In a world without borders, such as the Internet, the liability of e-commerce platforms for third-party content is necessarily a global question. As Chinese platforms Alibaba and Taobao are acquiring exponential market shares in online distribution, and as European brands—notably in the luxury, cosmetics, and wine and food worlds—are gaining more and more traction in the U.S. online market, the question is no longer whether U.S. laws can offer protection to its national platforms or right holders, but rather what practices should U.S. platforms and right holders adopt to best limit their liability and protect their rights? The two parts of the article below offer different perspectives on this topic: the first focuses on the differences between the U.S. and European Union (EU) approaches to the liability of online marketplaces through a comparison of the Tiffany v. eBay (U.S.) and LVMH v. eBay (France) cases; the second part offers a brief world tour of Internet sales platform service provider (ISPP) liability via German, Swiss, and Chinese case law.
There is probably no better case study than the French LVMH v. eBay case, as opposed to the U.S. Tiffany v. eBay case, to illustrate the divergence in approaches to the question of the potential liability of online marketplaces for third-party content posted on their websites.
As far as applicable legislation is concerned, there is nothing to report because the laws as codified are nearly identical. The E-Commerce Directive, which applies to the liability of hosting providers, was modeled after the Digital Millennium Copyright Act (DMCA) and provides—just like its transatlantic equivalent—that hosting providers are not liable for third-party copyright infringing content except if (1) having knowledge of infringing content (2) they did not take down such content expeditiously. While the DMCA does not apply to trademark infringement, similar principles have been applied in the United States based on contributory and vicarious liability so that the legal framework applying to the liability of e-commerce platforms for copyright and trademark infringement can be considered to be globally the same.
These principles, however, have been applied pretty differently on both sides of the pond. In the United States, the landmark case on e-commerce platforms liability is Tiffany v. eBay. In this case, Tiffany brought an action against eBay after noticing that thousands of counterfeit pieces of silver “Tiffany” jewelry had been sold on eBay. The parties mainly disagreed on the role eBay should play in curtailing infringement. While Tiffany expected eBay to take preventive filtering measures to avoid infringement, eBay insisted that its legal liability was limited to taking down content that it was expressly notified of. In June 2004, Tiffany therefore brought action against eBay for direct and contributory trademark infringement, trademark dilution, unfair competition, and false advertising, on the ground that eBay would have knowingly facilitated the sale of counterfeit items on its website, while exercising control over, and deriving profit from, these sales.
On July 14, 2008, the Southern District of New York, affirmed by the Second Circuit on April 1, 2010, dismissed all of Tiffany’s claims and held that eBay was neither directly nor indirectly liable for third parties’ sales on its website. With regard to eBay’s potential direct liability, the court held that eBay’s use of Tiffany’s trademark in its advertising, on its homepage, and in the sponsored links purchased through Yahoo! or Google was a protected, nominative fair use of Tiffany’s trademark, in that it was necessary to describe Tiffany’s pieces of jewelry actually offered on its website. As for eBay’s potential contributory liability for “facilitating” third parties’ infringing sales, the court determined that the relevant standard to assess eBay’s liability was the Inwood test. Under this test, the court had to determine whether eBay continued to supply its services to sellers when it knew or had reason to know they were engaging in trademark infringement, rather than whether it could have prevented it. Because Tiffany was not able to show that eBay had specific knowledge of specific items infringing its rights, the court ruled that eBay did not have any affirmative duty to remedy the situation.
This decision stands in sharp contrast with the position adopted by some domestic courts in Europe in similar circumstances, notably in the French decision LVMH v. eBay. In LVMH v. eBay, Louis Vuitton, Christian Dior Couture, and a number of luxury perfume companies sued eBay after noticing that thousands of goods infringing on their rights and/or sold in violation of their selective distribution networks were offered on eBay’s website. In a decision of May 3, 2012, the supreme court affirmed the appellate court decision that had found eBay liable for abstention and negligence resulting in the violation of the plaintiffs’ exclusive rights as a result of eBay’s failure to set up effective and appropriate means to curtail infringement.
In reaching this conclusion, the Paris Commercial Court held that eBay was not a mere “passive host” but rather an “active broker,” playing an essential role in the commercialization of counterfeit products and profiting from these sales. As a broker—rather than a technical intermediary—eBay was held ineligible under the hosting exemption and deemed liable for failing to control its own activity. The court further clarified that as a broker, eBay could not claim lack of knowledge as to what information was transmitted on its site, especially because the infringing nature of some of the goods sold on eBay’s website was apparent, either because of the use of words such as “imitation” or “fake” in connection with the defendant’s trademarks, or because of other circumstances such as the low prices and/or the high number of identical goods offered at the same time by the same user.
In Europe, the landmark decision concerning online marketplace liability is L’Oréal v. eBay. In this case, L’Oréal brought four simultaneous lawsuits against eBay for trademark infringement, negligence, and violation of its selective distribution networks in France, Belgium, England, and Spain. Among other arguments, L’Oréal claimed that eBay, by failing to set up efficient measures and/or filtering tools to prevent the sale of counterfeit perfumes on its websites and by benefiting from these sales, was directly and indirectly liable for trademark infringement, unfair competition, and negligence under a general theory of tort (“responsabilité civile”).
The first decision to be issued was in Belgium. In Lancôme v. eBay, the Commercial Court of Brussels held that eBay had acted as a mere hosting provider with regard to third parties’ offers and was therefore exempted from liability under Belgian and EU law. The court further clarified that eBay had no monitoring obligations as regards the offers hosted on its website.
By contrast, in France, the Paris trial court (TGI) adopted another approach. In a decision of May 2009, the Paris trial court held that in conducting its activity as an auction website, eBay played two different roles or functions: (1) a “neutral” function, when merely acting as a broker and hosting third parties’ offers, for which it was eligible under the hosting exemption; and (2) an active role, when promoting its own activities (sending promotion emails, etc.), for which it was liable under a regular regime of liability. The French court held that in both cases, eBay had a best-efforts obligation to ensure that its activity did not harm any third parties (apparently fulfilled in this case through the VeRO program) and to cooperate with the right holders to curtail infringement. The court concluded its judgment by encouraging the parties to find a settlement agreement through a mediation process.
In the parallel proceeding brought by L’Oréal in the United Kingdom, the England and Wales High Court of Justice (EWHC)—after analyzing in a preliminary decision the damages suffered by L’Oréal as a result of the massive sales of infringing perfumes on eBay’s website and the various means carried out by eBay to curtail infringement—referred the case to the EU Court of Justice.
On July 12, 2011, the EU Court of Justice (CJEU) handed down its landmark decision in L’Oréal v. eBay, holding that while service providers, such as online marketplaces, are normally entitled to the hosting provider exemption, this is only on condition that they confine themselves to “providing an intermediary service, neutrally, by a merely technical and automatic processing of [third-party] data.” Where, on the other hand, platforms “play an active role of such a kind as to give them knowledge of, or control over, those data,” the CJEU held that they were not entitled to such exemption. The court further clarified that an operator could be deemed to have played an active role where, for instance, “it has provided assistance to its customers, which entails, in particular, optimizing the presentation of the offers for sale in question or promoting those offers.”
The court then stressed that, even as a hosting safe harbor, eBay was subject to a duty of care as a “diligent operator” to make sure its platform was not used for unlawful purposes. The court finally clarified that regardless of its liability, an e-commerce platform could always be the subject of injunctive procedures available under the Copyright and Enforcement Directive, to take any effective, proportionate, and dissuasive measures to prevent and/or put an end to an existing infringement.
By taking such approach, introducing new subjective standards of “neutrality” and “duty of care,” the CJEU introduced more questions than certainty, and it would not come as a surprise if we were to see more diverging opinions in Europe in the wake of the L’Oréal decision.
Internet sales platforms have developed from exotic playgrounds for Internet freaks and a garden of wonders and amazement for the newly Internet-savvy to a household tool that every Tom, Dick, and Sally uses at his or her convenience. Internet sales platforms provide access to products that may have been previously inaccessible because of distance, cultural boundaries, or distribution levels.
The maturation of Internet sales has brought with it a ubiquity of sales opportunities, where besides quasi-monopolistic platforms (e.g., eBay, Taobao), a range of specialized platforms caters to special needs (e.g., www.net-a-porter.com for luxury goods or www.banggood.com for trivial fare), and where icons for individual sales (e.g., https://b2zone.net/) may pop up when you open any Facebook or Twitter message. At the beginning of these developments, the Internet sales platform service providers (ISPPs) offered to sellers and buyers merely technical facilities, but now they may mix their own and third-party offers (e.g., www.amazon.com), integrate upstream functions (e.g., Amazon’s www.apub.com), acquire other web-based functions (e.g., eBay’s www.PayPal.com, actually about to be spun-off again) or develop their own related functions (e.g., Alibaba’s www.alipay.com, an online money transfer service), and provide a broad range of support to “their” sellers.
When the DMCA and, in its wake, the E-Commerce Directive were enacted, both the U.S. and the EU legislators considered it appropriate to dig a safe harbor for Internet service providers (ISPs) that transmit, route, provide connections, or provide transient storage for material under the direction of a third party (transit, access, or hosting providers), provided they fulfill certain conditions. These safe harbors were intended to shelter ISPs from claims for damages and injunctive relief on the basis of intellectual property (IP) rights violations. However, since ISPPs now offer a lot more than bland transit, access, or “storage [of material] at the direction of a user,” and optimize or promote offers of items for sale, they cannot anchor in the safe harbor anymore. They may also be chased away from its piers because they “have been [or should have been] aware of facts or circumstances on the basis of which a diligent economic operator should have identified the illegality in question” and have not “acted expeditiously to remove or to disable access to the offer.”
According to the CJEU in the L’Oréal v. eBay decision, outside of the safe harbor, national laws must allow for an injunction to be directed against intermediaries such as sales platforms. Such injunctions may be issued not only to bring an end to infringements committed, but also to prevent further infringements. The measures that an online marketplace can be required to undertake, however, “cannot consist in active monitoring of all the data of each of its customers in order to prevent any future infringement of intellectual property rights via that provider’s website.” The required “measures . . . must be fair and proportionate and must not be excessively costly.” The measures also may not “create barriers to legitimate trade.” Such measures may consist in “suspend[ing] the perpetrator of the infringement of intellectual property rights in order to prevent further infringements of that kind.”
In UPC Telekabel v. Constantin Film, the CJEU required the access provider to install filtering measures that block offerings of infringing products from its site without preventing access to legitimate offerings. However, the access provider cannot be asked to make “unbearable sacrifices,” and measure can be considered reasonable if they allow some infringing offers to still slip through. A general monitoring, investigation, and rights-clearance obligation of the ISPP would be incompatible with EU law.
Most European jurisdictions do not have any statutory rules regulating takedown notifications (e.g., Germany and Switzerland). In some countries, takedown notices are only binding on the ISPP if confirmed by a court or administrative body (e.g., Italy). Under the U.K. regulation, a takedown notice is only one form by which “actual knowledge” of the ISPP may be established. Switzerland relies on self-regulation of the ISP. None of these rules explicitly provide for counter-notices by the affected seller.
The takedown notice mechanism is well established through the programs implemented by the ISP. Takedown notices for right holders are inefficient tools, however, against repeat infringers, which refile their offerings immediately after a takedown, do so under a different name, or keep offers on the platform open only for a very limited time (e.g., overnight offers). Additionally, individual takedown notices are outrun by the sheer number of sellers and transactions conducted over the Internet and drowned in a sea of infringements.
An ISPP (even one acting solely as a host provider) that has become aware of infringing sales on its platform has to take the necessary measures against further infringing offers being posted in the future, and would have to implement an automatic filtering mechanism for discerning offers that actually or potentially infringe IP rights upon becoming aware that infringing items are available on its platform. The results of such filtering have to then be analyzed manually either by the ISPP or by the party that has notified it of the infringed IP rights. The ISPP would also have to take the necessary measures against the same seller resubmitting the same or a similarly infringing offer (hold down).
An ISPP that actively supports and promotes offers, e.g., by selling AdWords, would have to shoulder a more active control duty in order to escape injunctions. It would as a minimum have to analyze what has been caught in the filter, remove the infringing offers so detected, and let the legitimate offers pass. If necessary, it has to do so by manually reviewing the results of the filtering.
In a procedure before the Landgericht Berlin, the right holder had directed a great number of takedown notices to Alibaba against the same sellers’ accounts for four months, whereby these sellers continued submitting infringing offers. The Berlin court considered this good reason for awarding an injunction against Alibaba, first ex parte, subsequently confirmed after a hearing of Alibaba, including also compensation for the costs of the warning letters regarding five different seller accounts. Alibaba’s claim that it closed the sellers’ accounts was not considered sufficient grounds for refusing the injunction or denying compensation.
Not all filtering criteria weed out fakes and nothing but fakes. For example, trademarks may also cause the blocking of legitimate offers. Keywords like “fake,” replica,” or “imitation” can easily be circumvented and may also be contained in legitimate offers. Low prices are not always an indication of infringing sales. Ideally, the right holder together with the ISPP develop a bundle of criteria that filter out infringing items while leaving legitimate offers unhampered. Taking down legitimate offers would have a chilling effect on business in general and discredit the system of takedown notices.
If a seller feels unjustly blocked from the Internet sales platform, he or she may submit a counter-notice and, according to German practice, may move for an injunction against the third party that had filed the takedown notice.
In brief, the legal situation in China regarding the liability of an ISPP is converging with that of Europe and is in many ways similar to the approach of German courts. Regarding the known cases involving Taobao, the first three ended in favor of the Internet giant; however, the court in the fourth case found Taobao liable for contributory infringement. In that case, the Shanghai First Intermediate People Court required Taobao to complement the system of takedown notices with stricter measures against repeat infringers, but did not impose a burden on it to investigate for IP infringements on its site or to filter out suspected offers in general. In the Descente cases, the ISPP was liable as a joint vendor because they were acting in such an active way that they should be considered parties to the online transactions.
The best way to take away the heat from the ISPP would be the development of the court and enforcement systems in the home countries of the important sellers. Also, alternative legal remedies should be studied, such as measures by the customs authorities or measures directed at credit card organizations and other financial intermediaries.
The business of an ISPP by its nature is likely to facilitate and multiply IP infringing offers. Thus, the ISPP in the United States and in China risks becoming liable jointly with the seller. By creating a hazardous situation without taking the appropriate protective measures against such hazard, the ISPP in Germany may be held liable as interferer (Störerhaftung), and may be considered as having violated the general duty of care in Switzerland, and as such may become independently liable for IP infringement. Under any of these legal concepts, the ISPP may avoid liability by installing a system for eliminating from or at least containing the number of infringing offers on its platform that is both efficient and economically and financially reasonable. EU and Chinese law require both retroactive and proactive measures. As regards reactive measures, the ISPP should apply to all types of IP infringement a notice and counter-notice mechanism analogous to the one imposed by the DMCA. The ISPP should apply varying proactive measures depending on its involvement in the offering process: A passive trading platform may use mechanical filtering for intellectual property of which it has been informed is likely to be infringed. A virtual department store that sells goods both in its own name and through shops within the shop has to suppress evidently infringing offers through its own initiative.
©2015. Published in Landslide, Vol. 7, No. 5, May/June 2015, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
