L'Oréal v eBay – the latest on keywords, testers, exhaustion of rights and ISP liability

Today, the Court of Justice of the EU (CJEU) has delivered an interesting ruling in the case of L’Oréal v eBay which should generally be welcomed by brand owners. The ruling follows a reference from an English High Court case brought by L’Oréal regarding the availability of various counterfeit, tester and de-packaged L’Oréal products on eBay’s electronic marketplace.

On the issue of samples and testers, the CJEU has given the English High Court the following guidance:

• We already know from the case of Coty Prestige Lancaster v Simex C-127/09 that the provision of samples and testers provided free to distributors and resellers does not lead to rights in those goods being exhausted. They have not been put “on the market” in the EEA. The CJEU endorses the Coty decision. In practice, this means that L’Oréal can object to the sale of those samples and testers when they are sold on by distributors.

On the issue of exhaustion of trade mark rights, the CJEU ruled as follows:

• Where goods have been put on the market within the EEA (for example, L’Oréal perfumes), the rights holder can counter an exhaustion of rights defence and complain of further sales of those products where packaging has been removed or replaced, where the consequence is that:
• essential information, such as information relating to the identity of the manufacturer or the person responsible for marketing the cosmetic product, is missing; and/or
• the removal of the packaging has damaged the image of the product and, hence, the trade mark’s reputation.
This is consistent with the CJEU line of cases relating to de-packaged pharmaceutical products. Unfortunately, the CJEU doesn’t give us any examples of where the image is likely to be damaged. However, we can be sure that L’Oréal will argue any removal of packaging will have this effect. Since glossy packaging can be key to the overall presentation of a luxury item and its allure (especially if it is a gift), such damage seems self-evident, but the CJEU left it open depending on the facts.

As for keyword advertising, this is what the CJEU had to say:

• eBay advertises using internet referencing services, such as Google. The CJEU’s ruling inevitably echoes its decision in Google France and Google C-236/08 and C-238/08 which deals with keyword advertising. The result is that L’Oréal is entitled to prevent advertising which 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 L’Oréal or from an undertaking economically linked to L’Oréal or, on the contrary, originate from a third party.
  
  Therefore, if the Google search results call up an advertisement which could reasonably be construed by an internet user as meaning that L’Oréal is selling goods via eBay or goods are being sold by an entity connected to L’Oréal, L’Oréal may have recourse against eBay.

As for use of the trade marks on a site such as eBay, the CJEU ruled as follows:

• Only the seller and not the operator of an online marketplace, such as eBay, is making "use" in a trade mark sense on the relevant goods pursuant to Article 5 of Directive 89/104 or Article 9 of Regulation No 40/94. The operator (i.e. eBay) is only using the sign in respect of advertising services and not the goods. It could therefore only be liable for infringement if diluting, free riding or denigrating a mark with repute. Any recourse based on identical or similar goods will need to be against the individual seller, rather than eBay. This is unsurprising, although disappointing for brand owners.

As for any hosting defences that eBay (and other ISPs) may be able to rely on under the Ecommerce Directive 2000/31/EC to avoid a finding of trade mark infringement against it, the CJEU gave Mr Justice Arnold the following guidance:

• Article 14(1) of the Ecommerce Directive gives an ISP a defence where that operator has not played an "active role" in the infringement allowing it to have knowledge or control of the data stored.
• The operator plays an "active role" when it provides assistance which entails, in particular, optimising the presentation of the offers for sale in question or promoting them.  The key question here is what assistance eBay provides. We know from the judgment that in some cases eBay assists sellers in order to enhance their offers for sale, to set up online shops, to promote and increase their sales. It also advertises some of the products sold on its marketplace using search engine operators such as Google to trigger the display of advertisements. It is now for Arnold J to examine whether eBay played an "active role". Similarly, this new CJEU guidance could reopen how the test applies to other ISPs’ business models.
• As a final word of warning, the CJEU ruled that even where the operator of the online marketplace has not played an active role and the service provided falls, as a consequence, within the scope of Article 14(1), the operator none the less cannot rely on the exemption from liability if it was aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the offers for sale in question were unlawful and, in the event of it being so aware, failed to act expeditiously in accordance with Article 14(1)(b). Significantly, therefore, merely constructive knowledge could give rise to an ISP being liable for damages.

Finally, on the issue of whether Article 11 of the Enforcement Directive 2004/48 means that Member States have to ensure that the trade mark proprietor can obtain an injunction against the intermediary to prevent further infringements of the relevant trade marks even if they are not infringing themselves, the CJEU had this to say:

• Article 11 of the Enforcement Directive 2004/48/EC requires Member States to ensure that the national courts are able to order the operator of an online marketplace to take measures which contribute, not only to bringing to an end infringements of those rights by users of that marketplace, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, and dissuasive and must not create barriers to legitimate trade. This goes further than suggested by the Advocate General in the opinion to the CJEU and will no doubt be a useful tool for brand owners facing persistent infringers.

In practice, a national court’s ability to injunct an ISP to prevent similar infringement could prove to be the most significant outcome of this ruling. The approach taken is in line with the German Supreme Court’s position in its recent line of eBay cases.

Read the judgment

Lawyers Roland Mallinson, Lorna Caddy