Case Summary and Outcome

L’Oréal, a French cosmetics company, is the proprietor of several national trademarks in the UK, as well as community trademarks within the European Union. After a widespread trademark infringement occurring on eBay, the company brought infringement actions against the online marketplace, its European subsidiaries, and individual defendants who had sold several counterfeit items resembling brand names associated with L’Oréal.

Among other claims, L’Oréal argued that eBay was liable for the use of its trademarks by displaying them on the website and on the advertising sponsored links provided by Internet search engines, such as Google. In 2009, the UK Chancery Division of the High Court of Justice stayed the proceedings pending a preliminary ruling by the European Court of Justice in light of the applicable EU directives. Relevant to eBay, the Court held that a trademark proprietor is entitled under EU Directive 89/104 and Regulation 40/94 to prevent the operator of an online marketplace from advertising its goods without consent which were targeted at consumers in the EU. The Court also ruled that eBay may not be exempt from liability provided under Article 14(1) of Directive 2000/31 when it plays an active role in the sale of goods by optimizing the presentation of the offers or promoting them.

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Facts

On May 22, 2007, L’Oréal sent a letter to eBay, expressing concern over several unauthorized sale of its trademark goods via eBay’s European websites. As a common practice, the giant online marketplace requires sellers and buyers to accept its user agreement that prohibits selling counterfeit goods. It also offers a program called “Verified Rights Owner,” which assists the participating proprietors of trademarks in detecting and removing counterfeit listings from eBay’s website. According to the court documents, L’Oréal has not participated in the program.

The present infringement action primarily arose out of the sale of approximately 17 items on eBay by individual sellers from non-EU countries. Two of those items were allegedly counterfeit cosmetics bearing L’Oréal’s registered trademarks. Other goods at issue were either not intended for sale, such as tester or damming products or were intended for sale only in North America and not in the European Economic Area.

Not being satisfied with eBay’s response to its May 2007 letter, L’Oréal brought infringement actions against the company in various EU States, including the UK High Court of Justice, Chancery Division. The manufacture claimed that eBay was liable for the use of its trademarks, which were displayed on eBay’s European websites and on the paid sponsored links of Internet search engines, such as Google. These advertising links were generally triggered by the use of keywords corresponding to the trademarks registered by L’Oréal. For instance, an Internet user searched Google the words “Shu Uemura,” a national trademark of L’Oréal. The website instantly displayed an eBay advertisement in the sponsored links section, which directed the user to www.ebay.uk website were it showed 96 items for sale from Hong Kong.

While acknowledging eBay’s existing filtering mechanisms to detect and remove goods in violation of intellectual property rights, the High Court of Justice was of the opinion that the online marketplace could undertake more restrictive steps towards addressing the widespread problem of infringement. It specifically suggested that eBay could create an additional rule on the prohibition of trademarked goods without the consent of their proprietors. The Court, however, decided to stay the proceedings and presented, inter alia, the following questions to the European Court of Justice for a preliminary ruling:

(a) Whether under the EU Directive 89/104 and Regulation 40/94, a trademark proprietor is entitled to prevent an authorized sale or advertisement of its registered goods displayed on an online marketplace.

(b) Whether the EU Directive 89/104 and Regulation 40/94 entitles a proprietor the right to prevent an online marketplace operator from advertising goods bearing its trademark through an unauthorized display on sponsored links sections.

(c) Whether the operator of an online marketplace is covered by Article 14(1) of the Directive 2000/31, and if so, to what extent the operator can be held liable under the corresponding provision.

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Decision Overview

Under Article 5(1) of Directive 89/104 on trademarks, “[t]he registered trade mark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade:

(a) any sign which is identical with the trade mark in relation to goods or services which are identical with those for which the trade mark is registered;

(b) any sign where, because of its identity with, or similarity to, the trade mark and the identity or similarity of the goods or services covered by the trade mark and the sign, there exists a likelihood of confusion on the part of the public, which includes the likelihood of association between the sign and the trade mark.”

In addition, Article 9 of EU Regulation No. 40/94 confers on the proprietor similar exclusive rights with respect to Community trademarks. Both documents, however, have laid down an exception to those rules, providing that the proprietor’s right is exhausted when the goods “have been put on the market in the Community under that trade mark by the proprietor or with his consent.”

eBay argued that an owner of a trademark, such as L’Oréal is not entitled to that right when the goods bearing its trademark are located in a third State and will not necessarily be forwarded to the territory covered by the trademark in question. L’Oréal, on the other hand, contended that the right to prevent the sale of its goods are triggered as soon as it is clear that offer for sale is targeted at consumers within the EU zone, even if the trademark products are located in a third State. The Court made it clear that “the mere fact that a website is accessible from the territory covered by the trademark is not a sufficient basis for concluding that the offers for sale displayed there are targeted at consumers in that territory.” [para. 64] The Court indeed ruled that it is for the national court to assess a particular offer for sale in order to identify sufficient facts evidencing that the transaction was targeted at consumers in the territory, including the geographic area to which the seller is willing to ship the product.

With respect to the second question concerning the advertisement of a trademarked good by an online marketplace, the Court first addressed whether online keyword advertising is covered by Directive 89/104 and Regulation No. 49/94. It was of the opinion that because “a keyword is the means used by an advertiser to trigger the display of his advertisement,” such method amounts to using a mark “in the course of trade” within the meanings of Article 5(1) of Directive and Article 9 of the Regulation.

The Court then addressed whether L’Oréal was able to prevent advertisements resembling to its trademarks that were displayed by eBay by means of sponsored links provided by Google. It found that eBay’s use of keywords corresponding to L’Oréal’s trademarks was to promote its own service as online marketplace rather and that such use was not in relation with the counterfeit goods at issue. Yet in order to promote “transparency in the display of advertisements on the Internet” within the EU community, the Court held that an advertisement originating by an online marketplace and later displayed by a search engine operator must “disclose both the identity of the online marketplace operator and the fact that the trademarked goods advertised are being sold through the marketplace that it operates.” The Court concluded that under Article 5(1)(a) of Directive 89/104 and Article 9(1)(a) of Regulation No. 40/94, a trademark proprietor is entitled to prevent an online marketplace from advertising goods identical to its trademarks, “where advertising does not enable reasonably well-informed and reasonably observant Internet users, or enables them only with difficulty, to ascertain whether the goods in fact originated from the proprietor.”

Lastly, with respect to legal liabilities of eBay, the Court discussed whether the operator of an online marketplace may rely on the exemption from liability provided under the EU Directive 2000/31. It first ruled that the information society services regulated by the Directive encompass online marketplaces. Applicable to marketplaces, Article 14 of the Directive prohibits EU States from imposing liability against service providers that store information obtained by their recipients, “on condition that:

(a) the provider does not have actual knowledge of illegal activity or information and, as regards claims for damages, is not aware of facts or circumstances from which the illegal activity or information is apparent; or

(b) the provider, upon obtaining such knowledge or awareness, acts expeditiously to remove or to disable access to the information.”

The Court ruled that such exemption from liability only applies when the information society service merely acts as an intermediary and not when it “plays an active role of such a kind as to give it knowledge of, or control over, those data [entered by recipients].” The Court in the present case found that eBay generally processes data entered by its customer-sellers; it some cases, it provides assistance to optimize or promote certain offers for sale. Therefore, the company may not rely on the exemption from liability offered in Article 14(1) of Directive 2000/31. The Court concluded that it was for the High Court of Justice to examine whether eBay played a role in processing the data related to the sale of L’Oréal’s products. Additionally, where the operator of the online marketplace does not play an active role in processing data and optimizing the presentation of the offers for sale, it escapes liability for damages “if it was aware of the facts or circumstances on the basis of which a diligent economic operator should have realized that the offers for sale in question were unlawful.”

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