On June 30, 2008, France’s Tribunal de Commerce de Paris ruled against eBay, the world’s biggest online auctioneer, and found it guilty of misconduct for failing to prevent the sale of fake Louis Vuitton leather goods and Christian Dior handbags and eyewear. The French decision orders eBay to pay LVMH over € 38 million (approximately $61 million) in damages for allowing the sale of counterfeit merchandise and the unlawful sale of authentic fragrances over five years. Parfums Christian Dior, Kenzo Parfums, Guerlain and Parfums Givenchy won € 3.2 million (approximately $4.7 million) for a separate claim alleging that their fragrances can only be sold in the brands’ selective distribution channels.

The decision requires eBay to stop selling these four brands and threatens a daily penalty of 50,000 euros ($79,000) per day. This is reportedly the largest fine ever imposed by a European court for trademark counterfeiting and is the most recent legal battle eBay has lost in Europe. The decision follows on the heels of another decision in France in June 2008 ordering eBay to pay luxury-goods retailer Hermes € 20,000 for the sale of counterfeit products on its website. eBay has waged a similar legal battle across the Atlantic in the United States since 2004, when Tiffany & Co. sued eBay after concluding that a substantial percentage of TIFFANY-branded products sold on the auction site were counterfeit. Unlike the European decisions ruling against eBay, however, Judge Richard Sullivan of the US District Court for the Southern District of New York issued a decision on July 14, 2008 finding against Tiffany and in favor of eBay.

The French Appeals Court has already denied eBay’s appeal and request for a stay, affirming the decision on July 11, 2008.

LVMH argued that eBay’s French subsidiary did not do enough to prevent sales of counterfeit items and that a substantial amount of all “Louis Vuitton” goods sold on eBay are counterfeit. Moreover, companies like eBay are not passive in the sale of suspect merchandise because eBay derives its revenue by earning a percentage commission on all eBay sales. eBay claimed that LVMH’s allegations were anticompetitive and that eBay sellers, not eBay, are directly responsible for any illegal dealings.

LVMH’s battle against eBay in the French courts employed theories of third-party liability similar to those that Arent Fox has used in the United States to pursue civil actions against New York Canal Street and Los Angeles Santee Alley landlords on behalf of several fashion companies who faced a growing problem that had thwarted prior efforts to combat it. Seeking new strategies, these brand owners hired Arent Fox to impose liability on Canal Street landlords who knew about their tenants’ illegal activities but remained willfully blind to the problem. Arent Fox developed an innovative “landlord program” that required the landlords to take specific steps to stop counterfeiting, including hanging signs warning consumers that the tenant was not authorized to sell plaintiffs’ brands, specifically prohibiting counterfeiting in the leases, hiring a monitor to ensure tenants’ compliance, and evicting any tenant selling counterfeits.