Intermediary liability: because you’re worth it (L’Oreal v eBay)

The European Court of Justice has finally ruled on the landmark case of L’Oréal v eBay (C-324/09) . It is true that the term “landmark case” gets used quite a lot in these virtual pages, but in this situation is more than accurate. The case has been a long-running legal saga between cosmetic manufacturer L’Oreal and distributors of unauthorised sampler products which have had their packaging removed and then sold on eBay. The question at the heart of this case seems quite simple, but is of the most pressing importance for the always relevant question of Internet intermediary liability, and it is whether eBay can be held liable for trade mark infringement committed by merchants operating in its website. The facts are a bit more complex though. While it would seem that eBay is not to be held liable for whatever is sold on its site, eBay allowed the placement of sponsored links to infringing products. It also included the infringing products in its listings under the affected marks. Moreover, infringing merchants could purchase adwords and keywords in search engines that direct to the pages on eBay. The question then was whether these actions warranted liability.

The case was decided in the High Court of England at earlier stages by Arnold J in 2009 (L’Oreal SA & Ors v EBay International AG & Ors [2009] EWHC 1094). Arnold J found that there had been indeed trade mark infringement committed by some of the co-defendants by trading on sampler and de-marked goods on the site. He also ruled that eBay was not jointly liable of infringement, which was consistent with the limitation of intermediary liability that has been in place in the last 15 years or so. However, Arnold J referred some important questions to the ECJ.

“iv) Whether eBay Europe have infringed the Link Marks by use in sponsored links and on the Site in relation to infringing goods again depends upon a number of questions of interpretation of the Trade Marks Directive upon which guidance from the ECJ is required […].
v) Whether eBay Europe have a defence under Article 14 of the E-Commerce Directive is another matter upon which guidance from the ECJ is needed […].
vi) As a matter of domestic law the court has power to grant an injunction against eBay Europe by virtue of the infringements committed by the Fourth to Tenth Defendants, but the scope of the relief which Article 11 requires national courts to grant in such circumstances is another matter upon which guidance from the ECJ is required […].”

The ECJ produced an interesting ruling which both maintains the principles of intermediary liability, but seems to damn eBay for its actions. It states:

“ 4. On a proper construction of Article 5(1)(a) of Directive 89/104 and Article 9(1)(a) of Regulation No 40/94, the proprietor of a trade mark is entitled to prevent an online marketplace operator from advertising – on the basis of a keyword which is identical to his trade mark and which has been selected in an internet referencing service by that operator – goods bearing that trade mark which are offered for sale on the marketplace, where the advertising 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 the proprietor of the trade mark or from an undertaking economically linked to that proprietor or, on the contrary, originate from a third party.”

This has implications for adwords and search engines, as the ECJ gives the green light for enforcement against advertisers of infringing materials. Dealing specifically with the issue of intermediary liability present in the e-commerce directive, the ECJ declares:

“6. Article 14(1) of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’) must be interpreted as applying to the operator of an online marketplace where that operator has not played an active role allowing it to have knowledge or control of the data stored.

The operator plays such a role when it provides assistance which entails, in particular, optimising the presentation of the offers for sale in question or promoting them.

Where the operator of the online marketplace has not played an active role within the meaning of the preceding paragraph and the service provided falls, as a consequence, within the scope of Article 14(1) of Directive 2000/31, the operator none the less cannot, in a case which may result in an order to pay damages, rely on the exemption from liability provided for in that provision 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) of Directive 2000/31. “

This is a very interesting test. If an Internet intermediary plays an active role in assisting people to optimise the presentation of an infringing product, then they might be held liable. However, even if the intermediary did not play any active role in presenting the goods, they might still be held liable if ” a diligent economic operator should have realised that the offers for sale in question were unlawful”. This is a terrible standard in my view. There seems to be no determination as to volume of transactions, how is it possible for an operator to be able to know the legality of an item when it handles millions of transactions per day? To me this has to be part of any determination on Internet liability.

While it will be up to the national court to decide what happens on each specific case, I believe that the new European standard for intermediary liability opens the door to a barrage of actions. Interesting times lie ahead.