Online Enforcement of IP Rights by Injunctions Against ISPs: The English Court of Appeal Speaks

On Wednesday 6 July 2016, the English Court of Appeal (CoA) handed down its decision in Cartier International AG & Others -v- British Sky Broadcasting Limited & Others [2016] EWCA Civ 658 (Cartier). This was an appeal from the 2014 High Court ruling of Mr. Justice Arnold (Arnold J) in favour of the Claimant trademark owners and his findings that the English courts had jurisdiction to grant injunctions against internet service providers (ISPs) forcing them to take steps to block their customers from accessing websites whose content infringed trademark rights. For reasons summarised below, the CoA dismissed the appeal and therefore upheld Arnold J's original decision. Thus, the door remains open for trademark owners to seek this type of relief from the English courts.

Jurisdiction

The protection of intellectual property rights against online infringement poses significant practical difficulties for rightsholders. It is often incredibly difficult to identify who is behind an infringing website and where in the world they are. Even if it is possible to get a website taken down by its hosting company, there is little to stop the infringers resurrecting the same website with a different host.

An alternative and more effective solution is for rightsholders to be able to seek injunctions against (usually innocent) intermediaries, such as ISPs, whose services are used by the third party infringers. European Union legislation expressly provides that EU Member States (including, for the time being, the United Kingdom) shall:

"…ensure that rights-holders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right."¹

The UK Parliament introduced, by amendment to the Copyright, Designs and Patents Act 1988 (CDPA), a specific provision giving the court jurisdiction to grant blocking injunctions against ISPs in relation to websites which infringe copyright.² This "Section 97A" jurisdiction has been invoked successfully on a number of occasions in recent years³ and the principles to be applied in that regard are now well established. Indeed, since the earliest cases, the ISPs have generally not opposed the making of the orders sought by the rightsholders but have restricted themselves to negotiating the wording of the orders where the court was minded to grant them.

However, the UK Parliament has not made any amendments to the Trade Marks Act 1994 in order to expressly provide for blocking injunctions to be granted against ISPs in respect of trade mark infringement. In Cartier, the rightsholders (Claimants) argued that, notwithstanding the lack of a specific provision in that legislation, the Court does have the jurisdiction and power to grant such injunctions.

The rightsholders pointed to the Court's general jurisdiction and power to grant injunctions "in all cases in which it appears to be just and convenient to do so".⁴ They argued that either:

(1) the Court has the necessary jurisdiction upon a purely domestic interpretation of that provision; or alternatively

(2) the provision can and should be interpreted consistently with Article 11 of the IP Enforcement Directive in accordance with the Marleasing⁵ principle thus giving the Court the necessary jurisdiction that way.

Arnold J concluded that the Court did have jurisdiction and, after a detailed consideration of the arguments made on appeal, the CoA agreed with Arnold J's ultimate conclusions in this regard. Kitchin LJ said that he was:

"satisfied that the court did have jurisdiction to make the orders in issue under s.37(1) of the 1981 Act as interpreted in light of Article 11 of the Enforcement Directive (paragraph 76)."

Threshold Conditions

The CoA agreed with Arnold J that the four "threshold conditions" necessary for the exercise of the discretion (i.e.. to grant blocking injunctions against ISPs) for consistency with the IP Enforcement Directive and other applicable provisions of EU law are:

(1) the ISPs must be intermediaries within the meaning of the third sentence of Article 11 of the IP Enforcement Directive;

(2) either the users and/or the operators of the website must be infringing the claimant's trade-marks;

(3) the users and/or the operators of the website must use the ISPs’ services to do that; and

(4) the ISPs must have actual knowledge of this.

The CoA also agreed that all four threshold conditions were satisfied on the facts of this case.

Notably the CoA also said:

"it matters not that there was no contractual relationship between the ISPs and the operators of the websites, or that the ISPs did not exercise any control over the particular services of which those consumers made use. The ISPs were essential actors in all of the communications between the consumers and the operators of the target websites (paragraph 95)."

The CoA also agreed that the orders could be granted even where they resulted in the blocking of non-infringing sites and therefore had the potential to interfere with the legitimate businesses of third parties. The way in which the orders were framed (i.e., requiring certification from the trademark owner that the site was engaged in unlawful activity and (if contact details had been provided) had been given the chance to move the website to a different server) set out a regime which:

"dealt in an entirely proportionate and appropriate way with the necessary mechanics of making a blocking order effective without interfering with the legitimate interests of other operators (paragraph 78)."

Principles to Apply in Deciding Whether to Grant an Injunction

Moving on to the question of whether the Court should exercise its discretion and the principles to be applied, the CoA noted several requirements to be satisfied (following Arnold J's approach) before relief could be granted in an application of this kind.

Thus the relief must: (i) be necessary; (ii) be effective; (iii) be dissuasive; (iv) not be unnecessarily complicated or costly; (v) avoid barriers to legitimate trade; (vi) be fair and equitable and strike a "fair balance" between the applicable fundamental rights; and (vii) be proportionate.

In addition the court should consider the substitutability of other websites for the infringing websites, and that the remedies must be applied in such a manner as to provide for safeguards against their abuse.

Appeal Against Arnold J's Assessment

During the appeal the ISPs challenged Arnold J's overall conclusion that:

"In my view the key question on proportionality is whether the likely costs burden on the ISPs is justified by the likely efficacy of the blocking measures and the consequent benefit to Richemont having regard to the alternative measures which are available to Richemont and to the substitutability of the Target Websites. Having given this question careful consideration, the conclusion I have reached, after some hesitation, is that it is justified. Accordingly, I consider that the orders are proportionate and strike a fair balance between the respective rights that are engaged, including the rights of individuals who may be affected by the orders but who are not before the Court."

The CoA rejected the challenge by the ISPs and agreed with Arnold J that:

• When assessing whether orders are proportionate, the court is required to consider whether alternative measures are available which are less onerous.
• There is no requirement under Article 3(2) of the Enforcement Directive for rightsholders to establish that the relief sought is likely to reduce the overall level of infringement of their rights; secondly, that the applicable criterion of efficacy in considering an order is whether it will at least discourage users from accessing the target website; thirdly, the likely efficacy of a website blocking order in terms of preventing or impeding access to the target website is an important factor to consider in assessing the proportionality of the order, as is the number of alternative websites that are likely to be equally accessible and appealing to interested users.
• Under Article 3(2) remedies for intellectual property infringement must be both effective (relating to the ISPs) and dissuasive (on third parties).
• The requirement under Article 3(1) that remedies should not be "unnecessarily complicated or costly" extends to intermediaries against whom orders are made—with Kitchin LJ adding that:

"the measures the intermediary must take must not be unnecessarily costly or difficult, and these are matters which must be taken into account in assessing proportionality (paragraph 122)."

• Proportionality requires a fair balance to be struck between the intellectual property rights guaranteed under The Charter of Fundamental Rights of the European Union and, on the other hand, the ISPs' freedom to conduct business and the freedom of information of internet users.

On the facts, the CoA also agreed with Arnold J's assessment. For example, the CoA rejected the ISPs argument that Arnold J had incorrectly interpreted certain EU legislation as meaning intermediaries are always best placed to prevent infringement. That is not what Arnold J said - he was merely identifying underlying policy and was not saying that it will always be proportionate to make a blocking order directed at an intermediary:

"Indeed … the judge gave anxious consideration to whether the order sought was proportionate and in so doing he analysed, among many other matters, the availability of alternative measures, efficacy and cost (Paragraph 163)."

By way of further example, the CoA also rejected the ISPs criticisms of Arnold J's findings in relation to alternative measures. The CoA agreed with Arnold J's assessment that website blocking has advantages over notice and takedown and that the key question was whether the benefits to rightsholders of website blocking justified the costs involved, particularly the implementation costs. The CoA also rejected the criticism made in relation to other, alternative measures.

Implementation Costs

On the key question of implementation costs (i.e., the cost to the ISPs of implementing blocking orders made), the majority of the CoA held that Arnold J was entitled to require the ISPs to bear those costs—noting that the likely cost was an important factor in deciding the proportionality of any order sought and that, in other cases, a different view could be taken.

Several reasons were given including that intermediaries such as ISPs make profits from the services used by operators of the websites in question and the costs of implementing the order can therefore be regarded as a cost of carrying on the business. ISPs also benefit from certain immunities and exceptions under applicable EU legislation (for example, immunity from infringement claims)—which are part of the wider scheme and carry benefits.

However Briggs LJ did not agree and took a different view on how the costs should be apportioned as between the rightsholder and the ISP.

In his view (at paragraph 206):

"The starting point in my judgment is that the applicant is taking steps to maximise the exploitation of a property right, in this case a trademark, and in the earlier cases copyright. In circumstances where valuable intangible rights of this kind need to be protected from abuse others, I regard it as a natural incident of a business which consists of, or includes, the exploitation of such rights, to incur cost in their protection, to the extent that it cannot be reimbursed by appropriate orders against wrongdoers."

And at paragraph 211:

"So, I would have allowed this appeal to the extent of imposing upon the applicant for a trademark blocking order the specific cost incurred by the respondent ISP in complying with that order, but not the cost of designing and installing the software with which to do so whenever ordered. It is, according to the evidence, a modest cost but one which in principle the rightsholder ought to defray as the price of obtaining valuable injunctive relief for the better exploitation of its intellectual property. I consider that, while there may be exceptional cases justifying a different order, the judge was wrong in principle in concluding that the ISP ought usually to pay the costs of implementation."

Comment

The original decision of Mr. Justice Arnold was broadly welcomed by rightsholders as providing an effective route to limit the online sale of infringing goods. Indeed, the same claimants subsequently successfully applied for further orders against the ISPs in relation to other websites in a case heard earlier in 2016.⁶

The decision of the CoA to uphold the decision of Arnold J means that blocking orders can (continue to be) sought by brand-owners against ISPs if and when their trademarks are infringed and counterfeit goods are sold on websites via the Internet.

This is in addition to the pre-existing and well-established blocking remedy under S.97A of the Copyright, Designs and Patents Act 1988.

Whether orders are actually granted will depend on the facts of each case but the CoA has made it clear that, in its view, the English courts do have jurisdiction to grant such relief.

Both Arnold J and the CoA were clear that the question of who bears the implementation costs associated with any blocking orders granted was an important factor in assessing proportionality and that in other cases a different view may be taken. Accordingly, it was not left on the basis that ISPs would always bear these costs.

It is also interesting to note that on 7 July 2016 (the day after the CoA's decision in this case) the Court of Justice of the European Union in the matter of Tommy Hilfiger and others -v- Delta Center a.s. (Case C-494/15, 7 July 2016) held that the IP Enforcement Directive discussed in the Cartier case applies with equal force to a physical market-place—in that case, a market-place in Prague where counterfeit goods are sold in market halls. The Court held that an operator letting such pitches in a marketplace is an "intermediary" and may be subject to orders requiring it to put an end to the trademark infringements by market-traders and take measures to prevent new infringements. Whether the sales point is physical or online is irrelevant because the directive is not limited to electronic commerce. As in Cartier, any injunctions must be effective, dissuasive, equitable, and proportionate.