2014: the beginning of the end for counterfeit goods online?

As 2014 draws to a close, between website blocking orders and customs action stopping those goods which nevertheless are sold directly to consumers in the EU, brand owners are in a stronger position than ever before to maintain the integrity of their marks and markets both online and through physical distribution, in the EU.

Trade marks online

Retail sales online make up a widely different proportion of sales in different European markets. The Centre for Retail Research reports that only 2.1% of purchases in Italy are made online, whereas in the UK the online market is 13.5% of the total. But in all countries, the proportion of sales taking place online is growing fast, and the gap between countries is expected to narrow over the next few years.

In a few years’ time, increases in online sales will be achieved only at the expense of real world shops. Competition for online sales must therefore intensify, and the need to ensure that online sellers respect others’ trade marks will become more urgent.

The courts have already had to consider the scope of trade mark rights in the online context, with the Google France decision from the CJEU placing responsibility for potential infringement firmly in the laps of online advertisers rather than the search engines which display those adverts. Most recently, in the 2014 Interflora v Marks & Spencers decision the English Court of Appeal even ruled that an advertiser could in principle be liable for infringing another’s trade mark not by using it as a keyword, but by intentionally failing to ‘negative match’ it despite being aware that the search engine’s algorithms are likely to associate the chosen keywords with that third party brand. (Of course, proving that an advertiser had the necessary awareness of the algorithm and intention is rarely likely to be possible.)

But brand owners cannot only focus on competition from legitimate traders. The potential of the internet as a channel for sales of counterfeit goods has long been apparent, and tackling such sales at source when the operators of many of the websites concerned are based in jurisdictions which are remote from Europe and may offer very limited opportunities to enforce through their local courts is extremely difficult. In the future, it may be possible for law-abiding consumers to ascertain through image-recognition whether leather goods offered for sale are authentic or otherwise, as NEC prepares to launch a copy-spotting app, but this will never address websites deliberately using images of authentic goods while shipping knock-offs. Recently, a number of approaches have been tried to prevent such sales into the EU, or alternatively stop the goods themselves from reaching EU consumers.

Combating counterfeits by collaboration

In 2011, against the background of the Enforcement Directive, the European Commission brokered a Memorandum of Understanding (“MoU”) on the Sale of Counterfeit Goods via the Internet between a range of brand owners and a group of internet service providers (“ISPs”), to establish a code of practice in the fight against the sale of counterfeit goods online and to enhance collaboration among its signatories. This aimed to set up a notice and takedown system in respect of websites offering counterfeit goods, and a system for exchanging information between participants. The ISPs committed to try to obtain and verify seller contact information and to proactively police their platforms for the sale of obviously counterfeit goods.

The participants in this scheme have now extended it from the initial 2 year period for a further 2 years, and continue to collaborate with bi-annual meetings to review the functioning of the MoU, despite the evident tensions between their interests. Indeed, the European Commission is considering further such initiatives in, for instance, the online advertising services industry to determine whether a similar MoU could not be developed between these advertising intermediaries, rights-holders and online media service suppliers. The aim would be to reduce the quantity of advertising on on-line sites that are recognized as being involved in commercial-scale sales counterfeits. Since brand owners are the main advertisers themselves, they should be able to bring a substantial financial squeeze to bear on such sites rather than continuing to buy advertising slots on them. Another suggestion is to discuss with payment service providers how they could assist in preventing the fulfilment of payments to IP infringers operating such sites.

Website blocking

The MoU approach is, however, limited in that only eBay and Amazon, on the ISP side of the industry, are currently signatories to it. That number may now be set to grow, however, following a Court decision in October 2014 ordering ISPs to block consumers’ access to websites selling obviously counterfeit goods, in Cartier International AG and others v British Sky Broadcasting Ltd and others. Previous attempts, by both LVMH in France and L’Oreal in the UK, to injunct eBay from offering counterfeit copies of their products, had failed, with the Court of Justice of the European Union ruling that ISPs could not be required under the Enforcement of IP Rights Directive actively to police their platforms for counterfeit products. In the Cartier case, however, Cartier sought a more limited order, akin to the blocking orders now routinely granted in the case of websites carrying pirate copies of copyright works. Under these orders, the ISP must block a website only once notified by the rights holder, despite the fact that none of the technologies used for blocking is 100% effective. The website operator concerned of course has permission to apply to vary or discharge the order – but a much more likely response in practice will be simply to close down that website and start operating from a different address. Given that consumers today hardly ever locate a website by putting in the website address, but instead use search engines, there is little or no disadvantage to a small trader in such address-hopping.

The Court did accept that in the case of IP addresses which are shared by more than one website, there was a risk that lawful users of the internet might be affected. However, the judge appeared to be content to rely upon the accuracy of the determination made by Cartier’s lawyers, as to whether or not the other websites sharing a given address are in fact engaged in unlawful activity, saying merely that “If the ISPs consider that the position is open to doubt, they are entitled to require the Court to decide the question.”

The availability of such orders, with such a broad discretion in the case of shared IP addresses handed to the brand owners, is likely to lead to a rush of applications from the holders of luxury brands, not only in the UK but across the EU. It does not go as far as the MoU since it will not require the ISPs to attempt to verify the identity of sellers, but nor does it require the brand owners to engage in the delicate negotiations with the ISPs which that procedure entails. Further the English Court accepted evidence in support of Cartier’s application that notice and take down is not a very effective mechanism, since the website operators do simply re-establish under a different name.

Interestingly, the Court did not base its decision on the wording of the Enforcement Directive, but on an existing general power of the English courts to grant injunctions “in all cases in which it appears to be just and convenient to do so” in the Senior Courts Act 2001. However, the Court clearly relied upon the duty of a national court to interpret national legislation in accordance with an EU Directive, and so was more confident that it had the power to order a website blocking order in support of anti-counterfeiting. The same reasoning could well apply to the national courts of other EU countries.

Stopping counterfeits at the borders

No matter how keen the courts may be to block websites, overseas sellers will always be just as keen to continue selling counterfeit goods to wealthy EU citizens. But a decision of the CJEU in early 2014 may make that harder, and less attractive to customers. A Danish consumer, Mr Blomqvist, ordered a fake Rolex from a Chinese website but the packet was stopped and inspected by Danish customs, possibly as a result of a customs watch notice lodged by Rolex under the 2003 Regulation on customs action against goods infringing IP rights (“the Customs Regulation”). Customs concluded that the watch was a fake and notified Rolex. Rolex confirmed that it was indeed a fake, and asked Mr Blomqvist to consent to its destruction. He quite understandably refused, saying he had bought it legitimately. The Danish Supreme Court was minded to agree, finding that no act of infringement (such as an offer for sale directed at the Danish market) had taken place in Denmark. Nevertheless, the Supreme Court referred the case to the CJEU for a ruling as to how the Customs Regulation should be interpreted in such circumstances.

Surprisingly, the Court held that counterfeit goods ordered online from outside the EU could be seized under EU customs legislation because the fact of sale of goods into the EU over-rode the normal requirement for an offer or an act of distribution to the public within the EU, in order for an infringement of intellectual property to take place. This was so even though the goods were for purely private use and therefore the purchaser is not infringing IP rights.

This decision strongly favoured brand owners in comparison with previous case law, which had consistently suggested that an offer for sale or other infringing act in or directed to the EU was required, for goods to infringe.

Conclusion

The trade mark decisions of the CJEU can sometimes be difficult to decipher, with the necessity for a single unanimous decision forcing the judges into occasionally self-contradictory texts. But the direction of travel over the last year has been unmistakable. The Court understands the legislature’s intention to be a high standard of protection for brands, as for other forms of intellectual property. Despite the intervention of the relatively new phenomena of the internet, it intends to ensure that consumers and brand owners alike are able to rely upon a brand as a true indication of the origin of goods.