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PARIS — EBay’s legal troubles just got deeper — at least in France.
This story first appeared in the July 1, 2008 issue of WWD. Subscribe Today.
A landmark decision in a legal battle between luxury goods companies and eBay was handed down by a French court Monday, slapping the online auction site with the highest fine ever awarded against it in Europe.
After a two-year legal process, eBay Inc. and eBay International were ordered to pay LVMH Moët Hennessy Louis Vuitton compensation totaling 38.9 million euros, or $61.3 million at current exchange, for allowing the sale of counterfeit goods and for the unlawful sale of authentic fragrances.
“It’s a fundamental decision for us, and will help us preserve our name, and the brands,” said Pierre Gode, LVMH chief Bernard Arnault’s adviser, after the verdict was announced.
Paris’ Tribunal de Commerce on Monday found eBay guilty of gross misconduct in failing to prevent the sale of fake Louis Vuitton leather goods and Christian Dior eyewear and handbags, and ordered it to pay those businesses 19.3 million euros, or $30.5 million, and 16.4 million euros, or $27.5 million, respectively.
Meanwhile, Parfums Christian Dior, Kenzo Parfums, Guerlain and Parfums Givenchy were awarded 3.2 million euros, or $4.7 million, in a separate claim that argued that such fragrances can be sold only in the selective distribution doors chosen by the brands. EBay was ordered to stop selling the four brands or face a fine of 50,000 euros, or $79,000, a day.
EBay said it would appeal the decision and that it would continue to allow the sale of Christian Dior, Givenchy, Guerlain and Kenzo fragrances, despite the court’s order of “provisional execution,” meaning it should be carried out immediately.
LVMH executives lauded the ruling as setting jurisprudence for the first time in France. It puts the onus on auction sites to ensure their activities do not allow unlawful transactions.
“It’s a first in jurisprudence and will pave the way for new rules in the game against unlawful sales over the Internet,” said Gode. “They [eBay] now have to adhere to the same laws as any commercial store.”
At the Dior couture show Monday afternoon, Arnault said he had expected a decision in the group’s favor. “I’m not surprised [by the ruling]. We have been fighting counterfeiting for years,” he said, adding he’s looking forward to studying the finer details of the verdict.
“We have to fight counterfeiting, both in the street and on the Web,” added Dior’s president Sidney Toledano. “To protect consumers and to protect creativity.”
In announcing its decision to appeal, eBay noted that when counterfeit products are put on its site, they are deleted as quickly as possible. Furthermore, eBay accused LVMH of anticompetitive practices. “The decisions today are not about the battle against counterfeiting,” the firm stated. “In reality, it’s a matter of a wish by LVMH to protect its commercial practices excluding all competition.”
The auction site, which had argued that its clients are solely responsible for illegal dealings, is opposed to the restrictions on the sale of authentic fragrances. “What’s quite amazing about this ruling is that the court asked that eBay stop sales of all LVMH perfumes,” said a spokeswoman. “That goes against what we do for consumer goods and empowerment. And it could have repercussions for other e-commerce entities beyond eBay.”
The court’s ruling is the second against the online auctioneer in France this month. The site was ordered to pay Hermès International 20,000 euros, or $31,058, for again failing to monitor the authenticity of goods being sold on its marketplace. L’Oréal has also taken legal action against eBay in five European countries for the alleged sale of counterfeit fragrance bottles.
But the biggest suit pending — and one that might be bolstered by Monday’s decision — is the one in Manhattan federal court in which eBay is squaring off against Tiffany & Co.
The much-watched case, which was brought by Tiffany in 2004 and went to trial in November, could outline what legal responsibility Web sites have when it comes to policing counterfeits online.
Tiffany charged eBay with, among other things, direct and contributory trademark infringement. Similar arguments, which turn on the concept of vicarious liability, have been used with some success to prosecute landlords of Chinatown buildings where counterfeits are sold.
EBay does have a program to help brands report auctions of counterfeit goods and have those auctions removed, but fashion companies argue that should not be their burden. Tiffany spends more than $1 million annually to track online auctions of counterfeit products. — With contributions from Evan Clark, New York