The Supreme Court has recently handed down its judgment in Cartier International AG and others v BT and another, allowing an appeal made by ISPs in relation to costs.

Background:

The judgment relates to the Court of Appeal decision we previously reported here where the Court dismissed the appeal brought by the main UK internet access ISPs against an order obtained by Cartier. The order forced the ISPs to block access to certain websites used to sell counterfeit goods. The Court of Appeal decision upheld that of the High Court and confirmed the broadened application of website blocking orders, which had previously only been based on copyright infringement, under S97A of the UK’s Copyright, Designs and Patents Act 1988 (“CDPA”). The Court of Appeal in its decision concluded that the costs of enforcing the orders should be borne by the ISPs rather than the rights holders.

Who should bear the costs of implementing the blocking orders?

The ISPs appealed to the UK Supreme Court on the question of costs and won. Implementation costs of blocking orders vary according to a number of factors and five broad heads of costs were discussed:

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   1. (i) costs of acquiring and upgrading the hardware and software required to block target sites;

(ii) costs of managing the blocking system, includes customer services and network management;

(iii) marginal costs of the initial implementation of the order, which involves processing the application and configuring the ISP’s blocking systems;

(iv) updating costs which include costs of updating the block, over the lifetime of the orders, in response to notifications from the rights-holders; and

(v) costs and liabilities that may be incurred if blocking malfunctions through no fault of the ISP, for example in respect of malicious attacks provoked by the blocking or over-blocking.

The ISPs accepted that certain costs of implementation, namely under heads (i) and (ii), would be incurred in any event and therefore they did not complain about having to bear those costs. However, they disputed that they should also bear the costs under heads (iii), (iv) and (v).

The question at issue was therefore whether the rights-holders should have been required to indemnify the ISPs for implementation costs under heads (iii), (iv) and (v) above.

Judgment

The judgment firstly considered Domestic law and occasions whereby innocent parties are asked to assist a claimant but would be entitled to its costs of that assistance, notably seen in jurisprudence relating to Norwich Pharmacal orders. The Court then considered the three relevant EU directives: the 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”). The conclusion drawn was that the Directives do not address the incidence of compliance costs in the relevant circumstances, and therefore it must be a matter of National law.

In turning to English law principles, the judgment considered and subsequently placed great weight on the legal innocence of the intermediary, remarking that ISPs would not incur liability for trade-mark infringement under English law, serving as a “mere conduit”. Lord Sumption concluded that without legal responsibility for the infringement, there would be no legal basis to require such innocent party to ‘remedy the injustice’ and therefore in these circumstances, bear the burden of costs of enforcing the blocking orders.

It follows that the decision given by Lord Sumption was in favour of the ISPs and that the rights-holders should indemnify the ISPs in respect of their costs of implementing the blocking orders.