There are many ways in which online trade in counterfeit goods can be tackled. Unfortunately, they are often ineffective and in many cases expensive. The internet is a natural environment for unlawful trade to flourish, allowing the unscrupulous but resourceful trader to hide behind proxies, use fake names and addresses, and to operate through hosts and service providers in convenient jurisdictions away from the reach of rightholders and the courts. And even if the arms of the law do manage to reach the counterfeiter’s operation, it can easily resurface, back in trade usually in a matter of days, under an almost identical domain name, using a new hosting service.
The new frontier in the fight against online counterfeiting in the UK is the website blocking order. These orders have been granted by the English courts for a number of years in cases of copyright infringements, mainly cases concerning peer-to-peer file sharing and sites offering pirated content streaming and downloading. The recent decision in the case of Cartier International v. British Sky Broadcasting (which attracted some media attention as the ‘Richemont’ case) confirmed that these orders can now be used in cases of trade mark abuse.
European legislation and the introduction of blocking orders in the UK
The EU’s Enforcement Directive (Council Directive 2004/48/EC) requires EU member states to ensure a level of protection of intellectual property rights including measures and remedies which must be effective, proportionate and dissuasive. Those measures must also be fair and equitable and must not be unnecessarily complicated or costly. The Enforcement Directive provides specifically that rightholders must be in a position to apply for permanent and interlocutory injunctions against infringers and, importantly, also against intermediates whose services are used by third parties to infringe intellectual property rights.
The UK, in response to previous EU legislation, has introduced specific provisions in its copyright legislation (section 97A of the Copyright, Designs and Patents Act 1988) allowing the courts to issue injunctions against service providers (including Internet Service Providers or ISPs) where the service provider has actual knowledge of another person using its service to infringe copyright. Over the past few years the UK courts have issued such orders against ISPs in relation to websites engaged in unlawful peer-to-peer file sharing, streaming and downloading of copyright materials (mainly films, television programs and music).
The UK courts, together with copyright rightholders and the ISPs themselves, developed a form of order (usually granted by consent) by which ISPs are required to block, or attempt to block, access to offending websites to their customers using various technology measures. Such orders tend to be granted against the five ISPs covering 95% of the UK market. Therefore, the blocking of such websites is highly effective. Further, these orders allow the rightholders to update the ISPs where the website moves to a new IP address or URL and the ISP is required to update the blocking measures accordingly.
To ensure fairness and access to justice, the orders include provisions allowing either party (the rightholders and the ISPs) as well as any operator of a website being blocked to make applications to the court to vary the order (for example, if there is a dispute as to whether a website is indeed infringing copyright).
Blocking orders against websites offering counterfeit goods
Whilst the UK legislature saw fit to introduce specific statutory provisions in its copyright legislation in respect of injunctions against intermediary service providers, the UK Government decided that no updates of its laws would be required in order to comply with the Enforcement Directive (which requires such orders to be available in all cases of intellectual property infringement). The basis of that view was that the courts have general powers to issue injunctions and that the manner in which UK courts grant injunctions is consistent with the requirements of the Directive.
Until the decision in the Richemont case, however, it was not entirely clear that the general powers of the court to issue injunctions and other equitable remedies (which are grounded in statute but derive from the historic powers of the Court of Chancery) indeed extend to granting such orders against intermediary service providers. The main point of contention was that the ISPs are clearly not infringing any rights of the claimants and therefore, without specific legislation, it was unclear whether a court can issue an injunction against them.
The High Court, however, resolved the matter on the basis that the UK legislation that gives courts the general power to issue injunctions (and which uses very broad language) must be interpreted, insofar as possible, in line with European directives including the Enforcement Directive. Accordingly, the Court held that it has the power to issue orders against ISPs whose services are being used by third party website operators to advertise and sell counterfeit goods, thereby infringing third party trade marks.
The Court also had to consider the question of infringement itself including the territorial issue and the question whether goods that look like the originals and display a registered trade mark but are openly sold as ‘replicas’ should be treated as counterfeits. These points were dealt with on the basis of established law. The websites in question targeted the UK market including by charging in GB pound sterling and offering to ship goods to the UK. As to the sale of goods as ‘replicas’, it has long been established in UK and EU case law that a trade mark is infringed where it is used without authorisation on products identical to those for which it is registered, even if it is offered for sale as a cheap ‘replica’ or ‘imitation’. Among other reasons, this is because the product can then be resold without disclosing the fact that it is not the genuine article.
Effectiveness and the availability of alternative measures
Perhaps the most interesting aspect of the Richemont decision was the Court’s consideration of the Enforcement Directive’s requirements as to the appropriateness of the order against ISPs.
The Court considered whether the blocking orders would be appropriate given other measures and remedies available to rightholders against websites selling counterfeit goods. The Court considered the main legal tools that can be used in such cases, including:
- Direct proceedings against the website operators;
- Take-down notices against hosts used by offending websites;
- Orders against payment services (that is, the main credit card providers);
- Domain name seizure proceedings (using the domain name registrar proceedings);
- Orders against search engine services to de-index offending websites; and
- Seizure of counterfeit goods at the customs.
Whilst all of the above measures are useful and preferable in many cases, the Court held that in the cases at hand (and in similar cases where websites clearly operate a pure counterfeiting trade) those measures are unlikely to be sufficient effective to stop the infringements.
The operators of these types of websites are typically difficult to locate and to bring before the court, so direct legal action against the operator is not feasible; take down notices are effective with mainstream hosting services operating in jurisdictions with a high level of law enforcement, but website operators can easily move to hosting services which would ignore take-down notices and are practically beyond the reach of the courts; similarly, domain name seizure proceedings are effective for some (but not all) top-level domains and websites can easily move to a different, often almost identical, domain name requiring the rightholder to start new and costly proceedings in each case; orders against payment providers and search engine services are not highly developed yet and even if available would be of limited effectiveness to stop the online counterfeit trade; and customs authorities have too limited resources to stop sufficient volumes of counterfeit goods at the ports of entry.
Importantly, the Court held that whilst it may be appropriate to expect rightholders to use some of these measures, it is not a pre-requisite for them to do so before seeking a blocking order against ISPs. In appropriate cases, the blocking order can be sought as the primary remedy.
The Court also considered evidence as to the effectiveness of blocking orders to stop the illegal online trade in counterfeits. The issue was contentious and there was some evidence from academic research claiming that measures to block websites do little to reduce the overall trade in counterfeits. It was argued that both websites and consumers can use simple measures to circumvent the blocks and that blocking one website may simply increase the illegal trade on other websites. The Court, however, found that on balance the evidence suggests that blocking measures can be very effective – perhaps not necessarily in reducing the online trade in counterfeits in general (which is a broader economic question) - but certainly to reduce access to particular offending websites. Some persistent consumers will find ways to circumvent the block, but most would not bother.
It should be emphasised that blocking orders will not be suitable in every case involving the online sale of counterfeit goods. They are suitable in cases of websites operating a clear illegal counterfeiting trade where alternative measures such as those discussed above are unlikely to be effective or feasible. Legitimate marketplace services such as eBay, for instance, where counterfeits are merely an incidental and unwelcomed part of the trade, are unlikely to face blocking orders. eBay itself has been a defendant in cases (including in the UK) involving the sale of counterfeit goods. These cases focused largely on eBay’s own direct liability for the infringements and on the immunity from liability afforded under EU law to hosting services (provided the service provider acts expeditiously to stop infringements where it has actual knowledge). According to reports, eBay invests some resources to try to tackle the trade in counterfeits on its marketplace. The main issue in regard to legitimate services of that type is whether they employ sufficient resources to enjoy the legal immunity. Blocking orders will be reserved to the hardcore counterfeiting sites.
Proportionality and costs
The Court in the Richemont case also considered the issue of costs and proportionality. Compliance with blocking orders requires ISPs to invest in technology and to dedicate staff for the task. The Court noted, however, that the UK ISPs have already made much of the necessary investment largely in response to other law enforcement requirements (as well as in response to blocking orders in copyright cases under section 97A).
The Court considered that the on-going costs of implementing these orders are not too high and can be absorbed by the ISPs. It followed the already established practice with regard to orders under section 97A (in copyright cases) holding that the legal costs of any orders granted by consent should be borne by the rightholders seeking the order and that the rightholders should bear their own costs of monitoring websites and updating the ISPs as to any changes in IP addresses and URLs which require blocking measures to be updated.
It is often said that a problem has to be tackled at its source. When it comes to the illegal trade in counterfeit goods and pirated copyright materials, uprooting the problem at source is difficult if not impossible. In a global economy the sources of this trade are seemingly endless and the wide open platform of the internet provides the perfect channel to distribute the illegal wares. The power of blocking orders against ISPs is that they deal with the issue at the point of access to consumers. A website offering counterfeit goods for sale will cause little harm if internet users cannot access the site (or if they have to make a special effort to do so).
Blocking orders are not a magic cure – they require rightholders to monitor the internet and ISPs to incur on-going costs in implementing blocking measures and updating them from time to time. Inevitably, traders will continue to find ways to evade and circumvent the blocks. Equally, some determined consumers will continue to find routes to buying these products. But blocking orders do have the potential to seriously impede the mainstream trade in counterfeits and to reduce the volume of counterfeit trade. Brand owners will certainly welcome this development and are set to make much use of these orders.