EBay and luxury goods vendors on collision course in Europe

They try to influence a review of EC rules governing whether manufacturers can forbid channels from selling their wares

EBay locked horns on Monday with the luxury goods industry over a planned review of rules affecting the online distribution of products in Europe.

The move is seen as a response to a lobbying exercise by luxury goods manufacturers, which are fighting to prevent a change in the European Commission rules that could allow online distribution channels such as eBay unrestricted access to their precious branded goods.

The online auction site, which hosts buyers and sellers of new as well as secondhand items, has been sued several times in Europe by luxury goods makers for aiding the trade in fake handbags, perfume and the like.

Last summer a French court fined eBay US$40 million for failing to prevent the sale of fake Louis Vuitton handbags on its auction Web site. EBay appealed. The French fashion house Hermes won a similar case in France last year. Meanwhile, beauty products company L'Oreal sued the Internet company in the U.K. earlier this month for the same thing.

In a statement, eBay acknowledged the problem of online buying and selling of counterfeit goods, but rather than accept responsibility it called for coordinated action from all sides, including consumers.

"The fight is with counterfeiters, not with those who seek to expand consumer choice and deliver real value," said John Donahoe, eBay's president and CEO, in a statement.

"Defeating counterfeiters requires a coordinated and global approach involving government, industry, law enforcement and Internet users to effectively fight the issue. Only by working together can we halt the supply and demand for counterfeits and defeat those who manufacture and distribute such items," Donahoe said.

European competition law concerning the links between producers and distributors broadly sides with the retailers. A law on vertical

restraints only permits producers to restrict certain retail channels from selling one-third of their total sales. The rest must be made available to all interested retailers, both on and offline.

The logic of the EU law is that consumers generally benefit from free distribution, but that some luxury brand owners should be allowed to control distribution of a portion of their own products, in the interests of preserving their exclusiveness.

The law expires in May next year. Before this summer the Commission will launch a consultation, inviting retailers and producers both in the online and offline world to contribute to the law's review.

Luxury goods companies, as well as eBay, are arguing their case more publicly than ever in order to influence the outcome of the review.

Last month, Karl Lagerfeld, the fashion designer, met competition commissioner Neelie Kroes to try to persuade her to maintain the current regime that allows producers to restrict distribution of a portion of their wares.

There is no sign yet whether either side has had any success. "At this preliminary stage of the procedure it is not possible to conclude whether the regulation will be maintained or amended," said Jonathan Todd, the Commission's spokesman for competition.

Last year 2.7 billion items were listed on eBay. Less than two out of every 1000 listings were believed to be counterfeit goods, and they were blocked, eBay said in its statement. It added that 30,000 sellers on the Web site were suspended for selling potentially counterfeit items.

It identified these problem sellers using proprietary software tools for detection and prevention of fakes, which work together with brand owners and the police.

eBay works with brand owners through its Verified Rights Owner Program (VeRO) to report and take down listings of potentially counterfeit items. A majority of suspect items are removed within four hours, eBay said.

"It is this leading edge experience that eBay is seeking to share as it proposes a way to tackle one of society's most pervasive problems," eBay said.

However, the auction Web site said the root of the problem lies offline, and the brand owners and law enforcement agencies have what is needed to tackle the problem at its source "before the items get into legitimate distribution channels," said Donahoe.

"We look forward to working with all interested groups to achieve our common goal: to preserve consumer choice and protect intellectual property rights by eliminating the sale of counterfeit goods," he added.

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