In a suit brought by L’Oreal against eBay, the European Court of Justice ruled that online auction sites could be liable for trademark infringement if they “actively promote” counterfeit goods.

“The proprietor of a trade mark is entitled to prevent an online marketplace operator from advertising – on the basis of a keyword which is identical to his trade mark and which has been selected in an internet referencing service by that operator – goods bearing that trade mark which are offered for sale on the marketplace, where 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 of the trade mark or from an undertaking economically linked to that proprietor or, on the contrary, originate from a third party,” the court said.

L’Oreal had filed several suits in EU countries, alleging that eBay should be liable for sales of counterfeit goods and imported products not intended for the European market.

The EU’s highest court agreed, ruling that certain situations could result in liability for intermediary service providers.

Where “the operator has provided assistance which entails, in particular, optimising the presentation of the offers for sale in question or promotion of those offers, it must be considered not to have taken a neutral position between the customer-seller concerned and potential buyers but to have played an active role of such a kind as to give it knowledge of, or control over, the data relating to those offers for sale,” the court said.

It said the referring national court must determine whether eBay played such a role and was liable.

But where operators confine themselves to a “merely technical and automatic processing of data,” and do not take an “active role,” they will not be liable.

The court instructed the national court to decide whether damages and injunctive relief are required, noting that “it is sufficient….for [eBay] to have been aware of facts or circumstances on the basis of which a diligent economic operator should have identified the illegality in question and acted in accordance.”

In reaching its conclusions, national courts must “strike a fair balance between the various rights and interests” of the parties, but “are able to order the operator of an online marketplace to take measures which contribute, not only to bringing an end to infringements of those rights by users of that marketplace, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, dissuasive and must not create barriers to legitimate trade,” the court said.

To read the court’s decision in L’Oreal v. eBay, click here.

Why it matters: The decision is at odds with case law in the United States, where the Second Circuit ruled last year that eBay did not violate Tiffany & Co.’s trademark rights by allowing sellers to list used items from the retailer on its Web site, even though the auction site knew or had reason to know that there was a substantial problem with the sale of counterfeit Tiffany jewelry on the site. While the U.S. court did hold that the site could be liable for false advertising, a federal court judge later dismissed the claim for lack of evidence.