A Paris court on Monday ordered online auction giant eBay to pay French luxury behemoth LVMH $63 million in damages for the sale of counterfeit luxury goods on its site, as well as the illegal sale of authentic luxury perfumes and cosmetics.
“By allowing the sale of counterfeit goods on its web site to the detriment of Louis Vuitton Malletier and Christian Dior Couture, eBay was guilty of gross misconduct and of detrimental breach through accountable negligence,” the court ruled.
The French conglomerate that owns a portfolio of 60 luxury brands, including Louis Vuitton, Christian Dior, Guerlain, Givenchy, and Marc Jacobs, was seeking $78 million in damages.
The verdict marks a hefty fine for a French court in such a case involving eBay. The ruling also sets a new precedent on French law online, saying that “auction sites that operate on the web have to ensure that their activities do not permit unlawful dealings.”
LVMH's main contention was that eBay’s safeguards and penalties for intellectual property rights infringements by the auction site's users were insufficient and that the lack of effective mechanisms to prevent the trade in counterfeit goods on the site amounted to negligence.
The court agreed and dismissed eBay’s claim that its clients “were solely responsible for their illegal undertakings when transacting.”
The French court ruled that eBay is not a host but a broker and is therefore responsible for not taking the necessary measures to prevent the sale of the counterfeit goods on its site.
Another part of the lawsuit involved the sale on eBay of authentic perfumes and cosmetics from LVMH brands. The French company claimed that the sale of these products was illegal because they were not sold by authorized resellers. Selective distribution channels are one of the ways luxury brands control their image.
On that issue, again the French court sided with the luxury goods manufacturer and issued eBay a cease and desist order, barring it from running ads for the perfume and cosmetic brands or face a fine of $73,000 per day.
This verdict marks another blow for the online auction giant that already got hammered in another lawsuit earlier this month.
In the earlier case a French court ruled against eBay in favor of French high fashion house Hermes.
Whereas the present ruling said that eBay had been merely negligent in preventing the trade in counterfeit luxury goods on its site, the Hermes ruling successfully argued that eBay was in fact a direct participant in the sale of the counterfeit goods.
“By virtue of taking a commission from each sale that takes place on its site, eBay is actually profiting from the counterfeit trade thereby making it a participant in the fraudulent transaction and not merely a passive host as it has contended in the past,” ruled the court in the Hermes ruling.
The financial gain in that first case was small, only $30,000, but it was legally very significant.
This series of counterfeit rulings comes less than a year after the online auction site lost in a similar case against U.S. jewelry company Tiffany’s.
This flurry of lost lawsuit may change how the online auctioneer, which claims 276 million members worldwide, does business.
eBay has already filed an appeal of the Hermes ruling and plans to file an appeal of the LVMH ruling as well.
“We believe that this ruling represents a loss not only for us but for consumers and small businesses selling online, therefore we will appeal,” the company said in a statement.