May 14, 2009, 12:00 AM

Legal win in France shows courts are giving eBay credit for fighting fraud

A French judge threw out a lawsuit by cosmetics manufacturer L’Oréal, which claimed eBay should be held liable for the sale of fake goods on its site. It’s another example of a court rewarding eBay for its efforts to fight fraud, a legal expert says.

French courts haven’t always been kind to eBay Inc. But the online marketplace won an important victory this month that suggests courts increasingly are giving eBay and other Internet players credit for their efforts to prevent fraud, says a U.S. legal expert.

“This is another example of a court giving credit to eBay for doing the right thing,” says Eric Goldman, an associate professor at the Santa Clara University School of Law and director of the High Tech Law Institute. “I see a trend of courts, while not expecting absolute perfection, giving credit when web sites give it a go, which is what eBay has been doing.”

In the latest in a string of cases in which luxury goods makers have sued eBay over the sale of knock-offs on eBay’s marketplace, a French judge last week rejected a lawsuit by French cosmetics manufacturer L’Oréal. The judge ruled that eBay was making a good faith effort to fight the sale of counterfeit goods on its site and ordered the parties into mediation over the dispute.

“This is a clear legal victory for eBay and important victory for French consumers,” says Mary Huser, deputy general counsel for eBay. “We are delighted that eBay’s meaningful efforts to fight counterfeits online have been recognized by the court.”

L’Oréal said in a statement that it was satisfied with the court’s ruling and the mediation order. “Based on the evidence submitted, the court recognizes that the control of counterfeit fragrances and cosmetic products on the eBay platform is challenging. However, the court stressed that such measures against counterfeiting are required since it is an illegal activity which is a threat to the health and safety of consumers,” the statement said.

EBay previously had lost a number of similar suits in French courts, and last summer was ordered to pay more than $60 million in compensation to such luxury brands as Louis Vuitton and Christian Dior.

Goldman notes the latest decision is in line with those of a number of U.S. courts that have taken note of efforts by eBay and other web site operators to prevent criminal activity. Besides eBay’s win last summer over Tiffany & Co. in a lawsuit over the sale of fake Tiffany items, he points to a California state court decision that recognized the efforts by Google and Yahoo to prevent illegal gambling ads from appearing on their sites and a federal court ruling in a case called Io v. Veoh in which the court recognized that web site owners were making real efforts to prevent copyright violations. “We’ve seen a trend in the United States towards courts giving web sites credit for trying to police their sites,” Goldman says.

Merchants that sell luxury goods say eBay is scrutinizing such items much more closely than it once did, and that the policing efforts are having an effect, even if they can inconvenience eBay sellers. In some cases, it can take up to 12 hours before eBay will post a high-ticket item that’s put up for sale, says Sarah Davis, founder of online retailer Fashionphile, who has been selling luxury handbags on eBay since 1999. Retailers new to eBay may only be allowed to put up one high-end product, then forced to wait a month while eBay watches to see if they are legitimate, Davis says.

But such actions have gone a long way to keeping fakes off eBay, she says. “At one time the vast majority of listings of luxury handbags on eBay were fakes,” she says. “Now it’s totally the reverse: The vast majority of listings in my category are authentic.”

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