Landlords beware of tenants selling counterfeit goods!
It has been recently confirmed in the Court of Appeal that brand owners can seek injunctions to prevent internet service providers from hosting on-line traders who are selling counterfeit goods.
A recent European decision has extended this principle to owners of physical market places - a potentially difficult position for landlords of retail spaces.
The case concerned a Market Hall in Prague, in which Delta Centre was a tenant. Delta Centre was, in turn, sub-letting spaces to individual traders who were selling counterfeit Tommy Hilfiger, Lacoste, Burberry and other well known brands.
Under consideration in this case was the Enforcement Directive. This is a piece of European legislation which provides various remedies that courts may grant in cases of infringement of intellectual property rights, in particular to prevent the sale of counterfeit goods.
The Directive grants to brand owners in the EU the ability to apply to the court for injunctions against ‘intermediaries’ – who are assisting (albeit “innocently”) with the infringement. The issue in this case was whether Delta Centre, as landlord of the market stalls, could be classified as an ‘intermediary’. Delta Centre’s contracts with the traders required compliance with relevant regulations and the traders were provided with brochures warning them that the sale of counterfeits was forbidden and may lead to termination of their rental contract.
Tommy Hilfiger asked the Czech courts to order, amongst other things, that Delta Centre: a) refrain from extending or concluding contracts with those who sold counterfeit goods; and b) refrain from extending or concluding other contracts that do not specifically prohibit infringement of Tommy Hilfiger’s (and others) intellectual property rights on penalty of termination.
The application was rejected by the High Court of Prague. The Court ruled that the provisions could not extend to the grant of a commercial licence to a market trader without absurdity(for example, by making electricity companies liable for providing the electricity that infringers use to make counterfeit goods). The brand owners then appealed to the Supreme Court of the Czech Republic who referred the question to the highest court of the EU (CJEU).
The CJEU disagreed with the High Court of Prague and ruled that persons who let retail space to traders who then use their pitches to sell counterfeit branded products, fall within the concept of ‘an intermediary whose services are being used by a third party to infringe an intellectual property right’. Accordingly in those circumstances, the brand owners may seek injunctions against the landlord as intermediary.
This is of course good news for brand owners, who now have an extra device in their arsenal in the fight against the sale of counterfeit goods. However, it places landlords in an awkward position.
This judgment does not mean that landlords are now ‘to blame’ for their tenants selling counterfeit goods. Any action against landlords will not extend to damages or accounts of profit; instead the remedy is an injunction to stop the continued sale of counterfeit goods.
The CJEU also made clear that any injunction granted must be equitable and proportionate; they cannot therefore be excessively expensive and must not create barriers to legitimate trade. So, for example, landlords do not have to “exercise general and permanent oversight” of their tenants 24 hours a day to check they are not selling counterfeit goods.
This ruling certainly does mean, however, that landlords can no longer turn a blind eye when they learn that counterfeit goods are being sold by their tenants. On the contrary, landlords must now co-operate in preventing counterfeits being sold from their premises.
One question which still appears to cause disagreement is who should bear the costs of complying with these injunctions. The English Court of Appeal has ruled that, whilst the brand owners must pay for the court action, internet service providers must bear the costs of blocking on-line infringers. Brand owners may therefore seek to extend this principle to physical premises, making landlords bear their own costs in dealing with infringement by their tenants. It would not be surprising if this were the subject of future disputes
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