Case Summary and Outcome

The European Court of Justice (hereinafter, “ECJ”) ruled that a copyright-holder might be capable of obtaining an injunction against an intermediary service provider to prevent an infringement by the transmission of information from a third party but that it was not entitled to claim compensation from the service provider as a result of the infringement. Sony Music claimed compensation for breach of copyright against Mr. McFadden, a German retailer, who had offered a free and unsecure WiFi service to the general public which was used to download a musical work owned by the music company. The Court had to balance the fundamental rights of a copyright-holder to intellectual property protection, the right of a service provider to conduct the business of supplying access to a communication network and the right to freedom of information of the recipients of that service. It reasoned that the retailer was a “mere conduit” under the relevant E-Commerce Directive and exempt from liability for infringement of copyright having satisfied the necessary conditions but, balancing the competing rights, it said that Sony might be capable of obtaining an injunction to prevent the relevant copyright infringement from taking place and to force Mr. McFadden to password protect his service so that information about users committing infringements could be obtained. Notably, the Court also confirmed that there is no general obligation on network access providers to monitor information that is transmitted over the network, in other words, in this case it was not McFadden’s responsibility to check to make sure whether users were using the service for illicit means.

Facts

Mr. McFadden, a German retailer offered a free and unsecure WiFi service to the general public. One of the reasons for offering this service was to try to attract potential customers to his lighting and sound system store. Back in 2010, a musical work owned by Sony Music was made available over his network for download in breach of Sony’s copyright.

On October 29, 2010, the producer sent a cease and desist letter to Mr. McFadden asking him to stop the copyright infringement in question. Mr. McFadden filed a lawsuit seeking an order to obtain a negative declaration (negative Feststellungsklage), which would confirm that he was not liable. In reply, Sony Music counterclaimed for i) payment of damages on the ground of Mr. McFadden’s direct liability for the infringement of its rights over the phonogram, 2) an injunction against the infringement of its rights on pain of a penalty, and 3) reimbursement of the costs of giving formal notice and court costs. On January 16, 2014, the German Court upheld the claims of Sony Music.

Mr. McFadden appealed the decision claiming that, according to Article 12(1) of the Directive 2000/31 (hereinafter, “e-Commerce Directive”), he qualified as a provider of an “information society service”, that is a “mere conduit” and was not liable for the information transmitted by a third party. In the appeal, Sony Music argued that the court should uphold the judgment at first instance, alternatively should not hold Mr Mc Fadden directly liable but order him to pay damages on the basis of the indirect liability of wireless local area network operators for not having taken measures to protect his wireless local area network and for having thereby allowed third parties to infringe Sony Music’s rights.

In order to solve such conflicting positions, the German Court referred preliminary questions to the ECJ to advise on whether the exemption of liability for access providers, enshrined in Article 12(1) of the e-Commerce Directive and transposed into German law in Article 8(1) of the Law on electronic media, applied in Mr. McFadden’s case.

Decision Overview

First of all, the ECJ specified that making available to the general public a free-of-charge Wi-Fi connection in order to attract potential customers is an “information society service” as provided for by Article 2(a) of the e-Commerce Directive.

Secondly, the Court differentiated the liability exemptions that apply to different types of intermediary service providers pointing out that Articles 12(1), 13(1) and 14(1) of the e-Commerce Directive establish different conditions for exemption depending on the activity of the provider. The ECJ identified Mr. McFadden’s activity as a “mere conduit” and set out the three cumulative conditions which must be satisfied for such a provider to escape liability for information that is transmitted by a third party: (i) the provider of the service must not have initiated the illicit transmission; (ii) it must not have selected the recipient of the illicit transmission; and (iii) it must neither have selected nor modified the information contained in the illicit transmission. On this basis, Mr. McFadden was exempt from liability and, as a result, Sony Music was not entitled to claim compensation and reimbursement of legal expenses. However, regarding the injunction, the Court said that the e-Commerce Directive does not preclude the right-holder from asking the competent national authority to order the service provider to prevent the relevant infringement from taking place.

Therefore the issue was to find a deterrent measure which ensured the balance among the fundamental rights at stake. The Court said that the measure must be strictly targeted, in the sense that it must bring an end to a third party’s infringement of copyright but without affecting the possibility of internet users lawfully accessing information using the provider’s services. Failing that, the provider’s interference in the freedom of information of those users would be unjustified in the light of the objective pursued. In this regard, an injunction which obliges the provider in question to introduce a password for its customer can ensure a balance between, on one hand, the intellectual property rights enshrined in Article 17(2) of the Charter of Fundamental Rights of the European Union and, on the other hand, the freedom to conduct a business of access providers and the freedom of information of the network users, as respectively provided for by Articles 16 and 11 of the same Charter.