Trademark enforcement against intermediaries is getting physical – (Case C 494/15 Hilfiger v Delta Center)
July 21, 2017
by Carsten Ullrich
The CJEU has been busy over the last year on developing its interpretations on the role of intermediaries in intellectual property infringement cases in an online context. The case C‑494/15 of Tommy Hilfiger Licensing LLC and Others v Delta Center (Hilfiger), decided on 7 July 2016, offers an interesting read as it applies the methodology developed by the Court on injunctions against online intermediaries to an “offline” marketplace. The ruling opens up further questions over the applicability of rules applied in an entirely new technological business context to the less advanced, previous operating model of the same activity.
Delta Center, a company renting market stalls from an operator of market halls in Prague, sublets these stalls to individual traders who sell a variety of products, including apparel and fashion items. Some of these traders were found to sell counterfeit products infringing the trademarks of the claimants. Hilfiger and a number of other fashion brands brought action against Delta Center under EU Directive 2004/48 (Art. 11) on the enforcement of intellectual property rights (IPRED) claiming that the latter acted as intermediary whose services were used by these traders to infringe their rights. They requested an injunction to stop Delta Center extending or concluding contracts of those traders found by the authorities to infringe the rights of the claimants. The request was rejected by the two lower instance courts, the Prague City Court and, on appeal, the Prague High Court (Hilfiger, paras 14-16). The former found no trademark infringement: since the products offered were obvious counterfeits there was no risk of confusion over the origin of the products for the consumer. The High Court, by contrast, rejected the claim because it found the interpretation of an intermediary for applying Art. 11 IPRED overly broad: it could lead to a situation by which even electricity providers supplying power to the market stalls could be found to enable IP infringements. The Supreme Court of the Czech Republic, meanwhile, was more sympathetic with the brand owners’ request and confirmed the applicability of IPRED and the national law transposing it. It acknowledged that its ruling should follow the interpretation offered by the CJEU in L’Oreal v Ebay (L’Oréal). However since that case concerned an online marketplace, it stayed proceedings asking whether, first, a physical marketplace such as Delta could be considered an intermediary as per Art. 11 IPRED. Secondly, it asked whether it could apply identical measures to a physical marketplace, using the same conditions which were applied in L’Oréal, which concerned an online marketplace.
The CJEU answered both questions in the affirmative. First, it side-lined the Prague High Court’s judgement and declined to go into any further assessment whether other service providers, apart from Delta Center (e.g. electricity providers), fell within the scope of IPRED (para 28). IPRED did not limit itself to electronic commerce, but supported protection against IP infringements regardless of whether they happened online or offline. This was in line with its objective to ensure homogenous and equivalent levels of protection (para 29). Secondly, by analysing the ruling in L’Oreal in more detail the CJEU found that the main conditions for the imposition of injunctions rested on the interpretation of IPRED (L’Oréal, paras 135, 136, 138-141). While admitting that in L’Oréal the application of IPRED, and specifically the conditions under which injunctions against intermediaries can be imposed, had to be made in the context of an online intermediary, the actual interpretation of the provisions took place without specific consideration as to the nature of the marketplace (Hilfiger, para 36). Therefore the conditions for injunctions in L’Oreal imposed on an online marketplace eBay would apply to a physical marketplace. According to this, injunctions must be effective and dissuasive (L’Oreal, para 136), fair, proportionate and not excessively expensive (L’Oreal, para 139). While not requiring the marketplace operator to actively monitor all data of its customers (translated as “exercise of general and permanent oversight” in Hilfiger, para 34), it can still be asked to not only end infringements but prevent the occurrence of the same kind of infringement (i.e. concerning the same trademark) by the same seller/trader in the future (L’Oreal, para 141).
For years courts and legislators have been grappling with the specific challenges which IP infringements on the internet pose, especially when internet access providers, online marketplaces or social media and content platforms are involved as intermediaries. Now the Czech Supreme Court turned the tables on the issue and asks for “offline” guidance from the case law developed on online intermediaries. This is a remarkable development. Street traders selling more or less obvious knock-off products of expensive brands have been a common picture in cities around the globe for decades. It could be argued that the rights owners react to a perceived lack of traction in enforcing against street traders by indirectly asking the CJEU to set aside some of the attention and efforts devoted to online infringement for the offline world. The CJEU was asked to decide whether it was adequate to de facto harmonize both types of secondary infringement under the terms of the case law developed in online cases.
Concerning the first referred question, it is no surprise to see the CJEU’s straight affirmation of IPRED to both an offline and online context. The reasoning seems clear and logic. However, by explicitly avoiding a further assessment of whether other types of intermediaries than physical marketplaces subletting stalls could also fall into the scope of Art. 11 IPRED (para 28, referring to the example of electricity providers in the Prague High Court judgement), the CJEU may have opened a can of worms . Rights owners have had notorious difficulties in pinning responsibilities to internet intermediaries to stop and prevent IP infringement in the face of wide reaching liability exemptions under EU Directive 2000/31, the e-Commerce Directive (ECD). The CJEU comment could exert now pressure on a host of other actors (payment service providers, transportation services, power utilities,…) outside the scope of the ECD to face the stick of being seen as an “intermediary” enabling trademark infringements.
The second referred question, should have been dealt with more ambitiously by the CJEU. The assertion that the interpretation in L’Oréal was based on the general and inclusive scope of IPRED, which lends itself to a straight application in Hilfiger, is ambiguous. In fact, in L’Oréal the determination of the measures that can be imposed against eBay is done consistently in conjunction with the ECD, i.e. in the context of the intermediary operating electronically (L’Oreal, paras 133, 139, 142). The CJEU itself headed its assessment in L’Oréal “Measures imposed on online service providers” (above para 135). Moreover, at least the reasoning on the prohibition of a requirement to exercise general and permanent oversight over its customers should have been more nuanced. It is clear from L’Oreal that the assessment is mainly owed to Art. 15 ECD, which precludes authorities to require from intermediaries that they actively monitor all data of their customers (L’Oreal , para 139). Although the CJEU says that a general monitoring duty would also be incompatible with Art. 3 IPRED, which requires any measures to be proportionate, fair and not excessively expensive, it owes a separate assessment on that matter in L’Oréal. It can be assumed that this decision was therefore taken in direct connection with Art. 15 ECD, which plainly forbids such a general monitoring and therefore is unproportionate and unfair according to IPRED. While a general monitoring duty may not be allowed for online intermediaries, a proper proportionality assessment for physical intermediaries according to IPRED would have been adequate in Hilfiger. In the end the ECD was developed because of the new nature and opportunities of e-commerce. Art. 2 (3) of IPRED specifically excludes its application to the liability exemptions of the ECD.
It is submitted here that that a more nuanced review and application of L’Oreal would have been appropriate. In the end two entirely different sales channels are being assessed. If anything, the e-commerce sector has revolutionized formerly brick and mortar retail, but the new (technological) means of doing business have called for a separate regulatory regime. Now re-applying this more refined regime in a formalistic way to the offline world, by looking only at the nature of the business (retail intermediary) without taking into account the different technological characteristics, seems questionable. The failure to make this distinction may set a precedence may for a similarly uncritical approach when looking at new business models, which increasingly merge online and physical business activities. For example, E-commerce marketplaces like eBay or Amazon have for some time been offering (physical) storage and delivery services to their sellers. Thus, in a German case, which involved the Fulfilment by Amazon service offered by the ecommerce giant to its sellers, this (new) physical involvement of the intermediary did not play a role when assessing its trademark infringement prevention duties, thanks in part due to the application of Hilfiger.
 Mc Fadden v Sony, C‑484/14, ECLI:EU:C:2016:689; Stichting Brein v Jack Frederik Wullems (Filmspeler), C‑527/15, ECLI:EU:C:2017:300; Stichting Brein v Ziggo, XS4ALL Internet, C‑610/15, ECLI:EU:C:2017:456;
 Tommy Hilfiger Licensing and LLC, Urban Trends Trading BV, Rado Uhren AG, Facton Kft, Lacoste SA, Burberry Ltd v Delta Center a.s, C‑494/15, ECLI:EU:C:2016:528
 L’Oréal (UK) Ltd v eBay, C-324/09, ECLI:EU:C:2011:474 (CJEU)
 EU Directive 2000/31, Art. 12 – 15
 OLG München, 29.09.2016 – 29 U 745/16, BeckRS 2016, 111591 (only in German)
 Ibid., in paras 66, 67 of the judgement the court affirms that Hilfiger did not set any new criteria beyond L’OréalAuthor : RSI Blog