AJPark

If your retail business has been set up to sell one or more brand, you will be devastated to learn that fake goods bearing the same brand are being sold through auction websites and are harming your business. Several high profile cases internationally have highlighted the problem and show how seriously brand owners are about protecting their brands.

Anyone selling counterfeit goods (commonly termed “fakes”) on auction websites needs to be mindful of the risks of doing so.  As do auction websites that allow the trade of fake goods. It is the responsibility of everyone selling goods to ensure that they know the goods they are selling are genuine.  If in doubt, check it out.  The effects of selling fake goods can be significant.

Brand owners tired of seeing their brands trashed through the sale of fake goods, are now targeting auction websites in an attempt to stop the flow of fake goods.  And they are achieving some success.
And retailers can unwittingly get caught up in the sale of fake goods as well.  It is not only consumers who buy goods online. Retailers also look for ways to buy lower-priced goods to on-sell. Online auction sites provide retailers with easy access to a diverse range of goods that can supplement their current stock. 

The sale of fake goods is huge. Increased publicity about the trade in fake goods has, however, meant increased scrutiny by brand owners of auction websites. Fake goods are sold on online auction websites like eBay and TradeMe around the world. It is said that auction websites are awash with fake goods. This has resulted in brand owners facing an increasing volume of illicit trade in fake goods worth millions of dollars.

Concerned at what is happening, brand owners are targeting auction websites in an endeavour to stop the flow of fake goods.
Well-known fashion house, Louis Vuitton, successfully sued eBay for aiding the sale of fake Louis Vuitton products.  Louis Vuitton was awarded nearly €40 million (NZ$85 million) in damages. 
eBay was recently held responsible in a French decision of “guilty negligence”.  It was found it did not do enough to prevent fake goods being sold on its website.  eBay was also held responsible for allowing the illicit sale of designer perfumes.  Louis Vuitton designer perfumes are only to be sold through Louis Vuitton’s own selected distribution network.

Closer to home, a New Zealand company which imports and sells exercise machines is suing TradeMe for an undisclosed sum of damages.  The basis of the action is that TradeMe does not do enough to prevent the auction of fake versions of the exercise machines on its website.

Tiffany & Co is also suing eBay in the United States.  This is because eBay allowed the sale of fake Tiffany silver jewellery on its website.
Tiffany claims that eBay did not take enough steps to prevent the sale of fakes on its website.  By allowing the auctions to take place, Tiffany says the conduct of eBay amounted to “contributory trade mark infringement”.  In the Tiffany & Co. case the United States District Court held that eBay was not liable for “contributory trade mark infringement” as asserted by Tiffany & Co.
The judge in the United States decision held as follows:
“The standard is not whether eBay could reasonably expect possible infringement, but rather whether eBay continued to supply its services to sellers when it knew or had reason to know of infringement by those sellers.

The law does not impose liability for contributory trade mark infringement on eBay for its refusal to take such preemptive steps.
The result of the application of this legal standard is that Tiffany & Co. must bear the burden of protecting its trade mark”.
The situation needs to be put into perspective.

Trade of goods on online auction websites is huge.  eBay says that it works with over 18,000 brand owners to identify and prevent the sale of fake  goods.  It also claims that over 90% of offending items are removed from its site within four hours of notice from the brand owner. 

When there are 3.5 million new auctions every day it would be unrealistic to expect eBay to police every auction.  Also, it is impossible to settle the authenticity of an item without seeing the goods firsthand.  It can be difficult to find out whether a product claimed as genuine is a fake.  And most auction websites do not have the expertise to do this. 

The recent court decisions suggest that an online auction site provider needs to show that it:

• acted reasonably; and
• applied enough procedures to effectively address counterfeiting; and
• had no knowledge, or had no reason to know, of the infringement by those counterfeiters.

Having done this, the onus then shifts to the brand owner to protect its trade mark.

So what is likely to be the situation in New Zealand?  Our Courts will probably follow the United States decision of Tiffany & Co.  We would expect the Court to look at what systems New Zealand auction websites have in place to prevent counterfeiters selling their fake goods on their site.  And to also ask whether they have done everything that a “reasonable auction site provider” would do to prevent the trade of fake goods.

It would be helpful to an auction website if they could show that they take the trade in fake goods seriously and have put in place measures to address the situation like:

• hiring staff to check out potential counterfeits
• having a stated zero tolerance counterfeit policy
• banning any offenders from future advertising or selling on their website
• use of “audit trails” to help in legal action against counterfeiters
• removing listings of obvious fakes before the listings become public
• removing listings of fake goods once told the goods are fake.

These measures will go someway to showing the auction website provider is acting responsibly in doing everything it can to stop fakes being sold on its website.  The onus will likely then shift back to the brand owner to ensure that it is doing everything possible to stop fakes being traded.

The surge in trade of fake goods is an international problem and New Zealand is caught up in it.  Brand owners need to consider occasionally trawling through auction websites, particularly TradeMe, looking for fake goods being offered for sale, which may have gone undetected by TradeMe’s procedures.  If any are found, then action should be considered immediately. 

The same applies to retailers, particularly those who have businesses built on the backs of exclusive supply agreements to sell high-end price goods such as fashion accessories.  There will need to be collaboration between the retailer and the brand owner in addressing the sale of fake goods.

Cracking down on counterfeiters is a big ask – the problem is just so huge.  A collaborative approach is most likely to get the greatest results.  If retailers, brand owners, New Zealand Customs, the Government and others work together on a multi-faceted, focused crackdown on counterfeiting, they will have a greater chance of arresting the problem.

An edited version of this article was published in NZ Retail magazine, October 2008

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  Corinne Blumsky

  Partner