eBay Spooked by $61 Million Luxury Brand Ruling

Sam Gustin understands why eBay is so chapped over a French court's ruling that it must pay $61 million to LVMH, the parent company of Louis Vuitton, for allowing the sale of fake luxury goods.

LVMH had charged that eBay's French division hadn't moved aggressively enough to prevent knockoffs of several of its brands, including Louis Vuitton, Dior, Guerlain, Givenchy, and Kenzo.

Pierre Godet, an adviser to LVMH Chairman and C.E.O. Bernard Arnault, called the decision "an answer to a particularly serious question, on whether the internet is a free-for-all for the most hateful, parasitic practices," according to the Associated Press.

In a portion of the ruling sure to be particularly alarming to eBay, the court ruled that the auctioneer was guilty of the "illicit sale" of LVMH perfumes, which the court ruled can only be sold through LVMH's own "selective distribution networks."

Needless to say, that logic, taken to its conclusion, represents a potentially devastating threat to eBay's business of providing a secondary market for products consumers buy from manufacturers such as LVMH.

Ebay immediately appealed the decision and released a blistering press release accusing LVMH of trying to stifle the legitimate sale of genuine new and second-hand goods on the site. Roughly $60 billion worth of goods change hands on eBay annually.

"If counterfeits appear on our sites we take them down swiftly," the online auctioneer said, "but today's ruling is not about our fight against counterfeit; today's ruling is about an attempt by LVMH to protect uncompetitive commercial practices at the expense of consumer choice and the livelihood of law-abiding sellers that eBay empowers everyday."

Ebay went even further, charging that the French court "seeks to impact the sale of second-hand goods as well as new genuine products, effectively reaching into homes and rolling back the clock on the internet and liberty it has created."

"The attempt to use the ruling to confuse the separate issues of counterfeit and restrictive sales suggests that counterfeit suits are being used by certain brand owners as a stalking-horse issue to reinforce their control over the market," the company added.

If the court's ruling is upheld on appeal, it may open the flood-gates to a torrent of similar lawsuits against eBay.