Cartier International AG & Ors v British Telecommunications Plc & Anor [2018] UKSC 28

Richemont Group obtained website-blocking injunctions against major UK ISPs to stop access to sites selling counterfeit luxury goods infringing its trade marks. The Supreme Court held that rights-holders, not innocent ISPs acting as 'mere conduits', must indemnify the ISPs' reasonable compliance costs.

Facts

The respondents (Cartier, Montblanc, IWC and related Richemont companies) are producers of luxury branded goods. They identified some 46,000 websites selling counterfeit versions of their trade-marked products. They sought injunctions against the five largest UK internet service providers (ISPs), including the appellants BT and EE, requiring them to block or attempt to block access to specified target websites.

The ISPs held a combined market share exceeding 90%, but did not provide or store content, had no contractual relationship with the operators of infringing websites, and could not lawfully monitor traffic. They were therefore legally innocent intermediaries whose networks were nonetheless a critical means by which infringers reached customers.

Arnold J granted website-blocking injunctions in October and November 2014. Although there is express statutory power under section 97A of the Copyright, Designs and Patents Act 1988 for copyright cases, there is no equivalent statutory provision for trade marks. This was the first website-blocking injunction granted to protect a trade mark, made under the general jurisdiction in section 37(1) of the Senior Courts Act 1981. The jurisdictional issues had been determined against the ISPs below and were not pursued before the Supreme Court.

The appeal concerned costs, specifically implementation costs, which fall under five heads: (i) acquiring/upgrading hardware and software; (ii) managing the blocking system; (iii) marginal costs of initial implementation; (iv) costs of updating blocks; and (v) costs of malfunctions. The ISPs did not complain about heads (i) and (ii) but sought indemnification under heads (iii)-(v).

Issues

The principal issue was whether, as a term of a website-blocking injunction made against innocent ISP intermediaries, the rights-holders should be required to indemnify the ISPs for the reasonable costs of implementing the order. This required the Court to consider:

• The legal basis (domestic and EU) on which website-blocking injunctions against intermediaries are granted;
• Whether the EU Directives (the E-Commerce Directive 2000/31/EC, the Information Society Directive 2001/29/EC and the Enforcement Directive 2004/48/EC) required or implied that ISPs must bear compliance costs; and
• What the correct allocation of compliance costs is under English law as a matter of principle.

Arguments

The respondent rights-holders, supported by the reasoning of Arnold J and the majority of the Court of Appeal, argued that compliance costs should be borne by the ISPs as a cost of carrying on their commercial business, and that this was implicit in the EU Directives, representing a quid pro quo for the immunities (safe harbours) ISPs enjoy under articles 12-15 of the E-Commerce Directive.

The appellant ISPs argued they were legally innocent ‘mere conduits’, that nothing in EU law required them to bear compliance costs, and that under established English principles applicable to Norwich Pharmacal orders, freezing orders and similar relief against innocent third parties, the party seeking to vindicate its rights must indemnify the innocent intermediary’s compliance costs.

Judgment

Lord Sumption (with whom Lord Mance, Lord Kerr, Lord Reed and Lord Hodge agreed) allowed the appeal.

Domestic jurisdictional basis

The Court traced the jurisdiction to order innocent third parties to assist wronged parties from the equitable bill of discovery (Orr v Diaper; Upmann v Elkan) through Norwich Pharmacal Co v Customs and Excise Comrs [1974] AC 133. Lord Reid’s principle in Norwich Pharmacal – that a person innocently mixed up in the tortious acts of others comes under a duty to assist – is not confined to disclosure of information but extends to other forms of assistance, including ceasing to place facilities at the disposal of wrongdoers. The Court agreed with Briggs LJ’s dissent in the Court of Appeal that the injunction could have been granted on ordinary principles of equity, independent of EU law.

Established English practice on compliance costs

Subsequent authorities – Totalise Plc v The Motley Fool Ltd [2002] 1 WLR 1233, Bankers Trust Co v Shapira, Z Ltd v A-Z and AA-LL, Clipper Maritime and Miller Brewing – consistently establish that innocent third parties are entitled to an indemnity against compliance costs, the rationale being that, as between an innocent claimant invoking the legal process and an innocent third party, it is more unjust for the third party to bear the cost.

The EU Directives

The Court rejected the reasoning of Kitchin LJ and Jackson LJ in the Court of Appeal. The recitals referring conditions and modalities of injunctions to national law did not indicate what national law should provide; the ‘quid pro quo’ argument assumed what it sought to prove, since the Directives do not address compliance costs; the true rationale of the immunities relates to the functioning of the single market and intermediaries’ lack of control over content, not to the allocation of compliance costs; and the decisions in L’Oréal SA v eBay (Case C-324/09) and UPC Telekabel Wien v Constantin Film (Case C-314/12) did not decide that ISPs must bear compliance costs but only that any costs they do bear must not be excessive.

Application of English principle

Subject to the EU principles of effectiveness, equivalence and the article 3 Enforcement Directive requirements that remedies be fair, equitable, not unnecessarily costly, effective and proportionate, the incidence of compliance costs is a matter for English law. Under English law the starting point is the intermediary’s legal innocence. A ‘mere conduit’ ISP is not liable for trade mark infringement, has no means of knowing what use is being made of its network, has no proactive duty analogous to caching or hosting operators, and is acting under compulsion of a court order. There is no legal basis for shouldering such a party with the burden of remedying an injustice for which it has no legal responsibility.

The Court rejected the argument that ISPs profit commercially from internet usage generally and should therefore contribute. This assumed a degree of responsibility unsupported by any legal standard. Website-blocking injunctions are sought by rights-holders in their commercial interest, with the whole benefit of compliance inuring to them; the protection of intellectual property rights is properly a cost of the rights-holder’s business, not the ISP’s.

Accordingly, in principle rights-holders must indemnify ISPs against their reasonable compliance costs. The indemnity must be limited to reasonable costs, and evidence indicated actual compliance costs were modest and not such as to impair the respondents’ practical ability to enforce their marks. No discretionary grounds for withholding the indemnity were advanced.

Costs of the litigation

The costs of obtaining the injunction itself were a separate matter. Normally rights-holders would pay the ISPs’ costs in unopposed proceedings, but Arnold J was entitled to award costs against the ISPs here because they had fought the litigation as a test case on jurisdiction.

Disposal

The appeal was allowed so far as concerns implementation costs. Paragraph 12 of the orders was varied so that the respondents must indemnify the appellants in respect of reasonable costs of processing and implementing the orders under categories (iii), (iv) and (v).

Implications

The decision establishes that, as a matter of English law, where a website-blocking injunction is granted against a legally innocent ISP acting as a ‘mere conduit’, the rights-holder must indemnify the ISP against the reasonable costs of implementing the order. This aligns the treatment of website-blocking injunctions with the long-established English principle applied to Norwich Pharmacal orders, freezing orders and related relief: an innocent third party compelled to assist in the vindication of another’s rights should not bear the cost of doing so.

The ruling clarifies that the EU Directives do not dictate the incidence of compliance costs; that allocation is for national law, subject only to the requirements of effectiveness, equivalence, proportionality and that remedies not be unnecessarily costly. It rejects the ‘quid pro quo’ theory that the safe harbour immunities under articles 12-15 of the E-Commerce Directive come at the price of bearing compliance costs.

The decision is significant for rights-holders, who will face additional costs when seeking website-blocking relief, and for ISPs, who receive financial protection consistent with their legally innocent status. The Court explicitly left open the position of intermediaries engaged in caching or hosting under articles 13 and 14 of the E-Commerce Directive, whose operations involve greater participation in infringement; different considerations may apply in such cases depending on the facts and national law. The indemnity granted is limited to reasonable costs, and the Court noted that compliance costs in practice are modest. The ruling does not disturb the underlying jurisdiction to grant website-blocking injunctions, which was upheld below and not in issue on appeal.

Verdict: Appeal allowed. The Supreme Court varied paragraph 12 of Arnold J’s orders dated 11 November and 5 December 2014 to require the respondent rights-holders to indemnify the appellant ISPs for their reasonable costs of processing and implementing the website-blocking orders under cost categories (iii) marginal costs of initial implementation, (iv) costs of updating the blocks, and (v) costs and liabilities from malfunctions.

Source: Cartier International AG & Ors v British Telecommunications Plc & Anor [2018] UKSC 28