Costs of ISP blocking injunctions: is there really an EU rule?

Yesterday the stunning London offices of Simmons & Simmons hosted a panel discussion on the implications of the recent Court of Appeal judgment in Cartier [here]. 

The debate also included the question of who should bear the costs of a blocking injunction: should it be intermediaries or rightholders?

The Cartier decision and the dissent on costs

In its ruling the Court of Appeal upheld the decision of Arnold J at first instance [noted here and here] and confirmed that blocking injunctions can be also sought in online trade mark cases, even lacking an express implementation into UK law of the third sentence of Article 11 of the Enforcement Directive ("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, without prejudice to Article 8(3) of [the InfoSoc Directive].")

Similarly to Arnold J, Kitchin LJ confirmed that internet service providers (ISPs) are to bear the costs of implementing a blocking order, while rightholders have to pay the costs of the relevant application. In his dissent Briggs LJ stated to agree with the analysis of Kitchin LJ, except on the issue of costs. 

The appeal in Cartier was the first time that ISPs had ever appealed a blocking order (including those made pursuant to s97A of the Copyright, Designs and Patents Act), also in relation to costs.

Adding the costs of blocking injunctions

The Newzbin2 reasons

Since the landmark decision in Newzbin2 [the first copyright blocking order issued in the UK], ISPs have been regarded as those having to bear the costs of implementing a blocking injunction. 

At that time Arnold J noted how ISPs (in that particular case, BT) are commercial enterprises that make a profit from the provision of services which the operators and users of infringing sites (in that particular case, Newzbin2) use to infringe the rightholders' rights. As such, the costs of implementing the order could be regarded as a cost of carrying on their own business.

This conclusion was said to be reinforced to some extent - albeit implicitly - by EU law, in particular:

• Recital 59 of the InfoSoc Directive ("In the digital environment, in particular, the services of intermediaries may increasingly be used by third parties for infringing activities. In many cases such intermediaries are best placed to bring such infringing activities to an end. Therefore, without prejudice to any other sanctions and remedies available, rightholders should have the possibility of applying for an injunction against an intermediary who carries a third party's infringement of a protected work or other subject-matter in a network. This possibility should be available even where the acts carried out by the intermediary are exempted under Article 5. The conditions and modalities relating to such injunctions should be left to the national law of the Member States.");
• The decision of the Court of Justice of the European Union (CJEU) in L'Oréal [para 139], in which - pursuant to Article 3 of the Enforcement Directive - it was clarified that enforcement measures "must not be excessively costly".

This said, however, in my opinion the hints derived from EU law are, indeed, just ... hints.

Is there an EU framework?

The EU law framework  is pretty much silent regarding who should bear the costs of injunctions against intermediaries. Even the ambiguous wording of Article 14 of the Enforcement Directive ("Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.") does not seem to relate directly to injunctions. 

Substantially 'costs of injunctions' is therefore an area of the law that has been left unharmonised at the EU level. This is also because, as Recital 59 of the InfoSoc Directive eloquently puts, "[t]he conditions and modalities relating to such injunctions should be left to the national law of the Member States."

Although the majority of national legal systems envisages that intermediaries are those responsible for bearing the costs of an injunction against them for third-party infringements, Member States are therefore ultimately free to choose the solution they prefer.

As such, any discussion as to whether the solution indicated by Arnold J and subsequently followed in other cases is the one to prefer is a legitimate one.

Will the CJEU provide yet another de facto harmonisation? The Mc Fadden case

This being the state of the art, ie a formally unharmonised framework, things might change - as a matter of fact - soon. More specifically, things may change when the CJEU decides the pending reference in Mc Fadden, C-484/14.

This is a reference for a preliminary ruling from the Regional Court, Munich I (Germany), and was made in the context of proceedings between Sony and a person (Tobias Mc Fadden) who operates a business selling and renting lighting and sound systems for various events.

Mc Fadden owns a Wi-Fi connection that is open to anyone to use as it not protected by any password. In 2010 that connection was used by someone other than Mc Fadden to download unlawfully a musical work to which Sony owns the copyright. Following Sony’s formal notice, Mc Fadden sought a negative declaration from the referring court. This dismissed it and upheld Sony’s counterclaim, granting an injunction against Mc Fadden on the ground of his direct liability for the infringement at issue and ordering him to pay damages, the costs of the formal notice, and costs. Mc Fadden appealed that decision, arguing that the provisions of German law transposing Article 12(1) of the ECommerce Directive would shield him from liability for third-party infringements. The Regional Court held the view that Mc Fadden would not be directly liable, but rather indirectly liable according to the German doctrine of Störerhaftung, on the ground that his Wi-Fi network had not been made secure. This court decided nonetheless to stay the proceedings and seek guidance from the CJEU on a number of issues.

AG Szpunar

For the sake of this blog post, what is particularly interesting is Question 4:

"Is … Article 12(1) of [the ECommerce Directive] to be interpreted as meaning that the expression ‘not liable for the information transmitted’ precludes as a matter of principle, or in any event in relation to a first established copyright infringement, any claims for injunctive relief, damages or the payment of the costs of giving formal notice or court costs which a person affected by a copyright infringement might make against the access provider?"

What is possibly even more interesting is the answer that Advocate General (AG) Szpunar provided in his Opinion [here] on 16 March last.

The AG held that an intermediary cannot be held liable for an IP infringement committed by a user of its services and, as a result, cannot be asked to bear pre-litigation and court costs. Holding otherwise "could potentially have the same punitive effect as an order to pay damages and could in the same way hinder the development of the intermediary services in question." [para 77]

AG Szpunar however did not stop here.

He noted [paras 78-79] how injunctions can be imposed on innocent intermediaries to repress third-party infringements. However, he concluded that the safe harbour regime [Article 12 of the Ecommerce Directive in this specific case] "precludes the making of orders against intermediary service providers not only for the payment of damages, but also for the payment of the costs of giving formal notice or other costs relating to copyright infringements committed by third parties as a result of the information transmitted." [para 80, emphasis added].

In my own opinion, the phrase “other costs” might include the costs of implementing an injunction, including a blocking injunction.

This means that, should the CJEU confirm the AG analysis on this point, then Briggs LJ might have well been right ... Stay tuned!

BREAKING: Court of Appeal of England and Wales confirms availability of blocking injunctions in online trade mark cases

A nice surprise
for Cartier and friends

Can injunctions (particularly: blocking injunctions) be issued against intermediaries in trade mark cases, even lacking in the UK a specific implementation of the third sentence in Article 11 of the Enforcement Directive?

The High Court judgment

Back in 2014 the High Court of Justice of England and Wales (Arnold J) answered this question in the affirmative in its judgment in Cartier and Others v BSkyB and Others [noted here and here].

Unlike copyright [in relation to which the possibility of injunctions against intermediaries is expressly envisaged by s97A of the Copyright Designs and Patents Act 1988 (CDPA), through which the UK implemented Article 8(3) of the InfoSoc Directive into its own national law], at the time of transposing the Enforcement Directive into its own law UK Government thought that it did not need to take any action to transpose the third sentence in Article 11. This provision states that "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, without prejudice to Article 8(3) of [the InfoSoc] Directive"

UK Government justified its decision not to take any action to implement this more general rule by referring to s37(1) of the Senior Courts Act 1981. This provision states that “[t]he High Court may by order (whether interlocutory or final) grant an injunction … in all cases in which it appears to be just and convenient to do so.”

This (together with - of course - other considerations) led Arnold J to conclude that the High Court had jurisdiction to issue blocking orders also in respect of websites selling and advertising goods infringing third-party trade marks. Thus, the High Court ordered five major UK internet access providers (ISPs) to block access to certain websites which were advertising and selling counterfeit copies of the claimant's goods.

Today's judgment

Further to an appeal brought by the ISPs, this morning the Court of Appeal of England and Wales handed down its much-awaited 214-paragraph judgment. The Court upheld the "entirely correct" [para 35] decision of Arnold J, thus confirming that injunctions against intermediaries can be sought also in IP cases other than copyright [this is a huge relief for rightholders, also in the aftermath of Brexit, ie at a time when it is unclear what relevance EU legislation - especially the bits not expressly transposed into UK law - will eventually have in this country].

Kitchin LJ delivered the judgment (with which Briggs and Jackson LLJJ agreed), addressing each of the submissions advanced by the ISPs using "the clear and logical structure" of Arnold J. 

Kitchin LJ

Jurisdiction to issue a blocking injunction

Further to a review of relevant authorities, Kitching LJ recognised [para 54] that "the ISPs are not guilty of any wrongdoing. They have not infringed Richemont’s [this is how collectively the rightholders - including Cartier, Montblanc and others - are referred to] trade marks, nor have they engaged in a common design with the operators of the websites offering counterfeit goods for sale." 

The judge also noted [still at para 54] how, in light of the decision of the House of Lords in CBS Songs v Amstrad, the ISPs do not owe a common law duty of care [readers who follow the current EU policy debate will note that, while this may be true under common law, the same may be less so or become increasingly less so at the EU level] to Richemont to take reasonable care to ensure that their services are not used by the operators of the offending websites. 

This said, however, Kitchin LJ observed [para 56] that the operators of the infringing websites need the services of the ISPs in order to offer for sale and sell their counterfeit goods to UK consumers. It follows that "the ISPs are therefore inevitable and essential actors in those infringing activities." 

In addition, the effect of Article 11 of the Enforcement Directive should be considered. What this provision requires was clarified [as recalled at para 59] by the Court of Justice of the European Union in its 2011 decision in L'Oréal:

1.    The jurisdiction conferred in accordance with the third sentence of Article 11 on national courts must allow those courts to order an online service provider, such as the provider of an online marketplace, to take measures that contribute not only to bringing to an end the actual infringements committed through that marketplace, but also to preventing further infringement;

2.    The rules for the operation of the injunctions for which the Member States must provide are a matter for national law, but those measures must be effective and dissuasive;

3.    In light of the fact that the UK had taken no specific steps to implement Article 11, national law must be applied, so far as possible, in light of the wording and purpose of the third sentence of Article 11 [this is so in light of the Marleasing principle].;

4.    The rules laid down by Member States and their application by national laws must observe the limitations arising from the Enforcement Directive and from the other sources of law to which that directive refers, including Article 15 in the Ecommerce Directive [no obligation to monitor]. Overall the measures imposed must be fair and proportionate, must not be excessively costly and must not create barriers to legitimate trade.

In light of these considerations, Kitchin LJ concluded that [paras 65-66]:

"It seems ... clear from this guidance that Article 11 does indeed provide a principled basis for extending the practice of the court in relation to the grant of injunctions to encompass, where appropriate, the services of an intermediary, such as one of the ISPs, which have been used by a third party to infringe a registered trade mark. There is no dispute that the ISPs are intermediaries within the meaning of Article 11 and accordingly, subject to the threshold conditions to which I shall shortly come, I believe that this court must now recognise pursuant to general equitable principles that this is one of those new categories of case in which the court may grant an injunction when it is satisfied that it is just and convenient to do so. I therefore believe that court had jurisdiction to make the orders the subject of this appeal."

Kitchin LJ also rejected the argument that the orders sought by the rightholders would unduly compress the fundamental freedoms of ISPs (to conduct business) and users (to access information), as granted under the Charter of Fundamental Rights of the European Union.

Threshold conditions

In any case, in line with the judgment of Arnold J, [paras 80-81] 

"the court’s discretion under s.37(1) [of the Senior Courts Act] to grant website blocking orders is not unlimited and that it must be exercised consistently with the terms of the Enforcement Directive, including, in particular, Articles 3 and 11, and with the terms of the E-Commerce Directive, including, in particular, Articles 12 to 15 ... [T]he following threshold conditions ... must be satisfied before a website blocking order is made. First, the ISPs must be intermediaries within the meaning of the third sentence of Article 11. Secondly, either the users or the operators of the website must be infringing the claimant’s trade marks. Thirdly, the users or the operators of the website must use the services of the ISPs. Fourthly, the ISPs must have actual knowledge of this. As [Arnold J] observed, each of the first three conditions follows from the wording of Article 11 itself. The fourth follows from the E-Commerce Directive, for if ISPs could be required to block websites without having knowledge of the infringing activity then this would effectively impose on them an obligation to monitor. The ISPs have made no specific criticism of any of these four threshold conditions and I would endorse them."

Kitchin LJ concluded that all threshold conditions were satisfied in this case.

Principles and ... costs

Turning then to the principles to be applied in considering whether to make a website blocking order, namely the relief must: (i) be necessary; (ii) be effective; (iii) be dissuasive; (iv) not be unnecessarily complicated or costly; (v) avoid barriers to legitimate trade; (vi) be fair and equitable and strike a “fair balance” between the applicable fundamental rights; and (vii) be proportionate.

Kitchin LJ addressed each and every of these. Among other things, he confirmed [para 150 - but see dissent of Briggs LJ at paras 198 ff] that Arnold J "was entitled to require the ISPs to bear the costs of the implementation of the orders in issue." He also approved [para 169] of Arnold J's proper consideration of the economic impact of website blocking orders upon the businesses of the ISPs, and that these could either bear these costs themselves or pass them on to their subscribers in the form of higher subscription charges.

Alternatives to blocking

Kitchin LJ also addressed [paras 177-178] ISPs' point that Arnold J allegedly failed to carry out a fair evaluation of the relative merits of alternative measures to blocking: 

"I reject these contentions. The judge’s conclusion was amply supported by the evidence before him and he was in my judgment entitled to find as he did that notice and takedown would be unlikely to achieve anything more than short-term disruption of the target websites.  He recognised that website blocking orders impose compliance costs on the ISPs whereas notice and take down requests do not but rightly found that, for the rightholders, website blocking had advantages. The key question was therefore whether these benefits justified the costs burden imposed on the ISPs. That was a matter he considered in carrying out his overall proportionality assessment. I am satisfied that the ISPs’ criticisms of the judge’s assessment of the other alternative measures are equally unmeritorious. In each case the judge made findings which were open to him on the evidence before him and in doing so he took proper account of the experience of the rightholders. The judge has made no error of principle and I am wholly unpersuaded it would be appropriate for this court now to interfere with the conclusions to which he came."

Milly has already
taken note in her diary:
what are you waiting for?

Rapid response event

A more detailed analysis of today's judgment will be provided in due course.

In the meantime, to discuss the implications of the judgment in more detail, the IPKat is teaming up with Simmons & Simmons for a rapid response event to take place in the evening of Thursday, 28 July. 

Speakers will include: Simon Malynicz QC (3 New Square), Lauri Rechardt (IFPI), Darren Meale (Simmons & Simmons) and myself. 

The event will take place at Simmons & Simmons. More details to follow soon: save the date!