eBay fined £31m over sales of fake luxury goods

In a potentially landmark judgment, the auction website eBay was found guilty by a French court yesterday of failing to prevent the sale of fake luxury goods on the internet.

The internet site, which described the ruling as "indecent", was ordered to pay almost €40m (£31.6m) in damages to the French luxury goods conglomerate LVMH (Louis Vuitton Moët Hennessy). The California-based auction company was also ordered to cease all its sales of LVMH perfumes, whether genuine or fake.

LVMH had complained that 90 per cent of the perfumes, watches and handbags with LVMH-owned labels – such as Christian Dior, Kenzo, Givenchy and Guerlain – offered for sale on eBay in 2006 were actually fakes. The auction site had argued that its internal anti-counterfeit rules had been strengthened since 2006. The lawsuit was an attempt by LVMH to protect its own "uncompetitive commercial practices," eBay said.

The Paris commercial court ruled in favour of LVMH – a significant victory in a legal campaign by a number of luxury goods companies against eBay in both the US and Europe. In one American lawsuit, the US jewellery company Tiffany and Co claims that sales of fakes on the internet cost the global luxury goods industry about £25bn a year in lost, potential sales.

Pierre Gode, an LVMH board member, said that yesterday's court ruling was a "groundbreaking decision" which would help to "protect creativity". M. Godet said the ruling answered "a particularly serious question" : is the internet "a free-for-all for the most hateful, parasitic practices"?

The auction company announced that it would appeal and dismissed the ruling as an attack on consumers, rather than counterfeiters. "This ruling is not about our fight against counterfeits," it said in a statement. "It is about an attempt by LVMH to protect uncompetitive commercial practices at the expense of consumer choice and the livelihoods of law-abiding sellers that eBay empowers every day. We will fight this ruling on their behalf," a company statement said.

The website already spends $20m (£10m) a year worldwide on trying to identify fraudulent offers on its site, the company said. Its efforts had intensified since 2006 to the extent that eBay was "not the same company". Its statement added: "The ruling also 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 the liberty it has created."

The court also ruled that eBay was not qualified to sell the LVMH perfumes marketed under the Christian Dior, Kenzo, Givenchy and Guerlain brands. Such perfumes should only be sold by trained staff in approved places, it said.