The Gray Blog

The commercial court in Paris has awarded luxury bag maker LVMH Moet Hennessy Louis Vuitton (“LVMH”) and fashion house Christian Dior Couture (“Dior”) 38.6 million euro ($61 million) as damages against eBay for the sale of counterfeit and parallel market goods on its online auction site.  Amongst the court’s findings were statements that eBay was guilty of gross misconduct by failing to put into place appropriate measures to prevent the sale of counterfeit goods. This precedent setting decision obligates online auction services to prevent illegal activity.  Moreover, eBay is exposed to continuing penalties is accused products are not removed from the site.

This decision comes hot on the heels of a recent decision by another French court awarding Hermes International 20,000 euro, or $31,600, for failing to adequately supervise sales of allegedly counterfeit products.  By French standards the amount of the judgment in the LVMH decision is substantial.  Most commentators have suggested that it will embolden a rash of similar suits by other luxury brand owners.

eBay has responded to the decision by announcing it intent to appeal and by releasing public statements labeling the decision a major strike against the consumer and on-line resellers.  eBay insists that it take reasonable precautions against the sale of counterfeit goods.  However, eBay has previously taken the position that since it never takes physical possession of the goods traded on its site, it is unable to guarantee that counterfeit goods will be caught in every instance.  As recently as late 2006, eBay launched its latest anti-counterfeiting initiative .  This initiative included restrictions on the listing of brand name items and on cross border trade.

One troublesome aspect of the decision is the chilling effect that it is likely to have on the on-line resale of genuine branded goods.  The heightened risk of decisions such as this one, if not reversed, will make it difficult of on-line resellers to allow the sale of any branded products.  As a result, brand owners will effectively be able to extend their control over products beyond the first sale effectively making themselves gatekeepers for litigation shy online auction houses.

The decision by the commercial court of Paris could bode badly for eBay on this side of the pond where it faces a similar lawsuit filed by Tiffany and Co. in the United States.    The Tiffany case likewise accuses eBay of facilitating the sale of counterfeit goods and serving as an instrumentality of illegal activity.   A decision in the Tiffany case is expected soon.

3 Responses to “eBay under siege”

• michael webster 3July2008

  Jorge;

  I understood that these items actually had serial numbers, which were not on the fakes.

  How hard would it be to track serial numbers and make sure that only one number/item got on to the eBay auction?

• Jed 3July2008

  If you mean how hard would it be for eBay I guess the problem is that eBay does not handle the product. Accordingly even if eBay could keep a catalog of the different verification codes for the hundred of thousand different products that it sells, eBay cannot independently verify that the product that is being sold bears a particular product number.
  A more serious problem is that most brand owners refuse to disclose their counterfeit verification process–the numbering or marking which distinguishes genuine from fake. The pretext for this is that, if they did, then counterfeiters would merely make better copies. The problem of course is that this leaves the brand owner as the sole arbiter of what is real. This prevents consumer or reseller from independently confirming that a product is real.

• michael webster 15July2008

  Interesting, it sounds however that the luxury brand owners are operating under a fallacy. If they disclose their counterfeit verification process, yes some fakes will get harder to detect. But, what is the gain to them in the secondary markets by allowing the reseller to detect frauds?

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