Last week a eBay to pay €1.7M in damages to LVMH Möet Hennessy Louis Vuitton, a holding company of a number of luxury goods brands, for failing to comply with an injunction set as part of an . The injunction, from a case decided last year, banned eBay users from selling various perfumes, even if they were authentic. Along with that injunction, eBay was fined almost €40M for negligently allowing the sale of counterfeit goods trademarked by such companies as Christian Dior. The online auction and shopping company originally said that it would appeal the prior decision, but it has yet to do so.

The court found that had been posted on eBay’s website by users since the time of the injunction. Apparently eBay has used special software and other measures in order to curb this activity, but these actions were deemed to not be enough for the court. Based on its current model, the reality is that eBay will likely never be able prevent all banned goods from being sold on its site. This decision could lead the way for more litigation claims from other luxury brands against eBay and others, and it is uncertain what measures would have to be taken by online auction platforms to satisfy the requirements of similar injunctions.

On a related note to this case, the European Court of Justice has that “[t]he quality of luxury goods is not only the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury”. Along these lines of argument, since eBay gets commission off their sales, they should be held responsible for allowing a platform for trading luxury brands at lower costs, thus ostensibly damaging the reputation and image of these brands. LVMH has claimed that its carefully planned distribution network ought to be protected.

Alex von Schirmeister, a manager of eBay in France, has stated that the enforcement of such restrictive distribution provisions is "". Though I am not sure if I agree with this exact framing of the matter, I do think that that the mode of thinking that this decision seems to be based on vests too much power in the hands of brand owners. Control of authentic products to this extent infringes one of the basic rights of most systems of tangible property law, that of the owner to be able to transfer his or her property. If selling a luxury handbag (that an individual has legitimately purchased earlier) over eBay for a quarter of the retail price is damaging to the brand’s image to such a degree that it must be banned, what about selling that same bag for a tenth of the price at a garage sale? I would think that such collateral effects on intellectual property should not trump a more historically fundamental tenet, but perhaps this French court takes its high fashion a little more seriously than I do.

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In a recent French court case, Paris-based L'Oréal failed to win a claim against eBay that the online auctioneer should be liable for the trademark infringements committed by their users and was profiting from the sales of counterfeit goods. Thousands of L'Oréal-branded cosmetic and beauty products are listed for sale on eBay on a daily basis. The world's largest cosmetics and beauty company claimed that eBay had not made reasonable measures to stop users from selling counterfeit goods through its website. They argued that the model of surveillance utilized by eBay - only investigating suspicious goods or sellers after they have been posted for auction - was insufficient. The model used by Priceminister, a French competitor to eBay's service, was argued to be more responsible and effective as it does all of its screening before items are posted online. By virtue of taking commission from each sale, eBay was thus profiting from sales of counterfeited goods.

EBay insisted that it was merely a trading platform and had no direct involvement with the sales. EBay stated that they dedicate several thousand staff members and spend millions of dollars a year on worldwide efforts to prevent the sale of counterfeit goods through their service. As a result, eBay claimed that of the 2.7 billion auction listings hosted globally in 2008, only 0.15 percent of the listings were identified as potentially counterfeit.

The French courts on May 13, 2009 cleared eBay from liability, stating that eBay had fulfilled its obligation in good faith and had done its due diligence to prevent counterfeit goods being sold through its site. The French High Court has given the two parties until May 25, 2009 to resolve their differences through mediation.

L'Oréal had filed similar lawsuits against eBay in 2007 in four other European countries - Belgium, Germany, Spain and the UK. Decisions favouring eBay were similarly made in the and Belgium. However, the German court ruled in L'Oréal's favour and at the time of writing, the ruling in Spain is still pending.

Although three of the five countries have so far ruled in favour of eBay, eBay's with lawsuit decisions on this issue has been rather fragmented. On June 30, 2008, the Tribunal de Commerce in France held that eBay was liable to LVMH Möet Hennessy Louis Vuitton for facilitating the sale of counterfeit goods on its site. The Tribunal ordered eBay to pay US$61.3 million in compensation to LVMH for allowing the sale of counterfeit goods trademarked by Louis Vuitton and Christian Dior (LVMH). The Tribunal agreed with LVMH's argument that eBay's efforts to prevent the sale of counterfeit goods were insufficient and amounted to negligence. EBay is set to appeal the decision.

In a similar case in June 2008, the French courts found eBay liable to Hermès for trademark infringements via sales of counterfeit goods. The decision cost eBay €35,000 in damages and additional remedies.

In the month following these rulings, a U.S. court held that eBay was not liable to Tiffany & Co. for the sales of counterfeit jewellery on its website. The court ruled eBay had done enough to reasonably police its auctions for counterfeit products and the removal of such products upon notification. The court also stated that Tiffany had not spent enough time or effort in aligning with eBay to combat the problem.

The series of lawsuits against eBay showcases the fragmented state of the law concerning the sale of counterfeit goods and internet commerce. In light of these recent decisions and pending appeals, the future of eBay's liability for counterfeit goods around the world is still uncertain. With the increase of internet commerce, intellectual property owners have undergone increasing strife in their efforts to protect and enforce their rights and have increasingly sought legal remedy from internet commerce hosts. As the world's largest online auctioneer service, eBay is taking the brunt of these lawsuits, but the decisions will certainly set the precedent for the rest of the internet commerce providers.

As economies around the world continue to suffer, it is predicted that the global trade in counterfeit goods (e.g. medicines, cigarettes, branded apparel, and pirated media) will increase to nearly US$1 , up from $800 billion in 2007. Security experts suggest that trade in counterfeit goods has already exceeded the global narcotics trade (US$400 billion a year) and may be funding terrorist groups around the world as they are considered high profit and low-risk. As eBay and other internet commerce services may be seen to increase security risks as an indirect consequence of counterfeit sales, they may see unfriendly developments in the courts and in public policy in the near future.

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