EBay to Fight French Court's $63 Million LVMH Ruling

By Beth Jinks and Ladka Bauerova

June 30 (Bloomberg) -- EBay Inc. will appeal a French court ruling that restricts the sale of LVMH Moet Hennessy Louis Vuitton SA products, describing the decision as an ``anti-competitive overreach.''

The court ordered today that EBay pay almost 40 million euros ($63 million) for Internet sales of counterfeit goods. LVMH claimed in the Paris lawsuit that the world's biggest Internet auctioneer has a heightened responsibility to prevent fraud and didn't do enough to stop the sale of phony goods on its French site. The ruling also prohibits the sale of LVMH perfumes on EBay.

``It really could set the precedent for others,'' EBay spokeswoman Nichola Sharpe said today in a telephone interview. ``If we don't put our foot down now and strongly fight it on behalf of consumers' choice, we'd be letting them down. It's an anticompetitive business practice that will restrict consumer choice.''

LVMH, the world's largest luxury-goods maker, said it found in 2006 that 90 percent of the Louis Vuitton and Dior-labeled perfumes, watches and handbags offered on EBay were fakes. Online sales of counterfeit clothes, bags and jewelry cost makers of original products about $30 billion a year, Tiffany & Co. and other retailers claim in a separate U.S. lawsuit.

The precedent may lead to other companies blocking product sales across all Internet marketplaces, and add restrictions on re-selling gifts or genuine second-hand goods online, EBay said. The Internet retailer hasn't decided how it will comply pending the appeal, Sharpe said.

Shares Fall

EBay, based in San Jose, California, fell 28 cents to $27.33 at 4 p.m. New York time in Nasdaq Stock Market trading. LVMH gained 53 cents to 66.58 euros in Paris.

EBay had $7.67 billion in revenue in 2007.

The Internet auctioneer must pay 19.28 million euros to leather-goods maker Louis Vuitton, 16.4 million euros to Christian Dior fashion house and 3.19 million euros to the makers of Christian Dior, Kenzo, Givenchy and Guerlain perfumes, the court ruled. EBay must also post the ruling on all its Web sites in English and French for three weeks and pay to promote it in three publications of LVMH's choice.

``It's a groundbreaking decision that will help protect creativity,'' said Pierre Gode, a member of LVMH's supervisory board and adviser to chairman Bernard Arnault. ``It's an important precedent.''

French Battleground

The size of today's award may prompt other lawsuits in France, said Heather McDonald, a New York-based partner at law firm Baker Hostetler LLP, who specializes in intellectual property enforcement litigation. EBay should treat it as a ``call to action'' to implement better global controls on counterfeit sales, she said.

``This will be the bellwether to brand holders all around the world to file suit against EBay in France,'' McDonald said today in a telephone interview. She isn't involved in the case. ``The French courts have made it clear that they're not going to tolerate this kind of activity.''

EBay claims LVMH is using the ruling to ``confuse separate issues'' and targeted EBay to ``exact ever greater control over e-commerce'' and its markets.

EBay has cracked down on counterfeit sales, particularly since 2006, Sharpe said. The company is working with patent and copyright owners, boosting its own monitoring, removing suspect listings and blocking certain sellers from the site.

Last year EBay removed 2.2 million suspected counterfeit listings, most within hours of being reported or detected, Sharpe said. The company suspended about 50,000 sellers and blocked another 40,000, who were suspended earlier, from coming back.

647 Million Listings

EBay has more than 82.3 million ``active users'' worldwide, Sharpe said. About 647 million listings were added in the first quarter, according to EBay's Web site.

The court ruled that EBay isn't qualified to sell LVMH perfumes, which should be distributed only through selected retailers with trained staff.

``This decision lays down the rules for sale of specific merchandise such as perfumes whose sale is reserved for special places with appropriate presentation,'' Gode said. ``Online retailers will now be subject to the same rules as traditional retailers.''

Another court ruled this month in a case filed by Hermes International SA that EBay is a partner to its vendors and must take more steps to fight fakes.

The cases in France, EBay's fourth-largest market, are seeking to raise the legal requirements on the company. The judge in the Hermes case said EBay should require certificates of authenticity and serial numbers for sales.

Germany's highest court last year ruled EBay needed to better police online sales in a case bought by Rolex Group, said McDonald.

To contact the reporters on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net
Last Updated: June 30, 2008 16:51 EDT