French court fines eBay €40m over counterfeits
7 July 2008
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As dedicated followers of fashion know, a decent handbag is worth its weight in gold. But eBay has discovered that a counterfeit one could cost it almost e40m (£31.81m).
As reported by The Lawyer last week (2 July) French court Tribunal de Commerce has demanded that eBay shell out almost e20m (£15.91m) to Louis Vuitton Malletier and e16.4m (£13.04m) to Christian Dior Couture, as well as around e3m (£2.39m) to perfume brands, after users of the auction site were found to be trading in counterfeit goods. All the brands in question are owned by luxury goods conglomerate LVMH.
The size of the fine has staggered observers of the judgment, which could deal a punishing blow to eBay’s entire business model. Little wonder that eBay is set to appeal.
Alexandra Neri, head of IP for Herbert Smith in France, is shocked. She says: “From a legal point of view the judgment doesn’t make any sense. Before this decision eBay obtained 18 others that said the company wasn’t liable for counterfeits.
“You can’t adopt a decision that says, ‘you’re earning money so you’re liable’. I really am surprised at this decision.”
Meanwhile, ;the ;international community is watching intently. Doubts have been raised over the impartiality of the tribunal, which is staffed by amateur judges taken from the business world.
Stuart Witchwell, managing director of UK IP consultancy Intangible Business, says: “I don’t think eBay will end up paying the fine. eBay’s just a conduit – the users know that they’re not buying from eBay but another individual.
“To me it looks like a French court sympathetic to a French company against an American company.”
The tribunal has waded in to a debate that has been raging for several years – namely, should eBay be liable for counterfeits that are bought and sold on its website?
The auction giant now spends $20m (£10.05m) a year on a team of 2,000 people to take down listings featuring counterfeited goods. This is despite maintaining that it has no legal obligation to do so because it is a platform for goods bought and sold rather than being a vendor in itself. According to eBay, this means it is not liable for breaching IP rights if cheap knock-off goods appear on the site.
The cost to the company of ramping up that IP protection programme, which eBay would have to do if it were made responsible for every faux-leather belt its users bought, could seriously damage its business. But critics say the company has a responsibility to do so and thus play its part in the global effort to prevent IP theft.
Simon Tracey, IP partner at Davenport Lyons, has seen the other side of the eBay debate and welcomes the French court’s decision. He is the liaison between the UK Anti-Counterfeiting Group (ACG) and eBay, and has a client list stuffed full of luxury goods makers.
“Brand owners tell eBay that they’re taking the proverbial – eBay’s getting revenue from this business,” he says. “Every time a counterfeit is sold on the site, eBay makes a profit.”
Tracey quotes statistics from LVMH’s survey of eBay fakes carried out before the dispute went to trial. The company found that, in the second quarter of 2006, 90 per cent of Louis Vuitton handbags sold on eBay were fakes. The staggering figure means that only 15,000 of the 150,000 handbags sold were real.
“Who’s responsible for what happens on eBay?” asks Tracey. “The answer is eBay. They’re the ones making the profit out of the fakes.”
There are convincing arguments on both sides of the debate. Nobody knows for sure whether eBay is really liable for the fakes that appear on its site – at least not enough to bet money on the outcome of a court dispute. But everyone has an opinion.
Far from being the definitive word on the counterfeit question, the French tribunal’s decision has served to ignite a debate that will rage around the world.
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Readers' comments (3)
Anonymous | 7-Jul-2008 4:25 pm
surprising judgment?
not really... given that apparently Ebay were well aware of the issue, allowed access to electronic tools which made trading easier, acknowledged that the number of items made it clear that there were counterfeit items on the site and also (allegedly) did not always act on notifications of counterfeits.
There must come a point when the "added value" prevents you being a mere conduit, and what I suspect may not have been made entirely clear is that Ebay have ways of preventing listings which they can (or certainly could) engage if they find certain commonalities in the way counterfeits are listed.
Obviously it was quite a lot of money, but of course some of that was punitive in nature.
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Oui je parle français | 8-Jul-2008 6:17 pm
Impartial judges
The statement to the effect that "doubts have been raised over the impartiality of the tribunal, which is staffed by amateur judges taken from the business world" is incredibly unprofessional. One might as well say the same thing about international arbitrators, employment tribunals or any other justiceable decision-making body not staffed by professional magistrates.
I did not see eBay France raising an argument that the Paris Commercial Court lacked jurisdiction due to its impartiality. eBay has chosen to do business in a jurisdiction in which the initial level jurisdiction which hears disputes of a commercial nature is staffed by elected members of the business community. It knew full well what it was doing.
Appeal will be to the Paris Court of Appeals and, unlike the case in other jurisdictions, this will, in accordance with the French rules on "double degree of jurisdiction", be a full rehearing including on the facts, not only on the law.
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Anonymous | 9-Jul-2008 9:09 am
eBay needs to wake up & act accordingly
This is all well & good but eBay always act like God to their users & due to this ruling all you will see on eBay now are cheap pound shop items. For instance i sold some 100% authentic nike trainers i bought from JJB which i still had the receipt for & got a warning for counterfeit item & the listing cancelled.
Even though i could produce the receipt ebay said tough "we decided we didnt like the look of them" - absoluteley no help at all. & if they decide to suspend your account they expect payment in full for all the listings to date even though they have no intention of providing the service they have charged for "I'm sure this is illegal" to boot they absolutly refuse you access to your bill & will not provide you with a list of what they demand payment for. They make enough money to police things properly. They could easily combat it by a seller having to produce evidence & fax it in that the item that is being listed is authentic & then they have to agree before the listing appears on the site for sale. Simply a receipt or the documentation that goes with the handbag or whatever you are selling. If you're a company selling new stuff you will have your dealership or your suppliers dealership details. should not be a big problem.
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