Australia: Trade mark owners hit back: Court orders ISPs to block sites selling counterfeit luxury goods

Last Updated: 27 July 2016
Article by Mary Still

Most Read Contributor in Australia, August 2016

Rights-holders should explore site-blocking injunctions as a way to stifle the online trade in counterfeit goods.

The explosion in online piracy might have first affected copyright-holders, but the use of the internet to sell counterfeit goods is a serious problem for trade mark owners. Some trade mark owners have found a way to interrupt the trade, with the UK Court of Appeal upholding the decision of the High Court of Justice to grant Cartier, Montblanc and Richemont an injunction which required a number of ISPs to block access to websites selling goods displaying counterfeit trade marks (Cartier International and Others vs BSkyB and others [2016] EWCA Civ 658).

Trade mark owners try to shut online doors of counterfeiters

Cartier and Montblanc are part of the Richemont group of companies, each producing and selling luxury good under well known trade marks. They suffer (and both the High Court and the Court of Appeal recognised this) significant losses each year from the international trade in counterfeit goods, much of it online. So they tried to throttle the trade by stopping the customers and infringers from making contact online.

At first instance, the High Court held that it had jurisdiction to grant website-blocking injunctions against ISPs in cases involving trade mark infringement. It also held that it was proportionate to make such an order in the circumstances, as the relief was justified and would strike a fair balance between Cartier's trade mark rights, the ISPs' right to freedom to carry on business, and internet users' rights to freedom to receive information. It also ordered the ISPs to bear the cost of implementing the blocking orders.

The ISPs appealed. They put to the Court of Appeal that they were entirely innocent of any wrongdoing, and did not owe Richemont (or indeed any of the other respondents) a duty to prevent trade mark infringements committed by third parties including those who operate websites offering counterfeit goods for sale. Furthermore, they argued, the court did not have power to grant an injunction against a party without a substantive cause of action against it.

Lord Justice Kitchin, with whom Lord Justice Jackson agreed, recognised that the ISPs are not guilty of any wrongdoing. They had not infringed the respondents' trade marks, nor had they engaged in a common design with the operators of the websites offering the counterfeit goods for sale. The ISPs also did not owe a common law duty of care to Richemont to take reasonable care to ensure that their services were not used by the operators of the offending websites. Nonetheless, they did not allow the appeal. Why not?

Why the injunction against the ISPs was granted

The Court asked itself these questions:

Are the ISPs intermediaries? This was conceded.

Are the operators of the target websites infringing trade marks owned by the respondents? Yes. Richemont adduced evidence as to the content of the websites and carried out a trap purchase from each site.

Do the operators of the target websites use the ISP's services to infringe? Yes. The services of the ISPs allowed consumers in the UK to access the target websites, the advertisements and offerings were communicated to consumers in the UK using the services of the ISP and the agreements to sell the goods were made in the UK using the services of the ISPs.

The court rejected the contention that the infringing activities of the websites' operators were complete once they had uploaded the offending materials to the website hosts and found rather that the infringing activities continued for as long as the websites remained active. It was not significant that there was no contractual relationship between the ISPs and the operators of the websites or that the ISPs did not exercise any control over the services which the consumer used. Rather, as Lord Justice Kitchin said, "The ISPs were essential actors in all of the communications between the consumers and the operators of the target websites."

Do the ISPs have knowledge of the infringing activity? There was no dispute that if the operators of the target websites used the services of the ISPs to infringe, then the ISPs had knowledge. However, it was alleged that there was no evidence that the services of the ISPs were actually used to transmit offers of advertisements to customers.

The court rejected this and found that the appellant ISPs have a market share of 95% of the users of broadband in the UK, so even if they had not yet been accessed by consumers in the UK using the services of each of the ISPs, there was a real risk they would be in the future.

The court then turned to look at the principles to be applied:

  • The injunction must be necessary. Lord Justice Kitchin agreed with the court below; in considering whether the orders are proportionate the court must also consider whether alternative measures are available which are less onerous.
  • The remedy must be effective, although the rights holder does not have to show that blocking access to the target website is likely to reduce the overall level of infringement.
  • Would the injunction be dissuasive?
  • Would the cost of implementation be unnecessarily costly or difficult?
  • There is a necessity of avoiding barriers to legitimate trade.
  • The remedy must be fair and equitable.
  • The remedy must be proportionate and balance the rights holder's IP rights, the ISPs' freedom to conduct business, and the freedom of information of internet users.

The judge identified the following considerations as being of particular importance:

  • the comparative importance of the rights that were engaged and the justification for interfering with those rights;
  • the availability of alternative measures which would be less onerous;
  • the efficacy of the measures which are required to be undertaken by the ISP and whether they would dissuade the ISPs' subscribers from accessing the target websites;
  • costs associated with the proposed measures particularly the costs of implementation;
  • dissuasiveness of those measures;
  • impact of the measures on lawful users; and
  • the substitutability of other websites for the target websites.

Could Cartier's claim succeed in Australia?

There is no specific statutory provision in the Trade Marks Act 1995 containing a power permitting injunctions against ISPs requiring them to block access to named websites selling and offering for sales goods that infringe a registered trade mark. In comparison however, section 115A of the Copyright Act 1968 does contain such a power. Many of the matters that the court is required to take into account by section 115A(5) are those matters considered by the Court of Appeal in Cartier.

Nevertheless, Rule 1.32 of the Federal Court Rules 2011 provides that the Federal Court can make any order that the Court considers to be appropriate in the interests of justice.

Brand owners could therefore seek to invoke the powers of the Federal Court to grant injunctions against ISPs to block access to websites habitually selling goods which breach trade mark owners' rights. In any such application rights holders would be wise to make trap purchasers and prepare evidence which addresses the areas discussed in the Cartier decisions and the material referred to in section 115A(5) of the Copyright Act.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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