French Ruling On Counterfeit Goods Could Hit eBay Pretty Hard

Last week eBay was hit with its second fine from a French court a ruling which could have much great impacts on eBay and their marketplace than previously considered.

The Tribunal de Commerce in Paris fined eBay $61 million for allowing the sale of Louis Vuitton Malletier and Christian Dior Couture counterfeit goods on its Web site. The court also ordered eBay to stop allowing the sale of perfume manufactured by Christian Dior, Guerlain, Givenchy and Kenzo, which can be sold only through an agreed-upon network of distributors.

eBay was previously fined $30,000 over the sale of counterfeit Hermes handbags. The two rulings combine set a major precedence, and opened the door for several more lawsuits.

Robert Alpert, a litigation partner with Ladas & Parry, the intellectual property law firm in New York, said: “I expect this ruling to encourage a number of other designers to sue eBay as well.” EBay has already been sued by companies such as Rolex, the watchmaker, Tiffany, the jeweller, and L’Oréal, the cosmetics and perfume house, for selling counterfeit goods.

Jorge Espinosa, an intellectual property attorney at Miami-based Espinosa Trueba PL, said that if the decision stands, it would make it harder for Internet companies such as eBay to allow the sale, or resale, of brand-name products.

"As a result, brand owners will ... be able to extend their control over products beyond the first sale, effectively making themselves gatekeepers for litigation-shy online auction houses," Espinosa said in his blog. In addition, the ruling will either cause eBay to shut down its French Web site or spend millions of dollars to implement methods to take down auctions for counterfeit goods that appear on its sites worldwide, legal experts said.

eBay has agreed that it would most likely have to change its business model.

"If we have to change our business in relation to this ruling, it will be a massive undertaking," said eBay spokeswoman Nichola Sharpe. "We don't view it as just affecting eBay France, but affecting all eBay sites globally."

A hot issue in copyright law right now is an Internet site's responsibility for what users post and whether it is responsible for the misuse of the intellectual property of others. The RIAA has been testing the courts on these issues for years, however that deals strictly with intellectual property. The eBay cases or the largest major tests of a sites responsibility to police its users.

Carole Handler, an intellectual property lawyer at Chicago-based Wildman, Harrold, Allen & Dixon LLP, told Computerworld.com that the underlying issue is whether the online retailer is liable and what steps it must take to prevent the sale of counterfeit merchandise.

eBay spokeswoman Nichola Sharpe said the company has taken step to stop the sale of counterfeit goods with its Verified Rights Owners (VeRO) Program, which provides tools to help companies look for fake goods on the site. If a company determines that a user is selling counterfeit merchandise, it notifies eBay, which immediately takes down the auction, she said.

Sharpe said the company spends $20 million annually on technology and manpower and has 2,000 employees worldwide who work on identifying and removing counterfeit property from its site.

"There are over 18,000 rights owners, like Nike and Coach, involved in the program, and in 2007 alone, we removed 2.2 million potentially counterfeit listings," she said.

Sharpe said eBay has also suspended 50,000 sellers who were selling fake goods and has made it harder for other sellers to offer counterfeit goods for sale.

However, in its complaint, Tiffany, which is a member of the VeRO program, said that eBay is forcing manufacturers to bear much of the cost of policing the auction site to look for counterfeit goods being sold via eBay. A one-week trial was held in federal court in Manhattan late last year, and a decision on which company has to bear those expenses is still pending.

My Conclusion:

eBay is currently appealing the ruling from the French courts, however if the ruling is upheld it has the potential of costing eBay billions of dollars. Not just in loses from lawsuits but revenue generated from the auction of goods. Anyone holding a copyright could potentially ask that their goods be pulled from eBay, or could potentially sue if counterfeiting is occurring.

eBay will have to make up the costs associated with fighting counterfeiting, as well as fighting lawsuits which means they will undoubtedly raise their fees. Even if they don't raise their fees they will, with out a doubt, implement new policies that will make it harder for users to sell their goods. What type of policy they would implement would be beyond me, how do you police millions of auction listings daily?

Will sellers now have to show proof of original purchase before selling goods? Are we going to be asked for some type of identifiable evidence that the good we are selling are real? And if so how is the determination going to be made? Hopefully eBay will have the answers to these questions soon!