CJEU Case C-324/09 L'Oreal v eBay - Nuclear bomb or gentle explosion?

A nuclear bomb has just exploded in the online auction world that could possibly change the business model adopted by eBay and other Online Auction Intermediaries (AOI) forever. On the 12th July 2011, the Court of Justice of the European Union published its decision concerning the case opposing L’Oreal to eBay (CJEU Case C-324/09).

The liability of eBay has been tested in many European and US courts and until now, the received wisdom was that while eBay could do more to protect IP owners and consumers and eradicate the sale of fake goods on its sites, the law (i.e. the Electronic Commerce Directive 2000/31) was simply not forcing them to do so. This decision from the CJEU is now likely to change all this. The position taken by the court follows in the footsteps of the Google decision (Joined cases C-236/08 and C-238/08) and is unequivocally for a restrictive interpretation of article 14 of the Electronic Commerce Directive, the provision limiting the liability of intermediaries hosting third party content. The Court also clearly sides in favour of Intellectual Property Rights owners, by allowing the use of article 11 of the Enforcement Directive 2004/48 to prevent future infringements of IP right via online auction sales (albeit with some restrictions as we will see below). This may be marking the end of AOI liability as we thought we knew it. This decision is also likely to have an effect on other types of ISPs. It is expected that following the decision of the CJEU, eBay and other competitors will have to shape up and tighten controls on their sites or face many unpleasant consequences.

The decision may be good news for consumers throughout Europe, since tighter controls may mean better piece of mind while buying items on the online auction giant's website. But it also may have unwanted consequences, such as driving costs up and forcing higher commissions being charged, ultimately disturbing the business model that had seen millions flock to the site in search of a bargain. We will for now abandon discussions on the economic impact of the decision to concentrate on the content of the CJEU decision and what is likely to change for ISPs and more particularly Online Auction Intermediaries, since while eBay dominates the market place, it is not the only online auction provider to be affected by the decision.

For a full coverage of the case, see the other blog I contribute to: Recent Developments in European Consumer Law