The Court of Appeal has held that blocking injunctions affecting ISPs may be appropriate to protect trade mark owners.
In Cartier International AG & Ors v British Sky Broadcasting Ltd & Ors  EWCA Civ 658 the Court of Appeal has upheld the view of Arnold J in the High Court that injunctions against intermediaries can be sought also in cases where protection is sought for intellectual property rights other than copyright.
Five English ISPs (Sky, BT, EE, TalkTalk and Virgin) were appealing against orders made in late 2014 which required them to block or attempt to block access by their customers to certain target websites which were advertising and selling counterfeit copies of the goods sold by the various respondents (Cartier, Montblanc and Richemont), who own trade marks in respect of some very well-known luxury goods. Those five ISPs dominate the UK broadband market so their intervention was clearly likely to have a major effect on the commercial viability of the target websites in the UK.
The Court first considered the question of whether it had jurisdiction to make a website blocking order in a case involving infringement of registered trade marks.
It was the contention of the ISPs that the court had no jurisdiction to make website blocking orders in cases involving infringement of registered trade marks because, whereas the UK implemented Article 8(3) of the Information Society Directive by amending the Copyright, Designs and Patents Act 1988 so as to insert s. 97A, the UK did not pass any legislation to implement the third sentence of Article 11 of the Enforcement Directive (transposed into domestic law primarily by the Intellectual Property (Enforcement, etc.) Regulations 2006 (SI 2006 No 1028). Article 11 provides as follows:
Member States shall ensure that, where a judicial decision is taken finding an infringement of an intellectual property right, the judicial authorities may issue against the infringer an injunction aimed at prohibiting the continuation of the infringement. Where provided for by national law, non-compliance with an injunction shall, where appropriate, be subject to a recurring penalty payment, with a view to ensuring compliance. 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 Directive 2001/29/EC.
Kitchin LJ said that the reason nothing was done to implement the third sentence of Article 11 was that government took the view that existing domestic law complied with it and nothing needed to be done to implement it. What Article 11 actually requires was the subject of a reference by Arnold J to the Court of Justice in L'Oréal SA v eBay International AG , asking in substance, whether, in a case where the services of an intermediary, such as the operator of a website, have been used to infringe a registered trade mark, Article 11 requires Member States to ensure that the trade mark proprietor can obtain an injunction against the intermediary to prevent further infringements, and if so what form that injunction should take. In Case 324-09, the CJEU offered this guidance:
the third sentence of art.11 of Directive 2004/48 must be interpreted as requiring the Member States to ensure that the national courts with jurisdiction in relation to the protection of intellectual property rights are able to order the operator of an online marketplace to take measures which contribute, not only to bringing to an end infringements of those rights by users of that marketplace, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, dissuasive and must not create barriers to legitimate trade.
Kitchin LJ said (at -):
It seems to me to be 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.
Indeed Kitchin LJ went on to state (at ) that it would in any case have been appropriate to adopt an interpretation of the Senior Courts Act 1981, s. 37(1) (which gives the High Court power to grant injunctions in such a way as to include the grant of an injunction against an intermediary whose services are used by a third party to infringe a registered trade mark.
Limitations on ISPs' Rights
Kitchin LJ gave short shrift to the arguments that the order requiring blocking of websites was an interference with ISPs rights not 'provided for by law' and thus a breach of their fundamental rights. He considered that the regime for blocking websites was 'entirely proportionate and appropriate' way of making a blocking order effective 'without interfering with the legitimate interests of other operators' and that there was no illegitimate or otherwise inappropriate limitation on the exercise of the rights and freedoms recognised by the Charter of Fundamental Rights.
Arnold J had identified certain threshold conditions which must be satisfied before a website blocking order is made and the Court of Appeal endorsed these. The conditions are:
· Are the ISPs intermediaries?
· Are the operators of the target websites infringing the trade marks?
· Do the operators of the target websites use the ISPs' services to infringe?
· Do the ISPs have knowledge of this?
Only the third condition was seriously in play on appeal. Kitchin LJ said (at ):
Each of the target websites was directed to consumers in the United Kingdom and the operators of those sites were advertising and offering for sale counterfeits of the goods of one of the named claimants. As I mentioned at the outset of this judgment, the ISPs together have a market share of 95% of the users of broadband in the United Kingdom. If and in so far as the target websites had not yet been accessed by consumers in the United Kingdom using the services of each of the ISPs there was plainly a real risk that they would be in the future. The judge was entitled to make an order to try to prevent this happening for the third sentence of Article 11 of the Enforcement Directive and Article 8(3) of the Information Society Directive are concerned not only with measures aimed at bringing infringements of intellectual property rights to an end but also with measures aimed at preventing them.
Principles to be Applied
In the High Court, Arnold J had identified a number of principles to be applied in considering whether to make a website blocking order, namely that 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; (vii) be proportionate; (viii) the substitutability of other websites for the target websites; and (ix) the requirement in Article 3(2) of the Enforcement Directive that remedies should be applied in such a manner as to provide safeguards against their abuse.
Perhaps the most serious challenge to Arnold J's analysis and conclusions was in respect of the costs of implementing the blocking order. It was the ISPs' contention that the costs of implementation of a website blocking order should be borne by the rightholders. Kitchin LJ disagreed with that contention, endorsing Arnold J's views and seeing the cost of blocking as a corollary of the ISPs' business model: 'intermediaries make profits from the services which the operators of the target websites use to infringe the intellectual property rights of the rightholders, and the costs of implementing the order can therefore be regarded as a cost of carrying on the business' (at ).
Dissenting Judgment on Allocation of Costs of Blocking
While agreeing with both the analysis and conclusions of Kitchin LJ, Briggs LJ raised one important point of difference. On the question of who should undertake the burden (in terms of cost and expenses) of implementing the blocking order, he took a different view. He considered that the cost burden attributable to the implementation of a particular blocking order should fall upon the rightsholder making the application for it. Briggs LJ states (at -):
I consider that the reason why the courts of England and Wales have jurisdiction to make blocking orders of the relevant type is that they are indeed a natural development of the court's enforcement of the equitable duty to assist … It was a jurisdiction with existing well-recognised conditions or modalities, one of which was that the victim indemnify the innocent party for its cost of complying with the court's order.
I have not been persuaded that any of my Lord's reasons for doing so justify a departure from this condition or modality. On the contrary, it seems to me to be well justified by the typical facts of a blocking order case. The starting point in my judgment is that the applicant is taking steps to maximise the exploitation of a property right, in this case a trademark, and in the earlier cases copyright. In circumstances where valuable intangible rights of this kind need to be protected from abuse by others, I regard it as a natural incident of a business which consists of, or includes, the exploitation of such rights, to incur cost in their protection, to the extent that it cannot be reimbursed by appropriate orders against wrongdoers.
It is suggested that, to the contrary, the cost of complying from time to time with internet blocking orders should be regarded as an incidental cost of carrying on a business of an ISP. The same might have been said of the conduct of banking business by the numerous banks which are regularly subjected to Bankers Trust type orders but that has never, so far as I am aware, been suggested. Nonetheless I would accept that the capital cost to an ISP in designing and installing software which would enable it to comply promptly with an internet blocking order when sought and obtained from a court of competent jurisdiction is a cost of carrying on the business of an ISP within jurisdictions where the power to grant such an injunction exists. In the present case the ISPs sought to add to the specifically identifiable costs of complying with particular blocking orders a pro rata proportion of the cost incurred in designing and installing the requisite software. I would not allow that capital cost to be included within the recoverable costs and expenses of compliance with particular orders, mainly for that reason. The ISP must, as a condition of carrying on its business, be equipped to comply promptly with a blocking order, once made. I would also regard it as virtually impossible to identify an appropriate apportionment of the capital cost among applicants which thereafter apply for internet blocking orders, since the number of such orders will necessarily remain uncertain until the moment before any particular software programme is about to be replaced by a successor.
I acknowledge that a careful reading of [L'Oréal SA v eBay International AG] and the UPC v Constantin case may suggest that the Court of Justice may have assumed that the conditions or modalities for the grant of such injunctions in the Member States concerned may have left the intermediary to bear the costs of implementation. That may have been a correct assumption in the Member States concerned but it would have been an incorrect assumption in relation to the established jurisdiction of the courts of England and Wales, of which the blocking order is in my view a natural development. It does not seem to me that, contrary to the relevant recitals in both Directives, the Court was intending to lay down any rule of general application within the EU that the intermediary should bear the costs of intervention, even if the courts of some Member States might do so.
Postscript as to Costs
The costs of the High Court action had been laid at the door of the ISPs and they contended on appeal that this had been inappropriate, notwithstanding the normal costs rule that the loser pays. That contention was based on their view that this was a test case which required a ruling to clarify the law, they were not 'wrongdoers', had adopted a neutral stance and the proceedings were not truly adversarial. Although Kitchin LJ took the view that the ISPs were 'entitled wholeheartedly to oppose the application as they did' that was not enough to alter his view that the normal rule on costs applied and the unsuccessful parties must pay.
The full judgments are available here.