Post

Be Careful Whose IP Policy You Sleep With

July 7, 2008

Last week, a French court found eBay liable for allowing “counterfeit” Louis Vuitton and Dior Couture merchandise to be auctioned on its site. The price tag: almost $65 million. This comes on top of the $30k fine eBay was handed a few weeks ago for allowing fake Hermes bags to be sold on its site. Other than confirming that France seems compelled to be idiosyncratic—even if it involves idiocy—and that it is hyper-protectionist with its home-grown brands, these cases serve as a bracing warning to be careful who you proverbially sleep with in international agreements.

In a way, this is straight from the heart of Viacom v. YouTube: is a forum liable for the material its users place in the forum? One answer might be that liability is directly proportional to the control the forum has in monitoring the veracity of the posted material. A more reasonable answer might be to have a notice-and-takedown provision through which the aggrieved party could inform the forum of any alleged infringement. Only then would the forum have the onus of removing the offending material. This is solution the Digital Millennium Copyright Act provides in the US. A preferable version, as Michael Geist, William Patry and others suggest, would be “notice and notice” by which the alleged infringer could rebut the accusation notice. eBay already has its VeRO (Verified Rights Owner) program for trademark or copyright holders to air their grievances. Not good enough, say the luxury goods companies. We want unauthorized sales eradicated completely.

The case has not yet been released (though you can read more about it here, here and here), so I cannot assess the full facts and arguments presented, but it seems as though this case is largely about a major fissure between US and French law regarding the concept of “first sale” (aka “exhaustion”). First sale is a copyright concept stating that, once an item is bought, the buyer can do whatever he or she wants to do with it: sell it, eat it, use it as a coaster, or pretty much anything that does not involve making a copy of it. The thing is, the US has the first sale doctrine (17 U.S.C. § 109). The French do not. This lack enables French companies to exert control on the aftermarket for their merchandise. This would usually be seen as blatantly anti-competitive in the US. Not so in the land “moral rights”.

Comparing this case to Viacom/YouTube, Viacom’s major beef with YouTube is that it thinks YouTube either possesses or could purchase/develop software to do a better job of filtering its content. That technology may or may not exist yet, but it is at least plausible due to the digital nature of the content and its potential for fingerprinting and tracking. But LV’s (or Dior’s or Hermes’) merchandise is totally analog. There is no technology that can fingerprint real-life handbags except maybe the highly-trained eye of an expert. Even then, such experts or technology may only have a 2”x2” digital image to examine. Yes, there is technology such as what Like.com uses to help you identify what handbag Miley Cyrus was carrying last weekend, but you’d still need someone to make the comparison between the genuine and the counterfeit. And what if the seller doesn’t even post an image? Must eBay maintain an LV expert on staff? And a Dior expert? And a Hermes expert? Perhaps one expert from each company for handbags, one for wallets, one for scarves, another for ties? The simple question is, “how the heck is eBay supposed to know what listing is selling a legit or fake piece of uber-branded French merchandise?” The impossibility of answering this question suggests where the designer companies and the court may be headed: to make it illegal for eBay to sell ANY French-branded merchandise, counterfeit or genuine.

It may be that no level of monitoring by eBay will ever satisfy the luxury designer industries. If the court has upheld the contention that only authorized distributors are allowed to sell certain bags or perfumes, then eBay would be barred from even selling totally genuine goods. This violates so many tenets of competitive markets you have to wonder if Adam Smith has been banned in France, as well.

And it may go beyond French brands, as Tiffany piled on last winter to see what payout it could get in this environment. If Tiffany were to win, it would be a more damaging result since it would not rest on screwy French protectionism or on the lack of the first sale doctrine. If Tiffany were to win, it would likely ratchet up the accountability (and operating costs) of every forum that hosts the transactions or content of others. eBay could possibly remove itself entirely from the secondary market for all luxury branded merchandise, leaving consumers with less outlets to buy and sell such items.

It’s true that items on eBay tend to sell for much less than items in luxury stores. But that doesn’t mean that they are counterfeit. The items may have been legitimately purchased and are being resold. An item may have been an unwanted gift lacking a receipt. A piece may have been lightly used. The presence of a secondary market may very well improve the velocity of sales for a luxury item. A buyer may take the plunge and buy an item specifically because he or she knows that, if the thrill wears off or they don't like what they see in the morning, they can get some payback on the secondary market. Without that outlet, a consumer will have to think that much longer and harder about getting serious with the merchandise. These nuances don’t seem to matter to LV. It may not matter in French law, either. All of those items are “counterfeit” simply because they all put pressure on LV’s prices. And, to LV and the French court, any pressure on LV's margins is just not right.

This talk of international IP, pricing and margins rings some ACTA bells (see here, here(PDF), and here). In ACTA, just as in these designer privilege cases, the mile-wide umbrella of “counterfeit” is cast over many uses, both legit as well as illegit, that increase competition to incumbent industries. In both cases, increased competition and multiple distribution platforms are good for consumers. In both cases, the incumbents seem to be doing everything they can to eliminate that benefit—even when the goods bear legitimate trademarks and have been legally purchased. The luxury designer industry’s argument comes down to this: if you pay anything less than the $5000 we want to charge for our handbag, it’s counterfeit and illegal.

But beyond that, the very goal of ACTA is to “establish…a common standard for IPR enforcement to combat global infringements of IPR particularly in the context of counterfeiting and piracy.” If common standards are to be reached, what policies will be taken or discarded from the various ACTA signatories? US IP law is problematic as it is. Do we really want to import the misbegotten policies of France, as well? As with any type of hook-up, it’s good to know what your partner’s got before you go home with them. In this case, I’d much prefer to go home alone.