ISP Blocking Injunctions Now Available Against Counterfeit Sites to Protect Trade Mark Rights

Trade mark owners can now obtain blocking injunctions to protect their customers and businesses from websites selling counterfeit products into the U.K., after luxury brand owner Richemont’s ground-breaking and successful application against the U.K.'s major internet service providers for a website-blocking order.

Using a slightly different power, these injunctions have previously been a highly-effective weapon in the war on copyright-infringing pirate websites, 62 of which are currently blocked in the U.K., with another 16 blocks on their way.

This article considers Richemont’s U.K. application and also the position on blocking injunctions in France, Germany, Italy and the Netherlands.

Where this article refers to ISPs, it means companies that provide internet access to consumers. “Hosts” are companies that host websites or particular material on the internet (i.e. they “physically” store websites for their customer). “Service provider” or “intermediary” is used as a general term to encapsulate ISPs, hosts and all other providers of online services.

Context

In just a few years, the power of copyright owners under s.97A of the Copyright, Designs and Patents Act 1988 to ask the High Court to force ISPs to block their users from accessing file-sharing and other infringing websites has become a popular, efficient and very successful weapon in the fight against online piracy. The International Federation of the Phonographic Industry (IFPI) has reported a significant reduction in U.K. traffic to offending websites following blocking.

However, that power is only directed at infringement of copyright. The internet causes many headaches for brand owners as well, with consumers confused and conned into buying from sites selling counterfeits and unlawful parallel imports.

The application was the first of its kind in the European Union.

Facts and Law

The websites targeted were six websites selling poor-quality counterfeit CARTIER, MONTBLANC or IWC products to U.K. consumers, among others. There was little debate to be had over whether these websites infringed Richemont’s trade mark rights; they clearly did.

As s.97A only applies to copyright infringement, Richemont looked to s.37(1) of the Senior Courts Act 1981, the general power for the High Court to order an injunction “in all cases in which it appears to be just and convenient to do so.”

Section 97A is based on wording in the Information Society Directive (Directive 2001/29). Article 11 of the Enforcement Direction (Directive 2004/48) contains wording similar to that in the Information Society Directive, except that it is not limited to copyright — it provides for injunctions against intermediaries in respect of all IP rights (“… Member States shall also 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 …”). While s.97A was enacted in order to deal with the Information Society Directive, the U.K. did not take any specific steps to implement Article 11 of the Enforcement Directive into law.

Following a comprehensive review of the authorities over many years on the High Court’s power to order injunctions, Mr Justice Arnold drew the following conclusions:

• The court’s power to award an injunction under s.37 is effectively unlimited, albeit that as a matter of practice it will exercise its discretion in accordance with fairly well settled (but evolving) principles;

• Accordingly, the court had the power to grant the injunctions sought by Richemont;

• This is the case from a purely domestic law point of view, before considering the court’s obligations to construe U.K. law in accordance with European law (and the Enforcement Directive in particular).

• If that was wrong, it was right to interpret s.37 in light of Article 11 of the Enforcement Directive so as to conclude, in any event, that the court did indeed have the power to grant the injunctions sought by Richemont. Failing to do so would be a breach of the U.K.'s obligations under that Directive.

The Test for Trade Mark Blocks

Having reached this conclusion, Mr Justice Arnold elected to apply the same four-step test to trade mark blocking injunctions as is required for copyright blocking injunctions.

Are the ISPs Intermediaries Within the Meaning of Article 11?

The answer here is a well settled yes, following on from the copyright blocking cases.

Are the Users and/or Operators of the Websites in Question Infringing the Claimant’s Trade Marks?

This was not in dispute. The only factual point was to consider whether there was trade mark infringement in the U.K. — which there would be if the websites were targeting U.K. consumers. With goods on the websites sold in GBP and shipped to the U.K., this was easy to establish.

Do the Users and/or Operators of the Websites Use the ISPs’ Services to Do This?

By analogy with the position in the copyright blocking cases, the answer was also held to be a yes.

Do the ISPs Have Actual Knowledge of This?

Another easy yes. The ISPs knew all about the infringers as a result of Richemont having contacted them in advance of bringing this case.

The Factors to Consider

The judge then considered whether it was appropriate for him to exercise his discretion to order the blocks sought. Again, his answer was that it was appropriate. However, to reach this conclusion he diligently considered the following factors (drawn from the Enforcement Directive), namely whether the blocks were:

• (i)    Necessary;
• (ii)   Effective;
• (iii)  Dissuasive;
• (iv)   Not unnecessarily complicated or costly;
• (v)    Not barriers to legitimate trade;
• (vi)   Fair, equitable and able to strike a “fair balance” between the rights involved; and
• (vii)  Proportionate.

Necessary

The judge largely rolled this up into his consideration of proportionality (below), and also considered whether there were other alternative measures available to Richemont to protect its trade marks rights, which are less onerous than a block.

As regards to the latter, ultimately he was not persuaded that either alone or together they were better than blocking injunctions. The alternatives discussed were:

• Direct action against the operators of the fake websites (they ignored letters, many were based outside of the U.K. including in China, direct action in such cases is rarely effective — so not a realistic alternative);

• Notice and takedown by hosts (this would work, as the current hosts appeared to be mainly U.S. and EU based reputable companies, but would only lead to the websites shifting to other hosts, ultimately those of ill repute, so this measure would only have a short-term impact and was not as effective as website blocking);
• Asking VISA and Mastercard to suspend the accounts of the website operators (but some websites use alternative payment methods, like bank transfers);
• Domain name seizure (but the operator can just pick a new name and carry on);

• Ask search engines to de-index the sites (but this doesn’t take the website down, and search engines are not entirely cooperative and their legal obligations in this regard are unclear); and

• Customs seizure (only tackles imports and only captures a fraction of goods coming into the country).

Effective

This did not mean (as the Dutch Court of Appeal had concluded in The Pirate Bay blocking case of Ziggo v BREIN) that the effect of the blocks had to be an overall reduction in infringement, across all sites not just the ones blocked. However, efficacy was an important factor. Blocks would, at the least, need to seriously discourage users from accessing the blocked websites. It might also be disproportionate to block one site if there existed lots of ready alternatives for users to fall back on.

Richemont presented expert evidence, which showed a marked reduction in the use of pirate websites in the U.K. as a result of s.97A blocks. Over the period January 2013 to May 2014, U.K. traffic to blocked sites had dropped by 71.2%, whereas it went up by 27.8% elsewhere. By contrast, U.K. traffic to a selection of legitimate sites rose by 146% compared with 67.6% in the rest of the world. The judge concluded that:

“Overall, the conclusion which I draw from the evidence is that, in the section 97A context, blocking of targeted websites has proved reasonably effective in reducing use of those websites in the U.K.. No doubt it is the casual, inexperienced or lazy users who stop visiting those websites, whereas the experienced and determined users circumvent the blocking measures; but that does not mean that it is not a worthwhile outcome.”

He went on to conclude that there was no reason to think that blocks against the counterfeiters’ websites would be any less effective.

Dissuasive

The judge noted that this means dissuasive on third parties — others should be discouraged from infringing as a result of the block.

The judge felt that the blocks would be dissuasive, stopping consumers from accessing the websites and informing them of why at the same time (see below) — although this reasoning does not follow the judge’s finding as to the requirement of an effect on third parties.

Not Unnecessarily Complicated or Costly

These factors roll into the proportionality assessment.

The normal cost consequences developed under the s.97A jurisdiction are that rights owners pay the cost of an unopposed application, while ISPs pay the cost of implementing any order made. Each ISP put that cost at a different figure, with Sky estimating its costs in the “mid three figures” (i.e. hundreds of pounds) to implement a new order. However, the ISPs emphasised that what matters is not the cost of one order, but the overall cost of ongoing compliance with all blocking orders; a growing figure. The ISPs relied on evidence from Richemont of 239,000 potential infringing websites to suggest that the floodgates might open. The judge recognised the potential for lots of blocks to burden ISPs with lots of costs, but was not to be put off by this. He suggested that ultimately some of the cost might be passed on to consumers (and later suggested making the blocks temporary, see below).

Evidence on the rights owners’ side suggested a cost of about 14,000 pounds ($22,591) per website blocked, although this is likely to be lower where multiple blocks are requested in the same action (the most so far has been 21 in one go).

Not Barriers to Legitimate Trade

This means that measures adopted by ISPs (under order of the court) must be strictly targeted so that they do not affect users who are using the ISP’s services in order lawfully to access information. The judge saw no issue here provided the blocks were implemented appropriately so as only to catch unlawful sites.

Fair, Equitable and Able to Strike a “Fair Balance” Between the Rights Involved

Again, this is part of the proportionality test.

Proportionate

As suggested above, the judge considered that many of the other factors are to be considered together to weigh-up proportionality. He also considered the substitutability of other websites for those blocked to be relevant here.

So far as the balance of the rights involved was concerned, this was fairly easy — the judge was happy that protection of trade mark rights, and of consumers against fakes, outweighed the effect blocks would have on ISPs (additional operating costs) and internet users (none — provided the blocks did not curtail their freedom to use legitimate sites).

On substitutability, the fact that there were many other counterfeit websites for users to access did not seem to play heavily on the judge’s mind either way, despite his view that he needed to consider it.

Overall, Mr Justice Arnold felt that the biggest question was whether the costs burden on ISPs was justified having regard to the efficacy of the blocks and the benefit to Richemont having regard to the alternatives available to it. He concluded:

“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.”

Safeguards Against Abuse

Five safeguards would be worked into the court’s blocking orders:

• ISPs could apply to discharge or vary them in the event of a material change in circumstances, including in respect of costs;

• Website operators could also apply to discharge or vary them;

• In a novel move, the ISPs’ subscribers would also have permission to apply to discharge or vary the orders. This safeguard no doubt comes about as a result of the Court of Justice of the European Union’s (CJEU’s) decision in UPC Telekabel v Constantin, in which the CJEU stated that internet users must be permitted to assert their rights before court once an ISP takes blocking measures. It will be interesting to see if any of the organisations (such as the Pirate Party) who often shout loudly about internet freedoms will accept this invitation;

• The blocking page — the page displayed when a user tries to access a blocked site — should include the identity of the party or parties, which obtained the order and state that affected users have the right to apply to the court to discharge or vary the order; and

• To mitigate the potential for a large number of blocks to stack up over time and cost ISPs too much, trade mark blocks should have a limited life — a “sunset clause” providing that the blocking orders will cease to have effect after a period — the judge suggested two years.

Conclusion on the Case

Although a novel one, with the law analysed carefully by the judge, this decision is a fairly simple and unsurprising one. Section 97A has become a relatively simple tool for copyright owners to use, and now brand owners can benefit from the same type of relief. As counterfeit products — particularly those sold via the internet — remain a real problem for brand owners, this is very good news. Lessons learned from the s.97A jurisdiction show that blocks can be obtained relatively cheaply and quickly, with several if not tens of sites targeted at the same time. Brands losing money to particularly offensive sites might want to think about making an investment in this new remedy.

The Position in the Rest of Europe

The U.K. has led the way in imposing blocking injunctions for copyright infringement, and has now done so for trade mark infringement. However, it is not the only EU country active in this area.

France

The French Intellectual Property Code has implemented Article 11 of the Enforcement Directive as regards to intermediaries. Article L.716-6 stipulates that upon the request of a party entitled to bring trade mark infringement proceedings, the court may order an intermediary to take any steps to put an end to the infringement. This type of order may only be obtained on an inter partes application.

As far as we are aware, there has only been one (unsuccessful) application based on Article L. 716-6, which was made against Google in 2010 — so not an ISP. The application was rejected on the grounds that at the date the application was heard, the site was already inaccessible. Unfortunately for the applicant, the fact that the site was accessible after the matter had been heard, but before the order was handed down, was not taken into account.

Germany

Discussions in Germany have been ongoing for years as to whether ISPs should be responsible for any infringement of third party rights on websites, which can be accessed through their services. This concerns not only copyright, but trade marks as well, and personal rights. It is expected that German courts might, following the CJEU’s decision in UPC Telekabel v Constantin, be more willing to grant blocking injunctions against ISPs.

In the past (as will be the case in the future) the key question was whether an ISP had a duty to inspect and monitor websites, which could be accessed through its services. The German Act on Tele-Media Services (Telemediengesetz, TMG) provides for several exemptions from any liability for service providers, which include ISPs as well as hosts.

In the past, German courts have regularly ruled that a service provider is (under the doctrine of liability for disturbance [Störerhaftung]) only liable for an infringement of third party rights (under Sec. 823 para. 1, 1004 para. 1 sentence 2 of the German Civil Code in connection with the relevant IP or personal rights laws) if it does more than just passively provide technical access to websites with infringing content. For example, it has been decided that host providers are active providers in that sense and can thus be liable under the doctrine of liability for disturbance. ISPs, however, were said to offer such access only passively.

Service providers can, however, always be liable if they have positive knowledge or act with gross negligence with regards to an infringement.

With particular regard to trade mark law, the Regional Court of Hamburg had decided in 2009 that a domain registrar only granted access to hosted websites passively and was thus not liable for trade mark infringements on one of those sites (judgment of April 30, 2009, docket no. 315 O 581/08). An application for a blocking injunction against it was therefore dismissed.

Italy

Italy’s new AGCOM Regulation introduced, from March 31, 2014, a new notice and takedown procedure into the Italian legal system, whereby in the event of the infringement of copyright, a right holder can start administrative proceedings before AGCOM, requesting removal of the offending content or disabling of access to the website.

This procedure applies only to “digital works,” not to trade marks. It is, however, quick; blocks can be in place in as little as seven working days.

However, quick as it may be that has not stopped the Italian public challenging the procedure as unconstitutional, because it gives the power to issue injunctions by means of an administrative procedure without the guarantees of judicial proceedings. As a result, AGCOM’s constitutionality is now under challenge.

The Netherlands

The possibility of imposing blocking injunctions against ISPs for copyright infringement exists in the Netherlands, similar actions are also possible on the basis of trade mark infringement. S. 2.22(6) of the Benelux Convention on Intellectual Property (BCIP) provides that the Benelux courts may, at the request of the owner of a trade mark, issue an injunction for the cessation of services against intermediaries whose services are used by a third party to infringe its trade mark right. This article has been implemented in the BCIP in order to comply with the Enforcement Directive.

As far as we are aware, this article has been applied at least twice by the interim relief judge of the District Court in The Hague, but only in respect of hosts. In 2012, an interim relief judge ordered a service provider to cease the hosting of 25 websites on which counterfeit watches of various famous brands were offered for sale (judgment dated Aug. 21, 2012, Breitling et al. vs. Altushost Inc.). Furthermore, in March 2013, again upon request of several owners of famous watch brands, an ex parte injunction was rendered against Elcatel Ltd. This host was, also on the basis of s. 2.22(6) BCIP, ordered to shut down 18 websites on which counterfeit watches were offered for sale (ex parte judgment dated March 25, 2013, Audemars Piquet et al. vs Elcatel Ltd.).