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Friday, 20 February 2015

The Richemont ruling and beyond: dealing with counterfeit websites and the intermediaries that host them

So busy, always something more to read ...
When this Kat first spotted the very important ruling in Cartier International AG and Others v British Sky Broadcasting Ltd and Others [2014] EWHC 3354 (Ch), [explanation: Cartier was the first named claimant, but the three claimants are collectively referred to as 'Richemont', which owned the others] a decision of  Mr Justice Arnold on 17 October 2014, he posted a breaking news item and fully intended to write a further analysis later. After all, was this not a landmark decision in establishing that trade mark owners were entitled to obtain website blocking orders against the myriad of internet traders who milk the popularity of their brands while damaging the reputation upon which that popularity was initially built?  However, days turned to weeks and this Kat's attention was sucked away from his good intentions by developments in the European Patent Office and elsewhere [though fellow Kat Eleonora swiftly and admirably filled the breach with an analytical Katpost here].  He was therefore delighted when his old friend Tim Behean offered to pen a piece for this weblog which exceeded, in scope and vision, the bounds of what this Kat might himself have written.

If you don't know Tim, you should make the effort.  This Kat had the pleasure of working him for a few years when Tim was a solicitor at Slaughter and May, where this Kat was IP Consultant.  Tim then wandered off to adidas for a couple of decades to head its IP Group, seizing around 12 million counterfeit products a year and scooping some mouth-watering damages awards (Tim's the man who got Payless to pay more, even though the record jury award of $304 m for trade mark infringement was later reduced).  He now leads Oxford-based IP specialist law practice Sipara.  Busy? You bet.  This Kat and Tim have promised each other a game of chess ever since 1994, and it still hasn't happened.  Be that as it may, here's Tim's take on what Arnold J's decision has achieved, how they go about dealing with the same phenomenon in the United States -- and where we might go from here:
Richemont v BskyB and others: a national solution to a global problem? 
Arnold J’s decision is ground-breaking in at least two respects. First, he found a legal basis for blocking websites selling counterfeit products (trade mark infringement) in the same way as sites selling pirate products (copyright infringement), despite the absence of express UK trade marks legislation. Secondly, he employed a method is to interpret Community legislation in favour of a harmonised result which does not favour copyrights over trade mark rights. The result is an attack on the global counterfeit problem, using European legislation, producing a solution for just one country. The websites are blocked for UK customers – provided that the Court of Appeal agrees with Arnold J’s analysis – but they remain open for business to customers anywhere else in the world. If the cost to the rights holders is £14,000 to block one website from the UK market (Arnold J, para 54), do they have to spend this amount in the other 27 Member States to block access across the Community? 
The counterfeit website business 
Counterfeit websites differ from their copyright counterparts in that they sell a physical product which they need to source and ship. The products are typically low quality, sourced very cheaply, and resold at a price significantly below that of the genuine product. The low price is a key feature emphasised in the sites, typically with percentage reductions, and with higher prices being compared and struck though. The websites are generally optimized for good ranking on search engines, featuring page titles and description meta tags referring to the products by brand name and cheap price, so the search engine result looks more enticing, and often using a script listing terms from anticipated search requests (“…wholesale discount Cartier cheap watches China…”), trade marks in the domain name, and variable content, such as reviews or news, often doggerel just for the purpose of search engine ranking. The sites offer to ship worldwide, and quote prices in US$, Sterling and Euros, sometimes other currencies.  Some provide different language options. 
These sites reflect different business models. Most sophisticated are organizations in China, linked to one or more factories supplying the products, and which operate through multiple domain names, several hundred online at a time. The sites have similar features but differ in presentation and the brands and ranges of products offered. The most popular domains are .com, .net and .org, typically registered for only short periods probably because they expect to be blocked. The approach seems to be that alternative domain names are pre-purchased and set up ready to substitute for those that are blocked.  This suggests that these businesses are less interested in repeat purchases by using a particular domain name — which is easy to understand, given the business model and the usually terrible quality products. 
Similar businesses are operated by individuals on a smaller scale. The counterfeit products can be obtained either from B2B sites such as Alibaba, or from counterfeit markets of which there are many in certain Asian countries. There are even services available for the less well-connected counterfeiters, to provide them with websites, product images and other content, and including supply of the products to be sold, even delivery services. 
These businesses exist because of the widespread availability of low quality counterfeit products, and the huge production capacity for them in China. Because of the anonymity provided by the internet, sophisticated investigation techniques are needed to identify the people involved and where they are doing business, together with careful forensic work to show counterfeit sales from computer records. It is unrealistic to suppose that the factories and website businesses can be identified in sufficient quantity, and effective criminal action taken against them, to produce any significant deterrent. The next best option is therefore to block the sites because, as Recital 59 of the Information Society Directive recognises, in many cases intermediaries are “…best placed to bring such infringing activities to an end …” (see also Arnold J, paras 197-217), except that a blocking injunction against UK broadband suppliers does not bring the infringing activities to an end but merely cuts off of one of their markets. The effect may only temporary, because new websites selling counterfeits will soon emerge, whether operated by the same people, or with the same products or from the same source we probably cannot know. Remedies to meet the threat need to address both the quantity of websites and the major markets for their business. 
The US approach 
The legal approach developed in the US is aimed at blocking the sites by orders directed to the registrars, requiring them to transfer control of the domain names to the trade mark owner. This type of website blocking is easier to circumvent, for example by providing to customers an IP address in place of the domain name. Arnold J refers to it in para 208, and comments that the website operator will simply pick another domain name and start again. Certainly, using the dispute resolution procedures is not effective: they are too slow and costly for combating a counterfeit business run through many hundreds of domain names. The US approach, by contrast, is faster because it can use the temporary restraining order jurisdiction (interim injunction), is more cost-effective as hundreds of domain names can be included in one application, is less burdensome for the registrars who, it is said, can break the link to the webpages “at a keystroke”, and do not need costly blocking software and monitoring for counter-measures. Experience shows that regular action of this type can have a deterrent effect in decreasing the availability of these sites. These orders are enforceable only against registrars within the jurisdiction of the US Courts, but registrars in some other countries in fact comply with the orders as a matter of good practice (and their terms of business with their customers will entitle the registrar to block the domain name if used for illegal purposes, or to comply with a court order). 
Can this work in the UK? 
It is certainly arguable that registrars are “intermediaries” and that their service is being used to infringe, because the domain name is being used to allow consumers to access the web pages containing offers of counterfeit products, and the means to purchase them. It is clear that there is infringement on the “double identity” basis, since the websites use the same sign for the same goods. This does not only infringe the various UK marks relied on. Since Cartier, Montblanc and IWC own Community trade mark registrations (CTMs) for their marks, there is entitlement to a Community-wide injunction [this should certainly be so where there is “double identity” infringement, but where infringement is based on a likelihood of confusion or reputational use the scope of injunctive relief is less clear: see Jeremy Blum’s guest Katpost yesterday, here]. Indeed, we may think it quite likely that these rights owners have registrations for their marks throughout the world, at least in their major markets which will likely be the counterfeit websites’ major markets also and, while there may be different approaches to infringement, at least those party to the TRIPS agreement should apply the double identity approach in Article 16.1, whereby confusion is presumed in cases of double identity.
Compliance is less of a burden ...
In assessing whether to grant an injunction, Arnold J’s conclusions should apply similarly, with some advantages: compliance by registrars is less burdensome on them compared with the burden on broadband suppliers, and there is no risk of blocking legitimate websites using the same IP address (Arnold J, paras 254-257). It may be that the approach is less effective than against broadband suppliers in a particular market, but may be more effective across many markets. It is true that the website operators will pick another domain name, but that is their business model and, to make an impact on it, there is a need for blocking in quantity (Arnold J, para 246 - Richemont has already identified some 46,000 other websites selling counterfeits of their products). 
A Community-wide solution? 
As already noted, the claimants own CTMs for their marks which, we can say, were infringed for the same reasons as their UK marks; a Community-wide injunction should accordingly be available. Does it not follow that a blocking order against intermediaries in the Community should also be available, for the reasons set out in the judgment, whether against broadband service suppliers or registrars? Is not the decision of a Community Court in one member state sufficient, being based as it is on Directives for legal harmonisation across Europe? There may be questions of jurisdiction over registrars and broadband suppliers in other member states. But in fighting counterfeiting, experience is the best benchmark, and only experience will show whether these intermediaries will object in the face of the Court’s determination, and what results will in fact be achieved in reducing the availability of counterfeit and pirate websites.

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