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EBay fights tooth and nail in court over decision which could spell doom to its apparel and cosmetics sales

EBay has suffered some hard times of late, but has pushed hard offering new growth strategies like user-created seller software.  However, a new court ruling in France may undermine eBay's efforts by cutting out a large portion of its business.

On eBay, a number of designer brand name purses, accessories, and perfumes sell every day.  It goes without saying that a large portion of these products are fake.  The number of fake Louis Vuitton items alone is staggering.  Of the smaller portion of items that are authentic, fewer still are from authorized retailers.

While this is good for eBay and the customer, it’s not such a happy trend for designers who making a killing off decadently high prices for the elite goods.  Louis Vuitton finally took eBay to court and now has won a decisive victory.

In a broad ruling by the Commercial Court of Paris on June 30, it was ruled in favor of LVMH Moët Hennessy Louis Vuitton that eBay must block all sales of counterfeit products and block sales of genuine perfumes from unauthorized retailers.  The decision opens the floodgates by setting a precedent by which other designer perfume brands can ban eBay sales.

EBay states that it is technically infeasible to automatically determine authentic items from fakes and it would be prohibitively expensive to manually detect fakes.  EBay is petitioning a higher French court, the French Court of Appeals, to grant a reprieve from the lower court injunction.  This reprieve would allow sales to continue as eBay appeals the decision.

If the decision sticks, it would virtually doom eBay's perfume sales of Christian Dior, Guerlain, Givenchy, and Kenzo brands (all marketed by LVMH) as currently there is no licensed LVMH that sells on eBay.  EBay may be safe in the U.S., though as the sales of genuine products through unauthorized channels, known as "gray marketeering" is generally legal in the U.S. as it is thought to benefit consumers.

The court decision additionally ordered eBay to pay damages to various LVMH units totaling $60.8M USD.  If a reprieve is not granted by the appeals court and eBay is deemed noncompliant with the ruling, it faces daily fines of 50k € ($80,000 USD).  Such fines add up quickly, as Microsoft found out in similar European ruling -- damages leveled against it eventually amounted to $1.4B USD.  The appeals court will rule on Friday.

French attorney Alexandre Menais, who works for eBay states, "We have to demonstrate that the injunctions are not technically realistic, and are impossible to execute."

LVMH’s outside counsel, Didier Malka of Jeantet Associés in Paris is unsympathetic, stating, "LVMH Group do not intend to hold off enforcing the injunction."

The new ruling could seriously dent eBay's designer merchandise sales and is likely to lead to similar legal complaints.  However, more troubling for the company are the broader implications.

The unauthorized reseller portion in particular poses an intriguing legal question.  Can retailers prevent the resale of their products which customers legally paid for?  If this is the precedent set, eBay could be in for a world of additional trouble in European Courts.





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