In a groundbreaking judgment (Case C-494/15, Tommy Hilfiger Licensing LLC, et al. v Delta Center a.s.) involving a trademark dispute originating in the Czech Republic, the CJEU has recently clarified that the tenant of a market hall who sublets sales areas to market-traders selling counterfeit branded goods, is an intermediary within the meaning of Art 11 of the Enforcement Directive (2004/48/EC).
The CJEU also ruled that the liability criteria adopted for online marketplace operators such as eBay (See case C-324/09, L’Oreal et al. v eBay) shall be applicable to the same extent to “offline” marketplace operators.
Good News for IP Owners
Up until now, brand owners were mostly left to pursue smaller-scale sellers of counterfeit goods on an individual basis, often involving considerable effort and costs which in many cases could not be recovered in full from the infringers. Thus, the CJEU decision will certainly be widely appreciated by all EU brand owners. It opens new doors for IP right holders who may be in the position to apply for injunctions against intermediaries whose services are used by IP infringers. Consequently, operators of physical marketplaces may be forced to take active measures against market traders engaged in the sale of counterfeit products on their premises.
In its decision, the CJEU provided a uniform EU-wide interpretation of the term “intermediary” as far as operators of public marketplaces are concerned. It is reasonable to assume that the CJEU’s interpretation in the present case may also be applicable to various other service providers such as consignment agencies and storage space providers.
Warning for Landlords and Other Commercial Service Providers
Lessors of basically any sales areas, including sales points in shopping malls, market halls, flea markets, and outdoor marketplaces (including publicly operated spaces) should now realize that they may be held liable for not taking effective action against tenants who commit IP infringements. Lessors may even face preliminary injunctions or similar measures taken by IP owners, even if they are not themselves directly involved in any IP infringements.
According to the CJEU judgment, such injunctions should be effective and dissuasive, but also equitable and proportionate. While landlords cannot be required to exercise general and permanent supervision over their tenants, they can be forced by judicial injunctions to take measures to avoid future infringements by the respective tenants who previously committed IP infringements. The measures to be taken against intermediaries in order to prevent future infringements (e.g. interim injunctions) will generally have to fit into the national procedural framework of the respective EU Member State but need to fulfill the criteria established by the CJEU. This, in some cases may require a broad interpretation of national procedural rules in order to comply with the requirements of EU law.
It will be interesting to see how the Czech Supreme Court (which originally referred the case to the CJEU and will now have to decide on the merits of the case based on the CJEU ruling) and courts in other EU Member States will implement the CJEU decision in practice. However, the judgment is a clear warning to all landlords operating in the EU, who should now evaluate their renting policies and contractual arrangements. At least from a compliance perspective, landlords should in particular ensure that they have (1) effective risk-mitigating measures in place to minimize and/or avoid the sale of counterfeit goods in their leased premises and to sanction such proven conduct (for example by reviewing and amending the relevant contractual provisions, distributing warnings and notices to create awareness among lessees, etc.); and (2) internal procedures in place to quickly react and take appropriate measures when they become aware of IP-infringements being committed by their lessees (comparable to the “notice and take down” procedures adopted for online sales platforms).
History of the Case
The case leading to the CJEU judgment is particularly interesting and dates back to 2012. The defendant in the proceedings, Delta Center a.s., is in fact currently renting the Prague Market Halls (“Prazska trznice”) situated in the heart of Prague from the City of Prague, which owns them. Delta Center in turn sublets the individual sales areas and stalls to market traders who, on many occasions, have been found to be selling counterfeit products. It is common knowledge that counterfeit goods are being sold in the Prague Market Halls, and the customs officers together with the police conduct regular raids, usually seizing hundreds of counterfeit goods.
Holders of famous brands such as Tommy Hilfiger, Lacoste, and Burberry have jointly taken action against Delta Center before the Czech courts to force Delta Center to take active measures to prevent the further sale of these counterfeit products, at least by sellers who have already been convicted in court (often criminally) or in administrative proceedings for their conduct.
In the main proceedings, IP owners requested a preliminary injunction against Delta Center ordering it to (1) refrain from concluding or extending any contracts for the rental of sales areas in the halls with persons whose conduct was held by the judicial or administrative authorities, with final effect, to constitute an infringement or a risk of infringement of the rights conferred by the trademarks mentioned in the application; and (2) refrain from concluding or extending any contracts with terms which do not include an obligation on the part of market-traders to refrain from infringing the applicants’ intellectual property rights, or a clause allowing Delta Center to terminate the contract in the event of the infringement or likelihood of infringement of those rights.
The IP owners were not successful in the first- and second-instance proceedings, primarily because the Court concluded that Delta Center could not be considered a “provider of means or services … used by a third party to infringe IP rights” (i.e., an intermediary). The case was brought before the Czech Supreme Court, which, at the moment, is seeking guidance from the CJEU.
The case is all the more interesting from the local perspective, since at the very beginning of the dispute between the brand owners and Delta Center it also became apparent that Delta Center owes the City of Prague high amounts in rent. The whole case became public, and many people have questioned the legal position of the City of Prague, which effectively is also profiting from the sale of counterfeit products.
By Denisa Assefova, Michael Woller, and Adolf Zemann, Schoenherr
This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.