On 6 July 2016, the Court of Appeal gave its decision in an appeal from the first ever case in which internet service providers (ISPs) had been ordered to block their subscribers’ access to websites on the basis that those websites were offering for sale counterfeit goods (rather than illegal copies of copyright material).
In upholding the High Court’s decision to grant such an order, the Court of Appeal confirmed that similar orders can be sought by the owners of trade marks, design rights and patents. In conjunction with the very recent decision of the CJEU in the Tommy Hilfiger Licensing case, that operators of a physical marketplace can also be treated as intermediaries subject to injunction under the IP Enforcement Directive 2004, the range of opportunities open to rights holders to tackle infringement are substantially increased.
What was the dispute about?
European courts, including those of England & Wales, have for some years been granting orders to the owners of copyright in popular music and films which require the ISPs to take technical steps to block subscribers’ access to websites supplying or enabling the supply of infringing copies. The alternatives, principally a notice to the organisation hosting the website to take the content down, have been recognised as largely ineffectual since the response of the website owner is simply to move the website to another host. Website blocking, on the other hand, has been reasonably (though not completely) effective in reducing the use of copyright-infringing websites in the UK. Such orders against the ISPs have therefore become routine, and are usually unopposed. But over time the number of websites required to be blocked is increasing and so the ISPs’ willingness to absorb the cost of monitoring and blocking has eroded.
An application by Richemont, the group which owns luxury brands such as Cartier and Mont Blanc, for an equivalent order based upon their trade mark rights rather than copyright, triggered this dispute. The ISPs argued that a whole new category of IP rights should not be introduced as the foundation for such applications, and still less should they have to shoulder the costs of implementing the resulting blocking orders. They argued that, although the costs of complying with each individual order might be small, taken together the costs would be likely to mount up substantially over time as further applications are made.
What were the issues?
A number of issues were considered by the Court in the appeal. The principal questions were:
- Whether the English courts have the jurisdiction and power to grant blocking orders in respect of IP rights other than copyright?
- If so, what the criteria for such orders should be?
- If an order is granted, which party should bear the costs of implementing it?
The court’s powers
There has been no dispute over the court’s powers to grant orders to block copyright infringing sites, since a specific power was enacted by Parliament in s97A Copyright Designs and Patents Act 1988. There is, however, no equivalent right in the Trade Marks Act 1994. Consequently, the judge at first instance based his order on:
- s37 Senior Courts Act 1981, which permits the court to grant an injunction “in all cases in which it appears to be just and convenient to do so” in its own right; and
- in the alternative, a reading of that section to comply with Article 11 IP Enforcement Directive 2004 (the Directive), which requires Member States to ensure that rightholders 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.
Importantly, if that combination of provisions confers the power to grant injunctions in trade mark counterfeiting cases, then there is no reason why it cannot equally be applied to websites offering goods infringing design right, database right or patents.
The Court of Appeal accepted that the Senior Courts Act does give the power to order such injunctions. It is a broad provision, capturing the historically wide discretion granted to the Court of Chancery to make such order in law or equity as the circumstances may require. The court considered that the ISPs must be under an equitable duty to help right holders enforce their rights, analogous to that applied in Norwich Pharmacal cases – under which a party which, though innocent itself, knows who has committed a wrong can be ordered to assist in the enforcement of rights by providing the information to the injured party. Further, the flexibility of the court’s powers is such that it can be extended to meet new circumstances, as when Apple was ordered to publish the fact that (contrary to the publicity it had previously generated) Samsung had been found not to have infringed Apple’s design rights.
The criteria for making an order
Other than an objection that Richemont had not proved that any UK subscriber had actually used any of the websites in question to buy any counterfeit product, there was no real disagreement that the basic conditions for an order to be made had been met:
- the ISPs were intermediaries whose services enabled infringement to take place;
- the users or operators of the websites were infringing the trade marks in question;
- the users or operators of the websites were using the ISPs’ services by targeting UK consumers; and
- the ISPs had actual knowledge that this was the case.
Who should pay?
The main arguments focussed on whether requiring the ISPs to block websites, which involves cost and will not be completely effective, was an appropriate and proportionate way to enforce Richemont’s trade marks. The High Court had held that a balance must be struck between Richemont’s right to enforce its trade marks and the ISPs’ right to carry on business. It concluded that although the cost of implementing the blocking orders may in time mount up, it was fair and proportionate to require the ISPs to bear these costs since they also receive the benefit, under the E-Commerce Directive, of a defence to allegations of infringement arising from their users’ activities in posting pirated content online.
Further, the High Court had held, website blocking of websites selling counterfeit goods was likely to be more effective than it was where pirate copyright works were in issue, since the websites selling counterfeits are unlikely to build up ‘brand loyalty’ in the way that, say, The Pirate Bay had done. In the circumstances as a whole, the court found that the costs of implementing blocking orders should be treated simply as a cost of carrying on business as an ISP – provided that the order did not impose an obligation to implement disproportionately costs technical solutions.
What did the Court of Appeal decide?
The majority of the Court of Appeal agreed with the High Court, citing the CJEU’s approach in the UPC Telekabel decision. In that case, a blocking injunction imposed on Telekabel, an ISP, by the Austrian Court was challenged on the ground that it appeared to expose Telekabel to potential contempt of court. This was because there was no technical solution capable of completely blocking the content. The CJEU, however, upheld in principle the grant of such an injunction, despite acknowledging that any such injunction constrains the ISP by restricting the free use of its resources by diverting some to website blocking at, potentially, significant cost.
The majority of the Court of Appeal did, however, indicate that the cumulative costs of such orders in future need to be kept under review; there could be a threshold beyond which rights holders are asked to contribute.
On this issue, Briggs LJ produced a powerful dissent. He pointed out that regardless of the European case law to which the High Court and majority of the Court of Appeal referred, there has long been jurisdiction under English law principles to make orders where a third party in some way assists in preventing or enforcing infringement of rights, such as Norwich Pharmacal or Bankers Trust-type cases. But in that tradition it is always the case that the party seeking to enforce its rights bears the third party’s costs of providing assistance. In Briggs LJ’s view, it is a natural incident of a business which consists of, or includes, the exploitation of rights to incur cost in their protection even where those costs cannot be reimbursed by appropriate orders against wrongdoers.
After considering the circumstances of the Court of Justice cases, Briggs LJ concluded that while the ISPs as part of their costs of doing business need to bear the capital cost of implementing technology capable of carrying out the blocking orders, the additional costs of employees’ time and effort implementing each order should be the responsibility of the rights holder. He pointed out that the argument based upon treating the ISPs’ immunity from copyright infringement resulting from activities of their users as a quid pro quo for bearing the costs of the orders might well be appropriate in the case of website blocking orders relating to copyright-infringing websites, for which the ISPs could themselves otherwise be liable. But that immunity was unlikely to be necessary for offers of trade mark infringing goods since the ISPs themselves would not normally be liable in such a case anyway. Accordingly, there was no countervailing benefit to justify the imposing the costs of compliance on the ISPs.
What does this mean for rights holders and ISPs?
This case scrutinises the English courts’ powers to grant injunctions in considerable depth and will influence all future applications for website blocking orders whatever the grounds on which such applications are based. The issues are complex and, as demonstrated by Briggs LJ’s dissenting judgment, far from clear cut one way or the other.
The rulings that such orders can be granted for all forms of intellectual property against intermediaries, whether ISPs or operators of real-world marketplaces, will be welcomed by rights holders struggling with enforcement on- and offline. However, the question of where the compliance costs between rights holders and ISPs should fall is one which will depend on the specific circumstances, and is likely to come before the courts again in the future.