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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.

Landlords may be forced to stop the sale of counterfeits and other illicit goods on their premises
 Briefing 
Author
Jeremy Hertzog and David Rose
Date
22 July 2016

New onus on landlords for counterfeit goods

Landlords may be forced to stop the sale of counterfeits and other illicit goods on their premises

A recent decision from Europe's highest court has opened up the possibility of Courts ordering landlords to stop their tenants selling counterfeit products on their premises.  Whilst the case centred on a marketplace operator letting units to individual stall holders who went on to sell counterfeits, the principles in the decision could be extended to impose injunctions against landlords of shopping centres, as well as to other commercial landlords.

The war against counterfeit goods is a never-ending challenge for brand owners. Whilst, in recent years, attention has particularly focused on tackling online infringements - including those sold via auction sites and social media - physical marketplaces still provide fertile ground for fakes.  Rights holders can, and do, bring claims – both civil and criminal - against the sellers of these products, but this is not always straightforward, and there is a constant stream of new operators ready to take their place. So, it is no surprise that rights holders have turned their sights to intermediaries, including landlords who let their premises to tenants who sell counterfeits. 

In a significant decision, the European Court of Justice (CJEU) has now confirmed that a market operator who sub-lets stall units to stall holders selling counterfeit products is an 'intermediary' whose services are being used to infringe an intellectual property right. Rights holders can therefore seek an injunction against them, requiring them to stop sales of counterfeits - provided that the court granting the injunction is satisfied that certain criteria are met. Whilst this decision focuses on the liability of a market operator, the principles could be extended to other types of retail landlord, as well as 'intermediaries' more generally, and also goes beyond trade marks to other intellectual property rights such as designs. 

The CJEU was clear that intermediaries such as market operators did not have to exercise general ongoing oversight of their customers. However – and significantly - they may be forced to take measures to prevent new infringements of the same nature by the same trader. Following this decision, market-operators and other landlords will need to be even more alive to the risk that fake products could be on sale on their premises, given that proceedings may now be brought against them for an injunction based on this decision. Landlords should therefore be ready to take prompt action, including possible lease termination, if they learn that counterfeits are being sold on their premises. This decision also reinforces the importance of conducting due diligence on new tenants and ensuring that appropriate termination provisions are included in leases. 

The case was brought in the Czech Republic by a number of brand owners, including Tommy Hilfiger and Burberry, against Delta Center. Delta is the tenant of the Prague Market Halls and it sub-lets pitches to individual market traders. Its terms require its sub-tenants to respect its regulations; it also issues a warning notice which states that counterfeits are forbidden and that their sale may lead to a termination of the rental agreement. Having discovered a number of counterfeit versions of their products being sold in the Prague Market Halls, the brand owners applied for an injunction against Delta Center. In particular, they wanted an order that Delta should stop entering into contracts with market-traders where a court or administrative authority had decided that those traders had infringed the brand owners' trade marks, or there was a risk of them doing so.

The claim was brought under the Czech law, implementing Article 11 of the Enforcement Directive. Article 11 states that Member States must provide right holders with the ability to seek an injunction against intermediaries whose services are used by a third party to infringe. The Czech Supreme Court asked the CJEU to determine whether market-operators like Delta Center are an intermediary for the purposes of Article 11. The CJEU has previously considered this issue in relation to e-commerce and online marketplaces, in a claim brought by L'Oréal against eBay. In the Delta decision, it has applied these same principles to physical markets, confirming that the scope of Article 11 is not limited to online intermediaries.

The Czech court will have to decide on the terms of any injunction it should award against Delta. An injunction will not necessarily be granted against an intermediary in every case – the Court must be satisfied that it is effective, dissuasive, equitable and proportionate, and that it will not lead to excess expense or create barriers to legitimate trade.