Case Summary and Outcome

In June 2018, the Supreme Court upheld an earlier decision by the High Court to grant an injunction ordering five major UK Internet service providers (ISPs) to block access to certain target websites that sold counterfeit versions of the respondents’ goods. Crucially, however it allowed the appeal in relation to compliance costs shouldered by ISPs, stipulating that the intermediaries should not be financially liable for processing and implementing court orders. The respondents (three companies selling branded luxury goods including those by Cartier and Montblanc) originally brought the case against the appellants to block access to websites advertising and selling counterfeit goods, which clearly infringed their copyright. The Court considered the legal basis on which website-blocking injunctions are made, based both domestic and EU law. It held that compliance costs associated with website-blocking injunctions (granted against websites that infringe trademarks) should be borne by the infringer, and that the relevant appellant ISPs should be compensated as they are “legally innocent” as “mere conduits” of illegal conduct and have no valid legal responsibility to shoulder the financial burden of their court-ordered compliance.

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Facts

The respondents in this case were three companies that sold luxury branded goods under popular trademarks such as Cartier, IWC and Montblanc. They initially brought proceedings against the appellants, which were the five largest Internet service providers (ISPs) in the United Kingdom with a combined market share of over 90 per cent.

On 17 October and 26 November 2014, the respondents successfully obtained injunctions from the High Court; Justice Arnold ordering the appellants to block access to certain target websites, their domains and sub-domains, and any other IP addresses or URLs that were selling counterfeit copies of their luxury goods online (totaling an estimated 46,000 websites at the beginning of litigation proceedings). Although these ISPs were not in a position to provide, store or even monitor any of this illegal content, their provision of services were a “critical means” by which these illicit businesses could sell such goods and otherwise reach their customers (para. 3). There was no dispute that these websites were liable for infringement of copyright – rather, the main issues before the High Court were whether the Court had jurisdiction to adjudicate this dispute and whether the injunctions could be granted. Justice Arnold based his decision on two key principles – the effectiveness of the site-blocking measure, and proportionality, based on the EU Directive and section 97A of the Copyright, Designs and Patents Act 1988 (UK).

After the injunction was granted by the High Court– and became the first website-blocking injunction in the UK to protect a trademark – the Court of Appeal upheld the decision. Crucially, the Court of Appeal stated that it was not necessary for the rights holders to prove that blocking the websites would reduce the level of trademark infringement, but only that the injunction would prevent individuals from accessing the target websites.

The appellants then appealed to the Supreme Court on the issue of costs, arguing that they should not bear the costs of implementing such an injunction and, rather, that the respondents should indemnify them for costs relating to their implementation of the website-blocking orders.

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Decision Overview

Lord Sumption (with Lords Mance, Kerr, Reed and Hodge agreeing) delivered the judgment for the Court on 13 June 2018. The main issue before the Court was whether the appellants should have to pay the costs of implementing the website-blocking orders – an accepted practice for ISPs which had been based in both domestic and EU law.

The appellants were not concerned with the first two costs (which related to the acquiring, upgrading and managing of the hardware and software system required to block the target sites, and related network and systems management) as they would have still otherwise incurred such costs in their other website-blocking duties, such as while blocking access to child abuse images. However, the appellants brought the case before the Supreme Court to determine whether respondents should have been required as a term of the injunctions to indemnify the appellants for the remaining three heads of costs, which pertained to:

• the cost of initial implementation of the injunction (i.e. configuring the ISP’s blocking systems to reflect the orders);
• the cost of updating and reconfiguring the blocking system throughout the duration of the orders to accommodate any new notifications from the respondents as to any more target websites that required blocking; and
• the costs and liabilities potentially incurred by the appellants if the site-blocking malfunctions through no fault of the ISP (i.e. overblocking caused by notification errors).

Since the UK case of Twentieth Century Fox Film Corporation v British Telecommunications Plc [2011] EWHC 2714 (26/10/2011), the holders of intellectual property rights tend to bear the costs of obtaining website-blocking orders, but that ISPs must bear the costs of implementing the orders, based on principles of commercial equity and that relevant EU Directives required member states to make website-blocking injunctions available. As such, the appeal considered the legal basis on which website-blocking injunctions are made, based on both domestic and EU law.

Domestic law

 The Court first considered the long-held jurisdiction of the English courts to order parties (even if innocent) to financially assist those whose intellectual property rights have been infringed. Drawing heavily from the precedent of the House of Lords in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133 (26/6/1973) , the Court noted that, although a party may not themselves be in any way guilty of infringing an intellectual property right, they may still have control over the goods and “unwittingly involved” in the infringement by innocently facilitating it (para. 9). Lord Sumption suggested that it was not necessarily a legal duty to order a party to right a wrong they unwittingly facilitated, but rather, was based in equity to “satisfy some right existing in the plaintiff” (para. 11). As such, citing the House of Lords decision in Regina v Ashworth Hospital Authority [2005] UKHL 58 (13/10/2005) (which brought greater clarity to Norwich Pharmacal), the Court stipulated that orders as to costs will depend on the facts of each case, and “in a normal case the applicant should be ordered to pay the costs of the party making the disclosure including the costs of making the disclosure” (para. 10).

The EU Directives

Turning to the series of EU Directives, which attempt to harmonize the intellectual property laws of EU member states, the Court focussed in particular on Parliament and Council Directives 2000/31/EC (the E-commerce Directive), 2001/29/EC (the Information Society Directive) and 2004/48/EC (the Enforcement Directive). These were important for the Court to analyse as the High Court had ordered the appellants to pay implementation costs because the E-commerce Directive required ISPs to co-operate in removing access to illegal material and to comply (at least generally) with judicial intervention to stop any such illicit activity. This Directive had also been transposed into UK domestic law.

The Court first focussed on paras. 40-43 of the E-commerce Directive, which held that ISPs can be exempt from liability when they are “mere conduits” and are “no way involved with the information transmitted”, and their activity is limited only to a “technical process” that implies they have “neither knowledge of nor control over the information which is transmitted or stored” (para. 18). The Court also noted that Articles 12-14 of the Directive required EU member states to confer a conditional immunity from liability on ISPs under their national laws for certain designated operations, such as the mere provision of a communications network and caching, as they are “passive, technical services involving no editorial function … [and are] unlikely to know and have no duty to discover the content of what is transmitted” (para. 21). However a function like hosting, for example, where there is a minimal editorial function, would not be exempt from liability as it has a “direct relationship” with the content provider and holds that content for distribution. The ramifications of breaching the conditions of that immunity– such as refusing to quickly remove or disable access to illegal content as soon as they are aware of it – depends on the provisions of each EU member states law, as stated in both the Information Society Directive and the Enforcement Directive.

Compliance costs

The Court noted that, because there was only limited reference in the EU Directives to costs associated with enforcement and, given national courts generally apply EU law to the issues before them in accordance with their own unique procedural rules, the question of costs is clearly a matter for domestic law. Lord Sumption reasoned that this draws from the principles of effectiveness and equivalence, which require that remedies for intellectual property infringement in national law are a) sufficient enough to ensure the effectiveness of applicable EU law and b) equivalent to those in EU law. Further, the Enforcement Directive stated that any remedies should be “fair and equitable and shall not be unnecessarily complicated or costly”, and must be “effective” and “proportionate” (para. 28) – and this should also be mirrored in domestic law.

The Court then analysed and respectfully disagreed with the Court of Appeal’s reasoning in the case’s second instance decision, which had essentially held that an ISP paying for compliance costs is a fair quid pro quo for the immunities they enjoy under the relevant EU Directives (para. 29). Importantly, the Court found that the Directives do not address compliance costs when an injunction is ordered against an intermediary such as an ISP, and as such, one cannot assume as a general principle that they should bear the costs of complying with any such orders. Rather, the “true rationale” for immunities against liability is that ISPs have “little or no control over content”, and that an ISP cannot be liable for infringing a trademark as a “mere conduit” when their operations are limited to the mere provision of a communications network (para. 30).

Legal innocence

Crucially, Lord Sumption reasoned that, as a matter of ordinary domestic law based on Norwich Pharmacal and freezing orders (among other injunctions), “an innocent intermediary is entitled to be indemnified by the rights-holder against the costs of complying with a website-blocking order” – unless there are good reasons to order otherwise (para. 31). In English law, the base point for deciding the question of costs is the intermediary’s legal innocence. The Court found that the appellants would not have incurred any liability for intellectual property infringement in this case at a domestic level – even if the safe harbours did not exist within the EU Directives – and that this was critical to its conclusions. Further, even when an ISP as a “mere conduit” discovers what third parties are illegally distributing on its network, it does not have the “limited duty” to proactively stop access to the infringing content (para. 33). Rather, in a situation such as this one, the appellants’ only duty was to comply with the website-blocking order of the Court. As such, the Court held there was no legal duty for appellants to shoulder the burden of costs related to the order, if they have no legal responsibility in the case and are forced to act under a court order.

Conversely, website-blocking injunctions such as the one sought by the respondents in this case are clearly in their own commercial interest, “they are wholly directed to the protection of the claimant’s legal rights”, and the “entire benefit … inures to the rights-holder” (para. 35). As such, when ISPs such as the appellants are merely “providing a network which has been abused by others”, there is no legal reason as to why the respondents should be legally entitled to seek costs from any party other than the infringers themselves (para. 35). Even if the respondents were to benefit financially from the infringing content online (given the volume and appeal of the content), Lord Sumption stipulated that it would be unfair to impose some form of commercial or moral responsibility on the appellants which cannot translate to any legal standards in English law.

The Court held that, given appellants were legally innocent under both national and EU law and were “mere conduits” to any infringement, they could not be required to pay the costs of compliance. Therefore, it allowed the appeal in relation to costs of compliance and varied the orders in such a way that the respondents must indemnify the appellants in respect of the reasonable costs of processing and implementing the orders. The website-blocking orders were not in issue, and remained in force.

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