in the European Union

Korstiann Groot
Lawyer, REACT, The Netherlands

Ronald Brohm
Managing Director, REACT, The Netherlands

Brand-protection professionals won an important victory in July (2016) in the Court of Justice of the European Union (Court of Justice) (case # C-494/15). The decision, which concluded a 5-year battle over intermediary liability, originated in the Czech Republic. There, REACT members were being confronted with market-traders who consistently and on a large scale sold counterfeits of their brands.

It had been difficult to hold these sellers of counterfeit goods liable and initiate effective enforcement against them. This was primarily because the sellers were illegal citizens, stand-ins for the real market-traders, or used fake IDs. Furthermore, the law did not clearly establish liability of landlords for these markets. In response to this situation, REACT and some of its members (Tommy Hilfiger, Urban Trends, Lacoste, Burberry, G-Star and Rado) decided in 2011 to focus efforts on one particular landlord, the Delta Center in Prague.

The applicable EU Enforcement Directive (2004/48/EC) (“Directive”) found in Article 11 provides for liability of the intermediary “whose services are used by a third party to infringe on intellectual property rights.” This had been confirmed in the previously decided L’Oreal / eBay case (C-324/09) concerning the operator of an online marketplace and the sale of fake goods.

The case against Delta Center fits well into the mission of REACT’s program to hold intermediaries responsible for their role in supporting counterfeiting. REACT previously sought to have shipping agents (transporters) pay for storage and destruction of fake goods and summoned many Internet Service Providers (ISP’s) to court to remove their fake product offerings online.

The guiding principle behind such actions is simple: when an intermediary has been put on notice and is able to stop the infringement with reasonable efforts (mainly through a contract), then it should do so or be held liable for failure to do so. Yet landlords of physical markets had not previously been successfully challenged in court.  

The Facts and the Decision

Delta Center is the tenant of ‘Pražská tržnice’ (Prague market halls). It sublets stalls and pitches in the marketplace to individual market-traders. Counterfeit goods of REACT members’ brands were regularly offered for sale in this marketplace. REACT therefore asked the Czech courts on behalf of some of its members to order Delta Center to stop renting sales areas to those tenants committing trademark infringement.

REACT argued that, like the operators of online marketplaces in the L’Oréal / eBay case, the operator of a physical marketplace may, pursuant to the Directive be forced to take measures to prevent trademark infringements committed by market-traders who rented space from it. Although the Nejvyšší soud (Supreme Court, Czech Republic) rejected REACT’s claims, the Court of Justice, the highest court in the EU, ruled that an operator which provides a service to third parties relating to the letting or subletting of stalls/pitches in a marketplace, and which therefore offers the possibility to those third parties of selling counterfeit products in that marketplace, must be classified as an “intermediary” within the meaning of the Directive. Whether the provision of a sales point is within an online marketplace or a physical marketplace is irrelevant because the scope of the Directive is not limited to electronic commerce.  Consequently, the Court of Justice ruled, the operator of a physical marketplace may itself be forced to put an end to the trademark infringements by market-traders and required to take measures to prevent new infringements.

The Court of Justice held that not only must those injunctions be “effective and dissuasive” but also “equitable and proportionate”. They must not therefore be “excessively expensive” and must not create “barriers to legitimate trade”. The Court also ruled the intermediary cannot be required to exercise “general and permanent oversight” over its customers. That stated, the Court of Justice ruled that the intermediary may be forced to “take measures, which contribute to avoiding new infringements of the same nature by the same market-trader.”  The Court of Justice concluded that the injunctions must ensure a “fair balance” between the protection of intellectual property and the absence of obstacles to legitimate trade.

Altogether, the Court of Justice ruling is very clear: The landlord of a physical market, once receiving notice of infringing activities by its market-traders, is responsible for stopping such activities, though demands by rights owners must be “reasonable” and “proportionate.” Given the fact that market-traders are supposed to operate under a contract with the landlord, the landlord has the capability to follow up the claims by rights owners and, as long as the claims are justified, the demands are in general fairly easy to fulfill by the landlord.

The landmark decision provides an enforcement tool for rights owners when seeking to “clean” markets of counterfeit goods in EU Member States. Thanks to this ruling, rights owners can demand assistance from the landlords due to their clear liability under the EU Directive. This provides a more effective means for brand owners to pursue their rights than chasing the individual market-traders directly, which can be a cumbersome or even impossible process.

REACT is working to put the decision into action. Specifically, it is inspecting the most notorious EU markets, after which it will immediately notify landlords of any brand infringements. Should the goods not be removed by the time of a second inspection, REACT will take further legal measures in accord with the Delta case. Because many marketplace landlords are local municipalities, there may be additional challenges in the near future.

See text of full judgment at: Delta Center Judgment July 2016