Online marketplaces face stricter liability over trade marks

Out-Law News | 04 Dec 2019 | 10:24 am | 4 min. read

Online marketplaces that store and deliver goods that other businesses sell via their platform could face more claims of alleged trade mark infringement in future if the advice of a legal adviser to the EU's highest court is followed.

Trade mark law expert Florian Traub of Pinsent Masons, the law firm behind Out-Law, said Amazon and eBay are among the companies that could be affected by a case that is currently before the Court of Justice of the EU (CJEU) for consideration.

The CJEU has been asked by the Federal Court of Justice in Germany to clarify whether a business that stores trade-mark infringing goods on behalf of a third party can be said to stock those goods for the purpose of offering them or putting them on the market in circumstances where the storekeeper has no knowledge of the infringement and where it is the third parties alone and not the storekeeper that intends to offer the goods or put them on the market.

The question goes to the heart of a dispute over trade mark infringement claimed by luxury goods manufacturer Coty and online marketplace Amazon.

Davis Alan July_2019

Alan Davis

Partner, Head of Competition, EU & Trade

If this opinion is followed by the court, it would give luxury goods manufacturers more opportunity to limit and scrutinise how and whether their goods can be sold on online marketplaces.

Coty has claimed that subsidiaries of Amazon infringed its trade mark rights by enabling the sale of 'Davidoff' branded perfume for which it owns trade mark rights, without its permission. Amazon said it is not liable for the infringement, while Coty has claimed that Amazon is not an innocent bystander in the infringement of its rights. It has argued that Amazon acts as a broker of contracts for goods offered on its platform and that it receives the purchase price, meaning that it has "detailed knowledge of the stored and dispatched goods".
Businesses that hold trade mark rights in the EU are able to exercise control over how their brand is exploited. The law gives them the right to determine how their branded goods are first placed on the EU market and to take action against rival goods bearing identical or similar branding to their trade marks.

Coty's case has been considered by an advocate general to the CJEU. Manuel Campos Sanchez-Bordona issued his opinion on the case last week. The opinion is non-binding, but the judges at the CJEU often follow the recommendations of advocate generals when issuing their formal judgments in cases.

In his opinion, Sanchez-Bordona made clear that it will be for the Federal Court of Justice in Germany to ultimately determine whether Amazon is liable for infringement of Coty's trade mark rights in this case.

The advocate general, however, advised the CJEU to clarify that there are circumstances in which online marketplaces cannot benefit from an exemption from liability for that infringement.

Under the EU's E-Commerce Directive, information society service providers - such as online platforms - cannot be held liable for others' illegal activity or information on their platforms where they are act as mere hosts and have no actual knowledge of the activity.

According to advocate general Sanchez-Bordona, mere storekeepers that only perform auxiliary tasks would be exempt from liability in cases where they have committed an act of infringement without having known or without it being reasonable for them to know about the infringement. Mere storekeepers cannot be obliged to take special care to verify that the rights of trade mark holders are respected in individual cases, provided that the infringement is not obvious, he said.

However, Sanchez-Bordona said it was his view that the situation is different in respect of the services offered under the 'fulfilment by Amazon' shipping scheme, where goods are placed on the market, even if the Amazon subsidiaries operating under the programme did not have knowledge that goods were being offered in breach of Coty's trade mark rights.

This lack of knowledge, he said, "does not necessarily exempt them from liability", he said.

"The substantial involvement of these undertakings in placing the goods on the market through the program means that they may be required to exercise particular care with regard to the control of the lawfulness of the goods traded," the advocate general said. "Precisely because they are aware that without such control they are easily used as a medium to sell 'unlawful, counterfeit, pirated, stolen or otherwise unlawful or unethical goods that infringe the property rights of others', they can not easily shirk their responsibilities by attributing them to the seller alone."

According to the advocate general's opinion, the final decision in the case could turn on how the Federal Court of Justice determines how Amazon's business model operates.

The advocate general said there are two possibilities in this respect. On the one hand, it could determine that two Amazon subsidiaries which operate the company's sales platform and manage the storage of goods operate distinct from one another. On the other, it could see their operations as part of an integrated business model, he said.

The distinction matters because, according to the advocate general, an integrated business model would be more likely to suggest that the company has engaged in active behaviour concerning how goods are offered and placed on the market, and would give the appearance that Amazon has complete control of the sales process.

The advocate general said the perspective of the average consumer buying a product from Amazon has to be considered when making this assessment, in addition to the internal relationship between the seller and Amazon.

Coty and Amazon were involved in a previous dispute the CJEU ruled on in late 2017. In that case, Coty had objected to rival Parfümerie Akzente selling its cosmetics via Amazon's marketplace.

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law, said: "This is a further development in Coty’s attempts to control the online sales of its products via third-party online platforms such as Amazon."

"Coty’s internet sales restrictions have previously raised significant competition law concerns. In December 2017, the CJEU ruled that restrictions preventing the sale of luxury goods via third party platforms do not infringe competition law where they apply in the context of a ‘selective distribution’ system and do not amount to an absolute prohibition of online sales," he said.
"The CJEU found such restrictions can be justified where they: are necessary to protect the luxury image of certain products; are uniformly applied without discrimination to all distributors; and do not go further than necessary – i.e. that they are proportionate. The judgment did not clarify to what extent third-party online sales of ‘non-luxury’ goods, or goods sold outside a selective distribution system, may be restricted under competition law," he said.

"If this opinion is followed by the court, it would give luxury goods manufacturers more opportunity to limit and scrutinise how and whether their goods can be sold on online marketplaces," Davis said.