An answer could be given with an example.

eBay is a social network operating as a global marketplace designed to link sellers and buyers. Thanks to its wide audience of users eBay has become an auction house for selling almost everything — including kids’ toys, books, cars, music, perfumes, kitchen appliances, and even houses. The goods, comprising this long list, can be offered by either auction or sale by persons who have registered for that purpose with eBay. The scale and size of eBay’s marketplace has made the website prone to numerous intellectual property lawsuits, referring to the secondary intermediary liability of the company, based on infringements by its numerous users. This has made eBay an active side in one of the most intriguing decisions of various national jurisdictions, which have shed light on some of the non-conventional and emerging aspects of intellectual property law. A large part of the litigation eBay has faced concerns trademark owner’s rights and the secondary intermediary liability of online marketplaces in respect of the trade of pirated or second-hand products, commenced by the users of the service. Secondary liability sometimes also called contributory liability in Intellectual Property Law, arises when one does not infringe directly, e.g. by selling counterfeit goods, but facilitates such direct infringements, enacted by someone else. Such facilitation can occur if one intentionally provides the infringer with technical equipment to commit the violation – CDs to copy a copyright protected work or technologies for the production of counterfeit goods in example, or when one facilitates the direct infringement by making it technically possible for the third party to infringe. The second case of facilitation is much less related to the direct infringement. However, in today’s technological environment intermediaries such as internet service providers, internet auction websites (such as eBay) or search engines, while not directly liable, could be held to incur a secondary liability in relation to the direct infringements committed by their users.

In Tiffany, Inc. v eBay, Inc., which took place in the US in 2008, Tiffany assailed eBay with a lawsuit for trademark infringement, trademark dilution and false advertising based on its allegations that eBay was aiding the trade of counterfeit Tiffany products. However, Tiffany lost the case on all claims, since the Second Circuit Court of Appeals established that eBay acted immediately when it was informed that infringing goods were sold through its site by removing the reseller from the site. The court continued further that it is the trademark holder’s burden to police its mark for counterfeit goods in online marketplaces, and companies like eBay cannot be held liable for trademark infringement based solely on their general knowledge that trademark infringement might be occurring on their websites.

Before European courts, however, eBay did not receive the same appraisal. Article 14 of the applicable e-Commerce Directive provides information society service providers (such as eBay) with an exemption from liability provided that the latter “does not have actual knowledge of illegal activity or information ... or ... upon obtaining such knowledge or awareness, acts expeditiously to remove or to disable access to the information.” Thus, eBay would fall in the ‘safe harbour’ category which exempts it from secondary liability if eBay plays a strictly neutral role in the operation of its marketplace (has neither knowledge of, nor control over the information which is transmitted or stored) and if it acts immediately after receiving a notification for illegal information hosted on the site.

L’Oréal, the owner of widely-famous perfume and cosmetic brands, engaged in some significant legal action against eBay in Belgium, France and England. Eventually, the UK High Court of Justice decided to initiate a preliminary ruling before the CJEU regarding eBay’s secondary liability.

Thus, in L’Oréal and Others vs eBay the CJEU gave guidance on some of the major questions, regarding this type of disputes, by interpreting key articles from key EU legislative acts, such as the Trademark Directive, the e-Commerce Directive, and the Directive on the enforcement of intellectual property rights. The Court found that Article 14(1) of the e-Commerce Directive (the exemption of secondary liability) could be applied if an operator of an online marketplace had not played an active role, had no knowledge, nor control of the data stored. Therefore, the operator of an online marketplace could not be held liable as long as they expeditiously remove or disable access to infringing content when a trademark holder has made them aware of this. However, the CJEU has further specified that the operator has played an active role when the operator ‘has provided assistance which entails, in particular, the optimization of the presentation of the offers for sale in question or the promotion of those offers’. In such cases the service provider cannot rely on the exemption from secondary liability. Moreover, the exemption cannot be relied upon in cases when the operator was aware of facts or circumstances on the basis of which a diligent economic operator should have realized that the online offers for sale were unlawful and during such awareness has failed to act promptly to remove the data concerned from its website or to disable the access to them.

Such were the findings of the French courts in a class of cases, called collectively LVMH v eBay. Louis Vuitton Moët Hennesy (LVMH), proprietor of more than 60 luxury trademarks, was the plaintiff in those cases, through one or more of its companies. In 2008 a lawsuit was brought before the Paris Court of Commerce, in 2010 - before the Paris Court of Appeal, and in 2012 – before the French Supreme Court. It was assessed that eBay failed to carry out its duty of a neutral host, since eBay bought misspelled versions of Louis Vuitton as keyword for Google’s AdWords as well as in Yahoo (that triggered advertisements), leading to counterfeit brands of LVMH. Although eBay claimed that this is a standard automatic procedure for every good or service, offered through the online marketplace, the French courts held that based on this conduct eBay was not just hosting but also brokering and has thus generated gross misconduct and detrimental breach in LVMH’s trademark rights. Therefore, it was impossible for eBay to fall within the “safe harbour” exemption of liability. It has to be noted that eBay was found responsible for its negligence regardless the functioning of its Verified Rights Owner (VeRO) Program, which allows intellectual property rights owners to ask eBay to remove certain listings that offer items or contain materials that infringe on their intellectual property rights (including trademarks).

In conclusion, the actual knowledge of infringement is a key issue in determining whether an online marketplace host bears secondary liability for trademark infringement. Moreover, if the operator of such a marketplace performs an active role in the hosting of the content (i.e. promoting, optimizing the presentation of the offers, etc.), it cannot rely on the exemption from liability under Article 14 of the e-Commerce Directive.