Is eBay a consumer champion promoting free enterprise or is it wrongfully facilitating the trade of illegal goods? Two conflicting answers have been given by European and US courts.

In Europe
Some European courts side with brand owners. The German court ruled in April 2008 that eBay should take greater responsibility to stop the sale of counterfeit Rolex watches by creating new guidelines. On 5 June, the French court went a step further and fined eBay €20,000 for failing to prevent users from selling counterfeit Hermes products. On 30 June, LVMH succeeded in getting the French courts to award it damages of €60m, with €16.4m going to Louis Vuitton Malletier, €19.28m to Christian Dior and €3.2m to Parfums Christian Dior and its fragrance brands Givenchy, Guerlain, Kenzo and Christian Dior. The fragrance suit won not only damages for counterfeit products but also an injunction against eBay for retailing genuine products, enforced by fines of €50,000 a day.

In America
The US sides with eBay. On 14 July, eBay won the case brought against it by Tiffany which tried to hold eBay responsible for sales of counterfeit Tiffany jewellery, with the judge ruling "Tiffany must ultimately bear the burden of protecting its trademark."

Both parties are committed against counterfeiting. Ebay claims to be doing its bit to stop counterfeiting, saying: “We invest more than $20 million each year to ensure counterfeit goods are found and removed. We partner with over 18,000 brand owners around the world to identify and successfully remove counterfeit goods and employ over 2,000 people to carry out this fight on a daily basis. When we find counterfeit goods on our sites we take it down.” Ebay’s Verified Rights Owner Programme (VeRO) enables intellectual property owners to report listings that infringe their rights so they can take the listing down. Brand owners also invest millions in preventative measures and enforcing their rights in an attempt to reduce counterfeit activity.

Who is responsible?
So should eBay be held responsible for the sale of counterfeit goods on its sites or is it simply a channel, devoid of responsibility? The answer is still up for dispute in the courts but what isn’t in dispute is the gravity of counterfeiting and damage it does to brands.

Damage to society/consumers

• Buyers of counterfeit goods can be confused as to the authenticity of the product.
• Counterfeit goods are generally of poorer quality than the originals which can have serious implications.
• Manufacturing conditions of counterfeit goods are often unregulated and therefore exposed to abuse.
• Production and distribution of counterfeit goods has been linked to organised crime and terrorism.
• Income from counterfeit goods is, by its nature, frequently undeclared thus depriving economies of legitimate income.

Damage to brands

• Potential customers can be put off from buying authentic products if counterfeit products are too prevalent.
• Buyers of counterfeit goods can have bad experiences of a brand, which impacts the genuine brand negatively.
• Existing customers can be alienated as a brand’s exclusivity is eroded by the mass appeal of counterfeit products.
• Retail distribution cannot be controlled with counterfeit products to maintain a consistent brand image.
• Similarly, there is less influence over price positions to retain exclusivity which contributes to the erosion of brand equity.

When counterfeit goods enter mainstream channels, brands become more acutely exposed to damage and brand owners are right to defend their positions. Ebay may have overtaken market stalls and car boot sales as the channel of choice for counterfeiters but there are still other targets for brand owners to focus on. Ebay is likely to remain an active target for brand owners, with L'Oréal currently suing eBay for around $51m. But the real damage isn’t caused by eBay but the counterfeiters themselves – and this deserves attention. However, eBay also needs to play its right role.