Should landlords care about their tenants' IP infringements? According to the Court of Justice of the European Union (CJEU), they should!
In a breaking judgement, the CJEU clarified this point in a trademark dispute in the Czech Republic1: The court held that the tenant of a market hall, who sublets sales areas to market-traders selling counterfeit branded goods, is an intermediary within the meaning of Art 11 of the Enforcement Directive (2004/48/EC). As a result of this decision, the Court also applied the principles developed for online marketplace operators, such as eBay,2 to "offline" marketplace operators.
Good news for IP owners
Up until now, brand owners were mostly left to pursue smaller scale sellers of counterfeit goods on an individual basis often involving considerable efforts and costs. There is no doubt that the Court’s decision will be widely appreciated by all EU brand owners. It opens new doors for IP right holders, who may be in the position to apply for injunctions against intermediaries whose services are used by IP infringers. Consequently, operators of physical marketplaces may be forced to take active measures against market-traders engaging in the sale of counterfeit products on their premises.
The CJEU provides a uniform EU-wide interpretation of the term “intermediary” (providing services used by a third party to infringe IP rights), as far as operators of public marketplaces are concerned. The case may be applicable also for various other service providers such as consignment agencies and storage space providers.
Tough times for landlords?
Lessors of sales areas, eg sales points in shopping malls, market halls, outdoor marketplaces (and even publicly operated spaces) should now realise that they may be held liable for not taking effective action against their lessees committing IP infringements. Lessors may even face preliminary injunctions or similar measures taken by the IP owners, even if they were not themselves directly involved in such IP infringements.
According to the CJEU judgement, such injunctions should be effective and dissuasive, but also equitable and proportionate. While landlords cannot be required to exercise general and permanent oversight over their lessees (tenants), they can be forced by judicial injunctions to take measures to avoid future (similar) or new infringements by the respective lessees that previously committed infringements.
The judgement is a warning for all landlords operating in the EU, who should now evaluate their renting policies and contractual arrangements. Also from a compliance perspective they in particular should ensure that they have:
- effective risk-mitigating measures in place to minimise and/or avoid the sale of counterfeit goods in their leased premises and to sanction such conduct, if proven (eg review and amendment of the respective contractual provisions, distribution of warnings and notices to create awareness among lessees etc); and
- internal procedures in place to quickly react and take appropriate measures in case they gain knowledge of IP-infringements being committed by their lessees (comparable to the "notice and take down" procedures adopted for online sales platforms).
Background of the case
Delta Center is the tenant of the marketplace named “Pražská tržnice” (Prague Market Halls), situated in the heart of Prague. Delta Center sublets sales areas and stalls to market-traders who, on many occasions, have been found to be selling counterfeit brand products. Various trademark owners have jointly taken action against Delta Center before the Czech courts, with the aim to force Delta Center to take active measures preventing further sale of counterfeit products by sellers who have already been convicted in court, or have been through administrative proceedings for such conduct.
The defendant in the proceedings, Delta Center a.s., rents Prague Market Halls from the City of Prague, who is the owner of the premises. From a local perspective, the case is all the more interesting, since at the very beginning of the dispute between the brand owners and Delta Center it also became known that Delta Center owes the City of Prague enormous amounts on rent. The whole case became public and many have been questioning the legal position of the City of Prague, effectively also profiting from the sale of counterfeit products.