In a decision handed down by the Court of Justice of the European Union on July 12, 2011, eBay has been found to be potentially jointly liable for trademark infringement along with individuals selling infringing goods on the eBay auction site because it had prior knowledge of the infringement.  Paris-based cosmetics company L’Oréal brought the complaint against eBay arguing that it is liable for trademark infringement because it is involved in the pre-sale, sale and after-sale processes of selling infringing products.  The Court agreed and held that an operator of an electronic marketplace that has provided active assistance in the sale of products rather than just taking a neutral position between the buyer and seller cannot be protected by the European Union’s e-commerce law exemption which applies only to parties playing a neutral online role.

eBay purchased keywords from online advertising services, such as Google Adwords, that included registered trademarks in order to direct potential customers seeking to purchase those goods to its website.   However, the goods being sold included both legitimate goods as well as counterfeit and unpackaged goods from non-European Economic Area (EEA) countries thereby infringing upon L’Oréal’s trademarks.  eBay implemented its own precautions against infringement by incorporating a take-down notification system and operating a Verified Rights Owner Program (VERO), however L’Oréal was not a member of the VERO program and rather turned directly to eBay for assistance with handling the infringing goods.  However, unsatisfied with eBay’s response, L’Oréal pursued its action before the High Court of England and Wales which referred several questions to the European Court.

In addition to joint liability, the Court considered the extent of injunctive relief that intellectual property owners could obtain against online intermediary websites, such as eBay, whose services are used as tools to infringe upon the IP of others.  The Court found that it could impose injunctions against online marketplaces requiring them to suspend accounts of those utilizing the site to sell fraudulently-marked goods or to employ measures which would make it easier to identify infringers.  However, the injunction would not require the website to actively monitor all activity of the website or prevent the sale of all goods bearing a particular trademark.

By finding eBay liable for joint liability, the European court differs from cases upheld in the United States.

In the Tiffany (NJ) Inc. v. eBay, Inc., cases in the federal district courts in New York, the federal courts rejected Tiffany’s argument that an intermediary website may have secondary liability thrust upon it if it has “generalized” information that its website was being used to sell infringing merchandise.  The court deduced in Tiffany that even though eBay had general knowledge of infringement by various sellers, it did not require eBay to prevent the same sellers from selling goods via their eBay accounts because general knowledge of infringement is insufficient to determine that actual infringement occurred.  eBay would have been liable, based upon Inwood Labs., Inc. v. Ives Labs., Inc. 456 U.S. 844 (1982) if it continued offering its services to sellers it knew or had reason to know were infringing on the mark’s holder’s marks.

Practical Considerations

What does this decision mean for clients who operate websites used or accessed from the European Union?

This decision suggests that, in the E.U., website owners might consider taking a more active role in addressing and preventing infringement upon learning of potential infringement from a trademark holder.  Indeed,  although an exemption from liability exists under the European E-Commerce Directive, any active role by the website owner in promoting items for sale by users may negate this exemption.

Warner Bros. v. X One X Production, 2011 U.S. App. LEXIS 13646 (8th Cir. Mo. July 5, 2011) This is a case that will make game and movie companies add a new level of analysis and scrutiny to every new creation that has a basis in a work that has entered the public domain. The Eighth Circuit restricted the reproducibility of certain film/cartoon images extracted from publicity materials that had passed into the public domain.

The facts are straightforward. The dispute focuses on promotional pictures that the studios used to promote movies that were adaptations from the out-of-copyright books including ‘Gone with the Wind’, ‘Tom and Jerry’ and ‘The Wizard of Oz’. Art & Vintage Entertainment Licensing Agency (AVELA) got hold of movie posters, “lobby cards”, and the like that bore the images and used them as the basis for things like t-shirts, lunch boxes, and action figures. The studios sued AVELA for a permanent injunction and got one. The publicity images were not taken from film footage, but were created independently. The publicity materials, as distributed, did not comply with the 1909 Copyright Act’s notice requirements. Consequently, the materials fell into the public domain.

The Eighth Circuit reversed and affirmed. The basis of the reversal, in part, was based on the images identical to the ones on the old posters, cards, press books, and other items had that had become public domain material couldn’t provide the basis for an infringement claim.

The Eighth Circuit panel affirmed the injunction to the extent it barred AVELA from using more than just the images themselves. Adding a catch phrase, turning a two-dimensional picture into a three-dimensional figurine, and making other changes or additions, the court held, infringed the copyrights in the characters they depicted:

In essence, the panel of justices finds that the features of film characters can be copyrighted even if these characters were based on prior work. According to the decision:

“We agree with the district court’s conclusion that Dorothy, Tin Man, Cowardly Lion, and Scarecrow from The Wizard of Oz, Scarlett O’Hara and Rhett Butler from Gone with the Wind, and Tom and Jerry each exhibit “consistent, widely identifiable traits” in the films, that are sufficiently distinctive to merit character protection under the respective film copyrights…. Put more simply, there is no evidence that one would be able to visualize the distinctive details of, for example, Clark Gable’s performance before watching the movie Gone with the Wind, even if one had read the book beforehand. At the very least, the scope of the film copyrights covers all visual depictions of the film characters at issue, except for any aspects of the characters that were injected into the public domain by the publicity materials.”