The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Parvis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Saturday, 4 February 2017

The next round of Cartier: UK Supreme Court will hear appeal re costs of intermediary injunctions

Readers with a fancy for online IP enforcement will remember that last July the Court of Appeal of England and Wales issued its decision in Cartier and Others v BSkyB and Others [here], in which it upheld the 2014 decision of Arnold J in the High Court [here and here] that blocking injunctions are also available in trade mark cases under the general power recognised by s37(1) of the Senior Courts Act 1981 (SCA)This provision states that “[t]he High Court may by order (whether interlocutory or final) grant an injunction … in all cases in which it appears to be just and convenient to do so.”

The missed implementation of Article 11 of the Enforcement Directive

UK Government, in fact, implemented Article 8(3) of the InfoSoc Directive into UK law by inserting s97A into the CDPA, and UK courts have ever since developed a consistent and thoughtful jurisprudence on the application of this domestic provision. 

However, no express implementation of the third sentence in Article 11 of the Enforcement Directive has been provided in the UK. UK Government justified its decision not to take any action to implement this more general rule by referring to s37(1) SCA.

The result has been that, until the 2014 decision of the High Court of England and Wales in Cartier it was uncertain whether rightholders could seek injunctions against intermediaries to block access to websites where content infringing IP rights other than copyright (more specifically: trade marks) is accessible. 

The High Court decision

Arnold J provided an interpretation of s37(1) SCA both in a domestic context and in light of the third sentence of Article 11 in the Enforcement Directive, and concluded that in principle the High Court of England and Wales would have jurisdiction to grant the order requested by the applicants, ie to order major UK access provider to block access to websites selling counterfeits. 

The judge added that in any case the court’s discretion under s37(1) SCA to grant website blocking orders is not unlimited, but must be exercised consistently with the terms of the Enforcement Directive, including Articles 3 and 11, and with the terms of the E-commerce Directive, including Articles 12 to 15. 

In line with his earlier judgment in Newzbin 2 [here, ie the first copyright blocking injunction granted in the UK], Arnold J also took the view that "the rightholders should pay the costs of an unopposed application ... [and] the ISPs should generally bear the costs of implementation as part of the costs of carrying on business in this sector". However the judge did "not rule out the possibility of ordering the rightholder to pay some or all of the implementation costs in an appropriate case." [para 240]

The Court of Appeal decision ... and the issue of costs

The "entirely correct" [para 35] decision of Arnold J was confirmed in appeal. 

Kitchin LJ (delivering the judgment of the Court of Appeal of England and Wales) recognized that "the ISPs are not guilty of any wrongdoing”, nor owe a common law duty of care to take reasonable care to ensure that their services are not used by the operators of the offending websites [para 54].This said, however, Kitchin LJ observed that the operators of the infringing websites need the services of the ISPs in order to offer for sale and sell their counterfeit goods to UK consumers. It follows that "the ISPs are therefore inevitable and essential actors in those infringing activities."[para 56] 

Kitchin LJ also dismissed the ISPs' point that Arnold J allegedly failed to carry out a fair evaluation of the relative merits of alternative measures to blocking, and confirmed that that Arnold J "was entitled to require the ISPs to bear the costs of the implementation of the orders in issue." [para 150] He also approved of Arnold J's proper consideration of the economic impact of website blocking orders upon the businesses of the ISPs, and that these could either bear these costs themselves or pass them on to their subscribers in the form of higher subscription charges.

Briggs LJ
The Court of Appeal judgment contains however the dissent of Briggs LJ on the issue of costs. In particular, “the cost burden attributable to the implementation of a particular blocking order should fall upon the rightholder making the application for it. [para 198] 

According to Briggs LJ, the reason is a domestic one. It is true that both the Enforcement Directive and the InfoSoc directives provide that rightholders should have the possibility of applying for an injunction against an intermediary who either carries a third party's infringement of a protected work in a network (in copyright cases) or whose services are being used by a third party to infringe the rightholder's industrial property right (in relation to trade marks). In both cases the conditions and modalities relating to such injunctions, or the conditions and procedures relating to such injunctions should be left to the national law of the Member States. 

In the UK, however, courts have jurisdiction as per s37(1) SCA, and this in substance reflects an originally unfettered jurisdiction exercised by the Court of Chancery on equitable principles. In the case of orders against innocent third parties, the law has evolved so to ensure that a standard condition or 'modality' for the grant of an injunction is that the cost reasonably incurred by the innocent respondent should be reimbursed by the applicant. 

Accordingly, 

“[T]he reason why the courts of England and Wales have jurisdiction to make blocking orders of the relevant type is that they are indeed a natural development of the court's enforcement of the equitable duty to assist so that, in the context of trade marks, the government was right to conclude that no specific legislation for that purpose was required … [T]he courts could and probably would have developed this jurisdiction regardless of the requirement in the two Directives that it be made available as specified. It was a jurisdiction with existing well-recognised conditions or modalities, one of which was that the victim indemnify the innocent party for its cost of complying with the court's order.” [para 202]

Who pays?
The next round: the Supreme Court

Via a precious Katfriend comes the news that last week the UK Supreme Court granted BT & EE’s application for permission to appeal the Court of Appeal decision in part.

More specifically:

1.     BT & EE have been granted permission to appeal the following ground:

That the Court was wrong to hold that the Appellants as innocent parties, should be required to bear the costs of the blocking injunctions.  To the contrary, as innocent parties who are discharging an equitable duty to assist, the Appellants should be indemnified against all costs, expenses and liabilities. 

2.    BT & EE have not be granted permission to appeal the following ground, because the ground was simply “not arguable”:

That the Court adopted the wrong threshold conditions for the grant of injunctive relief against an innocent third party, and in particular was wrong to conclude:

(a)   that a blocking injunction could be granted based on a mere possibility of future access to a target website, and in the absence of proof that a real and substantial number of infringements is occurring in the UK by means of the Appellants’ services; and

(b)   that the orders were “necessary” in circumstances where the Respondents had not taken reasonable steps (or any steps) to pursue the primary wrongdoers.

Comment

It will be very interesting to see what the Supreme Court says now. 

As mentioned, according to Briggs LJ the reason why intermediaries should not bear the costs of implementing a blocking order is essentially a domestic one. In addition, as I argued more at length here [see also here], in my view also the EU framework does not provide uncontroversial guidance on the point of costs.

An unusually confused Bertie:
is there an EU rule on costs of injunctions?
The EU law framework is in fact fundamentally silent regarding who should bear the costs of injunctions against intermediaries. Even the ambiguous wording of Article 14 of the Enforcement Directive ("Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.") does not seem to relate directly to injunctions. 

Substantially the issue of injunction costs appears to be an area of the law that has been left unharmonized at the EU level. This is possibly also because, as Recital 59 of the InfoSoc Directive eloquently puts, "[t]he conditions and modalities relating to such injunctions should be left to the national law of the Member States." 

Although the majority of national legal systems envisages that intermediaries are responsible for bearing the costs of an injunction against them for third-party infringements, Member States are ultimately free to choose the solution they prefer. As such, any discussion as to whether the solution indicated by Arnold J and subsequently followed in other cases is the one to prefer is a legitimate one. 

This is particular the case after the recent decision of the Court of Justice of the European Union (CJEU) in Mc Fadden [here].

In his Opinion on 16 March 2016 [here] Advocate General (AG) Szpunar held the view that an intermediary cannot be held liable for an IP infringement committed by a user of its services and, as a result, cannot be asked to bear pre-litigation and court costs. Holding otherwise "could potentially have the same punitive effect as an order to pay damages and could in the same way hinder the development of the intermediary services in question."[para 77] The AG further noted that injunctions may be imposed on innocent intermediaries to repress third-party infringements. However, the safe harbour regime (within Article 12 of the E-commerce Directive in that specific case) "precludes the making of orders against intermediary service providers not only for the payment of damages, but also for the payment of the costs of giving formal notice or other costs relating to copyright infringements committed by third parties as a result of the information transmitted." [para 80, emphasis added] The phrase ‘other costs’ might encompass the costs of implementing an injunction, including a blocking injunction. The statement of the AG in this part of the Opinion, in fact, does not appear to distinguish between costs arisen before an injunction is granted and costs arisen after an injunction is granted, eg costs of implementation. 

The CJEU decision in Mc Fadden is more nuanced and targeted on this point than the AG Opinion, although it appears to depart substantially from it. Holding that the safe harbour protection does not preclude one from seeking an injunction against an intermediary whose services are used to infringe his IP rights, the CJEU stated that the relevant rightholder can seek reimbursement from the intermediary at which the relevant injunction is addressed “of the costs of giving formal notice and court costs” [para 79] Arguably this part of the Mc Fadden judgment closes the door to the idea that intermediaries should not bear any costs, and also raises the question whether rightholders should even bear the application costs of an injunction. 

In this sense, the CJEU decision may be at odds with relevant EU law provisions and earlier CJEU case law from which UK judges had drawn authority to hold that the application costs should be borne by rightholders.

In all this, the UK Supreme Court's judgment is keenly awaited: stay tuned! 

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