Yesterday, the Court of Appeal unanimously confirmed the landmark decision in Cartier v BskyB that blocking injunctions are available against websites involved in trade mark infringement. It was also confirmed (by majority) that it was appropriate in this case that the ISPs should bear the costs of implementing the orders.
Back in October 2014, we reported on the ruling of Mr Justice Arnold requiring five UK ISPs to block access by their customers to certain websites that were advertising and selling counterfeit Cartier and Montblanc goods. This was the first time that such an order was granted to combat trade mark infringement, as opposed to previous successful applications in relation to copyright. Arnold J also held that the ISPs should bear the costs of the implementation of the order and, subsequently, the costs of the substantive hearing.
Article 11(3) of the Enforcement Directive (2004/48/EC) states that: "Member states shall … ensure that rightsholders 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…"
S37(1) of Senior Courts Act 1981 states that: "The High Court may by order… grant an injunction… in all cases in which it appears to be just and convenient to do so".
The ISPs appealed against both the blocking order and the corresponding costs order.
Court of Appeal ruling
Lord Justice Kitchin gave the leading judgement with which Lord Justice Jackson agreed. Lord Justice Briggs agreed with the granting of the order but gave a dissenting opinion on the costs of implementation.
Jurisdiction to grant blocking injunctions in trade mark cases
The Court thought that Mr Justice Arnold's conclusion on this issue was "entirely correct" and, after a review of the authorities, concluded that blocking injunctions were a natural development of the court's enforcement of the equitable duty to assist.
Arnold J was right to draw an analogy with Norwich Pharmacal relief and conclude that an ISP has a duty once it becomes aware that its services are being used by third parties to infringe an IP right. The Court of Appeal qualified this "as a duty to take steps to assist the person wronged when requested to do so". However, the Court noted that "ISPs are not guilty of any wrongdoing" and that they "do not owe a common law duty of care to Richemont to take reasonable care to ensure that their services are not used by the operators of the offending websites".
Kitchin LJ concluded that Article 11 of the Enforcement Directive provides a principled basis for extending the practice of the court to grant blocking injunctions, where appropriate, against ISPs whose services have been used to infringe trade mark rights. The UK government never specifically implemented Article 11 into domestic law because it took the view that existing domestic law (s37(1) Senior Courts Act) complied with it. Blocking injunctions are a new category of case where the court can grant an injunction if it is satisfied that it is just and convenient to do so.
Kitchin LJ agreed that the court's discretion to grant website blocking orders under s37(1) Senior Courts Act was not unlimited and had to be exercised consistently with the terms of the Enforcement Directive. He therefore endorsed Arnold J's four threshold conditions:
(i) the ISPs must be intermediaries within Article 11(3) of the Enforcement Directive;
(ii) the users of the website must be infringing trade marks;
(iii) the users must use the services of the ISP; and
(iv) the ISPS must have notice of this.
These were all satisfied in this case.
Principles to Be Applied - Effectiveness
Arnold J had also identified a number of requirements to consider before making a website blocking order. In particular, the relief must be necessary, effective, proportional, dissuasive, not unnecessarily complicated or costly, fair and equitable, avoid barriers to legitimate trade and strike a fair balance between applicable fundamental rights. The substitutability of other websites should also be considered and the remedies should be applied in a manner that provides safeguards against their abuse.
In relation to effectiveness, the Court of Appeal noted that the CJEU decision in UPC Telekabel v Constantin had stated that blocking orders might not lead to a complete cessation of the infringement but must at least make it difficult to access the target website or seriously discourage internet users from accessing it. In order to obtain relief, the rightsholder does not have to show that the blocking order would reduce the overall level of infringement of its marks or that the order would make it difficult for the public to access counterfeits from different sources. However, the order is less likely to be proportionate if there is a large number of alternative websites which are likely to be equally accessible and appealing to the interested user.
The ISPs argued on appeal that the starting point should be that they should not be required to pay for the costs of implementation of any blocking injunction because they are innocent of any wrongdoing.
Kitchin LJ, however, thought Article 11 of the Enforcement Directive, Article 8(3) of the InfoSoc Directive and the E-Commerce defences were all part of an overall scheme to provide immunity from infringement claims for intermediaries. These immunities support the ISP businesses that profit from the services which the operators of the target websites use to infringe IP rights so the costs of implementing the blocking injunction should be a cost of carrying on business. In both L'Oreal v eBay and UPC Telekabel v Constantin the CJEU contemplated that the intermediary would bear the costs of implementation.
He also confirmed that the Court is not invoking the Norwich Pharmacal jurisdiction in making blocking injunctions so the rule that the applicant pays the costs does not apply. The foundations of a Norwich Pharmacal order are different from website blocking orders, which are not in any sense preparatory to proceedings against the wrongdoers - there is never any real prospect of recovering costs from the wrongdoers.
The ISPs had also appealed against Mr Justice Arnold's conclusion that, although the cumulative costs of implementing all blocking injunctions were important in assessing proportionality, they were not in themselves a reason to refuse the order. The overall costs burden of implementing s97A orders was already significant, was growing rapidly and would continue to grow if trade mark matters were added. However, the Court of Appeal noted that it is economically more efficient to require intermediaries to take action to prevent infringers using their services than it is to require rightsholders to take action directly against each infringer. It will not always be proportionate to make a blocking order directed to an intermediary but, in this case, Arnold J had carefully considered whether the blocking injunction was proportionate after analysing the availability of alternative measures, efficacy and costs.
The Court also rejected the ISP suggestion that Arnold J had effectively held that the cumulative costs of blocking orders could never be unnecessarily costly or disproportionate. Instead, Kitchin LJ agreed with Arnold J that this was a matter that needed to be kept under review in future applications. Arnold J had properly considered the economic impact of website blocking orders upon the businesses of the ISPs (which he thought were small but likely to increase) and was right to say that the ISPs could bear these costs themselves or pass them onto their subscribers in the form of higher subscription charges. The key question was whether the likely costs burden on the ISPs was justified by the likely efficacy of the blocking order and the benefit it would confer on Richemont, having regard also to the alternative measures which were available and the substitutability of the target websites.
Arnold J had correctly assessed alternative measures on the evidence before him. He had noted that notice and take downs achieved no more than short-term disruption of the target websites with infringing material often reappearing. Whilst blocking orders impose compliance costs on the ISP, they do have advantages for rightsholders. It would not be appropriate for the Court of Appeal to interfere with these conclusions.
Lord Justice Briggs dissent on costs
Briggs LJ thought the costs of implementing a blocking order should fall upon the rightsholder. In his view, blocking orders are similar to Norwich Pharmacal and Bankers Trust relief where the costs reasonably incurred by an innocent respondent are reimbursed by the applicant. In his view, the implementation costs of blocking injunctions are a natural incident of a business which exploits and therefore needs to protect IP rights.
On the other hand, he did not agree that rightsholders should pay for the capital costs to an ISP in designing and installing software that would enable it to comply promptly with internet blocking orders, which is a cost of carrying on the business of an ISP.
This case will obviously be welcomed by rights holders who can obtain blocking injunctions against websites selling counterfeits and other trade mark infringing goods. Now that the jurisdiction has been confirmed, it will be interesting to see how many other rights holders use this tactic in their anti-counterfeiting strategies. The Court also seems to be suggesting that similar injunctions might be available in other categories of case where it is just and convenient to grant them. Might we see them being used for example in relation to breach of confidence or privacy cases? Or will their effectiveness be limited because they don't block information immediately after it appears on the Internet?
Rightsholders will also be pleased with Kitchin LJ's findings on the costs of implementing these orders. Nevertheless, we expect that this will continue to be hotly contested by ISPs in each individual case, particularly as the number of orders and the cumulative costs increase.
Many UK lawyers will be pleased to see a very thorough judgment coming from the English court in these uncertain times. Of particular note in this regard is the Court's conclusion that intermediaries have no duty of care to prevent infringers using their services. This appears contrary to some recent moves at the EU Commission level, notably its 2015 Digital Single Market consultation on online intermediaries that specifically asked for views on whether there should be a duty of care imposed on intermediaries to detect and prevent certain types of illegal activity.