The Supreme Court held that trade mark owners who obtain a website-blocking injunction must normally indemnify an internet service provider for the reasonable extra cost of carrying it out. The providers do not themselves infringe the marks. English law treats them as innocent intermediaries, so the cost of protecting the marks is ordinarily a cost of the rights-holders’ business rather than of the providers’ networks.
The blocking orders
The respondents were three companies in the Richemont Group. They design, manufacture and sell luxury goods under trade marks including Cartier, Montblanc and IWC. At the start of the litigation they had identified some 46,000 websites offering infringing copies. The internet allowed counterfeiters to reach a worldwide market, complete sales and remain largely anonymous.
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The appellant service providers transmitted data between their customers and websites. They did not host the infringing offers, select the content or contract with the counterfeiters. Their networks could nevertheless be used to block access.
In 2014 Arnold J ordered the providers to block, or attempt to block, specified target websites, their domains and sub-domains, and other locations notified to them whose purpose was to give access to a target website. Blocking orders were already familiar in copyright cases under section 97A of the Copyright, Designs and Patents Act 1988. This was the first granted to protect a trade mark, for which there is no equivalent provision. The courts below held that section 37(1) of the Senior Courts Act 1981 gave jurisdiction, and the Court of Appeal agreed. Jurisdiction was no longer in issue. The appeal concerned only costs.
Which costs were disputed
Implementation costs fall broadly under five heads: buying and upgrading hardware and software; managing the blocking system, including customer service and network management; the marginal cost of processing an application and configuring the block initially; updating the block when rights-holders report that a website has moved; and costs or liabilities if blocking malfunctions through no fault of the provider, such as an error in a notification or a malicious attack. The providers accepted the first two heads, most or all of which would have been incurred anyway, for example to block child abuse images or provide parental controls. The issue was whether the rights-holders should indemnify them for the other three.
Since Arnold J’s decision in Twentieth Century Fox Film Corpn v British Telecommunications plc (No 2), rights-holders had paid their own costs of unopposed applications, while providers bore implementation costs. He justified that by commercial fairness, because a provider profits from the service infringers use, and by what he regarded as the implication of the EU Directives. He followed that practice here. Jackson and Kitchin LJJ upheld him; Briggs LJ dissented. Although the terms of an injunction are discretionary, the practice had been adopted as a principle and applied routinely. Lord Sumption, with whom Lord Mance, Lord Kerr, Lord Reed and Lord Hodge agreed, therefore examined whether it was sound.
The English principle
English courts have long been able to order someone to help a person whose rights a wrongdoer has invaded. In Norwich Pharmacal, the House of Lords held that a person who through no fault of his own becomes mixed up in others’ torts so as to facilitate them may have no personal liability, but may be required to assist the person wronged. Possession of information is not enough: the intermediary must have facilitated the wrong, even innocently. Once notified, the basis for intervention is that he should stop placing his facilities at the wrongdoer’s disposal. The power is equitable and is not confined to disclosure or to cases where proceedings against the wrongdoer are expected. Lord Sumption agreed with Briggs LJ that a website-blocking order could have been made on ordinary equitable principles, apart from European law.
Absent exceptional circumstances, the ordinary practice is that an intermediary recovers the costs of compliance. The same approach applies to banks helping to trace the proceeds of fraud, to freezing orders, and to other innocent third parties, such as a port authority ordered to detain a vessel. In Miller Brewing, Neuberger J applied it to a dock authority ordered to deliver up goods bearing an infringing mark. Between two innocent parties, it is more unjust for the third party to be left out of pocket than for the claimant, who is using the court to obtain a benefit, to pay.
EU law leaves the costs to national law
The E-Commerce, Information Society and Enforcement Directives limit national liability for certain passive internet operations and require member states to make injunctions available against intermediaries whose services a third party uses to infringe intellectual property rights. A mere conduit, which is the providers’ role, does not choose or alter what is transmitted. Its immunity is not conditional on active steps other than compliance with court orders. Caching and hosting involve more participation, and their immunities may depend on removing or disabling access to illegal material. Those conditions affect immunity; they are not free-standing duties, and liability still depends on national law.
None of the Directives says who should bear compliance costs as between a rights-holder and an information society service. That is for national law, within the EU requirements that remedies be effective, equivalent to national remedies, fair, proportionate and not unnecessarily costly. Recitals leave the conditions and procedures for these injunctions to national law, so different national solutions may be consistent with EU law.
Kitchin LJ considered that a national court could properly order the intermediary to pay, and that those costs were the price of the safe-harbour immunities and the ban on general monitoring. Jackson LJ agreed. Lord Sumption disagreed. The Directives do not deal with these costs, so no such inference arises. The immunities exist because differing national liability rules can distort the single market and because intermediaries have little or no control over content. Decisions of the Court of Justice showed that costs borne by an intermediary must not be excessive; they did not require every member state to impose them. An Austrian practice of doing so did not dictate the English rule.
Why the rights-holders must pay
The ordinary English principle is therefore that, unless there is good reason for a different order, an innocent intermediary is entitled to be indemnified against the costs of complying with a website-blocking order. English costs practice follows the legal distribution of risk. These providers were legally innocent. Even without the safe harbour, a mere conduit would not be liable for trade mark infringement, and national law could not impose liability consistently with the Directive. It cannot know what use third parties make of the network and, once told, has no proactive duty of the kind associated with caching or hosting. Its only duty is to obey the court. There is no legal basis for making someone remedy an injustice when he is not legally responsible and is acting under compulsion rather than as a volunteer.
Lord Sumption rejected the suggestion that providers should pay because internet content contributes to their business. These injunctions enabled the rights-holders to protect their marks against wrongdoing for which the providers were not responsible.
The indemnity is confined to reasonable compliance costs and must remain within EU limits. The evidence was that the cost of any one order is modest. It was not said to be excessive, disproportionate, or such as to impair the respondents’ practical ability to enforce their marks, and no other discretionary reason for refusing the indemnity was proposed.
The Court confined its reasoning to innocent intermediaries in the providers’ position. Caching and hosting can raise different questions because the intermediary may have a closer role in the activity.
Providers rarely oppose blocking orders, although they want an order to protect themselves against regulatory restrictions and third-party complaints. If they do not resist, they should normally receive their costs of the action. Arnold J ordered these providers to pay the litigation costs because they had made the case a test of jurisdiction and had strenuously resisted. He was entitled to exercise that discretion, and the Supreme Court did not interfere with it.
Verdict: The Court unanimously allowed the appeal on implementation costs. The trade mark owners had to indemnify the providers for the reasonable disputed costs of carrying out the blocks. The separate order requiring the providers to pay the costs of contesting the litigation stood.
Source: Cartier International AG and others v British Telecommunications Plc and another [2018] UKSC 28
