Parallel imports are a common issue for brand owners, particularly with the continuous increase of online trade.
Parallel imports, or ‘grey market goods’, are branded goods that are imported into and sold without the owner’s permission in a market where the specific branded goods in question have not yet been distributed. Infringers usually buy the products legitimately in one market in order to sell them in a different market where the price is higher, in order to undercut the legitimate market. However, once the rights holder has put the goods in question on the market in the EU or permitted the goods to be put on that market, it has exhausted its rights in that jurisdiction and is then unable to prevent parallel imports. For these purposes, the EU is treated as one jurisdiction. So, if the particular items in question are put onto the market in one member state by or with the consent of the rights holder, that rights holder will be unable to prevent those specific goods being imported into any other member state in the EU.
There are commercial methods that businesses can adopt to try to deter online parallel imports in this jurisdiction, but this article is intended to provide a summary of one particular relatively recent civil remedy, an internet blocking injunction against internet service providers (ISPs), and how effective that remedy is in practice. While this approach does not stop the problem at source, and a parallel importer may therefore still find ways around any such blocking order, such orders are difficult to circumvent in the jurisdiction concerned and can therefore be a very useful practical remedy. As explained below, the dynamic nature of this order enables rights holders to rapidly track and block access to new websites for relatively minimal costs and thus make it more difficult for the parallel importer to avoid the effects of the order.
What to do when you identify grey market goods online
Once the individual or company responsible for the parallel imports has been identified, the first step will usually be to contact them directly requiring them to cease and desist, in order to try to resolve the issue as inexpensively as possible without issuing court proceedings. A cease and desist letter sent to the importer should set out details of the rights holder’s trademarks on which they rely and request appropriate undertakings. Even though this is not likely, in practice, to resolve the matter, it should, for the reason set out below, be done before writing to an ISP.
If the dispute is not resolved satisfactorily through pre-action correspondence, a rights holder may decide to issue proceedings against the parallel importer to obtain an injunction preventing it from infringing the rights holder’s trademark.
It is also open to a trademark owner to seek the transfer of the relevant domain to it from the website owner either through the relevant country’s domain registry (e.g. Nominet in the UK) or through ICANN’s Uniform Domain Name Dispute Resolution Policy (UDRP) for domains with a generic top-level domain (for example, .com or .net).
However, rights holders rarely take such action because, even if such actions are successful, the orders obtained can easily be ignored or circumvented by website owners. Parallel importers are often located in jurisdictions where it is difficult to enforce an English judgment and, even if they are not, they may move to another jurisdiction to avoid enforcement of a judgment. It is relatively easy and inexpensive for infringers to simply set up a clone website using a different domain, from which it can continue selling grey market goods. Those difficulties raise the question of what effective measures rights holders can take to prevent parallel imports.
Internet blocking injunctions for IP infringement
The leading UK case of Cartier International and others v British Sky Broadcasting and others (2016) established the availability and conditions for the grant of internet blocking injunctions against ISPs in trademark infringement claims. While there is legislation enabling rights holders to obtain blocking injunctions against ISPs in relation to copyright infringement claims, there is no such English legislation or EU regulation enabling that for trademark infringement. Cartier was the first case to deal with blocking injunctions for trademark infringement in the EU.
In that case, Cartier and the other claimants obtained an injunction against five of the main ISPs in the UK. The injunction required those ISPs to block access to specified websites that were offering for sale counterfeit goods bearing the claimants’ trademarks.
Practical effect of Cartier for parallel imports
Following Cartier, it is open to trademark owners who have identified websites that are illegally selling products bearing their trademark (whether counterfeit or grey market goods) to obtain blocking injunctions against ISPs to stop online parallel importers who refuse to engage with actual or threatened legal proceedings or where direct action against the infringer is unlikely to be effective.
In such circumstances, the rights holder can take action against ISPs to block access to the infringing website(s) in the ISP’s jurisdiction. As it is extremely unlikely that an ISP would take any action to block access to the website in the absence of a court order, the first step to take in relation to the ISP (having already written to the infringer) before making an application to court should be to write to the ISP to inform it of the infringing activity and put it on notice of the intended application (see (4) below). It is very rare for an ISP to challenge the application and it will be for the court to decide whether or not to exercise its discretion to grant an order on the basis of the information available.
Before the court will grant an injunction, certain threshold conditions must be satisfied. These are:
1. The ISP must be an intermediary;
2. The third party’s website must be infringing the rights holder’s trademarks;
3. The infringing third party must use the ISP’s services to do so; and
4. The ISP must have actual knowledge of this (for example, when provided with notice by the rights holder).
If those threshold conditions are satisfied, the court will take into account the following additional principles when deciding whether or not to grant such an order, namely the relief must:
a) Be necessary to combat the infringement of the rights holder’s trademark;
b) Be effective in that an injunction will at least seriously discourage users from accessing the target website;
c) Dissuade third parties from infringing in the future;
d) Not be unnecessarily complicated or costly;
e) Avoid barriers to legitimate trade;
f) Be fair and equitable to strike a ‘fair balance’ between the applicable fundamental rights; and
g) Be proportionate.
The court will also take into account the substitutability of other websites for the target websites. If there are a large number of alternative websites offering for sale similar parallel imports that are accessible to a user in the jurisdiction, then it is less likely to be effective and proportionate to block access to the infringing website. However, in those circumstances, the rights holders can, of course, also take action against those other websites.
Any order granted by the court should also ensure that it provides safeguards against the abuse of any such remedy. One such safeguard is the inclusion of a provision allowing the ISPs or the owners of the target website to apply to the court to discharge or vary the order, for example, to enable them to dispute that the website infringes the rights holder’s IP. However, in practice, this is unlikely, particularly in circumstances where the parallel importer has been unresponsive to pre-action correspondence. Further, the blocked websites should display a page which identifies the name of the party that obtained the order and makes clear to the user that they have the right to apply to the court to discharge or vary the order.
Finally, the court in Cartier stated that website blocking orders should not be in force longer than necessary. It therefore ruled that the order should only last for a defined period of time (in that case, two years) unless either the ISP consents to, or the court orders, the continuation of the order.
In most instances, whether or not the threshold conditions are satisfied will be a relatively straightforward matter. The applicant must then focus on the additional principles listed above.
When considering whether or not an injunction is necessary to combat the infringement of the rights holder’s mark, the court will consider whether alternative measures are available which are less onerous. Accordingly, the court is likely to take into account whether or not the rights holder has sent a cease and desist letter to the infringer and whether the infringer has responded. If a rights holder has tried to resolve the matter directly with the infringer but the infringer has not been responsive, then the court is more likely to conclude that the order being sought against the ISP is necessary to achieve a just outcome. It is, for this reason, that even though action against the infringer is unlikely to be effective, it is sensible to write to them before seeking an order against the ISP.
The court made clear in Cartier that it was not necessary for the rights holder to demonstrate that the blocking order would be effective in reducing the overall level of infringement of its IP rights. Rather, the question is whether the order would at least seriously discourage users from accessing the target website. While the court recognises that some dedicated people will always find ways around a court order to obtain goods illegally, it accepts that a blocking order against the ISP which hosts the site will discourage the general public in that jurisdiction from accessing the site. If, however, there are a lot of other similar websites that are accessible to users, the court will take that into account, as it would serve to reduce the effectiveness that an injunction would have on discouraging users from accessing such websites generally. Nonetheless, although the court in Cartier accepted that there were “a huge number of other infringing websites”, it still considered the blocking order to be justified and proportionate.
Further, and importantly, if the applicant obtains evidence that an infringer has found ways around the order by, for example, moving the website to a different domain name, the order provides for the rights holder to notify the ISPs of additional IP addresses and/or URLs that should be blocked. This can therefore be done without incurring the costs of returning to the court to obtain another order in respect of the new domain. There are companies that can be engaged for a reasonable cost to monitor the IP addresses and domains for the targeted websites through an automated process. The dynamic nature of this order, therefore, enables rights holders to rapidly track and block access to new websites at a relatively low cost.
In relation to the requirement to avoid barriers to legitimate trade, the question is whether the relevant website sells infringing products only and, if not, whether it would still be fair to make the order. The court will look at the overall picture and assess whether the existence of some legitimate activity means that it would not be appropriate to block the whole website. The fact that there is some legitimate trade would not be an absolute bar to a blocking order as, otherwise, a party could effectively get a free pass for its unlawful activity by including a small amount of legitimate trade. There is no hard and fast rule on the amount of legitimate activity required, and this is a developing area of the law, but the proportion of legitimate activity will be a relevant factor to be taken into account by the court on a case by case basis.
Such an order is usually sought against the five ISPs that cover approximately 95% of the UK market: BSkyB, BT, EE, TalkTalk and Virgin Media (as it was in Cartier), even where only one of those ISPs is hosting the website(s) in question. Obtaining a blocking order against those companies is therefore very effective in preventing access to the infringing website by consumers, particularly when coupled with the ability to monitor the infringing website and add new URLs to the blocking order if the website moves to a different URL or one of the other ISPs.
This will usually be uncontentious, provided the website at the new URL is substantially the same as the website that is covered by the existing order. The answer to the question of whether the website is the same does not depend upon the appearance, but rather the nature of the website and whether it is carrying on the same or similar activity as the infringing website.
Only if there is a change in the nature of the activity so as to alter the assessment of the threshold conditions or discretionary factors would a rights holder have to go back to court. By way of example, if the proportion of legitimate trade has changed significantly so that before the majority of the website dealt with illegitimate goods, whereas now the majority deals with legitimate goods, then it might have to be reconsidered by a court.
Applying for a website blocking order against ISPs is a useful option for rights holders who are concerned about stopping online parallel imports, particularly in circumstances where the infringing party is proving unresponsive to other methods, which they normally are.
The costs of applying for a blocking order against an ISP are likely to be less than applying for an injunction directly against an infringer who actively contests the injunction. This is because, in practice, it is very rare for an ISP to engage in the application to either consent or object to the order. However, it is also important to note that the Supreme Court in Cartier ruled that rights holders must indemnify the ISPs for their costs of implementing the order, which will add to the costs of this route, although those costs are usually modest.
Obtaining such an order would also not lead to payment of damages by the infringer. A rights holder would be required to take action directly against the infringer itself in order to recover damages. However, obtaining damages is not normally the main concern of a rights holder whose priority is the protection of its brand and its network. There can also be potential difficulties with quantifying the loss suffered in the absence of any information from the defendant and with the enforcement of a money judgment directly against the infringer, particularly where (as is often the case) the infringer is based in a jurisdiction where it is not easy to enforce an English judgment.
The Information Society Directive sets out a party’s right to apply for an injunction against intermediaries in relation to copyright or related rights and was transposed into domestic law by the Copyright and Related Rights Regulations 2003 (SI 2003/2498). However, the provision in the Enforcement Directive (2004/48/EC) extending this right to all forms of IP was never transposed into English law. Nonetheless, the Supreme Court in Cartier confirmed that the basis for granting such injunctions lies in English common law, as it would for any other type of injunction, rather than under the Enforcement Directive (2004/48/EC). As such, the right to apply for such orders will survive Brexit. However, trademark owners considering this avenue should note that this is still very much a developing area of law.
Rights holders should also note that, although orders to date have been made against ISPs, the jurisdiction exists to make orders against any intermediaries. That could include anyone involved in or facilitating the wrongdoing such as payment providers, search engines and others.
Mark Lewis is a partner and Charlotte Tanner an associate at Kemp Little in London.
The above guidance reflects the law as of May 29 2019.