The issue of intermediary liability is a hot topic, particularly in the online environment, with decisions in Tommy Hilfiger and McFadden only intensifying the debate.
In an attempt to stem the initial offering and subsequent sale of counterfeit products, rights holders are increasingly invoking contributory trademark infringement claims in both online and offline environments against intermediaries which provide services that facilitate infringements. This tactic makes strategic sense – especially as intermediaries are often best placed to halt infringing activities. Article 11 of the EU IP Enforcement Directive (2004/48/EC) states that member states must ensure that rights holders can apply for an injunction against intermediaries whose services are used by a third party to infringe an IP right, without prejudice to Article 8(3) of the EU Information Society Directive (InfoSoc Directive) (2001/29/EC), which specifically states that the same applies for copyright.
In Tommy Hilfiger Licensing LLC v Delta Center(1) the European Court of Justice (ECJ) issued a ruling on a preliminary reference regarding the liability of the operator of a physical marketplace. More recently, in McFadden v Sony Music Entertainment Germany(2) the ECJ issued a decision regarding the liability of a service provider in an online marketplace.
These latest rulings follow the ECJ's ruling from 2011 on a preliminary reference in L'Oréal v eBay(3) regarding the liability of operators of internet marketplaces.
In L'Oréal the question arose as to whether eBay was liable for infringements committed by internet users on its online marketplace, whereas in McFadden the issue was whether a provider of a free WiFi network was liable for infringements committed by its users. In Tommy Hilfiger the question arose as to whether Delta Center – the tenant of a physical marketplace – could be held liable for trademark infringements committed by stall holders in its market hall. This update examines whether the same rules relating to intermediaries' liability apply both online and offline. It also examines the rights and duties of intermediaries and what measures can be taken against those whose services are used to infringe IP rights.
Before discussing the issue of liability, it is useful to examine what should be understood by the term 'intermediary'. An intermediary is often a service provider that is active on a commercial stage and is part of a supply chain that facilitates and – often unwillingly and indirectly – aids and abets an IP infringement. The intermediary typically offers added value to a commercial transaction. However, the term has a different meaning depending on whether the intermediary operates in a physical or online marketplace.
In a physical marketplace, an intermediary is a service provider whose services are used by a third party to infringe an IP right. The following fall under this definition:
- a market hall tenant that sub-lets sales points where counterfeit products are offered for sale;(4)
- the tenant of premises where counterfeit goods are stored;(5)
- a shipping agent;(6)
- a transporter of counterfeit goods;(7)
- an intermediary storing goods under duty-suspension arrangements in view of (parallel) imports in the European Union;(8) and
- a service provider which fills cans bearing infringing marks (although such service providers are not liable for trademark infringement under the EU Trademark Directive (2015/2436), their role can be assessed under other rules of law(9)).
The ECJ has left unanswered the question of whether a supplier of electricity to premises where counterfeit goods are offered for sale could also be considered an intermediary.(10) However, since any injunction within the meaning of Article 11 of the IP Enforcement Directive should ensure a fair balance between IP protection and obstacles to legitimate trade,(11) it seems likely that the courts would find measures against energy companies to be disproportionate to the goal of enforcing IP rights. In an online marketplace, account must also be taken of internet service providers (ISPs). Content providers – although not intermediaries – actively upload or sell content on the Internet and are thus potentially engaging in directly infringing behaviour. As providers of unlawful content, they can be seen as third parties that use the services of online intermediaries for infringing activities. On the other hand, those buying unlawful content or illegally downloading(12) can also be seen as third parties that use services of online intermediaries for infringing activities.
In UPC Telekabel Wien(13) the ECJ stated that "an internet service provider... which allows its customers to access protected subject matter made available to the public on the internet by a third party is an intermediary".(14) So which ISPs are acting as intermediaries? Host providers supply facilities (eg, websites, platforms and technology) that make it possible for content providers to share content publicly. In most cases they do not actively monitor this potentially unlawful content. One example of this is an online intermediary marketplace such as eBay.(15) Internet access providers merely permit internet access without proposing other services or reviewing the services that they provide.(16) Blocking injunctions are increasingly issued against them in order to prevent access to certain websites (eg, the Pirate Bay). The ECJ has noted that these blocking injunctions are compatible with EU law(17) but this practice is hotly debated across EU member states.
It should be noted that as information society service providers, ISPs may still benefit from the safe harbours set out in the EU E-commerce Directive.
In Tommy Hilfiger the ECJ held that the conditions for an injunction within the meaning of Article 11 of the IP Enforcement Directive against an intermediary providing a service relating to the letting of sales points in market halls are identical to those for injunctions against intermediaries in an online market space, as established in L'Oréal. In other words, intermediaries offering counterfeit goods for sale should be treated the same, regardless of whether the marketplace is physical or online. However, in some circumstances intermediaries may be held directly liable for trademark infringement. Articles 10(2) and (3) of the new Trademark Directive and Articles 9(2) and (3) of the new EU Trademark Regulation (2015/2424) allow rights holders to prohibit the fixing of trademarks to package labels, tags and security or authenticating features or devices, and prohibit the offering, marketing, stocking, import and export of such products if there is a risk that such use would constitute trademark infringement. In this respect it could be argued that an intermediary which merely fills cans bearing infringing marks is directly liable for a preparatory act that would constitute trademark infringement.(18)
There is no general obligation on service providers to monitor the information that they transmit or store. Nor is there a general obligation actively to seek facts or circumstances that indicate illegal activity.(19) Although the limited liability of intermediary service providers in an online environment does not exclude injunctions or court orders requiring the termination or prevention of any infringement – including removing illegal information or disabling access to it – a service provider will be held liable only if it collaborates with one of the recipients of a service to undertake illegal acts which go well beyond acting as a conduit, caching or hosting.(20)
In McFadden the ECJ ruled that providing access to a communications network must not go beyond the boundaries of a technical, automatic and passive process for the transmission of information.(21) This ruling confirms the ECJ's earlier holding in Google France:(22) a service provider may be held liable where it plays an active role which gives it knowledge of, or control over, this data, instead of confining itself to providing that service neutrally by a mere technical and automatic processing of data provided by its customers.(23) An intermediary in an online marketplace takes an active role when it provides assistance which involves optimising how offers for sale are presented or helps to promote those offers.(24)
In Tommy Hilfiger the tenant of a marketplace had concluded rental contracts with its sub-tenants. Each contract imposed on each sub-tenant an obligation to respect the regulations to which their activities were subject. Moreover, the tenant had published a brochure stating that the sale of counterfeit products could lead to termination of the contract for the rental of the sales area. The ECJ applied the online rule to the physical marketplace, stating that the intermediary could not be required to exercise general and permanent oversight of its customers.(25) In other words, the tenant of the marketplace was not obliged to monitor or check the pitches or stalls of the individual market traders which were its sub-tenants.
On the other hand, the safe harbours cited above or intermediary immunities and exemptions do not shield intermediaries from injunctions. The safe harbour in the online market environment does not apply if the service provider is aware of illegal third-party content and has knowledge of or control over the information being transmitted or stored. Indeed, the E-commerce Directive strikes a balance between the different interests at stake. As set out before, the exemptions from liability established in the directive cover only cases where the ISP's activity is limited to the technical process of operating and giving access to a communication network of a new technical, automatic and passive nature.(26)
An intermediary's liability is excluded provided that it acts expeditiously to remove or disable access to information as soon as it becomes aware of any illegal activity. It follows from Recital 59 of the InfoSoc Directive – and the same rationale applies to the IP Enforcement Directive – that these intermediaries are "best placed to bring the infringing activities to an end". It is doubtless more effective for a rights holder to take action against an intermediary than to pursue the infringer directly – even more so in the digital environment, where individual infringers can be difficult to trace.
Regarding the nature of the measures to be taken against intermediaries, Article 8(3) of the InfoSoc Directive and Article 11 of the IP Enforcement Directive state that the measures must be fair and equitable, and must not be unnecessarily complicated or costly, or entail unreasonable time limits or unwarranted delays. They must also be effective, proportionate and dissuasive, and be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.(27)
Although there is no general obligation to monitor illegal activities, an intermediary may be forced to take measures that help to prevent new and similar infringements by the same market trader.(28) This leads to the question of what concrete measures a court can order.
Regarding the scope of the injunction and the concrete measures to be taken against intermediaries in an online context, Advocate General Szpunar's opinion in McFadden argued for a fair balance between, on the one hand, fundamental rights – in particular, freedom of expression and information and the freedom to conduct business as described in Articles 11 and 16 of the Charter of Fundamental Rights of the European Union – and, on the other hand, the rights of IP owners. The opinion referred to ECJ judgments which have held that injunctions against internet access providers(29) or hosting service providers(30) which required them to install a system for filtering all electronic communications as a preventive measure, at their own expense and for an unlimited period, should be considered disproportionate.
On the contrary, the adoption of a measure requiring an internet access provider to block a user's access to a specific website could be considered appropriate.(31) Regarding the question of whether the operator of a WiFi network that is accessible to the public free of charge could be obliged, by way of an injunction, to password protect access to its network service in order to prevent the illegal downloading of copyrighted musical works, the advocate general's opinion held that this measure is inconsistent with the need for a fair balance between the interests involved. However, the ECJ did not follow the advocate general's opinion and ruled instead that an injunction can be issued against the operator of a public WiFi network to password protect the internet connection in order to ensure that users identify themselves to obtain the required password and therefore cannot act anonymously.(32)
Thus, it is up to national courts to determine specific and accurate measures to oblige the intermediary to end the infringement or prevent future infringements, under penalties for non-compliance with the injunction. There seems to be more legal certainty regarding the scope of an injunction against an intermediary in a physical marketplace, provided that the appropriate measures are sufficiently specific to prevent future infringements. In Tommy Hilfiger this situation meant that the national court might be obliged to refuse the tenant access to the stall holder if it continued to offer counterfeit products for sale. The question of whether an intermediary may be penalised on the grounds of indirect liability by way of a claim for compensation or costs was also answered by the ECJ in McFadden. The court ruled that a copyright holder is precluded from claiming compensation or reimbursement of costs, unless the service provider allowed the infringement to continue after receiving a formal notice or court order.(33) It seems logical that the same would apply in the case of infringements in a physical marketplace.
ECJ case law makes it clear that any intermediary whose services are used by a third party to infringe an IP right can be ordered to take measures to end the infringement and prevent further infringements.(34) Although an intermediary may not be required to exercise general and permanent oversight over its customers, it may be forced to take measures to help prevent the same market trader from committing fresh infringements, subject to a recurring penalty payment.(35) Liability can be waived only if service providers, whether offline or online, prove that they have acted expeditiously on receiving information about the illegal character of the acts being committed by third parties.
Online liability remains a hot topic, especially when it comes to copyright. In the context of its Digital Single Market Strategy,(36) the European Commission is discussing the role and responsibilities of online platforms and intermediaries when it comes to tackling copyright infringing content.(37) The commission has addressed the problem of rights holders facing significant difficulties when negotiating with online service providers which store and provide access to large amounts of protected content uploaded by their users, and has suggested imposing an obligation on user-generated content platforms to work towards an agreement with rights holders and to put in place appropriate and proportionate content identification technologies.
(9) Winters v Red Bull, C-119/10, EU:C:2011:258, December 15 2011, Paragraph 35; see also Red Bull v Konings, IRDI 2013, president of the Brussels Commercial Court, September 26 2012, p203; Ing Cons, Liege Court of Appeal, April 19 2012, p415, on refilling Marquis de Bossuet and Marquis de Briant wine bottles.
(16) LSG-Gesellschaft zur Wahrnehmung von Leistungsschutzrechten, C-557/07, EU:C:2009:107, February 19 2009, Paragraph 43; Scarlett Extended, C-70/10, EU:C:2011:771, November 24 2011; UPC Telekabel Wien, Paragraph 32.
(36) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, "A digital single market strategy for Europe", COM (2015), 192 final.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.