Internet auction marketplace eBay may have to take more responsibility over what is sold via its website or it could be sued for trademark abuse, Europe's top court ruled on Tuesday.
The European Court of Justice said online market providers can be liable if they play an active role in the use of trademarks. They could also be held responsible for abuse if they were aware activity on their site was unlawful.
The court also ruled EU governments are responsible for ensuring national courts can order market operators to act on trademark infringements by users of a marketplace such as eBay, as well as preventing further abuse.
The case relates to allegations of trademark infringement through the sale of branded goods on eBay, lodged by L'Oreal -- the world's largest cosmetics maker -- in courts in Belgium, France, Spain and Britain four years ago.
EBay will be concerned by this decision, which means it could be forced to prevent intellectual property infringements by its users, said intellectual property lawyer Dominic Batchelor of London law firm Ashurst.
The practical and cost implications could be extensive.
Responding to the ruling, eBay said it had made a significant effort to curb the sale of counterfeit goods on its website in recent years and expected little financial impact on its operations or its customers.
We have updated our measures to the new reality. We started many years ago. They are in place and I don't see what extra costs we would have ... on the basis of this judgment, a senior eBay official in Europe, Stefan Krawczyk, told Reuters.
Consumers and sellers will bear no extra cost, he said.
EBay, which has used the slogan whatever it is, you can get it on eBay, operates in more than 30 countries and had revenue of more than $9 billion in 2010.
One of L'Oreal's complaints was over the sale on eBay of samples or testers explicitly marked not for sale.
The cosmetics giant also criticized the level of protection offered by eBay against the sale of counterfeit goods, and the availability of goods to consumers in the EU that were meant for other markets.
L'Oreal was happy with the ruling. (It) is a step toward effectively combating the sale of counterfeiting brands and products via the internet, it said in a statement.
The court ruled that EU trademark rules do apply to offers for the sale of goods located outside the bloc, if it is clear that those offers target EU consumers.
It said EU national courts should assess if any offer did target EU markets, but that in some cases exemptions from liability offered by EU laws might not apply.
This would be the case particularly when an online service provider, such as eBay, plays an active role in managing information related to sale offers.
When the operator has played an 'active role' ... it cannot rely on the exemption from liability which EU law confers, under certain conditions, on online service providers such as operators of Internet marketplaces, the court said.
The court also ruled an online market provider could be liable if it had enough information to judge an offer was unlawful and failed to prevent buyers from accessing it.
Under current rules followed by eBay, the website blocks ongoing auctions if it is notified about suspicious activity. Intellectual property lawyers said this meant companies such as eBay will now have to be more vigilant on how their services are used.
This ruling will assist rights holders to force online service providers to be more active in policing, said Iain Connor, partner at Pinsent Masons.
Yet industry experts said online market providers will not be forced to police their selling customers indiscriminately.
If (eBay) is already monitoring (a seller) only then is the onus on it to investigate further, said Theo Savvides of London law firm Osborne Clarke.
(Reporting by Michele Sinner; Writing by Justyna Pawlak; Editing by David Hulmes)