In good news for brand owners, the Court of Appeal has upheld the High Court’s decision requiring ISPs to block websites which infringe third party trade marks in the case of Cartier International AG & Ors v British Sky Broadcasting Ltd & Ors. The Court of Appeal concluded that it was necessary and proportionate to grant these blocking orders, despite the ISPs’ arguments that the orders were not effective since consumers would simply go elsewhere. Most controversially, the Court of Appeal also upheld the trial judge’s finding that the ISPs were liable for the costs of implementing the blocking orders, notwithstanding that they were innocent parties who were not themselves engaged in infringing activities.

Background

In late 2014, Arnold J in the High Court ordered the five main UK ISPs (Sky, BT, EE, TalkTalk and Virgin) to block access to websites selling counterfeits of various luxury goods. In his detailed judgment [2014] EWHC 3354 (Ch), Arnold J accepted that the operators of these websites were using the services of the ISPs to infringe the claimants’ trade marks and that in the circumstances it was appropriate to grant the blocking orders.

This was the first time a UK Court had granted blocking orders in a case of trade mark infringement, although multiple blocking orders had been granted in relation to websites infringing copyright, pursuant to s97A of the Copyright, Designs and Patents Act 1988 (“CDPA”). Although there was no equivalent specific statutory provision relating to trade marks, the judge was satisfied that he had jurisdiction to grant such orders under UK and European law, in light of the Court’s general powers under s37(1) of the Senior Courts Act 1981 (“SCA”) and Article 11 of the Enforcement Directive.

The ISPs appealed to the Court of Appeal.

Jurisdiction

The ISPs argued that the Court had no jurisdiction to grant blocking orders in cases of trade mark infringement, since the UK had not explicitly implemented Article 11 of the Enforcement Directive (requiring Member States to allow rightholders to apply for injunctions against intermediaries where the intermediaries’ services are used to infringe an intellectual property right). This was in contrast to the position under copyright law, where the UK had implemented Article 8(3) of the Information Society Directive by inserting s97A into the CDPA.

The Court of Appeal (in a leading judgment by Kitchin LJ) rejected this argument and held that the judge’s conclusion that he did have jurisdiction to grant blocking orders in such cases was “entirely correct”.

Kitchin LJ first examined UK case law considering the extent of the Court’s power to grant injunctions. He noted that the Courts have been prepared to develop their practice to adapt to new circumstances and where necessary and appropriate to avoid injustice. In particular, he referred to the Court of Appeal’s decision in Samsung Electronics v Apple [2012] EWCA Civ 1339 in which the Court had taken the novel step of granting a publicity Order requiring Apple to publicise the Court’s decision that Samsung had not infringed Apple’s registered designs. Kitchin LJ also agreed that the judge was entitled to draw an analogy with Norwich Pharmacal relief and conclude that, where ISPs have become aware that their services are being used to infringe IP rights, they are subject to a duty to assist the wronged persons to prevent or reduce these infringements (although he added the qualification that such duty applied where the ISPs were requested to do so).

Interestingly, Kitchin LJ expressed reservations about the judge’s two-stage approach, wherein the judge had first considered s37(1) SCA on a purely domestic interpretation and then, as a second stage, considered how s37(1) should be interpreted in accordance with Article 11 of the Enforcement Directive. Instead, Kitchin LJ blended these two considerations (i.e. of UK domestic law and European law) and concluded that Article 11 provided a “further basis” for developing the practice of the Court in connection with blocking injunctions.

In doing so, he referred to the CJEU’s decision in L’Oreal v eBay (Case C-324/09), a reference from Arnold J in circumstances where L’Oreal sought an injunction requiring eBay, which was not itself an infringer, to prevent infringements of L’Oreal’s trade marks by various sellers on the eBay website. The CJEU held that, since the UK had not adopted specific rules to implement Article 11 of the Enforcement Directive, its national law should be applied in light of the wording and purpose of Article 11.

Kitchin LJ stated that it was clear from this guidance that Article 11 did provide a principled basis for extending the practice of the Court. He therefore held that, pursuant to general equitable principles, blocking orders of the type requested by the claimants in this case were one of the “new categories” of case in which the Court may grant an injunction where it was just and convenient to do so.

Threshold conditions

The Court of Appeal agreed with the judge’s finding that the Court’s discretion to grant blocking injunctions under s37(1) SCA is not unlimited and must be exercised consistently with the terms of the Enforcement Directive and E-Commerce Directive.

Kitchin LJ was satisfied that that four threshold conditions identified by the judge were met i.e. (1) whether the ISPs were intermediaries; (2) whether the operators of the relevant websites were infringing the claimants’ trade marks; (3) whether the website operators were using the ISPs’ services to infringe; and (4) whether the ISPs had knowledge of the infringement.

Of these, the third threshold condition bore the most discussion by the Court of Appeal. The ISPs attempted to distinguish copyright cases, noting that in those circumstances the copyright-protected work itself is transmitted using the services of the ISPs rather than being supplied separately by post or courier as with websites selling counterfeits. The Court rejected this argument and held (referring to the CJEU’s decision in UPC Telekabel (Case C-314/12) that the ISPs were “essential actors” in all the communications between the consumers and the website operators, and that it was not necessary for the ISPs’ services to have been used physically to transmit the protected material in order for their services to be used to infringe the claimants’ trade marks.

Principles to be applied

The Court of Appeal confirmed the judge’s finding that there are nine principles to be applied when considering whether to make a website blocking order, namely that the relief granted must: (1) be necessary; (2) be effective; (3) be dissuasive; (4) not be unnecessarily complicated or costly; (5) avoid barriers to legitimate trade; (6) be fair and equitable and strike a “fair balance” between the applicable fundamental rights; (7) be proportionate: (8) be considered by reference to the substitutability of other websites; and (9) be applied in such a manner as to provide safeguards against abuse (as required by Article 3(2) of the Enforcement Directive).

Kitchin LJ broadly agreed with the judge’s conclusions on these nine principles, which had been considered in detail in the High Court judgment. In relation to effectiveness, he held that it would be “absurd” if rightholders had to prove that the blocking order sought would reduce the overall level of infringement of their trade marks or make it difficult for consumers to access counterfeits from different sources – although a blocking order was less likely to be proportionate if there were a large number of alternative websites available to the consumer.

Perhaps the point most hotly contested by the ISPs was the judge’s finding that the costs of implementing the blocking orders should be borne by the ISPs rather than the claimants. The ISPs drew an analogy with Norwich Pharmacal cases, where parties innocently mixed up in the wrongdoings of others (including in some cases ISPs) are ordered to disclose information or documents to assist the claimants in bringing a case against the wrongdoers. In such cases, those seeking the relevant Orders are required to bear the costs of the innocent parties’ compliance.

Whilst Kitchin LJ acknowledged that the ISPs had made “powerful submissions” on this point, he nonetheless did not accept them. As the judge had, he concluded that the ISPs ultimately profited from providing the services used by the website operators to infringe third party IP rights, and therefore the costs of implementing blocking orders could be considered a cost of carrying on this business. He also upheld the judge’s finding that, in keeping with normal costs rules, and as the losing party (who had “adopted a far from neutral” position), the ISPs were liable for the costs of proceedings.

Practical implications

The Court of Appeal’s decision has confirmed the position of blocking orders as important weapons for trade mark owners in their constant battle against online infringement. They are likely to be part of a wider menu of enforcement options, including direct action against infringers and counterfeiters, Customs enforcement and potentially engaging with parties such as search engines and payment service providers to crack down on infringement.

It remains to be seen whether the Court of Appeal’s decision will “open the floodgates” to a raft of applications for this new breed of website blocking orders against ISPs. In principle, this seems possible, given the sheer number of e-commerce and other websites that could conceivably be infringing third party trade marks. Certainly, it is likely that the Court will now readily grant blocking orders against classic “counterfeit” websites of the kind in this case i.e. websites that are clearly trading in knock-off goods by reference to third party trade marks, and do not have any plausible legitimate purpose. These websites are therefore analogous to those that have been the subject of successful blocking order applications under s97A CDPA, i.e. peer-to-peer file sharing sites whose obvious purpose is to circumvent copyright protection.

However, each application will still need to be considered by reference to the nine principles identified by Arnold J and approved by the Court of Appeal. In practice, therefore, it may still be difficult to convince the Court that such blocking orders are “necessary”, “proportionate” and “fair and equitable” in anything other than the most clear-cut cases (for example, where the alleged trade mark infringement relates only to a proportion of the activity carried out on a particular website).

The Court of Appeal’s restatement of Arnold J’s approach to jurisdiction might also have implications down the line, given the Court’s blending of UK domestic and European law. Whereas, in Arnold J’s decision, there was a clear finding that he had jurisdiction to grant the blocking orders requested by reference to UK domestic law alone, the Court of Appeal did not frame its conclusion in this manner. The issue might therefore be ripe for reconsideration post-Brexit (depending on the particular structure of the UK’s exit).

Finally, the issue of costs is unlikely to disappear, particularly if the number of blocking orders sought and granted grows exponentially. The ISPs may well be frustrated with the Court’s willingness to draw an analogy with Norwich Pharmacal relief when it comes to its jurisdiction to grant blocking orders, but to take the opposite approach in relation to who bears the costs of compliance. Depending on the number and nature of blocking orders that are granted by the Court from now on, the ISPs may well revisit their argument that they should not be on the hook for implementation costs in a future case.