Cartier v BT:  Supreme Court Decision on Costs

June 13, 2018

Summary

The Supreme Court judgment in Cartier v BT gives rise to the following outcomes:

• BT and EE can recover their marginal costs of complying with the blocking orders in this case;
• The ISPs dropped their case that they should be entitled to recover the significant costs that they incur in acquiring and upgrading website blocking systems;
• The ISPs must pay Richemont’s costs of the main litigation before the High Court and Court of Appeal;
• The decision does not affect the availability of blocking injunctions and does not preclude a different order where the intermediary is not “legally innocent“.

Background

The appeal concerns two website blocking orders obtained in 2014 by Maisons within the Richemont Group (owners of brands Cartier, Montblanc and IWC). The orders required the five major UK internet service providers (ISPs) to block certain counterfeit-selling websites.

At first instance, Arnold J held that the court had jurisdiction to grant injunctions against ISPs whose services are used to infringe trade marks, despite the absence of any provision in UK trade mark law equivalent to section 97A of the Copyright, Designs and Patents Act 1988; that the threshold conditions established in section 97A cases applied; that those threshold conditions were satisfied on the facts; and that it was appropriate and proportionate to grant the orders sought.

Arnold J also held that the costs regime adopted in section 97A cases since 2011 should apply – the rightholder bears the costs of an unopposed application, of monitoring the locations of the target websites once blocked, and of notifying the ISPs of any updates; and the ISPs bear the costs of implementing the blocking order.

The Court of Appeal upheld Arnold J’s first instance decision in full (see here).

The Supreme Court Appeal

The appeal to the Supreme Court was brought by BT and EE. The other ISPs who were party to the proceedings in the lower courts did not participate.

BT and EE obtained leave to appeal the costs allocation that the High Court and Court of Appeal had ordered. They were refused permission to appeal the wider question of the conditions that should apply for blocking orders to be made.

The question of how costs relating to the appealed orders should be approached had two related facets: first, the costs that the ISPs incur in complying with blocking injunctions; and second, the legal costs of the proceedings.

The ISPs’ compliance costs fell into the following categories:

• Infrastructure costs – i.e., the costs of acquiring and upgrading the equipment used to implement the blocking orders;
• Management costs – i.e., the costs of managing the blocking systems, including customer service, and network and systems management;
• Marginal initial implementation costs – i.e., the costs of processing the blocking orders and configuring the blocking systems;
• Updating costs, – i.e., the costs of updating the locations to be blocked over the lifetime of the orders in response to notifications from the rightholders; and
• Potential costs and liabilities resulting from third party claims in connection, for example, with over-blocking or malicious attacks provoked by the blocking.

The ISPs abandoned their claims in respect of historic infrastructure costs prior to the hearing. Those costs are significant. As identified by Arnold J in Cartier ([2014] EWHC 3354), BT alone has spent a seven figure sum purchasing its original blocking system and has spent further sums in relation to a new system for blocking.

As observed by the Supreme Court, “[m]ost if not all” of the category (i) and (ii) costs “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 focus of the appeal was therefore on costs under heads (iii), (iv) and (v), and the litigation costs.

Judgment

The judgment, given by Lord Sumption, considered the EU law framework in this area, comprising three Directives: the E-Commerce Directive (2000/31/EC), the Information Society Directive (2001/29/EC); and the Enforcement Directive (2004/48/EC).

Although acknowledging that Recital 59 of the Information Society Directive contemplates that the most effective way of putting an end to a course of infringement may be an injunction against an intermediary, Lord Sumption concluded that none of the Directives deal in terms with the position on costs as between the rightholder and an intermediary. In his view, it therefore followed that “the incidence of compliance costs is a matter for English law, within the broad limits set by the EU principles of effectiveness and equivalence, and the requirement that any remedy should be fair, proportionate and not unnecessarily costly“.

Lord Sumption proceeded to apply the “ordinary principle” under English law that “unless there are good reasons for a different order an innocent intermediary is entitled to be indemnified by the rights-holder against the costs of complying with a website-blocking order.” The result of that approach is that the Supreme Court has directed that the orders under appeal be amended to provide that Richemont indemnify BT and EE in respect of their reasonable costs of processing and implementing the orders in categories (iii) (marginal initial implementation costs), (iv) (costs of updating the orders); and (v) (potential costs and liabilities resulting from third party claims).

Fundamental to the conclusions reached by the Supreme Court is that the ISPs are “legally innocent”. In the present case, this is stated to be on the basis that they are “mere conduits” and would not have been liable for trade mark infringement in any event.

Lord Sumption expressly acknowledges that a different conclusion may apply in other circumstances. The judgment notes, for example, that “without the [E-Commerce Directive] immunities caching might give rise to liability for breach of copyright” and that “[d]ifferent considerations may apply to intermediaries engaging in caching or hosting governed by articles 13 and 14 of the E-Commerce Directive, because these operations involve a greater degree of participation in the infringement, which is more likely to infringe national laws protecting intellectual property rights if the conditions of immunity are not satisfied.”

In relation to the costs of the litigation (which will undoubtedly eclipse BT and EE’s marginal implementation costs in respect of the appealed orders), it was held that Arnold J was plainly entitled to award costs against the ISPs. The ISPs had made the litigation a test case and had strenuously contended that the Court had no jurisdiction to grant the orders.

Comment

The judgment introduces a degree of divergence between the UK and the majority of other EU Member States in so far as costs are concerned.

The overall effect of the decision is that trade mark owners who seek blocking orders will need to pay for reasonable implementation costs, but they will not have to pay towards the significant costs incurred by ISPs in acquiring blocking systems or the costs of managing the blocking systems. What “reasonable costs” will actually be payable by Richemont under the orders is yet to be determined.

The ISPs are required to pay the costs of the litigation in the lower courts.