for commercial supply) and the resale of goods that have already been put onto the market, without their original packaging. The key legislative provisions are found in Art. 7 of the Trademark Directive (no. 89/104)3 and Art. 13 of the Trademark Regulation (no. 40/94).4 These provisions essentially provide that a brand owner’s rights are exhausted after goods bearing the relevant trademark are put into the European market with the brand owner’s consent.  

The Court held that the trademark owner is generally entitled to oppose the sale of testers and dramming products. This is because the Court found that these products had not been "put onto the market" by the brand owner.

The Court also held that a trademark owner may oppose the resale of goods that have already been put onto the market without their original packaging, if important information such as the identity of the manufacturer or the person responsible for marketing the product was missing or in circumstances where the resale could affect the origin function5 of the trademark or the supply could damage the mark’s reputation. The Court confirmed that EU trade mark law will apply to trade marked products offered for sale from a non-EU state where the offer for sale is targeted at consumers in an EU state covered by the mark; it is however, not necessary that the products have been put on the market in such territories.    

Keyword Advertising

The Court also made some important findings regarding keyword advertising following on from its decisions last year in Google France6 and the Portakabin7 cases. These findings are likely to also have significant implications for the pending decision in the Interflora8 case, which is due to be handed down shortly.  

The Court confirmed the key finding of the Google France decision that the selection of keywords by the advertiser to trigger the display of advertisements is "use in the course of trade" of the mark within the meaning of the trademark directive and trademark regulation. The key issue though was whether a trademark owner is entitled to prevent eBay from keyword advertising, if the resultant sponsored link leads the user directly to advertisements or offers of sale of products by eBay’s users on eBay’s marketplace platform.

The Court held that the trademark owner is indeed entitled to prevent eBay from such advertising, "if the advertising does not enable reasonably well-informed and reasonably observant internet users — or enables them only with difficulty — to ascertain whether the goods concerned originate from the proprietor or from an undertaking economically linked to that proprietor, or from a third party".9 It did not matter that sponsored link advertisements were concerned with the sale of products by eBay’s customers. This finding essentially means that online service providers could be held responsible for advertisements of users of the marketplace, if the advertising does not clearly show that the offered goods do not originate from the trademark owner.  

The Court also went on to say that keyword advertising which serves to promote eBay’s own services — i.e., its online marketplace — could only constitute trademark infringement, if the marks selected as keywords are trademarks with a reputation. This is due to the fact that the goods and services in question are not similar (eBay provides a marketplace and L’Oréal offers products such as cosmetics) and therefore liability has to be established under the "famous marks" provisions of the trademark directive and trademark regulation.10    

Liability Exemptions for Host Providers

The other principal area of the case concerned the liability of online marketplace operators for infringements committed on their platform. In this respect, two distinct issues arise. The first is whether an online marketplace operator can be held primarily liable for the trade mark infringements that occur on its platform. The second, and perhaps more controversial issue, is whether, and to what extent, online marketplace operators can be held secondarily liable for the conduct of its users.

On the first issue, the Court followed its decision in Google France11 in holding that merely by providing a service that enabled its customers to display on the eBay platform products with third party trade marks eBay did not itself "use" the relevant trademark. The trade mark use is made by the sellers (i.e., eBay’s customers) alone.  

The extent to which secondary liability can be imposed on eBay (for instance under accessorial or secondary liability provisions) is a matter for national law. However, in this case, the Court had to consider the extent to which the liability of operators such as eBay was limited by the requirements of the e-Commerce Directive12 which restricts the liability of service providers in relation to the "hosting" of information provided by the recipients of its services. The Court noted that the general exemption of secondary liability in the e-Commerce Directive only applies to service providers that have acted neutrally by providing a merely technical and automatic processing of the data. However, where the service provider has played an active role of such a kind as to give it knowledge of, or control over, those data, it would not be subject to the general exemption.13 Even though the Court once again left it to the national courts to examine the circumstances that would give rise to liability, it specified at least some conditions under which a provider must be considered not to have played a "neutral role": This includes situations where the operator has provided assistance which entails, in particular, optimizing the presentation of the offers for sale in question or promoting those offers. Although the Court did not ultimately decide the issue in respect of eBay, it did observe that eBay processes the data entered by customer sellers, the sales take place in accordance with eBay’s terms and in some cases, eBay also provides assistance intended to optimize or promote certain offers. These observations suggest that the Court considers that operators such as eBay would generally fall outside of the exemption.  

What is more, even if the online provider plays a "neutral role" (and is therefore, subject to the exception under the e-Commerce Directive), it would not be exempt from liability if:

  1. It had "actual knowledge" of illegal activity
  2. It is aware of facts or circumstances from which the illegal activity or information is apparent
  3. Having obtained such knowledge or awareness, fails to act expeditiously to remove or disable access to this information

Even though these insights are not new (they are stated in Art. 14 of the Directive no. 2000/31/EC) the decision provides some clarity by explaining that the standard of duty required is that of a "diligent economic operator" and that the relevant "awareness" can arise as a result of an investigation undertaken at the online operator’s own initiative or due to being notified of an infringement.

Once again, this appears to put the onus right back on online operators such as eBay and indicates that its current brand owner driven notice and take down system, VERO, may not sufficiently absolve it from liability. Hosting auction and product sales sites will have to engage in a higher degree of self policing in the future, especially with respect to the offer for sale of well known or famous brands.    

Imposition of "Preventive" Measures Against Online Operators

The Court held that national courts must be able to issue orders against online service providers to take measures that contribute not only to bringing to an end existing infringements, but also to prevent future infringements. This is a significant finding and opens up the possibility of brand owners being able to obtain relief directly against online operators, including ISPs.

The Court however warned that orders against online providers must be effective, proportionate, dissuasive and must not create barriers to legitimate trade. While the scope of these requirements has been left to the national courts to define, the Court nevertheless clarified the kind of measures that can be imposed on online service providers. Importantly, the Court said that any relief that required online providers to actively monitor all the data of each of their customers, or otherwise provided for blanket bans on trademarked goods, was not permissible. Nevertheless, the marketplace operator may be ordered by means of an injunction to suspend repeated perpetrators in order to prevent future infringements. Further, the operator may be ordered to adjust its platform to make it easier to identify its customer-sellers, especially if the infringer is acting in the course of trade and not privately.

The main conclusion is that host sites will have to know their customers much better in the future, not permitting customers to hide behind anonymous pseudonyms, and requiring proper disclosure of the sellers’ identity. While this is already a legal requirement under Article 6 of the e-Commerce Directive (2000/31/EC), it is not enforced. In order to protect themselves, website hosts and ISPs may need to know their clients, and disclose their identity in order to help avoid liability for the sale of infringing goods. It would be ironic, but predictable that it could become as difficult to open an account to sell goods on an auction site without proper identity checks as it is to open a bank account or instruct a lawyer in the EU.

Potential Effects Under National Jurisdictions

National jurisdictions already have clarified some of the aspects that are discussed in the present judgment, or show a clear direction towards some of the points discussed.

United Kingdom

  • UK courts are likely to require substantive proof that the relevant keyword advertising damages the origin function of the mark before finding advertisers liable. This is particularly the case where the keyword corresponding to the trademark does not appear on the advertisement itself. In certain cases, a link between the keyword and the trademark owner may be easier to make out than others; for instance, in the Interflora14 case, there was evidence before the UK High Court that M&S’ keyword advertisements had created a false impression that M&S was part of Interflora’s flower business network. If this type of link can be established on the evidence, UK courts will likely have no hesitation in holding advertisers liable.
  • The decision means that the UK courts now have significant latitude in determining the circumstances where an online operator can be said to have played an "active role." The existing UK case law on authorization and accessorial liability suggests that mere enablement, assistance or even encouragement by the economic operator is unlikely to be enough; something more will probably be required — for instance, by reason of the relationship between the online operator and its customers or because of the degree of control the online operator exercises over the content of any advertisement.
  • Nevertheless, given the requirement that the seller should be clearly named, the days where online operators could "hear, see or speak no evil" are probably now over. Operators will now probably be required to be more transparent about identifying its users and in certain cases, may need to take steps to counter infringing conduct on their own volition where illegality, or a pattern of illegality, is likely or has occurred.  

Germany

  • The German Federal Court of Justice (FCJ) recently clarified the conditions under which keyword advertising (Adwords) does not violate the "origin function" of the trademark:15 According to the FCJ, it does not constitute a trademark infringement under the aspect of use of an identical mark, if (i) the advertisement is displayed in a separate section of the website that bears the heading "advertisements," (ii) the advertisement itself does not contain the protected sign nor make any reference to the trademark owner and (iii) the domain mentioned in the advertisement points to the advertiser and therefore indicates an origin of the advertised products that is different from the owner of the trademark.
  • In contrast, a recent judgment of the Braunschweig Court of Appeal seems to impose stricter rules on advertisers as regards keyword advertising:16 The court held that even where (i) the advertisement is displayed in a separate part of the search results page and where (ii) the advertisement does not make any reference to the protected trademark, the Internet user would not be able to ascertain the origin of the advertised goods and services, due to the vagueness17 of the provided information. The Internet user would expect the trademark owner and the entity standing behind the advertisement to be economically linked. The fact that the selection of keywords can be based on automatic suggestions provided by Google18 does not exempt advertisers from liability, at least not under rules of secondary liability. With this judgment, the Braunschweig Court of Appeal may have gone too far. Not surprisingly, the appeal to the Federal Court of Justice is pending. The decision of the Federal Court is expected with curiosity.  

France

  • French Courts’ determination of eBay’s liability has so far lacked consistency. As a matter of example, in a lawsuit brought by L’Oréal for trademark infringement and tort, the Paris Civil Court determined on May 13, 200919 that eBay played a neutral role in connection with the sale of products by third parties via its auction service and should thus benefit from the exemption regime for hosting providers. Interestingly, the court considered that providing assistance to the sale by optimizing the presentation of the offers was no sign that eBay was playing an active role. It is doubtful that such a conclusion might be reached again today after the CJEU’s decision. The Paris Civil Court further held that measures carried out by eBay to prevent infringement were indispensable but deferred to the parties to collaborate closely for determining them.
  • By contrast, in a lawsuit brought by Hermès, the Reims Court of Appeal on July 20, 2010 refused the benefit of the exemption regime to eBay on the ground that its role would go beyond a mere neutral and technical role.20 The court went on to say that eBay had made use of the Hermès trademarks and should be found liable for primary infringement.
  • Although none of these eBay decisions reached the French Supreme Court level, the French Supreme Court issued its first decision on the exemption regime for hosting providers on February 17, 2011.21 The Court made it clear that a provider should be granted the benefit of this regime to the extent that it neither determines nor selects in any manner the content that it hosts. The Court however made no ruling on the preventive measures that could be taken.  

What Does This Mean for Online Marketplace and Service Providers?

The position of online marketplace and service providers has been tightened:

  • Takedown services that rely exclusively on the brand owner to identify and notify the online operators of trademark infringements may not in all cases absolve the online operator from liability. For instance, there may be circumstances where the illegal activity is so rampant, that the online operator may need to take action on its own volition.
  • Online service providers should get ready for taking up more responsibility when it comes to the protection of third party rights. This is particularly so where the online service provider is actively involved in the services it offers to its users.
  • A potential battle ground may centre around the anonymity of vendors which in the past has provided cover, but which may not do so in the future. Host sites are likely to have to know their customers better than they do today. Online providers will have to be prepared for assuming more liability, including injunctions imposed against them and take steps to curb future infringing conduct.  

What Does This Mean for Brand Owners?

The judgment strengthens the position of brand owners:

  • Brand owners can oppose the offer and sale of products, if these are not covered by their consent, namely goods not meant to be sold in the EU/EEA including grey goods and parallel imports, testers and dramming products as well as unboxed goods.
  • Brand owners are entitled to prevent advertisers (including online service providers) from keyword advertising if the advertisement does not unequivocally indicate that the offered goods do not originate from the trademark o
  • wner. Brand owners will be able to enforce their position more easily, especially when it comes to the imposition of court measures directly against online providers.