Counterfeit goods ruling could have major effect on eBay

If decision upheld, company would have to spend millions more on anticounterfeit methods, change business processes

If a French court ruling against eBay for allowing the sale of counterfeit goods on its Web site is upheld, it could have far-reaching effects for the way the online auction company does business.

Last week, the Tribunal de Commerce in Paris fined eBay US$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, which said it will fight the decision, said it was an attempt by LVMH, the parent company of Louis Vuitton Malletier and Christian Dior Couture, to protect uncompetitive commercial practices at the expense of consumer choice and the livelihood of law-abiding sellers.

Jorge Espinosa, an intellectual property attorney at US-based Espinosa Trueba, 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 might believe it has to set up custom implementations on a country-by-country basis to better reflect local law, but the consequence is that it imposes some significant costs," said Eric Goldman, assistant professor and director of the High Tech Law Institute at the Santa Clara University School of Law. "EBay has the capital to do it, but they don't want to because it's expensive to build the technology differently. They also think it would result in a poor consumer experience, and it would reduce consumer choice, which is exactly what they don't want to do."

EBay 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."

The legal experts also said that other luxury goods makers are waiting to see the outcome of eBay's appeal to determine whether they will also go after eBay for allowing the sale of counterfeit goods.

"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," said Carole Handler, an intellectual property lawyer at US-based Wildman, Harrold, Allen & Dixon, in an e-mail. "With this decision, the responsibility of online retailers for the sale of counterfeit merchandise has now come under scrutiny in the same context."

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