The French apparently never got the memo that the Internet is a borderless network where national law can't be effectively applied. Au contraire: on Monday a Paris court ordered eBay to pay $63 million in damages to units of the Paris-based luxury goods mammoth LVMH, after agreeing that the site had facilitated the sale of counterfeit versions of its high-end products, particularly Louis Vuitton luggage.
The ruling came less than a month after another Paris court ruled that eBay must pay $30,000 to luxury house Hermès after knockoffs of its chic bags had been sold on the site. Though all that tilting against Internet windmills may be happening only in France for now, there are signs those Paris verdicts will be carefully studied around the globe by other companies seeking to stem losses in their activity to online transactions.
Monday's ruling supported LVMH claims that eBay had taken insufficient steps to detect and prevent counterfeits of the group's Louis Vuitton bags from being auctioned online. In addition to what it called eBay's "culpable negligence" in that aspect of the case, the court also awarded LVMH brands Dior, Guerlain, Givenchy and Kenzo nearly $20 million in compensation for "illicit sale" of genuine perfumes, the legal distribution of which is limited to authorized outlets. Though applicable only in France for the moment, both those verdicts could become important precedent for courts studying similar complaints elsewhere. Luxury goods groups like Tiffany's and Co., for example, have similar cases pending in the U.S. on claims that counterfeit or unauthorized sales of their products online costs their industry $30 billion annually. Meanwhile, cosmetics giant l'Oréal has also filed suit against eBay for contested sales of its perfume on the site.
Not surprisingly, eBay immediately lodged an appeal of the Paris ruling. The San Jose, California-based company argues that it spends $20 million annually on rooting out counterfeit goods introduced by a tiny minority of the 84 million active eBay users in 39 countries; that, the company suggests, is proof of its desire to combat the problem. LVMH, however, says that effort doesn't go far enough. The luxury conglomerate carried out its own inquiry in 2006 and found that 90% of the Louis Vuitton and Dior brand goods auctioned on the site were fakes.
In a post-trial counter-jab at such claims, eBay issued a statement suggesting such cases by luxury goods groups were less about losses to real piracy and more about keeping tight control of distribution and prices. "Today's ruling is about an attempt by LVMH to protect uncompetitive commercial practices at the expense of consumer choice and the livelihood of law-abiding sellers that eBay empowers everyday," the eBay statement said. "We will fight this ruling on their behalf."
The problem eBay faces is that that battle is taking place in France, where rules pertaining to the Worldwide Web can seem downright provincial. In the late 1990s, for example, judges began ruling that French Internet service providers were legally and financially responsible for objectionable content published by sites they hosted cases usually lodged by celebrities angered at finding scantily clad paparazzi photos of themselves posted by anonymous (and less than affluent) webmasters. And in 2000, Paris courts ordered Yahoo! to comply with a national law prohibiting the sale of hate crime memorabilia by blocking French access to all its international sites auctioning Nazi paraphernalia, most of which were in the U.S.
But if French legal eagles stirred up controversy by taking on the super-heavyweights of the Internet world, they're likely to have an even bigger fight on their hands as they try to crack down on the estimated 10 million French internautes who illegally download copyright-protected music and videos. Last week, the French government introduced a draft law proposing "graduated responses" to illegal downloading that culminate in suspended net access (but continued billing by service providers) and fines of $7,500 per case of continued illicit activity. The new proposals would replace a current law, which calls for maximum penalties of nearly $500,000 and three years in prison. Entertainment groups have denounced the current law as far too draconian to be enforceable against what they call "mass piracy." But it's not certain that the new approach will be any more effective in heading off the nearly universal hunger for a bargain over the Internet.