EU Rules EBay Can Buy L'Oreal Search Terms but Not Sell Free Samples

Courts Grapple With Cases Brought by Marketers Against Online Sites and Each Other

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LONDON ( --The European Court of Justice has likened eBay to a shopping mall in a judgment today on a legal dispute between the auction site and L'Oreal.

The ECJ's advocate general, Niilo Jaaskinen, ruled that, just as a shopping mall is not liable for the rotten apples sold by one particular shop, so eBay is not responsible for the counterfeit goods sold through its site. But he took L'Oreal's side by also ruling that the marketer can stop eBay from selling products intended to be distributed as free samples.

The advocate general said that eBay is not infringing L'Oreal's trademark by using it in sponsored links to sites selling counterfeit goods: The traders -- not eBay -- are infringing the trademark. His judgment is likely to be made law early next year.

However, Douglas Campbell, a barrister at Three New Square, which represented L'Oreal, claimed some victories for the company. EBay can now be compelled to shut user accounts if they are dealing in illegal goods; and the scope of "infringing goods" has been expanded to include both genuine goods that have been taken out of their boxes and trade samples.

Mr. Campbell summed up the judgment as "not guilty but be more careful in future." He admitted that the court was never going to shut down eBay's entire business model and said that although eBay is quick to take down sites in response to complaints, it -- along with Google -- has been "digging its heels in" over legal liability.

EBay said in a statement, "Despite the complexity of the issues and the preliminary nature of the advocate general's opinion, we are encouraged that the ECJ's final judgment will reinforce European consumers' freedom to buy and sell authentic goods online."

L'Oreal argued in the U.K.'s High Court in London last year that eBay had a duty to be more proactive in preventing the sale of counterfeit goods. Given that eBay benefits financially from the sales of goods through its website, L'Oreal argued in court that eBay should be held personally liable for counterfeit goods sold on its platform. In its defense, eBay said that it was only a trading platform for independent sellers and could not realistically be expected to police each individual sale.

The U.K. court said eBay was not responsible for the infringement of L'Oreal's trademark rights that happens when counterfeit goods are sold. However, it also found that because eBay had been hosting sponsored links to counterfeit products, it was possible that eBay personally infringed L'Oreal's trademarks. The High Court said the law wasn't clear on the issue of sponsored ad words, and asked the ECJ to look at the case.

The eBay vs. L'Oreal case is one of three landmark legal disputes involving web traders. In a similar case in March, brought by LVMH against Google, the ECJ ruled that Google could continue selling trademark names to non-owners as search terms.

Another high profile e-commerce case is currently awaiting a ruling from the European Court of Justice, scheduled for February 2011. In that case, flower-delivery service Interflora is suing U.K. retailer Marks & Spencer for sponsoring the word "Interflora" as an AdWord. If the ECJ follows the eBay and Google rulings, Interflora looks likely to lose its case.

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