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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Inside IP: Court of Appeal upholds website blocking order against sites selling counterfeits
 Briefing 
Date
12 July 2016

Inside IP: Court of Appeal upholds website blocking order against sites selling counterfeits

The Court of Appeal has confirmed that the courts have jurisdiction to issue orders against ISPs requiring them to block their customers from accessing websites selling counterfeit products, upholding an order in relation to six websites selling counterfeit Cartier and Mont Blanc products.

In the last five years or so, the UK courts have granted a number of website blocking orders against ISPs requiring them to block access to websites which engage in or facilitate copyright infringing activities. Website blocking orders have been particularly attractive to the entertainment and sports broadcasting industry - orders have been sought by film studios, record companies and the FA Premier League. The Court of Appeal's decision extending this jurisdiction to websites selling counterfeit products based on trade mark infringement is, subject to any appeal by the ISPs to the Supreme Court, an extremely significant development for brand owners in their ongoing fight against counterfeiting. 

The Court recognised that the ISPs were not guilty of any wrongdoing: they had not infringed the trade marks nor engaged in a common design with the website operators. However, the Court said that the target websites relied upon their services in order to offer their counterfeit products for sale to UK consumers and so the ISPs were inevitable and essential actors in those infringing activities. Accordingly, whilst the ISPs did not owe any duty of care to brand owners to ensure that their services were not used for infringing purposes, once they became aware that their services were being used to infringe an IP right, they did have a duty to take proportionate steps to assist the person wronged when requested to do so.

background

The jurisdiction for making a blocking order in relation to websites infringing copyright stems from Article 8(3) of the Information Society Directive, which is implemented in the UK by section 97A of the Copyright, Designs and Patents Act 1988. There is no similar provision in EU or UK law in respect of websites selling counterfeits that infringe trade marks. However, Article 11 of the Enforcement Directive provides that Member States should ensure that rights holders can apply for injunctions against intermediaries such as ISPs whose services are being used to infringe IP rights. Unlike the copyright regime, the UK has not adopted specific legislative provisions to implement Article 11 but the Court has the power under section 37(1) of the Senior Courts Act to grant an injunction where it is just and convenient to do so.

In 2014, following an application by Richemont, Arnold J made a website blocking order against the five main retail ISPs requiring them to block their customers' access to six target websites, all of which offered for sale counterfeit goods exclusively of a certain brand eg Cartier, Mont Blanc etc. The order was made subject to certain safeguards. HHJ Hacon made an order in respect of further websites in February 2016. The ISPs appealed to the Court of Appeal on a number of grounds.

result

Jurisdiction

Kitchin LJ gave the judgment of the Court of Appeal. He confirmed that there was jurisdiction to grant website blocking orders in relation to websites selling counterfeit products - Article 11 provided a principled basis for extending the Courts' practice in relation to the grant of injunctions to encompass, where appropriate, the services of an intermediary which has been used by a third party to infringe a registered trade mark. The decision to grant an injunction in this type of situation - subject to the threshold conditions being met - demonstrated, the Court said, the Courts' willingness to adapt to new circumstances by granting injunctions where it was necessary and appropriate to do so to avoid injustice.

Threshold conditions

There are four threshold conditions for making website blocking orders. The Court of Appeal said that each was satisfied in this case:

  • The ISP is an intermediary
  • The operators of the target websites were infringing the trade marks
  • The operators of the target websites were using the ISPs' services to infringe
  • The ISPs had knowledge of this

The Court's consideration of the third condition, i.e., whether the operators of the target websites were using the ISPs' services to infringe, is particularly interesting because a point of difference can be identified with the copyright line of cases. With websites infringing copyright, the infringing work is itself physically transmitted using the ISPs' service. The ISPs argued that, in relation to websites selling counterfeit products, the substantive act of infringement, namely the supply of counterfeit goods, is performed by post or courier, i.e., not using their services. The Court of Appeal rejected this argument; it was clear that Article 11 was intended to ensure that right holders other than copyright owners could seek an injunction against an intermediary whose services were used to infringe IP rights. Both the copyright regime and Article 11 were intended to deal with providers allowing their customers to access infringing materials on the internet, regardless of whether they actually exercised any control over the services their customers used. Further, there did not have to be a specific relationship between the ISPs and the website operators. 

The ISPs' services were, the Court said, being used by the target websites in the following ways:

  • They allowed consumers in the UK to access the target websites
  • They were used to communicate to consumers in the UK the advertisements and offers for sale of counterfeit items
  • They were used to make the agreements to sell and supply counterfeit items to consumers in the UK

The website operators' infringing activities did not come to an end simply when the offending materials had been uploaded to the website hosts. 

Principles when making a website blocking order

The Court also considered a number of arguments in relation to the principles that must be applied when considering whether to make a website blocking order. In particular, it noted that website blocking orders did not have to lead to a complete cessation of the infringement. However, such measures must at least have the effect of making access to the target website difficult to achieve and of seriously discouraging internet users from accessing it.

A particularly interesting discussion centred on the proportionality of website blocking orders, which involves a consideration of the conflict between right holders' IP rights, ISPs' freedom to conduct business and internet users' freedom of information. Arnold J had considered that the key question was whether the likely costs burden on ISPs was justified by the likely efficacy of the blocking measures, having regard to the alternative measures available and the substitutability of the target websites. After "some hesitation", he concluded that it was justified but, on appeal, the ISPs made a strong attack on his assessment.

One aspect focused on the cost of implementing blocking orders. To date, the courts have taken the approach that right holders should bear the costs of making the application, assuming the order is unopposed, and ISPs the costs of implementation. Where applications are unopposed, the costs have been identified as approximately £14,000 per website. The costs for implementing a single website blocking order, meanwhile, are modest but the cumulative costs of implementation, including capital outlay, are far more significant. Further, Arnold J accepted that his decision could open the door to similar applications by right holders and so ISPs' implementation costs would therefore increase. 

The ISPs' position was that, as it was accepted they were innocent of wrongdoing, implementation costs should be borne by right holders - including the marginal costs and an appropriate contribution to the capital costs of the necessary technical systems. The majority of the Court of Appeal said Arnold J was entitled to say the ISPs should bear the implementation costs, but that this was a matter to be kept under review in future applications. Briggs LJ disagreed in respect of the costs of implementing a particular order - as opposed to capital costs - drawing an analogy with Bankers Trust type orders (orders sought against banks in relation to tracing claims) and Norwich Pharmacal orders. He suggested that, for a right holder, liability for implementation costs was the price for obtaining valuable injunctive relief for the better exploitation of its intellectual property. In contrast, the majority saw implementation costs as a "cost of carrying on business in this sector" for ISPs, in return for the immunities they enjoy from infringement under the E-Commerce Directive. 

The Court of Appeal also said that Arnold J was justified in identifying the legislative policy behind the regime as based on an economic logic in granting injunctions against intermediaries: it was economically more efficient for them to take action to prevent infringements using their services than to require right holders to take direct action against the websites themselves. However, this did not mean that it would be proportionate to make a blocking order in every case.

why is this important?

Online counterfeiting is a major headache for many brand owners. Given the inherent defects in the existing available remedies, such as notice and take down procedures, the Court of Appeal's endorsement of the extension of website blocking orders in this decision gives them a further weapon to deploy.  

The Court's decision also demonstrates the willingness of the UK judicial system to adapt its practices, here in relation to injunctions, to new circumstances where it considers it is necessary and appropriate. It might be interesting to speculate, however, as to how a Court would have dealt with this question in a post-Brexit world given that the relevant provisions under consideration on this issue all stem from EU law. 

The day after the Court of Appeal's decision, the European Court of Justice (CJEU) issued a decision which also demonstrates the potential wide-ranging reach of Article 11 in relation to intermediary liability. On a reference from the Czech Republic Supreme Court, the CJEU confirmed that the scope of the provision extended beyond e-commerce - and ISP intermediaries - to physical marketplaces. In particular, a market operator who lets pitches from which counterfeit products are sold should be included within the definition of an 'intermediary' whose services are being used by a third party to infringe an IP right. They can therefore, like ISPs, be the subject of an application for injunctive relief by a right holder. The CJEU did not comment on the nature of that injunctive relief which, in this case, will have to be determined by the Czech court. The CJEU's decision also no doubt opens the way for potential claims against other intermediaries whose services may be used by infringers.