The importance of trade marks to luxury brands has always been a happy coincidence for this IP Whiteboard blogger, so when Justice Arnold handed down his latest decision in relation to counterfeit goods in the UK High Court, I (momentarily) ceased flicking through the latest issue of Vogue and switched over to Bailii (the UK’s case law database, and equally as stylish as Vogue) to see what had happened.

The claimants (Cartier, Montblanc and Richemont International) sought orders requiring five major UK ISPs (British Sky Broadcasting, British Telecom, EE, TalkTalk Telecom and Virgin, who together hold 95% of the UK retail broadband market) to block or impede access to six websites which advertised and sold counterfeit goods, on the basis of trade mark infringement. The ISPs were ordered block the websites on the basis of their IP addresses, but in circumstances where an unlawful website shared an IP address with a legitimate website, the ISP were only required to engage in ‘DNS blocking’ (blocking on the basis of specific domain names).

The case is significant because Justice Arnold held that the court’s power to grant ‘blocking injunctions’ could extend to websites engaged in trade mark infringement, even though the court did not have a specific statutory power to do so. Effectively, Justice Arnold found that the court’s general power to order injunctions extended to circumstances in which a third party became aware that its services were being used to infringe an intellectual property right.

Counterfeiting is increasingly big business, much to the distress of luxury brands who rely on the exclusivity of their goods to increase demand. In his judgement, Justice Arnold cited a 2011 report which estimated that the value of internally traded counterfeit and pirated goods would increase to US$960 billion by 2015. In this case, each website in issue incorporated the brand name into its domain name (e.g. www.cartierloveonline.com) and while some of the websites made it very clear the goods offered were replicas, others were less clear. Each targeted consumers in the UK (e.g. by offering prices in sterling currency) and each site used the claimant’s trade marks in various respects (e.g. on various sections of the website, on packaging and branding, etc).

Did the court have jurisdiction to grant an injunction?

Website blocking injunctions for copyright infringement are now familiar in the UK under s 97A of the UK’s Copyright Designs and Patents Act 1988. Under that provision, the court can grant an injunction against a service provider, where the service provider has actual knowledge that another person is using the service to infringe copyright.   Justice Arnold is certainly no stranger to making website blocking orders, having ordered the vast majority of injunctions pursuant to s 97A.

However, there is no such express statutory power to grant a blocking injunction on the basis of trade mark infringement –so the claimants had to rely on the court’s general power to issue injunctions. Counsel for the ISPs submitted that this general jurisdiction to grant an injunction was limited to two situations –where one party to an action could show that the other party had invaded or threatened to invade a legal or equitable right of the former, or where one party to an action had behaved or threatened to behave in a manner which is unconscionable. Because the ISPs were only providing access to a service, and were not infringing the trade marks themselves, the ISPs argued there was no basis on which to force them to block the infringing websites.

However, Justice Arnold found that the High Court’s power to order injunctions in ‘all cases in which it appears to be just and convenient to do so’[1] should not be so narrowly interpreted. He suggested that ISPs were under an equitable protective duty not to aid intellectual property infringement, and that once an ISP became aware that its services were being used by third parties to infringe an IP right, it became subject to a duty to take proportionate measures to prevent or reduce such infringements (despite the fact it would not be liable for infringement itself). He held the power of the court to issue injunctions against ISPs in respect of trade mark infringement could and should be interpreted in light of an EU Directive, which obliged Member States to ensure that rights holders were in a position to apply for an injunction against intermediaries, whose services were used by a third party to infringe ‘an intellectual property right’.[2]

Were the orders sought proportional?

The main issue in the case was whether issuing an injunction to block the websites would be proportionate. In making this assessment, Justice Arnold considered many of the same relevant factors as his Honour had previously considered in the s 97A website blocking cases, including whether there were alternative, less onerous measures available to the rights holders to counter the infringement, the efficacy of an injunction, whether an injunction was likely to have a dissuasive effect, the difficultly and costs of compliance with an injunction for the ISPs, and whether safeguards against abuse of the orders could be included.

Ultimately, Justice Arnold found that the orders sought struck a fair balance between all of the respective rights that were engaged, and that he was not persuaded that there were equally effective but less onerous options available. This was primarily on the basis that although website operators could switch IP addresses, blocking technologies could allow for automatic and efficient updating of those addresses.

His Honour found that the costs of implementing a blocking injunction were not so high as to make the orders disproportionate. This was because the ISPs were already blocking websites to facilitate parental control technology, as well as to comply with Internet Watch Foundation guidelines (which aim to prevent images of sexual abuse being published online). The ISPs were also already required to block websites on the basis of copyright infringement. The costs faced by the ISPs were described as ‘part of the costs of carrying on business in the sector’. Justice Arnold observed that ISPs had the option to pass on any such increase in costs to consumers.

However, in respect of the costs of the application for the injunction itself, Justice Arnold found that it was appropriate for the rights holders to bear the costs of the application and monitoring implementation of the injunction, while ISPs had to bear the costs of implementing the injunction, and any updates notified by the rights holders.

The ISPs raised concerns that that the ‘flood-gates’ would be opened –there were potentially hundreds of thousands of infringing websites that rights holders could apply to block. This would substantially increase all of the costs that the ISPs were required to bear. Justice Arnold considered this argument, but did not give it much weight, as he considered it probable that rights holders would concentrate resources on seeking relief in respect of the more egregious infringers. He also acknowledged the freedom of internet users to receive information but held this did plainly not extend to a right to engage in trade mark infringement, particularly where it involved counterfeit goods.

In relation to the form of the website blocking orders that were granted, safeguards were built into the orders in order to mitigate the risk that lawful websites would be affected. For example, the orders permitted the ISPs to apply to the court to discharge or vary the orders in the event of any material change in circumstances, including changes in costs, consequences for the parties or effectiveness of the blocking orders. The orders also permitted operators of the targeted websites, or subscribers of the ISPs, to apply to the court to discharge or vary the orders. The page displayed to users attempting to access blocked websites was required to state that the site had been blocked by court order, to identify the parties which obtained the order and to inform users about their right to vary or discharge the order. Finally, a ‘sunset clause’ was incorporated into the orders – in order to review the practical operation of the injunctions, the orders will cease to have effect at the end of a defined period (provisionally, two years).

Impact of the decision

Justice Arnold observed that the case was a test case, which if successful, would be likely to be followed by trade mark owners, both in the UK and in other countries. Significantly, the injunctions granted by Justice Arnold were not based on any finding of liability of the ISP at all. It is unclear whether the Australian courts would similarly consider that the general power to issue injunctions extends to such circumstances.

In Australia, the Government recently released a Discussion Paper in relation to Online Copyright Infringement (see our alert on this discussion paper here). As one of several proposals, the Discussion Paper explored an option to introduce legislation to permit rights holders to apply for injunctions similar to the ones granted in the UK was explored.

Under the proposal, ISPs would be forced to block access to a particular website, without the need for the rights holder to establish first that the ISP had authorised infringement. The proposal was limited to blocking websites operating out of Australia, as the discussion paper noted that rights holders would not be prevented from taking direct action against website operators (and not ISPs) for websites operating within Australia. Rights holders would have to establish that the ‘dominant purpose’ of the website was to infringe copyright, and, in contrast to the UK, rights holders would be required to meet any reasonable costs associated with an ISP giving effect to an order, and to indemnify the ISP against damages claimed by a third party.

In considering the Government’s proposal, it is certainly interesting to consider the factors that Justice Arnold took into account in reaching his Honour’s decision, as well as the technical details in deciding upon the appropriate form of order.

There have been some recent media reports that legislation will be before Cabinet before Christmas –what a treat for all IP lawyers!