eBay pays a high price for fakes

On 30 June 2008 eBay was ordered to pay almost €40 million to Louis Vuitton Moet Hennessey ('LVMH'), the luxury goods manufacturer, for allowing online auctions of fake copies of its goods.

By Katie Withers

The French court decided that eBay had committed “serious faults” by not doing enough to prevent counterfeit goods being sold on its site. This decision is good news for brand owners but has significant implications for online commerce.

eBay was also ordered to stop selling certain perfumes, on the grounds that they breached LVMH's selective distribution agreements (which are typically used to regulate how, where, and by whom, luxury goods are sold).

The decision is just the latest battle in a long dispute between the online auctioneer and luxury brand owners. For example, in 2007 L'Oreal commenced legal action against eBay in five European countries over its sale of counterfeit perfume and cosmetics.

eBay has already indicated that it will appeal the judgment, which was handed down just a month after eBay was ordered by a French court to pay Herm*#*7867;s €20,000 over its sale of counterfeits. eBay asserts that LVMH's pursuit of the litigation was a result of its “desire to protect commercial practices that exclude all competition” rather than the prevention of counterfeiting.

Katie Withers, an associate in the IP team at international law firm Eversheds, comments: “The decision is good news for brand owners, for whom eBay's business model is a huge challenge. eBay's online virtual marketplace is often used to facilitate the sale of counterfeit goods, and the debate centres on eBay's responsibility for the authenticity of products sold.

“It is more attractive for trademark owners to put the onus on eBay to control its sellers' activities - the alternative would be to pursue individual resellers and/or to police eBay itself. eBay has stepped up its efforts to fight counterfeiters through programmes such as its “verified rights owner” system which is designed to block sales of counterfeit goods. It also removes counterfeit products from sale where it is notified they are being offered for sale. However, it appears that a large proportion of LVMH's branded goods sold through eBay were, in fact, counterfeit. For example, LVMH claimed that 90% of the 300,000 Dior-branded products sold on eBay in the second quarter of 2006 were fakes.”

Many of the cases against eBay have been brought by French groups which control a large portion of the luxury brands industry. Other rulings - such as a case filed against eBay in the US by Tiffany & Co - are awaited.

“The court's findings have very significant implications for online commerce and could well cause eBay to re-think its business model. While the French courts have generally taken a favourable approach to luxury brand owners, an equivalent ruling in the pending case filed by Tiffany & Co could spell disaster for eBay, since the US is responsible for about half of its business. The implications of such a decision could have dramatic consequences for all online resellers by making them responsible for controlling and verifying the authenticity of goods sold.”

Katie Withers, associate in the IP team at international law firm Eversheds

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