Cartier Court of Appeal Decision – Success for brand owners

Today (6 July 2016), the Court of Appeal handed down its much-anticipated judgment in Cartier v BSkyB.  The Court of Appeal has found in favor of the Richemont claimants (owners of brands Cartier, Montblanc and IWC) in dismissing the appeal.

The appeal, brought by the five largest internet service providers (ISPs) in the UK, challenged two website blocking orders granted by Arnold J in 2014.  The orders required the ISPs to block access to certain websites selling counterfeit goods.

In upholding Arnold J’s first instance ruling, the Court of Appeal has confirmed that the court has jurisdiction to grant injunctions against intermediaries whose services are used to infringe trade marks, despite the absence of any provision in UK trade mark law equivalent to section 97A of the Copyright, Designs and Patents Act 1988.The Court of Appeal has also confirmed that the costs of implementing the orders should be borne by the ISPs.

The judgment is the first from a senior court in the UK and mainland Europe to consider this important issue. It is a huge victory for brand owners in the fight against websites selling counterfeit goods and demonstrates the extent of the court’s power to grant an injunction in circumstances where it is just and convenient to do so.

In the light of the Court of Appeal’s findings on jurisdiction, there is significant potential for blocking injunctions to be extended to other areas where websites and web locations are infringing the law. For example, we may see this remedy used in privacy and defamation claims and potentially in contractual claims in the future.

A key element informing the court’s willingness to grant this type of blocking relief is the fact that the Applicant can keep track of websites as they move and can notify the ISPs when this happens.  This same tracking also ensures that over-blocking does not happen.  In the Cartier case and in earlier copyright cases, the tracking of websites has been undertaken by Corsearch Limited.  We are very proud to have offered assistance to the Applicants in this case.

Corsearch’s systems are used to identify the most visible counterfeit websites – i.e. the websites most likely to be found by consumers who are looking for your brands (whether for counterfeits or the legitimate item).  By focusing on the more visible threats, Corsearch prioritizes the sites that are suitable for this type of action.

Corsearch also supports similar blocking remedies in other jurisdictions (both in mainland Europe and further afield).

Further analysis

Background

The appeal concerns two applications brought by Richemont for orders requiring the major UK ISPs to block (or at least impede) access to eight websites offering counterfeit goods for sale in the UK. The orders sought were essentially in the same form as injunctive orders that have been granted under section 97ACDPA concerning copyright-infringing piracy websites.  The procedure for obtaining section 97A orders is now well-establishing following the Newzbin2 case.

Due to the absence of provisions equivalent to section 97A CDPA in UK trade mark legislation, Richemont relied on both the court’s general power to grant an injunction when it is “just and convenient to do so“ under section 37(1) of the Senior Courts Act 1981 and on Article 11 of the Enforcement Directive.  The latter provides that “Member States shall also ensure that right 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…”.

The first instance landmark judgment (in respect of the first application)was handed down on 17 October 2014 (Cartier International AG v British Sky Broadcasting Ltd [2014] EWHC 3354 (Ch)).  Analysis of the judgment can be found here. The second application was determined shortly thereafter.  In both cases, Arnold J found that the court had jurisdiction to grant the orders; that the threshold conditions established in section 97A cases applied; that those threshold conditions were satisfied on the facts; and that it was appropriate and proportionate to grant the orders sought.

Appeal

Broadly, the ISPs’ appeal was made on the basis that: they are wholly innocent parties; the court had no jurisdiction to make the orders; even if the court had jurisdiction, the threshold conditions were not met; the judge failed to identify the correct principles in considering whether it was appropriate to make such an order; the orders were disproportionate; and the judge was wrong to find that the ISPs should bear the cost of the implementation of the orders.

The Court of Appeal upheld the first instance judgment in full. The key findings in Lord Justice Kitchin’s lead judgment are as follows:

Jurisdiction

Arnold J was correct to find that the court had jurisdiction to make the site blocking orders.  The court’s equitable power to grant injunctions is broad and is not limited to categories of injunctions already established by precedent – to find otherwise “would impose a straight jacket on the court and its ability to exercise its equitable powers which is not warranted by principle”. Kitchin LJ held that Article 11 provides a principled basis for developing the practice of the court in connection with the grant of injunctions to include website blocking injunctions against ISPs and 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”.

Threshold conditions

The Court of Appeal endorsed the application of the following four threshold conditions:

• the ISPs must be intermediaries;
• the users/operators of the target websites must be infringing the claimant’s trade marks;
• the users/operators of the target websites must be using the ISPs’ services to do so;
• the ISPs must have actual knowledge of this.

The appeal court found that the judge was right to conclude that each of the above conditions was satisfied.  It found that the ISPs allowed consumers in the UK to access the target websites; that the ISPs’ services were used by the operators to communicate the offers for sale of counterfeit goods to UK consumers and to make the agreements to sell and supply the goods; and that the ISPs were “inevitable and essential actors in those infringing activities”.  It was irrelevant that there was no contractual relationship between the ISPs and the operators of the target websites; that the ISPs did not exercise control over the particular services; that the goods were not physically transmitted by the ISPs; and that there was no specific evidence of actual use of the ISPs’ services to infringe.

Principles to be applied and proportionality

The appeal court endorsed the relevant principles to be applied in considering whether it is appropriate to make a website blocking order, namely that the remedy 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 applicable fundamental rights; and (vii) be proportionate.  It also agreed that the substitutability of other websites for the target websites, and the requirement under Article 3(2) of the Enforcement Directive that remedies should be applied in a manner that provides for safeguards against their abuse, must be considered.

On proportionality, the Court of Appeal agreed that this requires a fair balance to be struck between the claimant’s IP rights, the ISPs’ freedom to conduct business, and the freedom of information of internet users. The court found that the judge, on the basis of the evidence before him, had properly weighed the likely cost burden on the ISPs; the likely efficacy and dissuasiveness of the orders sought; the availability of alternative measures; and the impact on third parties.  The judge was entitled to conclude that the orders were proportionate in the circumstances. On efficacy, Lord Justice Kitchin stated it would be “absurd” to expect blocking access to a target website to reduce the overall level of infringement.

Also of note is the court’s rejection of the contention that the orders would have no material benefit due to the target website’s lack of popularity. Kitchin LJ found that a site’s popularity ranking “whilst undoubtedly important, may present far from a complete picture”.  The reputation of the right holder’s brand; the harm caused to the brand by the target website; and the nature of the target website’s infringing operation are also important factors.

Costs

The costs regime adopted under section 97A establishes that the right holder bears the costs of an unopposed application, of monitoring the locations of the target websites once blocked, and of notifying the ISPs of any updates; the ISPs bear the costs of implementing the blocking order. Lord Justice Kitchin noted that no ISP has sought to appeal this in respect of any section 97A order.

In the present appeal, the ISPs contended that the right holder should pay the implementation costs, in part, because the ISPs are innocent parties and by analogy to Norwich Pharmacal orders.

The Court of Appeal disagreed. In doing so, the court found (amongst other things) that Article 11 (and Article 8(3)) must be considered in light of a broader legislative scheme and as a quid pro quo for the immunities conferred on intermediaries under the E-Commerce Directive; and that implementation costs are to be regarded as a cost of the ISPs’ business since they make a profit from their services being used by the website operators to infringe the right holder’s IP rights.

Whilst Lord Justice Briggs (dissenting) considered that the right holder should bear the ‘modest’ implementation costs (by analogy to Norwich Pharmacal and Bankers Trust cases), his view (consistent with the rest of the appeal panel and the judge at first instance) was that the capital costs incurred by ISPs in designing and installing blocking systems should be borne by the ISPs.

Comment

The judgment is a resounding success for brand protection and trade mark enforcement in the digital age. The internet has enabled counterfeiters to reach a global market whilst remaining anonymous.  The Court of Appeal has now confirmed that site blocking injunctions are a remedy available to brands suffering both financial and reputational harm at the hands of those selling fake, poor quality replica goods. It paves the way for trade mark owners to tackle sites selling counterfeit goods in a way that is cost efficient and adaptable to evasion by the counterfeiters.