Parallel Export of Cosmetics on eBay Allowed – Denying the Manufacturer’s Attempt to Control the Distribution

Another important achievement for our firm (for the previous decision see this link) is a recent decision in a motion for a temporary injunction, this time on parallel export of Israeli cosmetic products via eBay and copyright law.

The question that was raised in this proceeding was whether an Israeli cosmetic manufacturer can prevent from an eBay store to sell its cosmetics via eBay.

Our firm represented an eBay store named Beauty Shop that has purchased cosmetic products under the brand HOLYLAND from different suppliers in Israel, including from the manufacturer, Pharma Cosmetics (HL), and marked them on eBay.

The manufacturer (HL) has filed a motion for a temporary injunction against Beauty Shop in order to prevent Beauty Shop from selling the cosmetics products on eBay. HL has also claimed for damages of NIS400,000.

HL’s Claims:

HL claimed that the sale of its cosmetics on eBay for very low prices has caused considerable damages to it brand, and also may cause the exclusive distributers of HL worldwide to cancel the distribution agreements with HL, causing irreparable damage to HL.

Furthermore, HL contended that the sale of cosmetics on eBay also constitutes a breach of a contract, based on a restriction clause that was added to some of the invoices between HL and Beauty Shop, concerning some previous direct small purchases from HL.

HL has claimed that those past invoices prohibit Beauty Shop from selling the cosmetics on eBay forever, even if those products have been legally purchased from third parties and not from HL.

In addition, HL has claimed that the use of photos of the cosmetics products and of informative texts about the products that belong to HL constitutes a copyright infringement.

Beauty Shop’s Claims:

Beauty Shop, represented by our firm, has argued that the whole purpose of the motion is to block fair competition in the market and to control prices in the cosmetics industry, ultimately causing harm to the consumers.

With regards to HL’s claim concerning the possible termination of the exclusive distribution agreements around the world, Beauty Shop has argued that these claims were groundless, that they have not been proven at all, and that in any case there is no connection between those agreements and Beauty Shop’s activities.

Beauty Shop also has claimed that no distribution agreement was made between Beauty Shop and HL concerning the limitation of distribution outside of Israel.

Beauty Shop has also claimed that the added restrictive clause on the invoices cannot substitute a distribution agreement which requires the existence of negotiations and other basic contractual terms.

Beauty Shop has also claimed that even if HL can prove any contractual distribution limitations, there is no liability on Beauty Shop’s behalf since Beauty Shop has legally purchased the cosmetics from third party suppliers, which have not been restricted to any distribution limitations, and that the sale of the cosmetics on eBay is allowed according to the Israeli Supreme Court precedent in case no. 371/89 Ilan Labovitch v. Y. Elyahu, in which “The manufacturer chooses his preferred marketing channels that he intends to market his merchandise through. The decision to whom to sell his merchandise is in his hands. Nevertheless, after the manufacturer has sold his merchandise and transferred the property ownership in it to others, he may not continue to control the distribution channels of his merchandise by virtue of his goodwill”.              

With regard to the claim of copyright infringement, Beauty Shop has argued that standard photos of cosmetics packaging or informational texts are not protected by copyright in accordance with the Merger Doctrine, especially when it comes to photos of products used for marketing purposes.

Court’s Decision:

The District Court (the Honorable Judge Magen Altuvia) rejected the Motion for a Temporary Injunction and fully accepted Beauty Shop’s claims.

With regard to the motion to prevent the cosmetics distribution on eBay, the District Court accepted Beauty Shop’s argument that the cosmetics have been purchased from third parties who were not bound by any distribution limitations, and therefore there is nothing that can prevent their distribution overseas based on the Supreme Court precedent in case no. 371/89 Ilan Labovitch v. Y. Elyahu.

In this matter the District Court has ruled the following:

“It should be noted that the identity of the respondent’s suppliers is known to the applicants (S. 21 P. 6 of the court record dated 04/20/15) and they have the option not to sell HL’s products to the respondent’s suppliers or to prohibit them from selling these products to the respondent or out of Israel. During the cross-examination, HL’s CEO has avoided answering the question: can he prevent HL’s customers, the respondent’s suppliers, from selling to the respondent, and he replied: “This is an issue” (ibid, ’23 P 6). It should be added that the CEO was then asked whether such limitation applies to the respondent’s suppliers, and he testified as follows: “I do not know. I do not think so “(ibid, S. 29, P 6). It should be added that the applicant did not attach sales invoices to the respondent’s suppliers, therefore HL did not demonstrate any prohibition of those suppliers from selling HL’s products out of Israel or to the respondent. For this reason, I do not accept the applicant’s claim as if the respondent’s suppliers could not sell the respondent the right to sell HL products out of Israel, since such a right was not in their hands (Article 22 of the respondent’s summaries). “

Regarding HL’s claims of copyright infringement, the Court has ruled that it is doubtful that using photos of products or texts that appear on the packages that where legally purchased, constitutes copyright infringement.

The Court has also contended that the chances of HL to win the case are not good and that the balance of interests lies in the favor of Beauty Shop.

Finally the District Court rejected the motion for the temporary injunction and ordered HL to pay costs of NIS39,500 to Beauty Shop.

Beauty Shop was represented by Yossi Sivan & Co.

Nothing in the above shall be considered as any legal advice or any legal opinion whatsoever. This is just an informative article. We strongly recommend consulting with a professional attorney in such matters.