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Intermediary liability

A new approach by brand owners in the online environment?

18 July 2019

The sheer amount of infringing activity online means brand owners need to monitor the market so consumers can identify (and acquire) branded products from legitimate sources. For example, the claimant in the Cartier case, discussed below, claimed that it had identified nearly 240,000 websites offering potentially counterfeit products. Existing enforcement tools (recovery of domain names, the use of online reporting tools such as eBay’s VeRO and EU customs authorities notification programs) target individual infringers. IP rights-holders have now focused on the involvement of intermediaries.

Under the Ecommerce directive, an intermediary information society service provider is not liable for a third party’s infringement using those services, if it is an intermediary offering a hosting service, caching data or acting as a conduit and has no notice of the relevant wrongdoing.

Rights-holders have therefore:

  • adapted strategies used originally to prevent an internet service provider allowing access to websites displaying material which infringes copyright to the counterfeit product context;
  • challenged the ability of users to access the internet anonymously (requiring a wireless network operator to apply a password to secure a wireless network, where there was evidence that the network had previously been used to download a sound recording in breach of copyright); and
  • applied concepts developed in respect of intermediaries offering online marketplaces to offline marketplaces.

The CJEU gave judgment in September 2016, in a case brought by Sony (relating to copyright infringement) establishing that:

  • an individual offering the public free access to a wireless network was operating an information society service, within the course of his economic activity;
  • although he was able to benefit from an intermediary exemption, his rights to operate his business had to be balanced against the rights of the IPR holder. The court therefore balanced the freedom of access to information/ability of service provider to conduct his economic activity against the rights of the IPR holder.

The options available to end the infringement were tested against the impact on each stakeholder. These included requiring the service provider to: (i) monitor all communications passing through the network; (ii) terminate the internet connection; or (iii) insist on password protected access. Use of a password was held not to damage the essence of the right to freedom to conduct business (as the measure is limited to marginally adjusting one of the technical options open to provider) or the right to freedom of information.

The CJEU also recently confirmed that there was no difference between an online marketplace and a physical marketplace for purposes of the Enforcement Directive. Tommy Hilfiger sought an injunction preventing the Delta Center (a tenant of a real world marketplace, which sub-let retail space to market traders) from:

(i) sub-letting/extending contracts with infringers; and (ii) concluding contracts with sub-lessees which did not include a prohibition on the sub-lessee infringing third party IPR. The CJEU referred to the L’Oreal case law that an intermediary can be ordered to take measures aimed at bringing infringement to an end/seeking to prevent further infringement. This analysis requires a court to consider whether an injunction would be effective and dissuasive. An injunction must also be equitable and proportionate and cannot be excessively costly or create barriers to trade. As a general principle, an intermediary is not expected to exercise general and permanent oversight over its customers. However, it can be required to take measures which prevent new infringements of the same nature. This approach offers a fair balance between protection of IP and the prevention of barriers to legitimate trade. The court considered that the objective of providing high level of protection for IP would be substantially weakened if an intermediary offering a ‘real world’ marketplace could not be the subject of an injunction.

The cases discussed above relate to the Enforcement directive and the Ecommerce directive (as implemented in each case into national law). In Cartier, the Richemont Group (a luxury goods multinational) sought a so-called ‘blocking’ injunction against the UK’s largest ISPs, requiring them to prevent continued access to certain websites which had been identified as offering counterfeit products. In July 2016, the English Court of Appeal affirmed the first instance injunction granted to Richemont.

The ISPs argued that it was conceptually harder to impose intermediary liability on service providers offering access to websites from which a consumer would have to take a series of steps to acquire the counterfeit product. This was, they argued, different from the scenario where an ISP hosts content that infringes copyright, where the infringement is the unlawful communication to the public of the copyright work on the website (without any further steps being taken by the host of the website or the website user). This was rejected by the Court as: (i) the ISPs were seen as essential actors in all of the communications between users and the operators of the target website; and (ii) the Enforcement Directive is intended to ensure that holders of rights other than copyright should be able to apply for injunctions against intermediaries whose services are being used by third parties to infringe those rights.

The Court of Appeal then considered each element of the test in L’Oreal. First, the person seeking an injunction needs to identify the relevant intermediary, the particular instance of trade mark infringement and have given the ISP notice of the infringing content / products. The Court then assesses whether an injunction would be an effective remedy. It concluded that, even if the terms of an injunction did not offer complete relief, or the prescribed measures were capable of circumvention, it could still be granted if it makes access to websites difficult to achieve or discourages access.

The Court considered:

  • the comparative importance of the rights engaged and the justification for interfering with the exercise of those rights (the availability of alternative enforcement measures, impact on lawful internet users);
  • whether the likely costs burden on the ISPs was justified by the likely efficacy of blocking measures (and consequent benefit to rights-holders). The ISPs had incurred legal costs of over £600,000 resisting the application for injunctive relief and argued that it would cost a substantial sum per website to block access. As a comparator, the ISPs said it cost £14,000 per website to block access to websites which infringe copyright. The Court said these were costs of carrying on business as an ISP, noting that these were relatively modest for a single order. The Court also noted that the ISPs already had technology to block access to images of child abuse, to permit parental control of content viewed by children and to implement s.97A Copyright, Designs and Patents Act 1988 orders relating to copyright infringement and that this existing technology could presumably be adapted for use in the counterfeit product scenario;
  • the impact on innocent third parties (who might share a server with a website offering counterfeit products) and the adequacy of safeguards against abuse by rights-holders.

These decisions show rights-holders attacking the supply chain at a different point and attempting to reduce the infringing products/content available for consumers to view.