Michael Gilburt is a JD candidate at Osgoode Hall Law School.

On July 12, 2011, the Court of Justice of the European Union (ECJ) issued its decision on the long-standing dispute between cosmetics manufacturer L’Oréal and eBay concerning the illegal sale of L’Oréal products on the online marketplace.

L’Oréal brought the action in 2007 on the basis that eBay had failed to prevent their users from violating L’Oréal’s trade-mark rights. The violations cited by the company included the sale of cosmetic samples meant for free distribution and the unauthorized sale of products intended for markets outside the EU to citizens of EU Member States (an infringement known as parallel importation). In addition, L’Oréal claimed that eBay assisted users in locating goods on the site that infringe L’Oréal trade-marks by purchasing keywords from online referencing services such as Google’s AdWords. In response, eBay asserted that, as mere hosts of the transactions, they were exempt from liability under the governing E-Commerce Directive (Directive).

After numerous dismissals at the national level (the most recent of which came from the High Court of Justice for England and Wales), the ECJ found in favour of L’Oréal, holding that online market operators such as eBay cannot rely on the exemption from liability under the Directive if it has played an “active role” in the infringement by optimizing or promoting the items for sale. Moreover, the court noted that, even if the operator has not played an active role, it cannot rely on the exemption from liability if “it was aware of the illegal nature of the sales their sites facilities” and, once aware, “failed to act promptly to remove the data concerned from its web site or to disable access.”

With this ruling, the ECJ has added much needed clarity to the EU IP regime and bolstered the protections afforded to brand owners in online marketplaces. By holding operators accountable for their negligent failure to prevent and remove trade-mark infringing content, the Court has forced companies like eBay to integrate proactive measures into their policies to ensure IP rights are respected by their users.

Furthermore, the ECJ has called upon EU Member States to hold operators of online marketplaces accountable under EU IP law, noting that, under the IP Enforcement Directive, Member States must “take measures intended not only to bring to an end infringements of intellectual property rights but also to prevent further infringements of that kind.” To achieve this goal, the ECJ has permitted national courts to issue injunctions against operators who refuse to bring an end to infringements of IP rights and prevent further violations from occurring.

This ruling has been praised by commentators such as Kirsten Gilbert as a much-needed modernization of European trade-mark law, which has been “strained under the pressure of…the internet age… and the rise of online commerce.”

Posted in European Union, Internet, Parallel Importation, Regulatory Policy, Trademarks