Case Report and Analysis: Scarlet v SABAM

December 9, 2011

In the long awaited judgment in the case of Scarlet Extended SA v SABAM, the Court of Justice of the European Union has delivered a landmark decision preventing an obligation being imposed by injunction on an Internet Service Provider (ISP) requiring it to prevent copyright infringements online. It ruled that the proposed injunction, which would require an ISP to install an expensive system for filtering, applied indiscriminately to all users as a preventative measure, and capable of identifying files which infringe copyright, was illegal and contrary to applicable fundamental rights.

The case of Sabam v Tiscali in the Belgian courts in 2007 addressed whether the court should grant injunctive relief to SABAM (the Belgian Society of Authors, Composers, and Publishers) against the ISP Tiscali by imposing an obligation on the ISP to stop infringements of SABAM’s intellectual property by making it impossible for Tiscali’s users to use ‘peer-to-peer’ (‘P2P’) software to transmit infringing files containing musical compositions.? After hearing expert evidence in support of the application of such a filter, the Belgian court granted an injunction ordering Tiscali to install filtering software to prevent the ISP’s customers from sending electronic files containing musical works that were part of the SABAM repertoire.

Tiscali subsequently appealed the decision and, in January 2010, prior to delivering a judgment, the Belgian Court of Appeal referred two questions to the ECJ to ascertain whether a national court was entitled to impose such an obligation on an ISP, and, if so, to what extent the national court had to consider the proportionality of the measure.

The questions referred were:‘(1) Do Directives 2001/29 and 2004/48, in conjunction with Directives 95/46, 2000/31 and 2002/58, construed in particular in the light of Articles 8 and 10 of the European Convention on the Protection of Human Rights and Fundamental Freedoms, permit Member States to authorise a national court, before which substantive proceedings have been brought and on the basis merely of a statutory provision stating that: ‘They [the national courts] may also issue an injunction against intermediaries whose services are used by a third party to infringe a copyright or related right’, to order an [ISP] to install, for all its customers, in abstracto and as a preventive measure, exclusively at the cost of that ISP and for an unlimited period, a system for filtering all electronic communications, both incoming and outgoing, passing via its services, in particular those involving the use of peer-to-peer software, in order to identify on its network the movement of electronic files containing a musical, cinematographic or audiovisual work in respect of which the applicant claims to hold rights, and subsequently to block the transfer of such files, either at the point at which they are requested or at which they are sent?

(2) If the answer to the [first] question … is in the affirmative, do those directives require a national court, called upon to give a ruling on an application for an injunction against an intermediary whose services are used by a third party to infringe a copyright, to apply the principle of proportionality when deciding on the effectiveness and dissuasive effect of the measure sought?’

Relevant Directives

Directive 2000/31 EC (the E-commerce Directive) seeks to establish the free movement of information society services in the internal market and sets out certain ‘safe harbor’ provisions for ISPs. However, it also recognises that Member States can grant injunctions to prevent certain infringements, including requiring the removal of illegal information or the disabling of access to it.

In particular, Article 12 of the E-commerce Directive provides that Member States shall ensure service providers are not liable for information transmitted on their networks provided that the provider does not initiate the transmission, does not select the receiver of the transmission and does not select or modify the information contained on the transmission.

Article 15 of the same Directive states that Member States shall not impose a general obligation on providers to monitor the information which they transmit or store nor a general obligation actively to seek facts or circumstances indicating unlawful activity.

Article 8 of Directive 2001/29 (the Copyright Directive) states that Member States must provide appropriate sanctions and remedies in respect of copyright infringements. The sanctions must be effective, proportionate and dissuasive. It also states that Member States shall ensure that rights holders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe a copyright or related right.

Directive 2004/48 (the IP Enforcement Directive) is directed to the provision of adequate enforcement mechanisms for the prevention of intellectual property rights. In particular, Article 3 provides that Member States shall provide for measures, procedures and remedies necessary to ensure the enforcement of intellectual property rights which must be fair and equitable, not unnecessarily complicated or costly, and not entail unreasonable time-limits or unwarranted delays.

Article 11 of the IP Enforcement Directive states that Member States shall ensure that rights holders 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.

Filtering Out

The ECJ stated that the particular injunction being considered would have required that the ISP (i) identify, within all of the electronic communications of all its customers, the files relating to peer-to-peer traffic; (ii) identify, within that traffic, the files containing works in respect of which holders of intellectual-property rights claim to hold rights; (iii) determine which of those files are being shared unlawfully; and (iv) block file sharing that it considers to be unlawful.

The Court concluded that the requirement to monitor actively all the data relating to each of its customers would require the ISP to carry out general monitoring, which is prohibited by Article 15 of the E-Commerce Directive.

Consideration of the injunction’s lawfulness also required consideration of the applicable fundamental rights. The protection of intellectual property rights is enshrined in the Charter of Fundamental Rights of the European Union (‘the Charter’) but there was nothing to suggest that that right is wholly inviolable and must for that reason be absolutely protected.

The ECJ held that national authorities and courts must strike a fair balance between the right to the protection of intellectual property enjoyed by copyright holders and the freedom to conduct a business, enjoyed by operators such as ISPs pursuant to Article 16 of the Charter.

The injunction would result in a serious infringement of the freedom of the ISP concerned to conduct its business since it would require that ISP to install a complicated, costly, permanent computer system at its own expense. It would also be contrary to Article 3 of the IP Enforcement Directive which requires measures designed to protect intellectual property rights not to be unnecessarily complicated or costly.

The judgment made reference to the principle of proportionality, which, amongst other things, requires that any legislative objective be sufficiently important to justify limiting a fundamental right and that the means used to impair the right or freedom are no more than is necessary to accomplish the specific objective. The ECJ noted that the proposed monitoring injunction had no limitation in time, was directed at all future infringements and was intended to protect not only existing works, but also future works that have not yet been created at the time the system would be introduced.

The judgment also considered the fundamental rights of the ISP’s customers, namely their right to protection of their personal data and their freedom to receive or impart information. The injunction would involve a systematic analysis of all content and the collection and identification of users’ IP addresses from which unlawful content on the network is sent. Those addresses are protected personal data because they allow those users to be precisely identified. The injunction could potentially undermine freedom of information since that system might not distinguish adequately between unlawful content and lawful content, with the result that its introduction could lead to the blocking of lawful communications.

Overall, the ECJ ruled that the proposed injunction would not respect the requirement that a fair balance be struck between the right to intellectual property, on the one hand, and the freedom to conduct business, the right to protection of personal data and the freedom to receive or impart information, on the other.

Implications for the Future

The case is a useful exposition of the relevant Directives and fundamental freedoms that must be balanced by courts in cases where rights holders seek injunctions against intermediaries. The ECJ has made it clear that such a costly and unlimited filtering requirement imposed on an ISP would be contrary to the E-Commerce Directive and the Copyright Directive and would not respect the rights of ISPs or consumers.

The decision appears to close the door on generalised attempts to require ISPs to filter all communications on their networks to identify copyright infringing material and prevent its transmission. It also implies that any injunctions against intermediaries or other analogous obligations imposed on them, (such as the ‘technical measures’ proposed to be imposed on ISPs under the Digital Economy Act), would need to be shown to be materially better targeted, less onerous and less costly than the filtering obligation proposed here.

The susceptibility of intermediaries to injunctions brought by rights holders to prevent infringement of intellectual property rights is a topical area of the law in the UK and in the EU at large. A recent example is the case of 20th Century Fox v BT where the High Court granted an injunction requiring BT to block access to a website used for copyright infringement, on the basis that there appeared to be no legitimate use on the site and that the cost of the measures would be modest and proportionate. While the Sabam v Scarlet case does not appear to contradict the findings of fact in that particular case, it does emphasise that the ECJ is willing to uphold the rights of ISPs to conduct their business and the rights of consumers to freedom of information in cases of copyright enforcement in the digital age.

Scott Fairbairn is an Associate at CMS Cameron McKenna LLP.