eBay 2013 Annual Report Download - page 129

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed
in this Note 11, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-
monetary remedies.
Specific Matters
In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc.
and eBay International AG. Among other things, the complaint alleged that we violated French tort law by negligently broadcasting listings
posted by third parties offering counterfeit items bearing plaintiffs' trademarks and by purchasing certain advertising keywords. Around
September 2006, Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also filed a lawsuit in the Paris Court of
Commerce against eBay Inc. and eBay International AG. The complaint alleged that we had interfered with the selective distribution network the
plaintiffs established in France and the European Union by allowing third parties to post listings offering genuine perfumes and cosmetics for
sale on our websites. In June 2008, the Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to prevent the
sale of counterfeit items on its websites that traded on plaintiffs' brand names and for interfering with the plaintiffs' selective distribution
network. The court awarded plaintiffs approximately EUR 38.6 million in damages and issued an injunction (enforceable by daily fines of up to
EUR 100,000 ) prohibiting all sales of perfumes and cosmetics bearing the Dior, Guerlain, Givenchy and Kenzo brands over all worldwide eBay
websites to the extent that they are accessible from France. We appealed this decision, and in September 2010, the Paris Court of Appeal reduced
the damages award to EUR 5.7 million and modified the injunction. We further appealed this decision to the French Supreme Court, and in May
2012, the French Supreme Court ruled that the appeal court should not have assumed jurisdiction upon activity that took place on the eBay.com
website and that the injunction was too broad insofar as it did not exclude private sales. The court also noted that the appeal court had not
sufficiently dealt with assertions that the plaintiffs' distribution contracts were not valid. Those matters were remanded to the Paris Court of
Appeal. In 2009, plaintiffs filed an action regarding our compliance with the original injunction, and in November 2009, the court awarded the
plaintiffs EUR 1.7 million (the equivalent of EUR 2,500 per day) and indicated that as a large Internet company we should do a better job of
enforcing the injunction. Parfums Christian Dior has filed another motion relating to our compliance with the injunction. We have taken
measures to comply with the injunction and have appealed these rulings, noting, among other things, the modification of the initial injunction. In
light of the French Supreme Court ruling mentioned above, we asked the court to stay proceedings with respect to enforcement of the injunction
pending the retrial of the matters on appeal, and this request has been granted. However, these and similar suits may force us to modify our
business practices, which could lower our revenue, increase our costs, or make our websites less convenient to our customers. Any such results
could materially harm our business. Other brand owners have also filed suit against us or have threatened to do so in numerous different
jurisdictions, seeking to hold us liable for, among other things, alleged counterfeit items listed on our websites by third parties,
“tester”
and other
not for resale consumer products listed on our websites by third parties, alleged misuse of trademarks in listings, alleged violations of selective
distribution channel laws, alleged violations of parallel import laws, alleged non-compliance with consumer protection laws and in connection
with paid search advertisements. We have prevailed in some of these suits, lost in others, and many are in various stages of appeal. We continue
to believe that we have meritorious defenses to these suits and intend to defend ourselves vigorously.
In May 2009, the U.K. High Court of Justice ruled in the case filed by L'Oréal SA, Lancôme Parfums et Beauté & Cie, Laboratoire
Garnier & Cie and L'Oréal (UK) Ltd against eBay International AG, other eBay companies, and several eBay sellers (No. HC07CO1978) that
eBay was not jointly liable with the seller co-defendants as a joint tortfeasor, and indicated that it would certify to the European Court of Justice
(ECJ) questions of liability for the use of L'Oréal trademarks, hosting liability, and the scope of a possible injunction against intermediaries. In
July 2011, the ECJ ruled on the questions certified by the U.K. High Court of Justice. It held that (a) brand names could be used by marketplaces
as keywords for paid search advertising without violating a trademark owner's rights if it were clear to consumers that the goods reached via the
key word link were not being offered by the trademark owner or its designees but instead by third parties, (b) that marketplaces could invoke the
limitation from liability provided by Article 14 of the ecommerce directive if they did not take such an active role with respect to the listings in
question that the limitation would not be available, but that even where the limitation was available, the marketplace could be liable if it had
awareness (through notice or its own investigation) of the illegality of the listings, (c) that a marketplace would be liable in a specific jurisdiction
only if the offers on the website at issue were targeting that jurisdiction, a question of fact, (d) that injunctions may be issued to a marketplace in
connection with infringing third party content, but that such injunctions must be proportionate and not block legitimate trade and (e) that
trademark rights can only be evoked by a rights owner as a result of a seller's commercial activity as opposed to private activity. The matter was
set to return to the U.K. High Court of Justice for further action in light of the ECJ opinion. However, we have entered into a Cooperation and
Settlement Agreement with L'Oréal and the other parties to the suit, under which all pending litigation is terminated, including other pending
cases in Europe regarding the question of liability for third party content on our websites. We had previously accrued sufficient amounts for this
settlement.
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