IP & IT analysis: Following a reference by a national court to the Court of Justice of the European Union (CJEU) for a preliminary ruling, Attorney General (AG) Szpunar gave his opinion that a business owner providing a free public Wi-Fi connection is not liable for copyright infringements by users of that network. Andrew Butcher, associate at Bristows examines the potential ramifications.

Original news

C-484/14: McFadden v Sony Music Entertainment Germany GmbH

Request for a preliminary ruling from the Landgericht München I (Germany) lodged on 3 November 2014.

What was the background to this referral to the CJEU?

The parties in the main proceedings were the recorded-music company, Sony Music and a German businessman, Mr McFadden. In the course of his business, presumably with the intention of attracting visitors to his shop, Mr McFadden operated a Wi-Fi network to which the public had unrestricted access. The dispute between the parties arose when a third party unlawfully downloaded, via Mr McFadden’s Wi-Fi network, a musical work owned by Sony. Sony gave Mr McFadden formal notice of the infringement of its rights.

He then sought a declaration by a German court that he was not liable for the infringement, following which Sony brought a counterclaim seeking an injunction and damages. The court dismissed Mr McFadden’s application and upheld Sony’s counterclaim, granting an injunction against him and ordering him to pay damages.

He appealed, arguing that his liability was precluded by article 12(1) of Directive 2000/31/EC on electronic commerce (EC Directive), which had been transposed into German law. EC Directive, art 12(1) provides that a person supplying an information society service shall not be liable for information transmitted in a communication network if that person does not initiate the transmission, select the receiver of the transmission, or select or modify the information transmitted. This is the ‘mere conduit’ defence to liability for intermediary service providers.

The court decided to refer nine questions to the CJEU.

Briefly, what was the nub of the questions referred?

The German court’s questions can be boiled down to three basic questions:

  • Is a professional who, in the course of business, operates a Wi-Fi network that is accessible to the public free of charge providing an information society service for the purposes of the mere conduit defence to liability?
  • To what extent can that professional’s liability be limited under the mere conduit defence in respect of copyright infringements committed by third parties?
  • Can the operator of such a network be made subject to an injunction under which he must restrict access to the network by means of a password?

What did the AG opine?

The AG held that a professional person who, in the course of business, operates a free, publicly accessible Wi-Fi network with internet access is providing an information society service. The AG noted that Mr McFadden’s provision of internet access took place ‘in an economic context, even if it is offered free of charge’.

Regarding the limitation of liability provided by the mere conduit defence, the AG held that while EC Directive, art 12 limited the liability of intermediaries for unlawful acts committed by third parties, that did not preclude the grant of an injunction requiring the service provider to terminate or prevent an infringement. When granting such an injunction, national courts must ensure that the measures to be implemented are effective, proportionate and dissuasive, and do not constitute a general obligation to monitor the information transmitted by the intermediary, which would contravene EC Directive, art 15.

The AG held that the EC Directve precludes the grant of an injunction against a person operating a Wi-Fi network that is accessible to the public, associated with his principal economic activity, where that person is only able to comply with the injunction by password-protecting the network. The AG noted that an injunction would also not be permitted where compliance was possible only by terminating the internet connection or examining all communications transmitted through it. Such injunctions would not achieve a fair balance between the protection of intellectual property (IP) on the one hand and the right to freedom of expression and information and freedom to conduct a business on the other hand.

In particular, what was the AG’s reasoning behind free Wi-Fi services falling within the scope of an information society service within the meaning of the EC Directive?

The AG held that the service of providing free internet access to the public via an open Wi-Fi network could be an information society service where the service is of an economic nature. That would be the case where the internet access is provided in an economic context, as an adjunct to the provider’s principal economic activity. Mr McFadden’s provision of free internet access could be construed as a marketing tool which results in an indirect financial benefit, ie by attracting customers to his shop.

If the Court of Justice follows the AG’s opinion what might this mean for those providing free Wi-Fi services?

Providers of free Wi-Fi internet access would be reassured that they could not be held financially liable for IP infringements committed by users of their service and could not be required to examine all communications transmitted over their network. Furthermore, providers of free Wi-Fi could not be compelled to password-protect their network. Although national courts would still be free to grant injunctions (non-compliance with which would be punishable by a fine) against Wi-Fi providers so long as the measures to be implemented were proportionate and effective and struck a fair balance between the protection of the IP right on the one hand and the right to freedom of expression and information and freedom to conduct a business on the other hand.

If the opinion is followed, what might that mean for rights holders seeking injunctions against providers of mere conduit services?

Such a ruling could create uncertainty as to the form of injunction that national courts would grant against mere conduits, as the AG has said that such injunctions (granted against providers of free Wi-Fi) cannot require termination of the internet access, password protection of the network or the monitoring of all information transmitted over the network. Furthermore, national courts could only grant an injunction which leaves it open to the Wi-Fi provider to determine how a specific infringement should be brought to an end if the court was certain that appropriate measures were available to the provider. The AG’s opinion provides no guidance as to what such measures might be, however.

What messages should lawyers take from this opinion?

The AG’s opinion is indicative of a desire to strike a fair balance between the protection of IP rights and the facilitation of technological and economic growth/advancement. Rights holders are likely to feel that, in the case of free Wi-Fi providers at least, the balance has swung too far away from their right to protect their IP. Rights holders may be particularly frustrated that the AG indicates in his opinion that even the imposition (within an injunction against a provider of free Wi-Fi internet access, offered as an adjunct to his principal economic activity) of an obligation to register users and retain their IP addresses would be disproportionate and incompatible with EU law. The AG commented that a general obligation to identify and register users of free Wi-Fi internet access could lead to a system of liability applicable to intermediary service providers that would be inconsistent with the prohibition provided by EC Directive, art 15 against a general obligation to monitor.

What is missing from this opinion?

The AG held that EC Directive, art 12 does not preclude the granting of an injunction against a provider of free Wi-Fi and set out the principles to which national courts must have regard when granting injunctions—namely that the measures to be taken to prevent an infringement or bring one to an end are ‘fair and equitable’, ‘effective, proportionate and dissuasive’ and not ‘unnecessarily complicated or costly’. However, the AG does not provide any guidance as to which specific measures would be appropriate, concluding that:

‘It nevertheless falls to the national court [...] to ensure that appropriate measures do indeed exist that are consistent with the restrictions imposed by EU law.’

Therefore, it is left to national courts to determine whether appropriate measures are available to free Wi-Fi providers to prevent an infringement or bring one to an end.

This article was first published on Lexis®PSL IP & IT analysis on 23 March 2016. Click for a free trial of Lexis®PSL.