L’Óreal v eBay: Google AdWords and liability of intermediaries

The Court of Justice of the European Union (the ECJ) has ruled in the latest of a series of decisions concerning the purchase of trade marks as keywords to trigger advertisements on search engines. The decision in L’Óreal v eBay clarifies the liability of intermediaries, such as eBay, in relation to illegitimate goods sold on their sites and follows the decisions in Google France (iPit post here) and Die Bergspechte (iPit post here).

Background

eBay had purchased keywords corresponding to L’Óreal’s trade marks. The resulting advertisements directed users to eBay’s site where they could purchase products from third parties, for example:

Shu Uemura

Great deals on Shu uemura

Shop on eBay and Save!

http://www.ebay.co.uk

L’Oreal sued eBay and 17 individual sellers for trade mark infringement in the High Court of England & Wales on the grounds that the goods sold were either:

1. counterfeit;

2. not authorised for sale in the EEA (parallel imports); or

3. sold without packaging and therefore damaged the products’ aura of luxury and prestige.

Questions referred for clarification

The High Court sought clarification from the ECJ in relation to several issues, the thrust of which were:

i) whether eBay’s advertisements through Google’s AdWords service amounted to trade mark infringement

ii) whether eBay was liable for infringing goods sold by its sellers through its site

iii) whether eBay had an exemption from liability under the E-Commerce Directive

iii) whether an injunction could be obtained against eBay for its sellers’ actions on its site

As to infringement, the High Court also asked whether it made any difference if the goods were:

a. physically based outside the EU?

b. genuine but marked ‘not for sale’ and given away as free samples in the EU?

c. genuine but sold without their packaging?

Use in the course of trade

Firstly, the ECJ pointed out that a trade mark owner can only enforce its rights against sellers selling in the course of trade. If the sales are made on a personal basis the trade mark owner cannot enforce its rights, even if the goods are counterfeit. This means that a single sale by an individual is unlikely to amount to infringement. However, if the volume, frequency or other characteristics of the sales go beyond the realms of a private activity, the seller will be acting ‘in the course of trade’.

Does the use by eBay of trade marks as keywords constitute trade mark infringement?

Article 5 of Directive 2008/95/EC (the Harmonisation Directive) and the case law interpreting that legislation, entitles the owner of a trade mark registration in the European Union to prevent third parties not having his consent from using in the course of trade:

(1)(a) an identical sign in relation to goods or services which are identical to those for which the trade mark is registered, where the use of the sign affects, or is liable to affect, one of the functions of the trade mark, in particular its essential function to guarantee the origin of the goods or services but also the functions of communication, investment and advertising;

(1)(b) an identical or similar sign in relation to goods or services which are identical or similar to those for which the trade mark is registered where there is a likelihood of confusion.

(2) an identical or similar sign in relation to identical, similar or dissimilar goods, where the trade mark has a reputation and the use of the sign without due cause takes advantage of, or is detrimental to, the distinctive character or repute of the trade mark.

The ECJ said that the nature of the use was important. This required consideration of two different circumstances:

i) Does eBay infringe if it purchases trade marks as keywords and the advertisements direct consumers to its own general marketplace services?

The ECJ ruled that eBay’s use of trade marks as keywords to promote its own online marketplace services was not use in relation to goods or services that were identical with, or similar to, those for which L’Oreal’s marks were registered. As a consequence, there can be no infringement under Article 5(1). There can only be infringement in this instance where the mark has a reputation and eBay’s activity is contrary to Article 5(2).

ii) Does eBay infringe if it purchases trade marks as keywords and the advertisements direct consumers to offers placed by sellers on its site?

The ECJ ruled that eBay’s use of trade marks as keywords to promote offers by sellers using its services was use in relation to identical goods. It is irrelevant whether the goods belong to eBay or to a third party. There will be infringement where such use creates a link between the trade mark and the service and that has an adverse effect on one of the functions of the trade mark.

Applying the test set out in Google France, the ECJ said that where an advertiser purchases terms which correspond to trade marks in order to trigger online advertisements through search engines that activity has an adverse effect on the origin function and constitutes trade mark infringement if:

…the ad does not enable normally informed and reasonably attentive internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to by the ad originate from the proprietor of the trade mark or an undertaking economically connected to it or, on the contrary, originate from a third party.

Therefore, where eBay has purchased the term ‘L’Oreal’ as a keyword and its advertisement on Google takes the form “buy L’Oreal perfume on eBay”, eBay is likely to be liable for any infringing L’Oreal products sold by its sellers. The sellers may of course also be liable for trade mark infringement.

If eBay’s advertisement on Google takes the form “buy perfume on eBay”, eBay is likely to be liable for infringing products sold by its sellers only where the advertisement is unclear as to the origin of the goods.

When is eBay liable for infringing goods sold by its sellers through its site?

Article 14(1) of the E-Commerce Directive 2000/31 states that:

a service provider is not liable for the information stored at the request of a recipient of the service on the condition that:

i) the provider does not have actual knowledge of illegal activity or information and is not aware of facts or circumstances from which the illegal activity or information is apparent; or

ii) acts expeditiously to remove or disable access to such information if it obtains knowledge or becomes aware that it exists.

The ECJ stated that eBay qualifies for an exemption for liability where it has not played an active role which allowed it to have knowledge or control of its sellers’ advertisements. Where eBay has provided assistance by optimising the advertisement within its site, it may well play an active role and therefore not be entitled to rely on the defence.

In any event, eBay will be liable where it was aware of facts or circumstances which should make a diligent economic operator realise that the goods offered were unlawful and failed to act expeditiously to remove the information.

Can eBay be the subject of an injunction even if it is not liable?

Article 11 of Directive 2004/48 (the IP Enforcement Directive) states that member states of the EU must ensure that rightholders are entitled to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right.

The ECJ ruled that eBay may be the subject of an injunction. However, any order must be consistent with Article 3 of the IP Enforcement Directive which requires remedies to be fair and equitable, not unnecessarily complicated or costly and must not entail unreasonable time-limits or unwarranted delays. It must also be effective, proportionate and dissuasive and applied to avoid the creation of barriers to trade.

eBay cannot be required to actively monitor users of its site or seek out illegal activity pursuant to Article 15 of the E-Commerce Directive.

Other issues

Does it matter if the goods are physically located outside the EU?

The ECJ also stated that the physical location of the goods is irrelevant: there will be infringement where an offer for sale is targeted at consumers in the territory where the trade mark is protected. That assessment is for the national courts. However, the mere fact that a website is accessible from the territory covered by the trade mark is not a sufficient basis for concluding that the offers for sale displayed there are targeted at consumers in that territory (the ‘super-telescope’ analogy of Mr Richard Miller QC in Euromarket Designs Inc v Peters and another). The geographic areas to which the seller is willing to dispatch the product will always be important.

Are genuine goods marked ‘not for sale’ and given away as free samples ‘put on the market’?

Referring to its own decision in Silberquelle, the ECJ said that where a trade mark owner gives items away, free of charge, in order to promote the sale of its goods, those items are not distributed in any way with the aim of them ‘put on the market’. The affixing of terms such as ‘not for sale’ and ‘demonstration’ creates a rebuttable presumption that the owner does not consent to the goods being sold on. Their sale may therefore be prevented.

Can a trade mark owner prevent genuine goods from being sold without their packaging?

The ECJ said that the trade mark’s function of indicating origin will be adversely affected where the identity of the manufacturer is missing because the packaging has been removed. The resale of such goods will therefore constitute infringement.

In addition, the ECJ said that the removal of packaging may in some cases harm the image of the product as a prestige or luxury item. In those circumstances, the trade mark owner may prevent the resale of genuine goods where this would otherwise cause damage to the reputation of the trade mark.

Comment

Trade mark owners will welcome the result of this case, as it enhances their ability to control their rights online. A greater onus is placed on marketplace operators who assist with the presentation of advertisements within their site to monitor the goods being sold. It will be much harder for eBay, for example, to continue to ‘turn a blind eye’ to the sale of counterfeit goods.

All iPit posts on Google AdWords can be found here.

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