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April 3, 2020

European Court of Justice Holds Amazon Not Liable for Storing Third-Party Sellers’ Infringing Products, Another Reason Why Brands Must Take Greater Control In The European Market

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The potential liability of online platforms such as Amazon for third-party content is a hot issue all around the world. The most recent court decision on this topic is the European Court of Justice’s April 2, 2020 ruling in Coty Germany v. Amazon, C-567/18.[1]

In that case, Coty discovered that a third-party Amazon seller was selling parallel import products that infringed on Coty’s trademarks. After resolving its dispute with the seller, Coty asked Amazon to return the infringing inventory that had been stocked by the seller, but discovered that much of the infringing inventory actually came from a second seller’s stock. Amazon could not disclose the identity of the second seller, and so Coty sued Amazon in the German courts for hosting and fulfilling the infringing products. The German courts then referred the question to the European Court of Justice of whether a company can be held liable for storing infringing goods that it did not know were infringing.

The European Court of Justice answered no, holding that “a person who, on behalf of a third party, stores goods which infringe trade mark rights, without being aware of that infringement, must be regarded as not stocking those goods in order to offer them to put them on the market for the purposes of those provisions, if that person does not itself pursue those aims.” Thus, Amazon cannot be liable merely for storing a third-party seller’s infringing products that Amazon did not know were infringing.

The Coty v. Amazon decision has a number of important implications for brands in Europe. First, Amazon and other marketplaces may become less cooperative in helping brands remove infringing products. This means that brands will need to become more proactive in policing their own chains of distribution in Europe and cannot realistically rely on much help from Amazon or other platforms to manage unauthorized sellers. .

Second, traditional intellectual property claims will not be as effective as a means of enforcement against unauthorized sellers in Europe. Accordingly, brands must rely on more on selective distribution as a means of enforcement against unauthorized sellers. Our eControl whitepaper discusses selective distribution in more depth.[2] In summary here, brands of all types are realizing that the path to protecting and growing their brand equity in the online marketplace age requires implementation of a lawful selective distribution system that, in addition to traditional channels, clearly sets forth reseller criteria that must be met for the reseller to be permitted to sell on online marketplaces like Amazon.

Third, the Coty v. Amazon decision illustrates the importance of online marketplace quality controls, as Amazon was alleged to have been commingling infringing inventory from multiple sellers and unable or unwilling to identify the second seller of the infringing products. As part of their selective distribution systems in Europe, brands should ensure that their online marketplace sellers are following strict quality controls, particularly around fulfillment, such that infringing products do not find their way into the legitimate chain of distribution.

Finally, the Coty v. Amazon decision shows that the world of online marketplaces is fast-evolving and the law is struggling to keep up. Many questions remain to be definitively answered, such as whether Amazon’s actions should be considered more than simply stocking infringing products. Brands should remain abreast of new legal developments, as brands that are on the forefront of these developments will gain an advantage in designing the best distribution systems and online go-to-market strategies.

Vorys eControl works with many brands on these issues in the European market. If you have questions around enhancing digital distribution, controlling online sales, stopping unauthorized sellers or otherwise protecting your long term brand equity in Europe, please contact Daren Garcia of Vorys eControl at dsgarcia@vorys.com / (513) 723-4076.

[1] http://curia.europa.eu/juris/document/document.jsf?text=&docid=224883&pageIndex=0&doclang=en

[2] https://econtrol.vorys.com/europeanstrategieswhitepaper