At the beginning of July 2016, the European Court of Justice delivered quite an interesting judgment concerning the liability of marketplace operators for IP rights violations by entities/persons trading in a marketplace. However, the operators of shopping centres and department stores should also be aware of this decision, since it will facilitate the protection of right owners against the sale of counterfeit goods.

The story is as follows: for many years, DELTA CENTER has been the tenant and operator of the Prague Market Hall in Holešovice, which it had leased from the Capital City of Prague. DELTA CENTER then concluded sublease contracts with individual traders for stalls and areas where the stalls could be situated. Some traders, however, abused their stalls to sell fake products.

A group of entrepreneurs producing and distributing goods protected by trademarks found out that counterfeits of their products were sold in the Prague Market Hall, and took proceedings before the Czech courts under the Act on the Enforcement of Industrial Property Rights (which is the implementation of the IP Enforcement Directive). According to that Act, one may claim that the obligation to refrain from wrongful conduct and to eliminate the consequences of such conduct be imposed not only on the infringer of industrial property rights, but also on each person whose means and services are used by third parties to infringe these rights.

The entrepreneurs concerned proposed, inter alia, that certain obligations be imposed on DELTA CENTER concerning the possibility of concluding, extending or terminating sublease contracts with the infringers of intellectual or industrial property rights. The case was finally heard by the Czech Supreme Court, which sent a preliminary question to the European Court of Justice, since the correct assessment of the case required the interpretation of the above EU Directive.

The European Court of Justice followed the view of the right owners, and stated that an entity that provides a third party with services consisting in renting a market area, as a result of which such third parties have access to the marketplace and may offer there fakes of goods protected by trademarks, must be classified as “an intermediary whose services are used by third parties for infringement of industrial property rights” within the meaning of the Directive. Furthermore, the European Court of Justice stated that it is irrelevant whether the providing of points of sale relates to online points of sale or real places, such as a marketplace. Neither the Directive (nor the law) indicates that this provision should apply to electronic commerce only. This allowed the European Court of Justice to follow up on its earlier ruling in the case of L’Oréal, in which it also defined the basic nature of injunctions. The European Court of Justice is of the opinion that the injunctions should be fair and reasonable – they must not be excessively costly or impede lawful trading. It is not possible to require the intermediary to perform a general and systematic supervision over its customers (market traders, in this case) either. The intermediary, i.e. the operator of a trading point, may be forced by public authorities to adopt measures that will contribute to preventing future infringements of industrial property rights by third parties/tenants.

Although we still have to await the outcome of the dispute with the tenant of the Prague Market Hall, we can consider the decision of the European Court of Justice to be ground-breaking. It clearly declares that the right holders can seek rectifying measures from marketplaces operators. Thus marketplace operators must pay much greater attention to persons with whom they conclude or extend lease or sublease contracts.

However, not only the operators of marketplaces and online shops should be attentive. The interpretation adopted by the European Court of Justice indicates that the Court is very likely to apply the provisions of the Directive, and thereby the Act, to any operator of a trading point –supposedly also to physical stores that lease retail space to other entities for commercial purposes. It has often happened in the past that fakes were also detected in physical retail stores. Even operators of shopping centres are thus advised to conduct a thorough review of their leases, and to set procedures regarding relationships with vendors convicted of selling counterfeits.