Injunctions against ISPs - the Supreme Court decides who pays the Cost of Compliance: Cartier International and Others v BT and Others
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Supreme Court (Lords Mance, Kerr, Sumption, Mance and Hodge) Cartier International AG and others v British Telecommunications Plc and another [2018] 1 WLR 3259, [2018] WLR 3259, [2018] WLR (D) 354, [2018] UKSC 28
What this Appeal was about
In Cartier International AG and others v British Sky Broadcasting Ltd and others : [2015] EMLR 10, [2015] 1 All ER 949, [2015] 1 All ER (Comm) 641, [2015] RPC 175, [2014] EWHC 3354 (Ch), [2015] BUS LR 298, [2015] RPC 7, [2015] Bus LR 298, [2015] ETMR 1, [2014] WLR(D) 464 Mr Justice Arnold made an order requiring British Sky Broadcasting Ltd. and other internet service providers ("ISPs") to block access to certain websites which promoted the sale of counterfeit products under s.37 (1) of the Senior Courts Act 1981. I blogged about the case in Injunctions against ISPs Part VIII: Cartier International AG and Others v British Sky Broadcasting Ltd and Others 6 Jan 2015.
In order to comply with blocking orders such as Mr Justice Arnold's ISPs incur the following costs:
"(i) the cost of acquiring and upgrading the hardware and software required to block the target sites;
"(i) the cost of acquiring and upgrading the hardware and software required to block the target sites;
(ii) the cost of managing the blocking system, including customer service, and network and systems management;
(iii) the marginal cost of the initial implementation of the order, which involves processing the application and configuring the ISP’s blocking systems;
(iv) the cost of updating the block over the lifetime of the orders in response to notifications from the rights-holders, which involves reconfiguring the blocking system to accommodate the migration of websites from blocked internet locations; and
(v) the costs and liabilities that may be incurred if blocking malfunctions through no fault of the ISP, for example as a result of over-blocking because of errors in notifications or malicious attacks provoked by the blocking."
(per Lord Sumption at para [5] of the Supreme Court's judgment).
(per Lord Sumption at para [5] of the Supreme Court's judgment).
History of the Litigation
The case before Mr Justice Arnold was whether the court had jurisdiction under s.37 (1) of the Senior Courts Act to make blocking orders of the kind expressly provided for by s.97A of the Copyright Designs and Patents Act 1988. His lordship found that he had and ordered the ISPs to bear the implementation costs mentioned above. The ISPs appealed to the Court of Appeal in Cartier International AG and others v British Sky Broadcasting Ltd and others [2017] RPC 3, [2017] Bus LR 723, [2016] EWCA Civ 658, [2017] Bus LR 1, [2016] ETMR 43, [2016] WLR(D) 389, [2016] EMLR 23, [2017] 1 All ER (Comm) 507, [2017] 1 All ER 700, [2016] Info TLR 1 which upheld the judgment of Mr Justice Arnold. I discussed the appeal in Injunctions against ISPs: The Cartier Appeal 18 July 2017. A point that I did not mention in my case note was that Lord Justice Briggs delivered a short dissenting judgment between paras [197] and [212] on who should carry the implementation costs. He concluded at para [211]:
"So, I would have allowed this appeal to the extent of imposing upon the applicant for a trademark blocking order the specific cost incurred by the respondent ISP in complying with that order, but not the cost of designing and installing the software with which to do so whenever ordered. It is, according to the evidence, a modest cost but one which in principle the rightsholder ought to defray as the price of obtaining valuable injunctive relief for the better exploitation of its intellectual property. I consider that, while there may be exceptional cases justifying a different order, the judge was wrong in principle in concluding that the ISP ought usually to pay the costs of implementation."
"So, I would have allowed this appeal to the extent of imposing upon the applicant for a trademark blocking order the specific cost incurred by the respondent ISP in complying with that order, but not the cost of designing and installing the software with which to do so whenever ordered. It is, according to the evidence, a modest cost but one which in principle the rightsholder ought to defray as the price of obtaining valuable injunctive relief for the better exploitation of its intellectual property. I consider that, while there may be exceptional cases justifying a different order, the judge was wrong in principle in concluding that the ISP ought usually to pay the costs of implementation."
The points on jurisdiction and the criteria for making blocking orders under s.37 (1) that were considered by Mr Justice Arnold and the Court of Appeal were not in issue in the appeal to the Supreme Court. The only issue for their lordships was the question raised in the dissenting judgment of Lord Justice Briggs.
The Supreme Court's Decision
The Supreme Court unanimously allowed the ISPs' appeal and varied Mr Justice Arnold's orders so as to require the businesses seeking the blocking order to indemnify the ISPs in respect of their reasonable costs of processing and implementing the order. The judgment was delivered on behalf of the Court by Lord Sumption. A video of Lord Sumption reading a summary of his judgment appears on the Supreme Court's YouTube channel (see Cartier International AG and others v British Telecommunications Plc and another 13 June 2018) and there is also a useful press summary on the Supreme Court's website.
Understanding the Decision
In making his order Mr Justice Arnold followed the practice that he had established in Twentieth Century Fox Film Corporation and Others v British Telecommunications Plc [2012] Bus LR 1525, [2012] 1 All ER 869, [2011] EWHC 2714 (Ch) that those seeking blocking orders bear the costs of the unopposed proceedings to obtain those orders but ISPs pay the costs of implementing them. He justified his decision in 2012 on two. grounds:
"In my opinion 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. As a matter of English law, the ordinary principle is 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 position in relation to website-blocking orders is no different in principle from the established position in domestic law in the case of Norwich Pharmacal orders, freezing orders and other injunctions granted to require an innocent party to assist the claimant in the assertion of its rights against a wrongdoer."
- Commercial equity: ISPs make money by providing services to the general public which includes infringers and the costs of preventing those infringers from accessing wrongdoers' websites is an unavoidable cost of providing the services; and
- EU law: The second was that it was implied by the directives that require member states to make blocking orders available.
The Supreme Court examined the legal basis upon which website-blocking injunctions are made which required an analysis of both domestic and EU law.
Between paras [8] and [15] Lord Sumption considered the cases in which it was held that an innocent third party can be ordered not to allow his facilities to be used to commit or facilitate a wrong. Those cases included Upmann v Elkan(1871) LR 12 Eq 140, Norwich Pharmacal Co v Customs and Excise Commissioners [1973] FSR 365, [1973] 2 All ER 943, [1974] RPC 101, [1973] 3 WLR 164, [1973] UKHL 6, [1974] AC 133 and Miller Brewing Co v Mersey Docks and Harbour Co [2004] FSR 5.
Between paras [16] and [26] his Lordship analysed Parliament and Council Directives 2000/31/EC (“the E-Commerce Directive”), 2001/29/EC (“the Information Society Directive”) and 2004/48/EC (“the Enforcement Directive”). He concluded at [27] that none of the directives deals in terms with the position on costs as between a rights-holder and an information society service provider. He held at [31]:
"In my opinion 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. As a matter of English law, the ordinary principle is 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 position in relation to website-blocking orders is no different in principle from the established position in domestic law in the case of Norwich Pharmacal orders, freezing orders and other injunctions granted to require an innocent party to assist the claimant in the assertion of its rights against a wrongdoer."
Condition of Innocence
Lord Sumption stressed at [37] that it was critical to his conclusions that the intermediary in question was legally innocent. The appellants were legally innocent because they are “mere conduits” but different considerations might apply to intermediaries engaging in caching or hosting governed by arts 13 and 14 of the E-Commerce directive, because these operations involve a greater degree of participation which was more likely to infringe national IP law. He added, however, that that must depend on the precise facts and on the relevant provisions of national law.
Costs of the Litigation
Although the Supreme Court varied Mr Justice Arnold's order on the cost of complying with the order it did not disturb his order for costs. Lord Sumption explained why at para [38]:
"Intermediaries very rarely resist website-blocking orders, although they do insist that the claimant should obtain an order in order to protect themselves against regulatory restrictions on interfering in network communications, and complaints by third parties on various grounds. The practice in such cases should normally be to award them their costs of the action. In this case, Arnold J awarded costs against the ISPs because they had made the litigation a test case for the jurisdiction to make the order at all and had strenuously resisted the application. In the circumstances, he was plainly entitled to exercise his discretion concerning the costs of the litigation in the way that he did."
"Intermediaries very rarely resist website-blocking orders, although they do insist that the claimant should obtain an order in order to protect themselves against regulatory restrictions on interfering in network communications, and complaints by third parties on various grounds. The practice in such cases should normally be to award them their costs of the action. In this case, Arnold J awarded costs against the ISPs because they had made the litigation a test case for the jurisdiction to make the order at all and had strenuously resisted the application. In the circumstances, he was plainly entitled to exercise his discretion concerning the costs of the litigation in the way that he did."
Importance of this Decision
This judgment applies not just to applications for blocking orders under s.37 (1) of the Senior Courts Act 1981 but probably also to those under s.97A of the Copyright Designs and Patents Act 1988. It restores to the judge who hears the application for the blocking order a complete discretion as to who should bear the costs of the application and who should bear the costs of complying with it. Normally the applicant will have to bear both sets of costs but there will be exceptions two of which were mentioned by Lord Sumption. If the respondent resists the application because he wants a decision on a point of law as BT did before Mr Justice Arnold then the applicant may recover his costs if the respondent loses. Although the ISP or other intermediary can usually expect his costs of compliance there may be occasions when he cannot because he participates in the wrongdoing in some way. As in all questions involving judicial discretion it will depend on the circumstances and that will always be a matter of fact.
Further Information
Further Information
Anyone wishing to discuss this article or blocking orders in general should call me on 020 7404 5252 during regular office hours or send me a message through my contact form.
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