Cartier loses to ISPs in landmark UK Supreme Court decision

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The long-awaited judgment in the case of Cartier International AG and others (Respondents) v British Telecommunications Plc and another (Appellants) was handed down by the UK Supreme Court earlier this month, and BT and EE’s appeal that they should not have to bear the costs of complying with website blocking injunctions was unanimously allowed. The decision represents a landmark victory for ISPs in general.

Background

The respondents in this case are three European companies which design, manufacture and sell luxury goods including jewellery, watches and pens under renowned trademarks such as Cartier, Montblanc and IWC. The two appellants (and three other defendants who did not participate in the appeal) are the five largest ISPs serving the UK, with a combined market share of over 90 per cent.

The brand owners initially sought injunctions which required the ISPs to block or attempt to block access to: (i) specific “target websites” which third parties were using to advertise and sell counterfeit copies of the brand owners’ goods; and (ii) various other internet addresses which enabled access to the target websites.

At the outset of this dispute, the respondents had identified some 46,000 websites that offered counterfeit copies of their branded goods. Although ISPs provide networks which allow counterfeiters to sell (and consumers to buy) the infringing goods, they do not provide, store or monitor content published on their networks. ISPs have no contractual relationship with the website operators and do not, therefore, use or infringe the brand owners marks themselves.

Judgments in the High Court and the Court of Appeal

In 2014, Mr Justice Arnold in the High Court decided in favour of the brand owner claimants, and ordered the defendant ISPs to block access to specific websites that were marketing and selling counterfeit versions of the claimants’ goods. Although the granting of injunctions in the context of trade mark infringement is not specifically provided for under English law, it was found that the High Court had jurisdiction to grant blocking orders in respect of websites advertising and selling goods infringing brand owners’ trade marks on the grounds of Section 37(1) of the Senior Courts Act 1981.

In 2016, the Court of Appeal dismissed an appeal by the ISPs in its entirety and upheld Arnold J’s decision, which it found to be “entirely correct”. In particular, Kitchen LJ found that “The operators of the target websites need the services of the ISPs in order to offer for sale and sell their counterfeit goods to consumers in the United Kingdom, and the ISPs are therefore inevitable and essential actors in those infringing activities.”

The Supreme Court Decision

The ISPs’ later appeal to the Supreme Court was concerned only with which party should be required to bear the various costs of implementing such blocking orders. The Court of Appeal had previously decided that it was ISPs, rather than brand owners, which should bear such implementation costs, since the services ISPs provide are an essential part of the infringement taking place.

The Supreme Court disagreed, noting that under English law, “the ordinary principle is that unless there are good reasons for a different order an innocent intermediary is entitled to be indemnified by the rights-holder against the costs of complying with a website-blocking order.” Although ISPs benefit financially from the volume and appeal of content on the internet, including content which infringes intellectual property rights, the Supreme Court found that an assumption that ISPs should therefore contribute to the cost of enforcement assumes a degree of responsibility on the part of the intermediary which “does not correspond to any legal standard.” The Court also pointed out that blocking injunctions “are sought by rights-holders in their own commercial interest.”

The Supreme Court therefore unanimously concluded that rights-holders should indemnify ISPs against their reasonable compliance costs where the intermediaries in question are legally innocent of the infringing activity. It is worth noting however that intermediaries which are engaging in caching or hosting may not be considered “legally innocent”.

Implications for ISPs and Brand Owners

The practical outcome of this Supreme Court judgment is that, in most cases, ISPs will not have to bear the cost of blocking orders against websites which are found to infringe third-party intellectual property rights, and paying these costs will be the responsibility of rights-holders themselves.

The Supreme Court’s decision in this case is surprising, given the Court of Appeal’s finding in favour of Cartier earlier in the dispute. On the other hand, the question of who should bear the costs of implementing blocking orders has been the most controversial element of the case and it is not difficult to appreciate the ISPs’ position that such costs should not be imposed on innocent intermediaries simply because counterfeit goods are being sold online.

Naturally, the Supreme Court’s verdict will come as a great relief to ISPs in general. Although these organisations have broadly been recognised as innocent intermediaries throughout this litigation, the confirmation that ISPs should be indemnified by rights-holders against their reasonable costs of compliance with blocking orders represents a landmark victory.

Conversely, the verdict will put brand owners and retailers of genuine goods in an undesirable position, balancing the enforcement of their rights against online counterfeiters with a new obligation to bear not only the up-front costs of identifying infringing websites and applying to the Courts for blocking orders, but also the ISPs’ costs of implementing those blocking orders once obtained. However, it remains to be seen how heavy a costs burden this will in fact be – the Supreme Court noted that the costs must be “reasonable”.

In confirming that website blocking orders may be obtained for online trade mark infringements, the case, as a whole, is a step forward in the ongoing battle against counterfeit goods; perhaps just a slightly more costly one than brand owners would have liked.

Elaine O’Hare, senior associate, Stevens & Bolton
Kate Maguire, trainee, Stevens & Bolton
Image Credit: Flex