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Petitioner: BRITISH TELECOMMUNICATIONS PLC and another VS Respondent: CARTIER INTERNATIONAL JUDGMENT
Court Name: Supreme Court of United Kingdom Judge(s): Lord Reed, Lord Hodge, Lord Mance, Lord Kerr, Lord Sumption Title:BRITISH TELECOMMUNICATIONS PLC and another vs CARTIER INTERNATIONAL
JUDGMENT
Reported As: 2018 SCMR 1721 Result: Appeal allowed Judgment JUDGMENT LORD SUMPTION (with whom Lord Mance, Lord Kerr, Lord Reed and Lord Hodge agree) Introduction 1. When an injunction is obtained against an innocent intermediary to prevent the use of his facilities by wrongdoers for unlawful purposes, who should pay the cost of complying with the order? 2. The respondents are three Swiss or German companies belonging to the Richemont Group. They design, manufacture and sell luxury branded goods such as jewellery, watches and pens under well-known trade marks including Cartier, Montblanc and IWC. The internet has provided infringers with a powerful tool for selling counterfeit copies of branded luxury goods, generally of lower quality than the genuine article and at lower prices. It allows them access to a world-wide market, as well as a simple way of concluding sales and collecting the price with practically complete anonymity. This illicit business is carried out on a large scale. The evidence is that at the outset of this litigation the respondents alone had identified some 46,000 websites offering infringing copies of their branded goods. 3. The two appellants and three other defendants in the proceedings below (who did not participate in this appeal) are the five largest internet service providers (or "ISPs") serving the United Kingdom, with a combined market share exceeding 90%. They provide networks by which subscribers are able to access content on the internet. But they do not provide or store content. They are not even in a position to monitor it, for even if that was technically feasible given the volume of internet traffic, they are forbidden to do so by law. They have no contractual relationship
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with the operators of websites accessed through their networks, and are not necessarily in a position even to identify them. They do not therefore themselves use or infringe the marks or aid or abet others to do so. Nonetheless, the facilities which they provide for their subscribers are a critical means by which the sellers of infringing goods are able to reach their customers. 4. On 17 October and 26 November 2014 the respondents obtained injunctions from Arnold J requiring the appellant ISPs to block or attempt to block access to specified "target websites", their domains and sub-domains and any other IP address or URL notified to them whose purpose is to enable access to a target website. Website blocking injunctions have become a familiar weapon in the continuing battle between the holders of intellectual property rights and infringers. There is an express statutory power to make such orders to protect copyrights under section 97A of the Copyright, Designs and Patents Act 1988. In Twentieth Century Fox Film Corpn v British Telecommunications plc [2012] 1 All ER 806 and Twentieth Century Fox Film Corpn v British Telecommunications plc (No 2) [2012] 1 All ER 869, Arnold J dealt with a number of issues concerning website blocking injunctions in copyright cases. Since then similar injunctions have been granted on 17 occasions against the appellant ISPs on the application of copyright-owners, and they have achieved a high degree of standardisation. Their use seems likely to increase. 5. This is the first case in which a website-blocking injunction has been granted to protect a trade mark. There is no specific statutory provision relating to trade marks corresponding to section 97A, of the Copyright, Designs and Patents Act 1988. There was a major issue in the courts below about the jurisdiction of the court to make such an injunction under the general power conferred on the court by section 37(1). of the Senior Courts Act 1981. There were also issues about some of the criteria for granting them. The Court of Appeal upheld the decision of Arnold J on these points, and they are no longer in issue. This appeal is concerned with costs, and in particular with the costs to the ISPs of implementing website-blocking orders. Implementation costs vary according to the technology employed and the ISP's business model. But they fall, broadly speaking, under five heads: (i) the cost of acquiring and upgrading the hardware and software required to block the target sites; (ii) the cost of managing the blocking system, including customer service, and network and systems management; (iii) the marginal cost of the initial implementation of the order, which involves processing the application and configuring the ISP's blocking systems; (iv) the cost of updating the block over the lifetime of the orders in response to notifications from the rights- holders, which involves reconfiguring the blocking system to accommodate the migration of websites from blocked internet locations; and (v) the costs and liabilities that may be incurred if blocking malfunctions through no fault of the ISP, for example as a result of over-blocking because of errors in notifications or malicious attacks provoked by the blocking. The ISPs do not complain about having to bear the costs under heads (i) and (ii). Most if not all of those would be incurred in any event for other reasons, for example to block access to child abuse images or to provide facilities for parental controls. The main question at issue on the present appeal is whether the rights-holders should have been required as a term of the order to indemnify the ISPs for implementation costs under heads (iii), (iv) and (v). 6. The practice since Twentieth Century Fox Film Corpn v British Telecommunications plc (No 2) [2012] 1 All ER 869 has been to order the rights-holders to bear their costs of the unopposed proceedings to obtain website-blocking orders but to leave the ISPs to bear the costs of implementing the orders. In his judgment in that case, at para 32, Arnold J justified leaving the ISPs to pay the costs of implementation on two grounds. The first was essentially a consideration of commercial equity: "The studios are enforcing their legal and proprietary rights as copyright owners and exclusive licensees ... BT is a commercial enterprise which makes a profit from the provision of the services which the operators and users of [the target website] use to infringe the studios' copyright. As such,
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the costs of implementing the order can be regarded as a cost of carrying on that business." Arnold J's second ground was that it was implicit in the EU Directives which require member states to make website-blocking injunctions available. I shall return to this point when I come to deal with the Directives. At any rate, the practice proposed by Arnold J in 2011 has been followed ever since, and it was followed by Arnold J himself in this case. The majority of the Court of Appeal (Jackson and Kitchin LJJ, Briggs LJ dissenting) upheld him on this point also: [2017] Bus LR 1. 7. Although the terms on which an injunction is granted are discretionary, the current practice has been adopted as a matter of principle and routinely applied. It is therefore necessary on this appeal for us to decide whether the principle is sound. That requires us to examine the legal basis on which website-blocking injunctions are made. It is founded partly on domestic and partly on EU law. Domestic law 8. For much longer than there has been an internet or EU Directives about it, the English courts have had jurisdiction in certain circumstances to order parties to assist those whose rights have been invaded by a wrongdoer. The historical origin of this jurisdiction is the bill of discovery in equity. The bill of discovery originated at a time when law and equity were separately administered. It was a proceeding in Chancery ancillary to proceedings against the wrongdoer at law, in which the sole relief sought was an order for disclosure for use in the principal proceedings. In Orr v Diaper (1876) 4 Ch D 92, the power to order disclosure was extended to a case where proceedings were not yet pending in another court, but the plaintiff wanted to know the names of those whom he might sue. Hall V-C ordered the innocent carrier of cotton thread bearing the plaintiff's counterfeit trade mark to disclose the name of the shipper which was as yet unknown to the rights-holder. This was a limited departure from the original principle. A more significant departure occurred with the decision of Lord Romilly MR in Upmann v Elkan (1871) LR 12 Eq 140. This decision marked the point at which the power to order a party to assist the plaintiff against a wrongdoer acquired a life of its own, independent of its origins in the bill of discovery. The facts were that the defendant freight forwarding agent was innocently in possession of consignments of counterfeit cigars in transit to Germany through a London dock. The action was not for discovery, but for an order restraining the forwarder from releasing the goods and an account of damages, on the footing that he had himself infringed the mark. The forwarder volunteered the names of the consignors and agreed to submit to whatever order the court should make. That left only the question of the costs of the action. Lord Romilly MR accepted that the forwarder was not an infringer, but thought that he would have been if after being told of the infringement he had not performed his duty. His duty in Lord Romilly's view (p 145) was "at once to give all the information required, and to undertake that the goods shall not be removed or dealt with until the spurious brand has been removed, and to offer to give all facilities to the person injured for that purpose." The decision was affirmed on appeal by Lord Hatherley LC: (1871) LR 7 Ch App 130. 9. A century later, Lord Romilly's judgment was the main basis in authority for the seminal decision of the House of Lords in Norwich Pharmacal Co v Customs and Excise Comrs [1974] AC 133. Norwich Pharmacal was an action against the Customs and Excise for an order that they disclose the identity of those who, by importing drugs the subject of the plaintiff's patent, had infringed it. The Customs and Excise, although they were not themselves infringers or in any other way culpable, had control over the goods at the point of importation. They were therefore unwittingly involved in the infringement although not party to it. The House of Lords held that disclosure should be ordered. The mere fact that the Commissioners possessed the relevant information was not enough to justify this result. The decisive factor was that they had themselves facilitated the tort, albeit innocently. Lord Reid stated the principle as follows at p 175B-C: "...if through no fault of his own a person gets mixed up in the tortious acts of others so as to
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facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. I do not think that it matters whether he became so mixed up by voluntary action on his part or because it was his duty to do what he did. It may be that if this causes him expense the person seeking the information ought to reimburse him. But justice requires that he should co- operate in righting the wrong if he unwittingly facilitated its perpetration." 10. The Norwich Pharmacal jurisdiction is commonly exercised for the purpose of assisting the claimant to bring or maintain proceedings against the wrongdoers, generally by providing information. But it is not limited to cases where proceedings against the wrongdoers are anticipated, or indeed to the provision of information. As Lord Fraser observed in British Steel Corpn v Granada Television Ltd [1981] AC' 1096, 1200C-G, the injunction "is sought for the vindication of BSC's rights, and I do not think it matters whether separate proceedings are required for that purpose or not." This was confirmed by the House of Lords in Ashworth Hospital Authority v MGN Ltd [2002] 1 WLR 2033, para 3, and by the Supreme Court in Rugby Football Union v Consolidated Information Services Ltd (formerly Viagogo Ltd) [2012] 1 WLR 3333, para 15. The true basis of the court's intervention is that once the intermediary has been given notice of the infringement of the plaintiff's rights, his duty is to stop placing his facilities at the disposal of the wrongdoer. This is why it is critical that the intermediary should have been "mixed up in the tortious acts of others". As it happened, the Commissioners of Customs and Excise were "mixed up" in the importation pursuant to a statutory duty. They could not therefore be required to do more than provide information so as to allow direct proceedings against the infringers to stop the importation. But an intermediary who was free to terminate his involvement in the infringing trade, like the freight forwarder in Upmann v Elkan, could have been required to do so. 11.I suggested in Singularis Holdings Ltd Price water house Coopers [2015] AC 1675, para 22, that the duty to assist identified by Lord Reid was not a legal duty in the ordinary sense of the term. As Lord Reid himself put it in Norwich Pharmacal, the intermediary came under the duty without incurring personal liability. This is really only another way of saying that the court had an equitable jurisdiction to intervene. Lord Kilbrandon put the point very clearly in his own speech. Citing the South African decision in Colonial Government v Tatham (1902) 23 Natal LR 153, 158, he said that "the duty is said to lie rather on the court to make an order necessary to the administration of justice than on the respondent to satisfy some right existing in the plaintiff" (p 205D-E). 12.It is not clear how the costs of compliance were dealt with in Norwich Pharmacal itself. The only member of the Appellate Committee to express a firm view in his speech was Lord Cross. "The full costs of the respondent of the application and any expense incurred in providing the information," he observed at p 199G, "would have to be borne by the applicant." Lord Reid, in the passage which I have quoted, tended to that view but more equivocally. The other members of the Appellate Committee agreed with the order proposed by Lord Reid, but without saying anything about compliance costs. Subsequent practice has, however, been consistent. The ordinary rule, absent exceptional circumstances, is that the intermediary is entitled to the costs of compliance. The reason was explained by Aldous U, delivering the judgment of the Court of Appeal in Totalise Plc v The Motley Fool Ltd [2002] 1 WLR 1233, para 29. The defendant operated an internet bulletin board for investors, on which account holders could post opinions and information. Totalise complained that one account-holder was posting defamatory messages under a pseudonym, and obtained a Norwich Pharmacal injunction requiring disclosure of his name. The Court of Appeal, overruling the judge, held that the defendant should have both the costs of the proceedings and the costs of implementation. Aldous U said: "Norwich Pharmacal applications are not ordinary adversarial proceedings, where the general rule is that the unsuccessful party pays the costs of the successful party. They are akin to proceedings
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for pre-action disclosure where costs are governed by CPR r 48.3. That rule, we believe, reflects the just outcome and is consistent with the views of Lord Reid and Lord Cross in the Norwich Pharmacal case [1974] AC 133, 176, 199. In general, the costs incurred should be recovered from the wrongdoer rather than from an innocent party ... Each case will depend on its facts ... Ina normal case the applicant should be ordered to pay the costs of the party making the disclosure including the costs of making the disclosure." 13.A similar practice applies to the expense incurred by banks in complying with orders to disclose information for the purpose of enabling a party to trace the proceeds of fraud: Bankers Trust Co v Shapira [1980] 1 WLR 1274, 1281-1282 (CA). And to those incurred in complying with freezing orders: Z Ltd v A-Z and AA-LL [1982] QB 558, 575 (Lord Denning MR) and 586 (Kerr U). The latter practice is now embodied in the model wording in PD 25A of the Civil Procedure Rules. Other innocent third parties, such as port authorities required by a freezing order to detain a vessel in port, are entitled to the same indemnity: Clipper Maritime Co Ltd of Monrovia v Mineralimportexport [1981] 1 WLR 1262, 1263-1264. 14.In Miller Brewing Co v Mersey Docks and Harbour Co [2004j FSR 5 an order for delivery up of goods bearing an infringing mark was made under sections 16 and 19 of the Trade Marks Act 1994. The goods were in the physical custody of the dock authority, which had no responsibility for the infringement. It was conceded that the dock authority should be indenmified against its costs of compliance, but there was an issue as to the costs of the litigation. This was not, of course, a Norwich Pharmacal application. But Neuberger J ordered that the trade mark proprietor should pay both, by analogy with the general rule on such applications. At para 30, he said: "The logic behind that general rule is that, where an innocent third party has reasonably incurred legal costs to enable a claimant to obtain relief, then, as between the innocent third party and the innocent claimant, it is more unjust if the innocent third party has to bear his own legal cost than it is for the innocent claimant to pay them. After all, it is the claimant who is invoking the legal process to obtain a benefit, and the fact that the benefit is one to which he is legally entitled is not enough to justify an innocent third party having to be out of pocket." 15. Website blocking orders clearly require more than the mere disclosure of information. But I think that it is clear from the authorities and correct in principle that orders for the disclosure of information are only one, admittedly common, category of order which a court may make against a third party to prevent the use of his facilities to commit or facilitate a wrong. I therefore agree with the view expressed by Briggs LI in his dissenting judgment in the Court of Appeal that the website blocking order made in this case could have been made quite apart from the power derived from European law, on ordinary principles of equity. The Directives 16.National laws concerning intellectual property rights, notably copyrights and trade marks, are partially harmonised by a series of EU Directives. In particular, the protection of intellectual property rights infringed through the internet has important implications for the free movement of goods and services and is for that reason the subject of an elaborate scheme of European legislation. It is contained in a number of Directives, of which three are relevant to the present issue. They are 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"). The first two of these Directives were conceived as a coherent whole and should be read together. The third extended and strengthened the provisions for their enforcement. 17.The E-Commerce Directive is primarily concerned with the regulation of "information society services". The definition of these services is borrowed from article 1(2) of Directive 98/34/EC as amended by article 1(2) of Directive 98/48/EC, which regulates the provision of information relating to technical standards and regulation in member states. They are services of a kind that are
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normally remunerated, and provided at a distance by means of electronic equipment for the processing and storage of data at the individual request of a recipient of the service. The definition includes ISPs, which merely provide a communications network, as well as a variety of other services such as web hosting, internet search engines, portals and internet payment systems. The purpose of the Directive is to enable the providers of information society services to operate across the European Union on a common legal basis. One of the main challenges in this field is the prospect of diverse national laws dealing with the use of the internet for illegal activities. The scheme of the Directive is that intellectual property rights continue to be governed by national law, as modified by the various harmonisation Directives, but the E-Commerce Directive (i) restricts the ability of member states to impose licensing requirements on internet intermediaries and (ii) requires them to provide immunity from liability under their national laws in respect of a wide range of normal internet operations. At the same time, the Directive (iii) requires those who carry on certain operations to co-operate in removing access to illegal material and provides, at this stage in very general terms, for ad hoc judicial intervention to stop illegal activity. 18.The Directive recites: "(40) Both existing and emerging disparities in member states' legislation and case law concerning liability of service providers acting as intermediaries prevent the smooth functioning of the internal market, in particular by impairing the development of cross-border services and producing distortions of competition; service providers have a duty to act, under certain circumstances, with a view to preventing or stopping illegal activities; this Directive should constitute the appropriate basis for the development of rapid and reliable procedures for removing and disabling access to illegal information; such mechanisms could be developed on the basis of voluntary agreements between all parties concerned and should be encouraged by member states; it is in the interest of all parties involved in the provision of information society services to adopt and implement such procedures... (42) The exemptions from liability established in this Directive cover only cases where the activity of the information society service provider is limited to the technical process of operating and giving access to a communication network over which information made available by third parties is transmitted or temporarily stored, for the sole purpose of making the transmission more efficient; this activity is of a mere technical, automatic and passive nature, which implies that the information society service provider has neither knowledge of nor control over the information which is transmitted or stored. (43) A service provider can benefit from the exemptions for `mere conduit' and for 'caching' when he is in no way involved with the information transmitted; this requires among other things that he does not modify the information that he transmits; this requirement does not cover manipulations of a technical nature which take place in the course of the transmission as they do not alter the integrity of the information contained in the transmission. (44) A service provider who deliberately collaborates with one of the recipients of his service in order to undertake illegal acts goes beyond the activities of 'mere conduit' or 'caching' and as a result cannot benefit from the liability exemptions established for these activities. (45) The limitations of the liability of intermediary service providers established in this Directive do not affect the possibility of injunctions of different kinds; such injunctions can in particular consist of orders by courts or administrative authorities requiring the termination or prevention of any infringement, including the removal of illegal information or the disabling of access to it. (46) In order to benefit from a limitation of liability, the provider of an information society service, consisting of the storage of information, upon obtaining actual knowledge or awareness of illegal activities has to act expeditiously to remove or to disable access to the information concerned; the removal or disabling of access has to be undertaken in the observance of the principle of freedom
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of expression and of procedures established for this purpose at national level; this' Directive does not affect member states' possibility of establishing specific requirements which must be fulfilled expeditiously prior to the removal or disabling of information. (47) Member states are prevented from imposing a monitoring obligation on service providers only with respect to obligations of a general nature; this does not concern monitoring obligations in a specific case and, in particular, does not affect orders by national authorities in accordance with national legislation." 19. Articles 12 to 14 contain the limitations of liability referred to in recitals (46) and (47). These are the…
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