Bad news for landlords but good news for brand owners
As a result of the decision in Tommy Hilfiger v Delta Center, commercial landlords may now have to give greater consideration to intellectual property law and, in particular, whether their tenants could be infringing the intellectual property rights of third parties.
In this case the Court of Justice of the European Union (the “CJEU”) extended the principle laid down in the case of L'Oréal v eBay, under which operators of online marketplaces, such as eBay, can be forced to stop trade mark infringements committed by its users, and ruled that an operator of a traditional physical marketplace could also be subject to the same enforcement action.
The judgment in Tommy Hilfiger v Delta Center should not be seen solely as a warning to landlords of marketplaces, but to any landlord whose tenants could be selling infringing items from its property.
Delta Center a.s. (the “Defendant”) operates a traditional stalled market in Prague, and sublets sales areas within the marketplace to traders. The Defendant issued guidance to each of the traders which clearly stated that the sale of counterfeit goods was forbidden, and the Defendant’s contract with each trader required the trader to comply with all applicable regulations.
However, despite these precautions, manufacturers and distributors of legitimate branded products observed that counterfeit goods were being sold at the market. As a result, Tommy Hilfiger and other high end clothing designers, including Burberry and Lacoste (the “Claimants”), brought an action in the Czech Republic against the Defendant.
Of course, the Claimants could have brought actions against the operators of each of the offending stalls for trade mark infringement. However, the Claimants would have been unlikely to recoup their legal costs from the stall holders; and, it would not have offered a long-term solution as a new trader, which also sold counterfeit goods, could take the stall holder's place.
Instead the Claimants applied for an injunction to be issued against the Defendant to, amongst other things, prohibit it from granting contract extensions to those market stall operators that were known to be selling counterfeit goods. The Claimants relied on Article 11 of Directive 2004/48 (the “Enforcement Directive”) which requires that '[Countries within the European Union] shall [..] ensure that rightholders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right'.
The Czech Supreme Court referred two questions to the CJEU. Firstly, could Article 11 of the Enforcement Directive be applied to the operator of a physical as well as an online market place; and, secondly, if so, should any injunction granted against the operator be subject to the same conditions laid down by the CJEU in L'Oréal v eBay?
The CJEU ruled that it was irrelevant whether the marketplace was online or physical as the scope of the Enforcement Directive is not limited to e-commerce. It confirmed that a market place operator which sublets sales pitches in a marketplace to third parties, and which provides the opportunity to those third parties to sell counterfeit goods in that marketplace, must be classified as an ‘intermediary’ under Article 11.
The CJEU also confirmed that the conditions laid down in L'Oréal v eBay as to the nature of the injunction that may be issued against an online intermediary were equally as applicable to the operator of a physical market place. Namely, the injunction must be proportionate and equitable in all the circumstances and must not create barriers to legitimate trade or be excessively costly. The intermediary can be forced to take actions which help prevent repeated infringements by the same market trader. However, the intermediary cannot be required to exercise permanent oversight of its customers’ actions.
Points to Consider
- This ruling is excellent news for brand owners, who can now potentially win actions against both the trader selling the infringing goods and also the landlord of the premises from which the goods are sold. It should now be cheaper and easier for brand owners to prevent infringing goods being sold at traditional style markets.
- The ruling is bad news for commercial landlords, particularly those of sales points in shopping centres, outdoor marketplaces and market halls, who may now be forced to take action against tenants infringing a third party’s intellectual property rights. Landlords that are likely to be affected should consider:
- whether tenancy agreements should be amended to ensure that the landlord has the ability to terminate the tenancy on notice without liability should the tenant have infringed a third party’s intellectual property rights; and
- whether to put in place policies to ensure that the landlord is made aware of any tenant found to be selling counterfeits and that appropriate action is taken as a result. If a landlord does not oversee the day-to-day running of the property, it may also wish to consider whether the management company should be required to carry out more regular checks of the property.
- Although Tommy Hilfiger v Delta Center related to trade mark infringement, the courts may be willing to extend the principle laid down in this case to the infringement of other types of intellectual property right, such as copyright. For example, a tenant would be infringing a third party's copyright by selling pirate copies of music and films.
- It is important to note that the judgment does not mean that landlords will be liable to pay damages to the brand owner if their tenants sell counterfeit goods. However, a brand owner can apply for an injunction to be granted against a landlord compelling it to prevent the continued sale of counterfeit goods. The consequences of failure to comply with such an injunction can be severe. Accordingly, landlords cannot turn a blind eye if infringing goods are being sold from their premises.
- While some commercial landlords may feel that the ruling is a step too far, and that, by issuing guidance and including appropriate provisions in its agreements with traders, the Defendant had done enough, operators within other sectors are already required to undertake ongoing due diligence on their customers. Accountants and solicitors must undertake anti-money-laundering checks, and residential landlords must ensure that their tenants have the right to live and work in the UK. The decision does not require landlords to exercise general and permanent oversight of their tenants, however it does increase the burden on landlords to take some form of responsibility for the actions of their tenants in relation to the infringement of intellectual property.
 L'Oréal SA and Others v eBay International AG and Others C-324/09