Department of Law Spring Term 2020
Master Programme in Intellectual Property Law Master’s Thesis 30 ECTS
Trademark infringement online: The accountability of internet intermediaries for third-party trademark infringement in the EU and the US
Author: Philip Lindell Supervisor: Kacper Szkalej
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Table of contents 1. Introduction ...... 5 1.1. Background ...... 5 1.2. Aim ...... 7 1.3. Delimitations ...... 8 1.4. Method and materials ...... 8 1.5. Structure ...... 10 2. Enforcing trademark law: Cross-border issues ...... 11 2.1. Nature of trademarks ...... 11 2.2. Trademark infringement suits: Jurisdiction and applicable law...... 13 2.2.1. The EU ...... 13 2.2.2. The US ...... 16 2.3. Practical consequences ...... 17 3. Intermediaries in the European Union ...... 18 3.1. The negative approach to liability ...... 18 3.2. Safe harbors in the ECD ...... 19 3.2.1. Qualifying intermediaries ...... 19 3.2.2. Neutral but reactive ...... 21 3.3. EUTMD and EUTMR: Trademark infringement...... 23 3.3.1. Intermediate “use” ...... 23 3.3.2. Immediate “use”...... 24 3.3.3. Reaching the limits of harmonized law ...... 24 3.4. Secondary liability as a delineated national discretion ...... 25 3.4.1. Accessorial liability in England & Wales ...... 25 3.4.2. Störerhaftung in Germany ...... 28 3.5. Responsibility without liability: IPRED injunctions ...... 30 3.5.1. Enhancing the protection of IPRs ...... 30 3.5.2. Ex- and post-judgment relief ...... 30 3.5.3. Corrective or preventive goal ...... 31 3.5.4. Orders to monitor ...... 31 3.5.5. Fundamental rights and the scope of injunctions ...... 32 3.5.6. Geographical reach ...... 33
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3.6. Conclusion ...... 33 4. Intermediaries in the United States ...... 35 4.1. The positive approach to liability ...... 35 4.2. Infringement according to the Lanham Act ...... 36 4.2.1. Protection of registered and unregistered trademarks ...... 36 4.2.2. Safe harbor ...... 36 4.2.3. Tiffany: Intermediaries and confusing trademark use ...... 37 4.2.4. Dilution of famous marks ...... 39 4.2.5. Beyond the text of the Lanham Act ...... 40 4.3. Secondary liability under US common law...... 40 4.3.1. Contributory liability ...... 40 4.3.2. Vicarious liability...... 45 4.4. Conclusion ...... 46 5. Keyword advertising: A case study ...... 47 5.1. About keyword ads...... 47 5.2. The European Union: Google France ...... 48 5.3. The United States: Rescuecom and Rosetta Stone ...... 50 6. Diverging methods, converging results ...... 55 6.1. Infringement and trademark use ...... 55 6.1.1. Non-distinction of trademark-relevant use in the US ...... 55 6.1.2. Commercial communication and active behavior in the EU ...... 56 6.1.3. Discussion ...... 57 6.2. Responding to notices ...... 58 6.2.1. NTD in EU safe harbors ...... 58 6.2.2. NTD standards in US case law ...... 59 6.2.3. Suggestions ...... 60 6.3. Policing infringement ...... 61 6.3.1. Trademark-policing in the EU ...... 62 6.3.2. Trademark-policing in the US ...... 62 7. Concluding remarks ...... 64 Bibliography ...... 67
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1. Introduction
1.1. Background At the heart of the debate on internet intermediaries and their role in trademark infringement is an essentially economic concern. Whereas the internet makes it easier and cheaper to offer and sell counterfeits or engage in mass advertising that piggybacks on established brands, enforcement is rendered expensive and sometimes impossible. The ease with which corrupt businesses can exploit trademarks online makes this an attractive commercial activity, which in turn entails a multiplicity of infringers. Indeed, the online environment is where the global counterfeit trade has seen the most growth.1 Trademark-owners are forced to keep track of an indefinite number of potential crime-scenes on the internet and police the behavior of numerous and often unidentifiable “bad guys”. These infringers could be anywhere in the world and the trademark-owner may have no reasonable means of putting an end to their wrongdoing. The outcome is a time-consuming, expensive and highly ineffective attempt at protecting trademark rights.2
Meanwhile, intermediate internet services are instrumental tools for the modern infringer. Through online intermediaries, counterfeiters and free riders can reach a large group of consumers with very little effort or costs.3 As a business model, the facilitation of data transactions between third parties is the central purpose of and benefit offered to users by an online intermediary. In the wrong hands, however, the service merely serves as an instrument to realize large-scale illegal activity and profits. For intermediaries with vast numbers of users, such as Google and eBay, trying to keep track of the wrongdoers can be like trying to find a needle in a haystack. But unlike the
1 Frederick Mostert, 'Study on Approaches to Online Trademark Infringements' (World Intellectual Property Organization, 2017)
It is therefore obvious why rightholders see intermediaries as both a threat and a means to their end. On the one hand, these service providers profit off the exploitation of their rights. To rightholders, it seems fair to hold intermediaries liable for providing the infrastructure necessary to infringe. Because they benefit financially, irrespective of the nature of a user’s intentions, there is seemingly no incentive for intermediaries to investigate and suspend the ill-intending ones. On the other hand, the fact that these services attract many infringers makes them equally attractive to rightholders. If the intermediary can be compelled to act, the trademark owner gets away with targeting only one defendant while ending countless infringements. From this perspective, it is procedurally and economically efficient to impose some form of legal accountability on intermediaries.
Besides the interests of rightholders, however, it must be kept in mind that the online services in question generally serve the public good. Digital platforms offered by the likes of Google, Facebook and Amazon are powerful tools for businesses engaged in online trade, all while offering benefits to consumers in one form or another. The overly strict regulation of intermediaries runs the risk of dampening incentives for further innovation and diminishing the economic value and growth of the business model. It easy to overlook the fact that while a fraction of users pursues unlawful ends, the greater majority are legitimate and law-abiding. The vast number of customers drawn to the efficacies of intermediary services can make it increasingly difficult for operators to separate the good from the bad in a technically feasible and transparent manner. It can therefore be doubted whether they are able to exercise genuine and effective control over trademark infringers. More importantly, it is not obvious that holding a mere middleman accountable for an act that it does not itself commit or support is equitable in the first place.4
The sum of these antithetical policy considerations renders the ideal legal treatment of online intermediaries somewhat unclear. For intermediaries and trademark proprietors alike, three fundamental legal issues emerge.
4 Aleksandra Kuczerawy, 'Intermediary liability & freedom of expression: Recent developments in the EU notice & action initiative' (2015) 31(1) Computer Law & Security Review 46, 47. 6
Firstly, on what basis can or should legal action be taken? Conceivably, it is preferable to deal with trademark infringements from the perspective of trademark law, which is best designed to protect the functions of that right. Given the intermediate nature of these businesses, however, their role as enabler may need to be considered from alternative bases taking aim at more subsidiary involvement.
Secondly, under what circumstances can online intermediaries benefit from safe harbors in the context of trademark infringements? Safe harbors are the product of recognition, in a number of legal orders, that such intermediate services are socially and economically beneficial. Their effect is to remove the liability of service providers under certain conditions. The extent of protection offered by the many safe harbor laws is not universal, requiring disputants to navigate and determine the bounds of their application.
Finally, failing to hold online intermediaries liable for trademark infringements realized through their services, can rightholders compel their cooperation in such matters anyway? Indisputably, intermediaries are in a better position to take practical measures against those they provide their services to. From this perspective, it is desirable to explore the extent to which intermediaries must assist trademark owners in protecting their rights, irrespective of their own legal culpability for infringements.
1.2. Aim The unabating significance of the intermediary liability-question forms the basis for this research within the context of online trademark infringement. A multi-faceted evaluation of the issue and its consequences does not, as implied above, lend itself to a single, obvious legal solution. In all likelihood, a complex response that adopts a variety of legal mechanisms is probably necessary.
In this regard, it is useful to assess and compare the legislative and judicial reactions to the issue in different legal systems. Given the importance of trademark protection and the incentive for a well-functioning system of trademark law therein, the legal systems of the world’s two biggest economies, the US and the EU, will be explored here. The primary research question is thus: to what extent are online intermediaries held liable for the use of their services for trademark infringement in the EU and the US?
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Due to their significant role in shaping trademark law and protection, it is also necessary to identify the economic policy considerations that inform the decisions of lawmakers and courts. Subsidiary questions treated in this paper are: which economic interests are at stake in disputes between trademark owners and intermediaries and how have these influenced EU and US legal approaches to intermediary liability?
1.3. Delimitations Besides a focus on the legal responses in the EU and the US, three other clarifications delimit the scope of this paper. Firstly, the online/internet intermediaries referred to here are defined in accordance with the terminology advanced by the EU Intellectual Property Office. An online intermediary is taken to be a service-provider that “brings together or facilitates transactions between third parties on the internet”. It can do so by hosting, transmitting and indexing “content, products and services originated by third parties on the internet”.5
Secondly, this paper will only cover services that intermediate content, that is to say those which create the virtual space for exchanges of information. Examples include advertising services, marketplaces and social media platforms. Services which intermediate access-architecture will not be considered here, such as Internet Service Providers and domain name registrars. The reason for this distinction is that the former are proximate to acts carried out through their services while the latter are comparatively remote.6
Lastly, the research conducted here covers only civil liability and leaves aside the potential for consequences under criminal law.
1.4. Method and materials The aim of this paper is pursued by application of the comparative law method. This method, which by nature entails legal dogmatic research, allows for a synthesis and comparison of the legal frameworks in the EU and the US. Primary sources are in this regard Union legal acts and federal US statutes regulating trademark liability, together with interpretations by the EU’s Court of Justice and application by federal US courts. In the absence of or as a complement to statutory US law, principles of common law are considered as well. It is not feasible to exhaustively cover the
5 EUIPO, 'The liability and obligations of intermediary service providers in the European Union' (Publications Office of the EU, 2019)
The unique character of EU law requires that some attention be paid to the different levels of legal regulation and enforcement. Trademark law in the EU is constituted by both a regulation (the “EUTMR”) and a directive (the “EUTMD”), but this does not pose any greater problems in the present context since they are, for all relevant purposes, substantively the same. The interpretation of a provision in the EUTMR or EUTMD by the Court of Justice should be applied in the same way to an identical provision in its counterpart.7 However, the aim of this paper requires going beyond the limits of EU harmonization. Relevant aspects of tort law are not dealt with by EU legal sources and, where necessary, approaches under national law will be briefly considered. Because the objective is not to provide a comprehensive legal overview of the Member States, such discussions will be limited to the law of the UK and Germany.
Treatment of the research questions entails an analysis of the theoretical and practical foundations for stakeholder interests and legal responses. There is a deep-rooted connection between trademark protection and commercial interests.8 Economic policy choices often drive developments in trademark law and, although the primary aim of this paper is not a law and economics analysis, it is necessary to account for the economic judgments underlying the studied legal mechanisms. These considerations are not always made explicit in legislative texts or in the reasoning of the court. Assessments highlighted in scholarly literature and institutional documents will therefore also be of substantial value to understanding the economic consequences of the EU and US approaches. Moreover, this calls for consideration of private international law (PIL), which is a determining factor in the admissibility and efficiency of enforcement-efforts. An analysis of these rules is necessary to understand the difficulties rightholders are faced with in the borderless digital environment.
7 David I Bainbridge, Intellectual Property, (Pearson Education 2009), 633-634; Note: Bainbridge observes that national courts follow interpretations of the Regulation (at that time the Community Trademark Regulation) when applying national law transposing the Directive. 8 Dev Gangjee, 'Trade Marks and Allied Rights' in Rochelle Dreyfuss and Justine Pila (eds), The Oxford Handbook of Intellectual Property Law (Oxford University Press 2018), 518-522. 9
1.5. Structure Research addressing the question posed above will be structurally divided into several separate but closely linked discussions. Chapter 2 will account for one of the characteristics of trademarks that exacerbates the difficulties of enforcement in the online context: territoriality. To some extent, this characteristic explains the need for rightholders to rely on the cooperation of intermediaries. Chapters 3 and 4 then address the legal position of online intermediaries in the EU and the US, respectively, whose services have been used to commit trademark infringement. Two general approaches to regulating intermediary liability, the positive and the negative approaches, will be demonstrated in relation to these legal systems. This is followed by a case study, covering the law as applied to keyword advertising services, with the aim to demonstrate the practical consequences of the EU and US approaches (Chapter 5). In Chapter 6, a more theoretical review of the two systems will compare their rationales and account for the aptness of their legal mechanisms.
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2. Enforcing trademark law: Cross-border issues
The entitlement to exclusive rights under trademark law is an entirely distinct matter from a genuine ability to enforce them. In practice, the strength of rights is dictated by the holder’s capacity to police and prevent infringement. As described in the introduction to this paper, the theoretical prerogatives of the trademark owner do not always translate into a strong position on the borderless internet. This reality results from the inherent geographical limitations of both trademark rights and the institution of enforcement proceedings in general. In order to highlight the background against which rightholders assert the need for legal tools against intermediaries, this chapter discusses the territoriality of trademarks and rules of PIL in the EU and the US.
2.1. Nature of trademarks In analyzing the operation of an intellectual property right (IPR) in the online context, it is necessary to briefly consider the territorial limitations intrinsic to the protection and enforcement of trademarks. The interplay between the global economy and increasingly digitalized trade exerts immense pressure on this traditional view of IPRs. With more cross-border trade, the hope arises that legal systems provide better tools to manage the inefficiencies and costs which attach to enforcement in multiple jurisdictions.9
Territoriality is, nevertheless, deeply engrained in the very international instruments which aim to strengthen the position of IPR-holders. The Paris Convention establishes the so-called national treatment principle, requiring countries to extend protection to nationals of fellow signatories on the same terms as it would its own.10 Article 6 clarifies that the conditions for filing and registration of trademarks are to be determined by national law, and that the protection resulting therefrom is independent of foreign procedures (and their respective outcomes).11 The TRIPS Agreement
9 Min Eun-Joo and Wichard Johannes Christian, 'Cross-Border Intellectual Property Enforcement' in Dreyfuss Rochelle and Pila Justine (eds), The Oxford Handbook of Intellectual Property Law (Oxford University Press 2018), 689. 10 Paris Convention for the Protection of Industrial Property (as amended on September 28, 1979), article 2. 11 Ibid, article 6(1) & (3). 11 reaffirms the national treatment principle and requires WTO members to comply with the rules of the Paris Convention, among others.12 Whereas the instruments all aim to raise the standard of protection at the international level, they never manage to depart from a state-centric view. Instead, their principles consolidate the notion that the protection of IP is a strictly national and territorially delimited matter.
The rationale and modalities of protection shed some light on this age-old characteristic of trademarks and IP law in general. Trademarks are, as Dinwoodie describes them, “vessels for a legally protectable interest”.13 The primary interest in question is the goodwill from which recognitive character is derived and which allows consumers to distinguish goods of varying origin. In the EU, the Court of Justice has provided a sample of other protectable interests, which it refers to as “functions of the trademark”, and there is hardly any doubt that the list is open.14 By nature, these subjective interests have a geographical scope: a mark does not, for instance, carry any goodwill or investment-value in relation to consumers who have never been exposed to goods or marketing efforts incorporating that mark. If a trademark is to serve its raison d'être, its legal effects should be reasonably confined to the territory in which the underlying protectable interests subsist.15
With moves to registration systems, these interests – in the form of the trademarks within which they rest – have become greater instruments of economic and trade policy. With time, their scope of protection has focused progressively less on factual geographic spread and more on the limits of the legal system from which they emanate. In a world of sovereign states, policy choices and legal norms should, for reasons of international comity, traditionally be left as a matter of national autonomy.16 This macro perspective does not, however, alter the fact that there are practical implications for businesses in today’s interconnected markets. One of the many benefits of the
12 Agreement on Trade-Related Aspects of Intellectual Property Rights (as amended on 23 January 2017), articles 2- 3. 13 Graeme B. Dinwoodie, 'Trademarks and Territory: Detaching Trademark Law from the Nation-State' (2004) 41(3) Houston Law Review 885, 893. 14 Case C-323/09 Interflora Inc. and Interflora British Unit v Marks & Spencer plc and Flowers Direct Online Ltd [2011] ECLI:EU:C:2011:604, [38]; Note: Enumerations by the CJEU are consistently preceded by the phrases “such as” or “in particular”, implying that the list remains non-exhaustive, see Case C-487/07 L'Oréal SA, Lancôme parfums et beauté & Cie SNC and Laboratoire Garnier & Cie v Bellure NV, Malaika Investments Ltd and Starion International Ltd [2009] ECLI:EU:C:2009:378, [63] and Google France (n 55), [79]. 15 Dinwoodie, 'Trademarks and Territory: Detaching Trademark Law from the Nation-State' (n 13), 893-896. 16 Ibid, 898-904. 12 internet is, of course, that it transcends national borders. While it surely enables many new deals to be struck, it also amplifies the complexities of trade-based conflict. Parties in trademark-related disputes targeting online infringement will often face the problem of having to determine the appropriate forum and law for their case.17 The following section will briefly consider how issues of territoriality, in relation to trademark law, are approached in the EU and the US.
2.2. Trademark infringement suits: Jurisdiction and applicable law Disputes involving online infringement, and particularly the involvement of intermediaries, can raise many difficult questions when it comes to enforcing trademark rights. Unlike physical transactions or acts, defining where exactly a digital infringement takes place is neither obvious nor intuitive. As implied above, whether these territorially limited rights can be invoked is typically dependent on whether the correct forum and applicable law is established.
2.2.1. The EU In the EU, matters of jurisdiction and applicable law are regulated relatively clearly in legislative PIL instruments. However, trademark law in the Union is rather unique to the extent that it can provide two layers of protection with two different territorial scopes. The EU Trademark Regulation (EUTMR), on the one hand, provides for an EU trademark with unitary effects throughout the EU territory.18 The Trademark Directive (EUTMD), while largely mirroring the contents of its regulation-counterpart, on the other hand merely approximates substantive and certain procedural provisions of trademark law at the national level.19 Among other things, the Directive leaves matters of civil liability and the protection of unregistered trademarks to the Member States.
The forum for and law applicable to infringement proceedings based on national trademarks is determined by the Member States’ rules of PIL. Through the recast Brussels I Regulation (Brussels I Recast), however, the EU-27 share a common set of jurisdictional rules in civil and commercial
17 Eun-Joo and Johannes Christian, 'Cross-Border Intellectual Property Enforcement' (n 9), 688-690; Tom Scourfield, 'Trademarks, jurisdiction and the Internet: "Fortress Europe" meets the web' (2007) 10(8) Journal of Internet Law 3. 18 Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trade mark [2017] OJ L 154/1, article 1(2). 19 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L 336/1, recitals 3& 9 and article 1. 13 matters where the defendant is domiciled in a Member State.20 Similarly, the Rome II Regulation provides for common rules on the law applicable to non-contractual obligations (although the latter does not apply in Denmark).21
In the case of infringement of a national trademark, a rightholder will accordingly have several jurisdictional options. The standard rule is that the courts of the Member State in which the defendant is domiciled has jurisdiction (forum domicilii).22
Since infringement amounts to a tort, suit may also be brought in the state where the harmful event occurred or may occur (forum loci delicti).23 The CJEU has taken this to mean both the place where the damage occurs and the place of the event giving rise to it, if these are different.24 In the trademark context, it can quite straightforwardly be deduced that the place where damage occurs is that where the applicant holds exclusive rights (i.e. the state of registration). Naturally, jurisdiction will be limited to damage falling within the territorial scope of the national trademark.25 The place of the harmful event is not as obvious, particularly in an online environment where an intermediary is involved. Fortunately, the CJEU dealt with this issue in Wintersteiger, which concerned keyword advertising on the internet. According to the Court, the event from which the harm originated was the activation of the digital advertisement. In view of foreseeability, this was taken to be the place of establishment of the advertiser as the place where the activation was decided, irrespective of server location or the intermediary’s place of business.26
Lastly, Article 8(1) of Brussels I Recast enables applicants to join several closely connected claims before a single court. This will be a court in one of the defendant’s state of domicile and only applies when there is a serious risk of irreconcilable judgments in the “same situation of law and
20 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [2012] OJ L 351/1; Note: the instrument’s scope of application is determined by articles 1, 4, 6(1) and 81. 21 Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations [2007] OJ L 199/40. 22 Brussels I Recast (n 20), article 4(1). 23 Ibid, article 7(2). 24 Case 21-76 Handelskwekerij G. J. Bier BV v Mines de potasse d'Alsace SA [1976] ECLI:EU:C:1976:166, [19]. 25 Case C‑523/10 Wintersteiger AG v Products 4U Sondermaschinenbau GmbH [2012] ECLI:EU:C:2012:220, [24]. 26 Ibid, [24]-[28] & [34]-[38]. 14 fact”.27 This provision is of lesser practical importance given that national trademark law is only approximated and typically not identical.28
With regards to the law applicable to an infringement dispute, the rule in Rome II is clear-cut and leaves no choice to disputants. The Regulation provides a special rule for IPR-infringement proceedings, holding that the “law of the country for which protection is claimed” shall apply (lex loci protectionis).29 This is a clear manifestation of the territoriality principle and distinguishes national trademarks from the EU trademark.
As a regional right, the EUTM is reliant on enforcement before the so-called EU trademark courts, as designated by the Member States.30 The EUTMR thus deviates from Brussels I Recast and applies its own rules on fora in matters of infringement, extending exclusive jurisdiction to these courts.31 Typically, the rightholder will have to choose to bring suit in the defendant’s place of domicile/establishment or the place where “the act of infringement has been committed or threatened”.32 Contrary to what was expected, the CJEU has not extended its Wintersteiger interpretation of Brussel I Recast’s “place where the harmful event occurred or may occur” in the digital environment to the EUTMR. In AMS Neve, the Court instead opted for a targeting criterion, holding that infringing acts of electronic advertising and offers for sale are committed in the territory where targeted consumers or traders are located. The differential treatment of Article 125(5) EUTMR was justified by the need to maintain both jurisdiction for activation of such acts outside the EU and options for the rightholder.33 Jurisdiction derived from that provision is, like for the place of harm under Article 7(2) Brussels I Recast, limited to acts committed or threatened within the territory in question.34
27 Case C-539/03 Roche Nederland BV and Others v Frederick Primus and Milton Goldenberg [2006] ECLI:EU:C:2006:458, [26]. 28Eun-Joo and Johannes Christian, 'Cross-Border Intellectual Property Enforcement' (n 9), 698-699. 29 Rome II (n 21), article 8(1) & (3). 30 EUTMR (n 18), article 123(1). 31 Ibid, articles 122(2)(a) and 124. 32 Ibid, article 125(1) and (5). 33 Case C-172/18 AMS Neve Ltd and Others v Heritage Audio SL and Pedro Rodríguez Arribas [2019] ECLI:EU:C:2019:674, [47]-[49]; Eleonora Rosati, 'International Jurisdiction in Online EU Trade Mark Infringement Cases: Where Is the Place of Infringement Located?' (SSRN, 2016)
The unitary character of the EUTM implies that all Member States must strictly abide by the EUTMR in enforcing one. It also follows explicitly from Article 129(1) that the EUTMR is itself the primary source of law applicable to a dispute. However, the Regulation leaves intact Member States’ general laws on infringement and liability, entailing that enforcement is necessarily complemented by national trademark law.35 For those purposes, as well as in procedural matters, the law in the Member State of the ruling EU trademark court will apply.36
2.2.2. The US The thriving double-layered system in the EU stands in stark contrast to the US trademark regime, a field which is now centered on federal legislation in the form of the Lanham Act.37 Another major difference is that rules of PIL are not regulated in detail by statute in the US. While the influential treatise Restatement (Second) of Conflicts of Law extensively accounts for rules of applicable law (or “conflicts of law”), there is no universal approach taken by all US courts.
Jurisdictional principles are somewhat clearer, there being a basis for these in the Due Process clause of the US Constitution’s Fourteenth Amendment. The practical implementation of these has nevertheless been effectuated and developed by judges. According to the principles, courts must establish both subject-matter and personal jurisdiction. The former merely requires that the court be competent to hear and rule on the specific legal issue before it.38 Under Section 39 of the Lanham Act (15 U.S.C. §1121), both federal and state courts can hear trademark disputes.
Personal jurisdiction, on the other hand, depends on whether a party has sufficient ties to the forum in which the court is situated. If a party has its domicile or place of establishment there, courts will have general jurisdiction, which entails that nearly all claims against them can be heard. Where no substantial ties exist, the Supreme Court has held that the exercise of jurisdiction requires “minimum contacts […] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice”, subject to a reasonableness test.39
35 Ibid, article 17(1). 36 Ibid, article 129(2)-(3). 37 Lanham (Trademark) Act, 15 USC §§ 1051 et seq. (2020). 38 Eun-Joo and Johannes Christian, 'Cross-Border Intellectual Property Enforcement' (n 9), 700-701. 39 Ibid; Betsy Rosenblatt, 'Principles of Jurisdiction' (Harvard University, n.d.)
What is more, the US appears, on the surface, to take a relatively liberal approach to extra- territorial application of its trademark law. As Symeonides expresses, there is from the US perspective “no doubt that Congress has the constitutional power to regulate […] events occurring outside the United States”. A US court will thus rely on the language of a federal law in order to determine whether Congress intends for it to apply extra-territorially.40 The Lanham Act does not explicitly indicate whether it should apply to infringement abroad and has, to that end, been analyzed in a string of judgments. To summarize the outcome of these cases, US courts may hear such disputes if one of two conditions is fulfilled: firstly, if they concern foreign activities of a US citizen or, alternatively, if the activities in question (of a non-citizen) have “substantial effects on US commerce”. However, it should be noted that courts have so far exercised restraint in reviewing whether a foreign infringer causes such effects.41
2.3. Practical consequences From the preceding discussion, it becomes apparent that trademark enforcement in the internet age can be both exceedingly difficult and resource intensive. Whereas territoriality is a deep-rooted foundational principle in trademark law, it was designed for the offline context and is at odds with the borderless trade of today. It is difficult to make the case that dismantling trademark territoriality is in itself a desirable goal; like all IPRs, trademarks are creations of the state and depend on national or regional laws and legal policy for legitimacy.
For international brands, the territoriality of trademarks entails a multiplicity of enforcement mechanisms with few possibilities to streamline protective efforts. A rightsholder must establish a legally predefined, material connection between the infringer and the forum and applicable law. However, the identity of infringers, their location, and the scope of the effects of their actions are not always easily ascertainable in the digital environment. The opportunity to instead target an identifiable middleman, exercising technical control over a potentially large number of infringers, certainly emerges as a cost effective and economically justifiable solution. Having described the complex context within which infringement disputes are adjudicated, the following parts of this paper will detail the substantive aspects of intermediary liability in the EU and the US.
40 Symeon C. Symeonides, 'Conflicts between Federal Law and Foreign Law', Choice of Law (Oxford Commentaries on American Law, Oxford University Press 2016), 626-628 & 635-637. 41 Graeme W. Austin, 'The Territoriality of United States Trademark Law' (SSRN, 2006)
3. Intermediaries in the European Union
3.1. The negative approach to liability Distinctive of trademark law affecting intermediaries at the EU-level is that the EU does not regulate their liability as participants or accessories as such.42 Rather, it will be shown here how a combination of EU legislative acts and CJEU case law contribute to a negative definition of liability by instead regulating and developing their immunity and the absence of liability for direct infringement. That result is achieved primarily by the safe harbors which are provided for in the E-Commerce Directive (ECD),43 as well as by the scope of the rights extended to trademark owners by the EUTMR and the EUTMD.
It follows from the above – and the absence of general EU legislation in the field of tort law – that the Member States are left with some degree of discretion in respect of secondary infringement.44 The result for intermediaries depends on the Member States’ own rules on liability and a comparison of practice in the UK (England & Wales) – which, at the time of writing, still applies EU law – and in Germany will be conducted in this chapter. Together, these countries represent both the common law and civil law traditions and contribute interesting approaches to intermediary involvement.
The fifth section of this chapter on the EU will cover the legal measures granted through the IPR Enforcement Directive (IPRED).45 These measures provide a relatively effective method of trademark enforcement through intermediaries, constituting a much-needed enhancement to the modern trademark-owners toolset for tackling infringement online.
42 Annette Kur, 'Secondary Liability for Trademark Infringement on the Internet: The Situation in Germany and throughout the EU' (2013) 37(4) Columbia Journal of Law & the Arts 525, 525-526. 43 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market [2000] OJ L 178/1. 44 Trevor Cook, 'Online Intermediary Liability in the European Union' (2012) 17(2) Journal of Intellectual Property Rights 157, 157. 45 Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights [2004] OJ L 157/45. 18
3.2. Safe harbors in the ECD The broader aim of the ECD, as envisioned by the European legislature at the start of this century, was to improve the conditions of the internal market for “information society services”.46 Achievement of this goal was to be realized through a legal framework which both leaves the development of electronic commerce unhampered and maintains a sufficient degree of protection for third parties.47
In respect of intermediary services, this would mainly be accomplished through the safe harbors provided for by Articles 12, 13 and 14. In each of the situations which are covered by these three provisions, the “Member States shall ensure that the service provider is not liable”. The safe harbors are perhaps best characterized as exemptions to liability for intermediaries because they are not defenses in the classical sense of tort or criminal law. Rather, they remove the prima facie liability of intermediaries for their involvement in illegal conduct only as long as their conditions are met, without actually defining that liability.48 These provisions will be considered in more detail below, in addition to their application in CJEU case law.
3.2.1. Qualifying intermediaries The first two, Articles 12 and 13, apply to so-called “mere conduit” and “caching” services, respectively. In this context, conduits refer to intermediaries who facilitate the transmission of information in the communication network, meaning that they simply allow data to pass through from one point to another. This role is fulfilled by, for instance, Internet Service Providers and other kinds of network operators.49 Safe harbor requires that the intermediary is passive with regards to the transmission’s initiation, receiver and contents.50 The notion of caching implies a somewhat higher degree of involvement, referring to the temporary and automatic storage of data. The procedure typically aims at optimizing the technical transmission of information and is carried out by proxy servers, for example.51 Like the mere conduit rule, non-liability under Article 13 is conditioned on passiveness in that the copied information should be identical to the original, if
46 Ibid, recitals 4-8. 47 Ibid, recitals 40-48 & 60. 48 Jaani Riordan, The Liability of Internet Intermediaries, (Oxford University Press 2016), 379-380; Tatiana Synodinou et al. (eds), EU Internet Law: Regulation and Enforcement (Springer 2017), 272. 49 Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 52. 50 ECD (n 43), article 12(1). 51 DLA Piper, 'Legal analysis of a Single Market for the Information Society: Liability of online intermediaries' (European Commission, 2009)
Article 14 ECD, covering “hosting” services, forms the core of safe harbor protection for intermediaries against IP-based claims. The bulk of internet activity involves the sharing and dispersion of information which, whatever form it may take, necessitates its storage in the long- term. Without such storage, the extensive access to virtually unlimited amounts of texts, pictures and other multimedia seen online today would not be possible.53 The content of those data, and the access hosting them enables, ultimately also form the primary basis for claims of IPR infringement.
A hosting provider evades liability under Article 14 only insofar as it has no “actual knowledge of illegal activity or information”. The standard in respect of claims for damages is higher, requiring that the intermediary “is not aware of facts or circumstances from which the illegal activity or information is apparent”. For obvious reasons, Article 14 cannot be relied on where the service- user (i.e. the source of the illegal information or activity) acts under the host’s authority or control. To preserve its safe harbor, a host must moreover “act expeditiously to remove or disable access” when it obtains the knowledge or awareness referred to above.54
The notion of hosting provider covers a broad range of intermediaries, including those which usually find themselves in the crossfire of trademark infringement proceedings. In the Google France judgment, the CJEU determined that Google, as a referencing service provider, was to be characterized as such and granted consideration for safe harbor under Article 14.55 The precise scope of this qualification is unclear, as the Court acknowledged that Google “does not claim any remuneration” in its role as a search engine for internet users (that is to say, in displaying search results), whereas the ECD only applies to information society services which are “normally provided for remuneration”.56 However, the case concerned Google’s AdWords business, a
52 ECD (n 43), article 13(1). 53 Synodinou and others (eds), EU Internet Law: Regulation and Enforcement (n 48), 271-272. 54 ECD (n 43), article 14(1)-(2); Cook, 'Online Intermediary Liability in the European Union' (n 44), 158. 55 Joined cases C-236/08 to C-238/08 Google France SARL and Google Inc. v Louis Vuitton Malletier SA (C- 236/08), Google France SARL v Viaticum SA and Luteciel SARL (C-237/08) and Google France SARL v Centre national de recherche en relations humaines (CNRRH) SARL and Others (C-238/08) [2010] ECLI:EU:C:2010:159, [106] & [119]-[120]. 56 Ibid, [96]; ECD (n 43), article 2(a). 20 keyword advertising service, which is purchased and paid for by advertisers. At least with respect to its trademark-relevant activities, the advertising arm of the business, Google thus constituted an intermediary service provider. To further qualify as a “host”, the Court found it sufficient that a referencing service provider “holds in memory on its server” data such as the advertiser’s keyword, link and commercial message.57
In the later L’Oréal case, the CJEU went on to evaluate the position of online marketplaces after the referral of a lawsuit against eBay. The Court considered the characteristics of intermediaries targeted by the ECD and found that, in principle, “the operation of an online marketplace can bring all those elements into play”.58 In the circumstances of that particular case, the obstacle to a definitive answer appeared to be whether eBay had fulfilled the particular conditions set out by Article 14, an assessment left to the referring UK court.59 These conditions will now be considered in more detail.
3.2.2. Neutral but reactive A novelty that the ECD safe harbors brought to Europe is that they have implicitly introduced Notice-And-Takedown (NTD) schemes into Member States’ legal systems. Article 14 requires not only the hosting provider’s passivity vis-à-vis illegal activity, but also removal of unlawful content upon obtaining knowledge or awareness thereof. Failure to do so will result in the loss of the exemption under Article 14(1)(b).
While the European implementation of NTD was preceded by the US Digital Millennium Copyright Act (DMCA) of 1998,60 the ECD differs in two primary respects. Firstly, the Directive is horizontal, – that is to say, it is subject-neutral and ignores the type of liability concerned – unlike its American counterpart, which is specific to copyright infringement. Moreover, the ECD lacks the detailed procedure provided for by the DMCA, which is effectively left to the Member States or self-regulation.61 A 2011 Commission Staff Working Document confirms that diversity
57 Google France (n 55), [110]-[111]. 58 Case C-324/09 L'Oréal SA and Others v eBay International AG and Others [2011] ECLI:EU:C:2011:474, [109]. 59 Ibid, [112]-[113] & [117]. 60 Kuczerawy, 'Intermediary liability & freedom of expression: Recent developments in the EU notice & action initiative' (n 4), 47-48; Digital Millennium Copyright Act, 17 USC § 512(c) (2020). 61 Christina Angelopoulos and Stijn Smet, 'Notice-and-fair-balance: how to reach a compromise between fundamental rights in European intermediary liability' (2016) 8(2) Journal of Media Law 266, 269. 21 in NTD procedures is, or at least was at the time of the study, a great source of legal uncertainty for rightholders and intermediaries alike.62
On the one hand, there has been an expansion of the passivity principle beyond a literal reading of the safe harbor provisions. In Google France, recital 42 of the ECD was incorporated into the understanding of an exemptible intermediary. As a result, a service provider hoping to stay within the bounds of the safe harbor provisions must limit itself to activities “of a mere technical, automatic and passive nature”. Adopting such a “neutral role” implies that it “has neither knowledge of nor control over” the data it handles.63 When it later applied these criteria in L’Oréal, the Court thus took issue with eBay’s optimization and promotion of sales offers on its service; if verified by the national court, those acts would comprise an active role entailing control or knowledge.64 After Google France, passivity thus seems to have become an increasingly multifaceted notion that intermediaries must adapt to.
On the other hand, the Directive also fails to describe the manner in which an intermediary can acquire “actual” knowledge of illegal activity or an awareness from which it becomes apparent. As to the lower threshold for damage claims, the CJEU has imposed the vague standard of facts by which a “diligent economic operator should have identified the illegality”.65 According to the L’Oréal ruling, this can come about in “every situation in which the provider concerned becomes aware, in one way or another, of such facts or circumstances”. The Court confirmed that both the operator’s own discovery by investigation of an illegal activity and a sufficiently precise and substantiated third-party notice suffice.66 What, then, amounts to a reasonably actionable notice? Presumably, this question will lead intermediaries to choose the safest course of action in cases of doubt. There are valid concerns about the potential chilling effect this may have, but ultimately, prudence appears to be an intermediary’s best bet at maintaining safe harbor.67
62 European Commission, 'Online services, including e-commerce, in the Single Market' (Commission Staff Working Document) SEC(2011) 1641 final, 24-26. 63 Google France (n 55), [113]-[114]. 64 L’Oréal (n 58), [116]. 65 Ibid, [120]. 66 Ibid, [121]-[122]; Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 53. 67 Kuczerawy, 'Intermediary liability & freedom of expression: Recent developments in the EU notice & action initiative' (n 4), 48-49. 22
3.3. EUTMD and EUTMR: Trademark infringement Whereas the ECD determines the conditions under which an intermediary shall not be held liable, the EUTMD and the EUTMR regulate who can be held liable for primary infringement. With the exception of their territorial extent, the scope of trademark rights is virtually identical at the two levels of the Union’s dual system. Under Article 10(2) EUTMD and Article 9(2) EUTMR, protection covers cases of double identity, likelihood of confusion and detriment to or unfair advantage taken of marks with a reputation. One of these three effects must arise in connection with the use of the offending sign, without the proprietor’s consent, in the course of trade.
3.3.1. Intermediate “use” Particularly in the context of intermediaries, the notion of “use” is of vital importance in EU trademark law. It may very well happen that a sign identical to a registered trademark is displayed in Google’s search results or in an auction listing on eBay. However, only the party who uses an infringing sign and who, by doing so, is liable to affect the functions of the proprietor’s trademark68 amounts to a primary infringer. The question is thus whether the nature of an online intermediary’s interaction with a hosted mark fits the harmonized infringement formula. The Court’s resounding response in the aforementioned Google France and L’Oréal judgments was, in short, no. The display of trademarks in Google’s and eBay’s services, which were used for advertisements and sales by third parties, did not amount to their use by the intermediaries. Whereas the signs may, indeed, have been used by third parties via their services, the use was not realized “in [their] own commercial communication”. Insofar as Google and eBay merely offered technical services by which their customers could use those signs, the effects of the Directive and Regulation could not be directed at them.69
Further support for this position can be found in Daimler, where the Court later provided a general definition of trademark “use”,70 as well as the very recent Coty case, where these criteria were collectively applied to Amazon. In Coty, the fact that Amazon was stocking infringing goods, on behalf of third-party sellers on its “Amazon Marketplace”, did not amount to the kind of stocking
68 Case C-206/01 Arsenal Football Club plc v Matthew Reed [2002] ECLI:EU:C:2002:651, [51] & [54]. 69 Google France (n 55), [55]-[58]; L’Oréal (n 58), [100]-[103]; Graeme B. Dinwoodie, 'Secondary Liability for Online Trademark Infringement: The International Landscape' (2014) 37 Columbia Journal of Law & the Arts 463, 482-484. 70 Case C-179/15 Daimler AG v Együd Garage Gépjárműjavító és Értékesítő Kft [2016] ECLI:EU:C:2016:134, [39]- [41]. 23 prohibited by Article 9(3)(b) EUTMR. Based on the definition established in Daimler, use necessitates “active behavior and direct or indirect control of the act” which the alleged user “is effectively able to stop”.71 The Court further pointed to the contextual requirement of “own commercial communication” and recalled its conclusion in Google France and L’Oréal: use by the intermediary’s customers need not entail use by the intermediary.72 Admittedly, the loaded question referred by the Bundesgerichtshof , which characterized Amazon as unaware and not itself aiming at marketing illegal goods, did not lend itself to a finding of infringement. Given the Court’s consistently strict view of use, however, it is unlikely that there could ever be a different outcome, so long as Amazon did not act “on [its] own behalf”. 73 It seems to follow that intermediaries rarely use marks in the sense of the EUTMR and EUTMD
3.3.2. Immediate “use” In the exceptional case that a service-provider does not limit itself to merely acting as a middleman, it will be treated as any other third party. This is what happened in L’Oréal when eBay promoted the sales of its users by engaging keyword advertisements. As mentioned above, the Court suggested that there would be no safe harbor if the national courts deemed that conduct to be active.74 More importantly, however, the Court also held that eBay would be assessed under the ordinary standards imposed on users of keyword advertising services. Accordingly, the promotions would constitute infringing acts if "reasonably well-informed and reasonably observant internet users” could not ascertain whether the advertised goods originated from the rightholder or a third party, or if they could do so only with difficulty. By advertising the availability of goods bearing L’Oréal’s trademarks, eBay had now created a trademark-relevant link to its own service.75
3.3.3. Reaching the limits of harmonized law On the one hand, it is clear that EU trademark law has much to say about what does and does not constitute primary infringement. Since the first trademark directive of 1988, there has been ample opportunity to understand and develop primary liability in accordance with the needs of changing times. On the other hand, not only the Regulation and Directive, but also the Court have
71 Case C-567/18 Coty Germany GmbH v Amazon Services Europe Sàrl, Amazon FC Graben GmbH, Amazon Europe Core Sàrl and Amazon EU Sàrl [2019] ECLI:EU:C:2019:1031, [37]-[38]. 72 Ibid, [39]-[40]. 73 Ibid, [47]-[48]. 74 L’Oréal (n 58), [116]. 75 Ibid, [85], [87], [92]-[93] & [97]. 24 consistently remained silent on the legality of acts enabling or assisting infringers. Countless opinions of Advocate-Generals all but certify that contributory forms of infringement, for the moment, have no home in EU law.76 Both Google France and Coty explicitly left open the possibility to examine the issue “from the point of view of rules of law other than [the EUTMR/EUTMD]”.77
In consequence, there exists no obstacle to Member States taking matters of secondary liability into their own hands when safe harbor provisions are not fulfilled. The following sections will consider how the UK (England & Wales) and Germany have exercised their delineated discretion in relation to intermediaries and the use of their services for trademark infringement.
3.4. Secondary liability as a delineated national discretion 3.4.1. Accessorial liability in England & Wales Clarity as to the position of intermediaries in English and Welsh trademark law was provided by Lord Justice Arnold during the national proceedings of the L’Oréal case. There exist no principles or legislation on secondary liability which are designed exclusively for the trademark field. Rather, “accessory liability even for statutory torts such as trade mark infringement is governed by the common law, and in particular the law as to joint tortfeasorship”.78
Joint tortfeasorship calls for at least one of three connecting factors which ties the secondary infringer to the primary. The secondary defendant must have either procured the wrong, participated in a common design to execute the wrong or authorized the wrong. Only if the court finds that the defendant’s conduct falls into one of these categories – and that the primary defendant has indeed committed a tort – will they be held accessorily liable.79
In L’Oréal it was clear that the other defendants had committed trademark infringement, but the High Court found that the nexus necessary to hold eBay secondarily liable was absent. There was,
76 Case C-610/15 Stichting Brein v Ziggo BV and XS4All Internet BV [2017] ECLI:EU:C:2017:99, Opinion of AG Szpunar, [65]; Case C-119/10 Frisdranken Industrie Winters BV v Red Bull GmbH [2011] ECLI:EU:C:2011:258, Opinion of AG Kokott, [39]; Case C-324/09 L’Oréal SA and Others v eBay International AG and Others [2010] ECLI:EU:C:2010:757, Opinion of AG Jääskinen, [56]; Joined cases C-236/08 to C-238/08 Google France SARL and Google Inc. v Louis Vuitton Malletier SA (C-236/08), Google France SARL v Viaticum SA and Luteciel SARL (C-237/08) and Google France SARL v Centre national de recherche en relations humaines (CNRRH) SARL and Others (C-238/08) [2009] ECLI:EU:C:2009:569, Opinion of AG Maduro, [48]. 77 Coty (n 71), [49]; Google France (n 55), [57]. 78 L'Oréal SA v eBay International AG, [2009] EWHC 1094, [2009] RPC 21, [346] (Arnold J, as he then was known). 79 Riordan, The Liability of Internet Intermediaries (n 48), 116-117. 25 firstly, no evidence suggesting that eBay had procured the infringing sales of products, bearing L’Oréal’s trademarks, conducted by the other defendants. In the law of joint tortfeasorship, it does not suffice that the alleged secondary wrongdoer has supplied the means for infringement to be realized (“mere assistance”). The tort must have been induced in the sense that the intermediary causes the primary wrongdoer to act and, generally, the intermediary should have intended to influence the wrongdoer in this particular way.80 By merely maintaining the online marketplace on which illegal sales took place, eBay could not be characterized as a procurer.81
The High Court was also not convinced by L’Oréal’s claim that eBay participated in a common design. In part, the claim took aim at eBay’s filtering and NTD procedures, such as its VeRO program, which granted eBay technical and legal control over infringements, but which it supposedly did not exercise to a sufficient extent. L’Oréal also considered that eBay’s promotion of and control over sales amounted to participation in infringement.82 Despite the fact that eBay profits from the sales enabled by its services, and was in a position to prevent those of an illegal nature, the High Court did not find that their conduct warranted liability. It did not suffice that eBay provided the facilities for infringement, knowing that some sellers would use the platform for illegal sales. Participation in a common design requires not only a concerted action, but also an intent as to the infringement.83 Moreover, “eBay Europe [was] under no legal duty or obligation to prevent infringement of third parties’ registered trade marks” under common law.84
Joint liability based on authorization was not invoked in L’Oréal, presumably because such claims rarely succeed. This nexus is not satisfied by the mere granting of permission by an intermediary, because it also requires that the wrongdoing is “virtually certain to occur and reasonable to prevent”. For that reason, a retrospective authorization of the primary infringement may also suffice.85 Common law authorization should not be confused with statutory authorization, which
80 Ibid, 117-119. 81 L'Oréal (UK) (n 78), [359] (Arnold J); Riordan, The Liability of Internet Intermediaries (n 48), 180. 82 L'Oréal (UK) (n 78), [361] (Arnold J). 83 Ibid, [381] (Arnold J); Riordan, The Liability of Internet Intermediaries (n 48), 120-128 & 182; Dinwoodie, 'Secondary Liability for Online Trademark Infringement: The International Landscape' (n 69), 485. 84 L'Oréal (UK) (n 78), [375] (Arnold J). 85 Riordan, The Liability of Internet Intermediaries (n 48), 128. 26 is an independent cause of action limited to copyright law providing essentially the same scope of protection.86
A high bar is set for the secondary liability of online intermediaries in the L’Oréal case and the law of joint tortfeasorship. What is clear is that the mere provision of intermediary services, even with the knowledge that they can be used for trademark infringement, is not enough. It seems that the intermediary’s financial stake in infringing conduct has no impact on this conclusion. Insofar as the intermediary adopts a somewhat passive role – that is to say, it does not actively encourage, further or assume responsibility – it will likely evade both primary and secondary liability under UK law.
The inherent difficulties for rightholders have been somewhat moderated by an opening in section 37(1) of the Senior Courts Act 1981 (SCA). This provision empowers the High Court to grant injunctive relief in any case where “it appears to the court to be just and convenient to do so”. In the Cartier cases, the High Court thus determined that it could issue injunctions against intermediaries in order to terminate trademark infringement. Per Cartier I, section 37(1) allowed for website blocking injunction against ISPs in relation to counterfeit-selling websites, whether interpreted in a purely national context or in accordance with IPRED. Moreover, the resulting costs for intermediaries did not, in principle, render the order disproportionate.87 Despite the appeal launched against the first case, this line of reasoning was maintained in Cartier II.88 In 2018, after having been upheld by the Court of Appeal, the UK Supreme Court definitively confirmed the discretion of courts laid down in Cartier I on the basis of equity. However, on the attribution of costs associated with blocking orders, the Supreme Court sided with intermediaries, requiring that they be indemnified for the costs of implementing such enforcement measures, if legally innocent.89 The outcome is a unique and supposedly balanced legal mechanism for online trademark enforcement. Despite the stringency of English and Welsh principles of secondary
86 Copyright, Designs and Patents Act 1988, section 16(2); Richard Arnold and Paul S Davis, 'Accessory liability for intellectual property infringement: the case of authorisation' (University College London, 2017)
3.4.2. Störerhaftung in Germany In Germany, accessorial liability has remained a somewhat underdeveloped aspect of tort law. § 830(2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB) provides only that “instigators and accessories are equivalent to joint tortfeasors”. This provision does not detail who constitutes an instigator or an accessory, inevitably leaving that task to the courts. The outcome is a very limited notion of accessorial liability. Not only is a double intent vis-à-vis the primary wrongdoer and the accessory necessary, but its application is also restricted to particular cases of procurement and authorization. In essence, the provision is of little value to trademark proprietors targeting intermediaries.90
A counter-development to weak accessorial liability has been a greater reliance, in relation to intermediaries, on German law’s so-called “disturber” liability (Störerhaftung). With its basis in § 1004 BGB, under the title on claims arising from ownership, disturber liability appears to lie somewhere in between property law and tort law. It does not constitute a form of fault-based liability to which damages attach, but an objective liability enabling injunctive relief. The disturber becomes the target of an injunction not because they are liable for wrongdoing, but because they have the capacity to put an end to it and do not do so on their own accord.91
Unlike accessorial liability, the notion of and legal effects for “disturbers” have adapted remarkably well during the last century. In 1900, the principle was used to direct injunctions at a landlord who was “in a position to prevent” wrongdoings by his tenant. During the post-war period, the Federal Court of Justice (Bundesgerichtshof, BGH) has continued the development of this source of claims in response to new forms of interferences with absolute rights. In 1957, the court allowed the invocation of disturber liability by trademark proprietors by analogous reference to § 1004, which strictly speaking only applies to tangible property. Over time, its availability in the field has come to turn on a causal link between the defendant’s conduct and the infringement, the legal and factual possibility of preventing the interference, as well as the reasonableness of
90 Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 164. 91 Graeme B. Dinwoodie (ed), Secondary Liability of Internet Service Providers (Ius Comparatum – Global Studies in Comparative Law, Volume 25, Springer 2017), 362-263. 28 imposing a duty to review. Typically, these conditions require that the disturber has been notified (or actually knows) of infringement and the contrary will only be true in circumstances bordering on joint direct infringement.92
Indeed, a set of cases involving online marketplaces, the “Internet auction” cases, saw the BGH reject the primary and accessory liability of intermediaries for trademark infringement. Insofar as there is no concrete, prior knowledge of an infringement committed by another party, there is equally no tortious act.93 However, the court affirmed that the intermediaries were in the position of disturbers. Accordingly, reasonable steps had to be taken to prevent further “clear” infringements upon notification of past ones. In the first case, the German auction site Ricardo was thus called upon to act against similar future infringements.94 However, in the subsequent case against eBay, the court decided to go further by requiring the same level of proactivity in relation to imminent, yet so far unrealized infringements (viz. act on a notified belief that a user will infringe).95 Failure to comply with a disturber injunction does not amount to accessory liability in the sense described so far, but it may nevertheless result in a claim for damages for dereliction of duty. This threat makes it equally imperative for intermediaries to take their role and duties as a disturber seriously.96
In relation to EU law, German disturber liability walks a fine line between a harmonious totality and a breach of the ECD. On the one hand, the safe harbors specifically allow for remedies with the objective of terminating or preventing an infringement. As will be discussed below, IPRED even mandates the availability of such legal tools in the Member States. It should be noted, however, that the BGH consistently labels disturber liability as relief which does not constitute liability in the sense of the ECD. Such a characterization results in its availability persisting independently of the intermediary’s ECD-based due diligence.97 On the other hand, Article 15
92 Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 156-167; Kur, 'Secondary Liability for Trademark Infringement on the Internet: The Situation in Germany and throughout the EU' (n 42), 532-533. 93 Internetversteigerung I, BGH, 11.03.2004 , I ZR 304/01, [43]; Kur, 'Secondary Liability for Trademark Infringement on the Internet: The Situation in Germany and throughout the EU' (n 42), 535. 94 Internetversteigerung I (n 93), [44]-[47]. 95 Internetversteigerung II, BGH, 19.04.2007, I ZR 35/04, [47]. 96 Katja Weckstrom, 'Liability for Trademark Infringement for Internet Service Providers' (2012) 16(1) Marquette Intellectual Property Law Review 1, 32-35; Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 169-171. 97 Internetversteigerung I (n 93), [32]; Internetversteigerung II (n 90), [19]; Kur, 'Secondary Liability for Trademark Infringement on the Internet: The Situation in Germany and throughout the EU' (n 42), 533. 29
ECD clearly prohibits the imposition of general monitoring obligations on intermediaries. The outcome of the Internet auction cases – filtering obligations in relation to “similar” future infringements which need not be based on a concrete example – seemingly stand in contrast to this principle. It can be debated whether monitoring based on the vague notion of similarity can properly be described as specific within the meaning of Article 15.98 In returning to what is actually envisaged by EU law, the following section will consider the kinds of measures, against intermediaries, which should be made accessible in the Union.
3.5. Responsibility without liability: IPRED injunctions 3.5.1. Enhancing the protection of IPRs The EU legislative acts mentioned so far generously limit intermediary liability, but they also counterbalance these privileges by enhancing the enforcement toolset of rightholders. What has been made clear is that the safe harbors afforded by the ECD are not boundless, in the first place limited by the passivity and NTD requirements. Moreover, Articles 12 to 14 all reserve the possibility for injunctive relief. Accordingly, the safe harbors “shall not affect the possibility for a court or administrative authority […] of requiring the service provider to terminate or prevent an infringement”.99 The exclusion of such relief from the sphere of immunity is conditioned by the Article 15 prohibition, but nonetheless held to a high standard in IPRED.
With the objective of ensuring a high level of IP protection in the Union, IPRED requires Member States to make available the tools necessary to ensure enforcement of national and Union IPRs alike in their national laws.100 Pursuant to Article 3, these legal tools (“measures, procedures and remedies”) must be fair, equitable and cannot be unnecessarily complicated or costly. In line with general principles of EU law, they must also be effective, proportionate and dissuasive, without adversely impacting the internal market through barriers to legitimate trade. In its case law, the CJEU has consistently scrutinized enforcement via intermediaries on the basis of these conditions.
3.5.2. Ex- and post-judgment relief IPRED lays down, in specific, that IP rightholders must be able to direct injunctions at intermediaries both pre- and post-judgment in order to secure their exclusive rights. Per Article
98 Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 170-171; Kur, 'Secondary Liability for Trademark Infringement on the Internet: The Situation in Germany and throughout the EU' (n 42), 534-535. 99 ECD (n 43), articles 12(3), 13(2) & 14(3). 100 IPRED (n 45), article 2 and recital 10. 30
11, the intermediary “whose services are being used by a third party to infringe an [IPR]” can face an injunction following an affirmative judgment of infringement. An interlocutory injunction may also be issued against such intermediaries under Article 9(1)(a).101 In both cases, national law may provide for penalty payments in the event of non-compliance with injunctions, and there is no requirement that the intermediary itself be at fault. For obvious reasons, parallels can be drawn to Störerhaftung which, in fact, constitutes Germany’s implementation of those provisions – or, rather, lack thereof.102 However, the case law of the Court would not suggest that IPRED injunctions are as simple as ordering the cessation of similar infringements. Rather, a long line of cases on a variety of IPRs implies a nuanced, yet somewhat unclear, analysis of the interests at stake.
3.5.3. Corrective or preventive goal L’Oréal clarifies the potential object of injunctions. As indicated above, the case concerned infringing sales of goods bearing, among others, L’Oréal’s trademarks on eBay’s auction website. The Court considered that the injunctions which could be obtained against eBay, pursuant to Article 11, are different from those which strictly prohibit an infringer from continued infringement. It is ultimately not the intermediary who executes the wrongdoing, which speaks for a more flexible and open approach.103 With that said, the goal of an injunction against an intermediary can still be preventive. If only orders to correct ongoing infringements were available, the efficacy of IP enforcement would be impaired. To be sure, the possibility of preventive injunctions is specifically provided for in recital 24 to IPRED.104 By its nature, however, a preventive response to an infringement necessitates that intermediaries, to some extent, keep an eye out for “further infringements of that kind” by a particular user.105
3.5.4. Orders to monitor The Court has also highlighted, however, that the scope of injunctions cannot be such as to result in a general monitoring obligation, covering all data in relation to any infringement, per Article 15 ECD. Nor could eBay be forced to institute a ban of the sale of goods bearing L’Oréal’s trademarks
101 Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 111. 102 Dinwoodie (ed), Secondary Liability of Internet Service Providers (n 86), 52-53; Internetversteigerung II (n 95), [42]-[43]. 103 L’Oréal (n 58), [128]-[129]. 104 Ibid, [131] & [133]-[134]. 105 Ibid, [141] & [144]. 31 in their entirety. In either case, these obligations would create such barriers to legitimate trade as are prohibited by Article 3(2) IPRED.106 A similar outcome was reached in Scarlet Extended and Netlog (the “SABAM cases”) with respect to comprehensive filtering systems targeting. In those cases, the issue was whether to allow an injunction or preliminary measure against ISPs, respectively, to filter the illegal distribution of copyright-protected works. By their nature, such filtering systems would necessarily “require active observation of all electronic communications” for undefined infringements and contravene Article 15 ECD.107 Ultimately, the key is to achieve a remedy which is not only effective and proportionate but also strikes a fair balance between the interests at stake.108
3.5.5. Fundamental rights and the scope of injunctions Before the Court, such talk of striking a fair balance consistently takes the form of fundamental rights considerations. It was first in Promusicae that the many references to the EU Charter of Fundamental Rights began in relation to injunctions targeting intermediaries.109 By virtue of being legal tools “implementing Union law”, they must necessarily comply with Charter standards. The curious result of this is, of course, that private IP conflicts will ultimately be moderated by obligations aimed at states.110 In part, the Court justified its decisions in the SABAM cases by reference to the freedom to conduct a business (Article 16); the protection of personal data (Article 8); and the freedom of expression (Article 11). Evidently, the costs and restrictions of the proposed filtering obligations to the intermediary and its users outweighed the rightholder’s right to property.111 An analogous balancing exercise led to the opposite outcome in the later UPC Telekabel case.112 The Court appears to take account of objective factors such as financial burden, the specificity of the targeted infringer and IP, as well as length in time. However, the Court has by no means detailed the kind of reasoning which can be expected in conducting this exercise. By
106 Ibid, [139]-[140]. 107 Case C-70/10 Scarlet Extended SA v Société belge des auteurs, compositeurs et éditeurs SCRL (SABAM) [2011] ECLI:EU:C:2011:771, [38]-[40]; Case C-360/10 Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v Netlog NV [2012] ECLI:EU:C:2012:85, [36]-[38]. 108 L’Oréal (n 58), [141] & [143]. 109 Case C-275/06 Productores de Música de España (Promusicae) v Telefónica de España SAU [2008] ECLI:EU:C:2008:54, [62]-[63] & [68]; Angelopoulos and Smet, 'Notice-and-fair-balance: how to reach a compromise between fundamental rights in European intermediary liability' (n 61), 271-272. 110 Charter of Fundamental Rights of the European Union [2012] OJ C 326/391, article 51(1); Husovec, Injunctions against Intermediaries in the European Union: Accountable but Not Liable? (n 6), 122-124. 111 Scarlet Extended (n 107), [42-53]; Netlog (n 107), [40]-[51]. 112 Case C‑314/12 UPC Telekabel Wien GmbH v Constantin Film Verleih GmbH and Wega Filmproduktionsgesellschaft mbH [2014] CLI:EU:C:2014:192, [45]-[63]. 32 some accounts, the striking of a fair balance should be viewed as a compromise which aims at minimal interference with legitimate interests.113
3.5.6. Geographical reach In view of the Court’s appeal to fundamental rights, it is interesting to observe a departure from such a strict approach in relation to the territorial scope of injunctions against intermediaries. With its Glawischnig-Piesczek judgment, the CJEU allowed an order against Facebook to remove or block access to information containing illegal content and to equivalent posts on a worldwide basis. Despite the fact that this would require global monitoring of “information, the content of which, whilst essentially conveying the same message, is worded slightly differently”, the obligation did not violate Article 15 ECD. Materially, this conclusion was predicated on a sufficiently detailed injunction by which Facebook would not have to “carry out an independent assessment of [the targeted] content”. However, the CJEU almost seemed perplexed by the referring court’s suggestion that the global reach of an injunction could somehow exceed the bounds of Article 15.114 Admittedly, Glawischnig-Piesczek concerned the disparate phenomenon of online hate speech, and it remains to be seen what kind of implications the case will have for IP infringements. In response to AG Szpunar’s (relatively concurrent) Opinion, Rosati has suggested that injunctions vis-à-vis harmonized rights may face a more restricted geographic scope.115
3.6. Conclusion The position of the EU on intermediaries involved in online third-party activities is perhaps best summarized by the rationale of the ECD. Electronic commerce constitutes a cornerstone of the single market which “offers significant employment opportunities […] and will stimulate economic growth and investment in innovation […] and can also enhance the competitiveness of European industry”.116 Through safe harbors and the narrowly interpreted scope of trademark infringement in the EU, the continued supply of intermediary services to European businesses is shielded by minimizing penalization for third-party activities. In view of rightholders’ interests,
113 Angelopoulos and Smet, 'Notice-and-fair-balance: how to reach a compromise between fundamental rights in European intermediary liability' (n 61), 277-281. 114 Case C-18/18 Eva Glawischnig-Piesczek v Facebook Ireland Limited [2019] ECLI:EU:C:2019:821, [41], [45]- [46] & [48]-[50]. 115 Eleonora Rosati, 'Material, personal and geographic scope of online intermediaries' removal obligations beyond Glawischnig-Piesczek (C-18/18) and defamation' (2020) 41(11) European Intellectual Property Review 672, 679- 680. 116 ECD (n 43), recital 2. 33 this generous regime is counterbalanced by the express exceptions to the ECD safe harbors, as well as the availability of injunctions without fault under IPRED. Not only do service providers who knowingly facilitate infringement contaminate the leniency extended to them, but even responsible intermediaries can be obliged to cooperate with – what amounts to – reasonably specific stay-down requests.
34
4. Intermediaries in the United States
4.1. The positive approach to liability If the European development of trademark liability adopts as a point of departure the exemption of online intermediaries, the opposite is true for the US. Federal law governing trademark infringement does not provide for general criteria, limitations or rules otherwise designed to modify the susceptibility of intermediaries to claims. The position of intermediaries is not inherently one which the law endeavors to protect. Rather, the development of this field in the US can be characterized as flowing naturally from established legal principles and an interplay between statute and common law.117
Understandably, the structure of contemporary American trademark law is relatively dissimilar to that in the EU. The primary legal source in the field is the Lanham Act, a federal statute enacted in 1946 which has been amended very few times in the last decades.118 Like EUTMs and national trademarks in the EU, federal trademarks coexist with state trademarks and the choice between them is ultimately a business decision. In the EU, however, the EUTMR and EUTMD pursue a substantively (near-)identical law of trademarks at the two levels of the system.119 The results of that effort will, of course, depend on the how the EUTMD is transposed in the Member States. In the US, federal trademark law does not seek to approximate state law, because it may not. The constitutional powers granted to Congress only allow it to regulate interstate commerce, leading to a trademark regime which is entirely independent of, but is complemented by, state laws.120
117 Dinwoodie (ed), Secondary Liability of Internet Service Providers (n 91), 19 & 94-98. 118 15 USC §§ 1051 et seq. (2020); Note: The Lanham Act was amended by the Federal Trademark Dilution Act (FTDA) in 1995 and the Anticybersquatting Consumer Protection Act (ACPA) in 1999. The FTDA was later supplanted by the Trademark Dilution Revision Act (TDRA) in 2006. 119 EUTMD (n 19), recital 10. 120 Bracha Oren, 'The Emergence and Development of United States Intellectual Property Law' in Dreyfuss Rochelle and Pila Justine (eds), The Oxford Handbook of Intellectual Property Law (Oxford University Press 2018), 259-261; Note: The definition of “commerce” under trademark law (15 USC § 1127) refers only to “commerce which may lawfully be regulated by Congress”. The limitation derives from Article 1, Section 8 of the US Constitution (“The Congress shall have power […] to regulate commerce […] among the several states”). 35
Only federal trademark law will be treated in this chapter, because it is by far the most well- developed and widely used across the United States.121 Trademark infringement is governed by the text of the Lanham Act, as interpreted by the courts applying it. The statute defines trademark infringement only in relation to those who unlawfully use trademarks themselves. As a consequence of this, secondary liability is not covered by statutory law and this latter topic has been left to the courts.122 The following sections will therefore consider, firstly, what the Lanham Act has to say about direct trademark infringement and how this relates to online intermediaries. The last section will then treat the extension of tort law principles into the trademark field and the standards of secondary liability which have followed.
4.2. Infringement according to the Lanham Act 4.2.1. Protection of registered and unregistered trademarks As noted, the Lanham Act provides the statutory basis for claims of federal trademark infringement. According to Section 32(1)(a), any person who uses “in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark” which “is likely to cause confusion, or to cause mistake, or to deceive” shall be liable in relation to the registrant.123 In clearer terms, a claim of direct infringement of a registered mark thus arises from the “use in commerce” of a mark entailing a likelihood of confusion with the registered mark.124 The basis for infringement of an unregistered mark can be found in Section 43(a)(1)(A) of the Lanham Act. Accordingly, infringement also includes “use in commerce” of any mark (on or with goods or services) which “is likely to cause confusion” as to the origin of the goods or services in relation to another person (or as to an affiliation thereto).125
4.2.2. Safe harbor A safe harbor scheme resembling the ECD or DMCA does not exist in the Lanham Act. Some commentators have referred to Section 32(2)(B) as a safe harbor but this is certainly a generous
121 William W Fisher, 'Overview of Trademark Law' (Berkman Klein Center for Internet & Society at Harvard University, n.d.)
4.2.3. Tiffany: Intermediaries and confusing trademark use To date, no trademark suits against online intermediaries have reached the Supreme Court, perhaps due to the inclination of parties involved to settle in a slow-moving judicial system.128 This is an unfortunate reality given the redundant, and only, statutory definition of “use in commerce” as “a bona fide use of a mark in the ordinary course of trade”.129 Until more recently, it nevertheless seem clear to most that an intermediary does not typically use trademarks in the way that gives rise to liability under the Lanham Act.130 For the most part, this position is reflected in legal practice and case law. In the great majority of cases reviewed here, plaintiffs do not even attempt a claim of direct infringement, presumably knowing that it will fail.131 The leading authority on the liability of online intermediaries, Tiffany v eBay, gives an indication as to why such a failure will generally follow.132
126 Dinwoodie (ed), Secondary Liability of Internet Service Providers (n 91), 99-102; Elizabeth K Levin, 'A Safe Harbor for Trademark: Reevaluating Secondary Trademark Liability After "Tiffany v. eBay"' (2009) 24(1) Berkeley Technology Law Journal 491, 520. 127 15 USC § 1114(2)(B); Mark A. Lemley, 'Rationalizing Internet Safe Harbors' (2007) 6(1) Journal on Telecommunications & High Technology Law 101, 106-107. 128 Stacey L. Dogan, 'Trademark Remedies and Online Intermediaries' (2010) 14(2) Lewis & Clark Law Review 467, 469. 129 15 USC § 1127. 130 Stacey L. Dogan and Mark A. Lemley, 'Grounding Trademark Law through Trademark Use' (2007) 92(5) Iowa Law Review 1669, 1675-1688. 131 Dinwoodie, 'Secondary Liability for Online Trademark Infringement: The International Landscape' (n 69), 475- 478. 132 Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2nd Cir. 2010). 37
In what would become a landmark case spanning a large number of years, Tiffany, the world- famous distributor and seller of luxury jewelry, sued eBay for various different forms of trademark infringement. In order to promote the sale of luxury jewelry on its marketplace, eBay engaged in advertising that highlighted the availability of such products. The promotion was achieved, firstly, through advertisements on its own website and, secondly, by engaging the keyword services (sponsored-link advertisements) of major search engines. As to the first method, eBay's own advertisements announced the availability of Tiffany products for sale by third parties on its website. In the second case, sponsored search results indicated that Tiffany products could be bought on eBay when searching for the term "Tiffany". Tiffany alleged that eBay, by doing so, directly infringed upon its trademarks.133
In substantiating its claim of direct infringement, Tiffany argued that eBay had used its trademarks in commerce by displaying and sponsoring ads containing its marks without consent. The district court had rejected this argument on the basis of nominative fair use, and the Second Circuit agreed. Under this doctrine, it is lawful for a third party to use a trademark where this is necessary to correctly describe a branded product. So long as that descriptive use does not imply some form of false affiliation to or endorsement by the rightholder, which gives rise to a likelihood of confusion, it constitutes completely legitimate commercial conduct.134
Both instances thus concluded that eBay's use of the marks in advertisement was lawful. eBay did not purport to be the origin of the goods or be affiliated with Tiffany, but accurately described the availability of genuine products on its marketplace. Tiffany suggested that eBay's use, in any case, was tainted by the knowledge that counterfeit jewelry bearing the trademarks was being sold on the marketplace. The Second Circuit outright rejected this argument, indicating that the mixed-use potential of the service could not render eBay's advertising a basis for claiming direct trademark infringement. To do so would "unduly inhibit the lawful resale of genuine Tiffany goods" at which eBay aimed.135
133 Ibid, 97-102. 134 Ibid, 102-104. 135 Ibid, 104. 38
On the facts of the case, the outcome of Tiffany as to direct trademark infringement was to be expected; it was, as Dogan calls it, “an easy case”.136 The previous chapter of this paper has already touched upon the passive nature of intermediary services and why this does not lend itself to trademark-relevant use. In Tiffany, however, eBay arguably transcended such a role by more actively promoting third-party transactions. It is suggested here that the outcome captures why direct trademark infringement rarely fits intermediary lawsuits. The conduct of these service- providers aims, as described in the introduction, at the facilitation of third-party transactions; an unlawful use of trademarks through the service is typically not one which relates to the intermediary’s own business, but that of a third party. In these circumstances, the only way to establish a likelihood of confusion would be to conflate the intermediaries’ goods and services with those of their users.137
4.2.4. Dilution of famous marks Naturally, the Lanham Act also protects famous marks in a manner independent of the similarity of goods and services, just as the EUTMR and EUTMD do. Protection against dilution was added to federal trademark law by later statutes, and the current rules were implemented through the 2006 Trademark Dilution Revision Act (TDRA).138 Under Section 43(c), the owner of a famous mark is thus granted a cause of action against “use of a mark […] that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark]”. Because of the TDRA, it is no longer necessary to demonstrate “actual or likely confusion”.139
In its case against eBay, Tiffany also suggested that eBay's advertising efforts diluted its famous marks. The ads allegedly both aimed at freeriding on the reputation of the brand and tarnished it due to the sale of counterfeits on eBay’s site. Neither the district court nor the Second Circuit found that there was any second mark or product (bearing a mark) to which eBay would have intended to create an association. Rather than using Tiffany’s marks to promote some other good or service, eBay was identifying the availability of Tiffany's own goods on its marketplace. Since it was impossible for the marks to be diluted by themselves, the claim had no legal basis.140
136 Stacey L. Dogan, 'Principled Standards vs. Boundless Discretion: A Tale of Two Approaches to Intermediary Trademark Liability Online' (2014) 37(4) Columbia Journal of Law & the Arts 503, 516. 137 Dogan and Lemley, 'Grounding Trademark Law through Trademark Use' (n 130), 1675. 138 Trademark Dilution Revision Act of 2006, 15 USC §§ 1052, 1063, 1064, 109, 1125 & 1127 (2020). 139 15 USC § 1125(c). 140 Tiffany (n 132), 111-113. 39
4.2.5. Beyond the text of the Lanham Act As conclusive as the Second Circuit’s arguments in Tiffany may seem, they are far from the whole story. This typical – and, indeed, “easy” – case of a facilitative but responsible intermediary does not rule out an overstep into the realm of direct trademark infringement. The precise boundaries of the Lanham Act remain unclear. Chapter 5 will explore two US cases in the field of keyword advertising which show this to be true. What has been recounted so far, moreover, says nothing about the extent to which intermediaries can (still) be held liable under principles of tort law. The following section will account for the development of such liability which has taken place primarily in the federal circuit courts.
4.3. Secondary liability under US common law Despite its significance for conducting business and its long judicial history in the US, the law on indirect trademark infringement as a whole is not yet as clear as one would hope; it is perhaps even underdeveloped.141 Even the Court of Appeal of the Second Circuit stated in Tiffany that “the limited case law leaves the law of contributory trademark infringement ill-defined”.142 It is noteworthy that secondary liability for the infringement of both copyright and trademarks share the same roots, but they have evolved at different paces and adopted different approaches. By some accounts, copyright law is now much more plaintiff-friendly in relation to secondary infringers than trademark law (i.e. adopts a broader construction of secondary liability).143 From what has been laid down in case law, two general branches of secondary trademark infringement can be discerned, both of which derive from principles of tort law.144
4.3.1. Contributory liability Contributory (trademark) liability is founded on the tort law notion of accountability of those who directly contribute to wrongdoing. The common elements of such legal accountability are generally a form of knowledge in connection with an inducement, causation or otherwise material
141 Levin, 'A Safe Harbor for Trademark: Reevaluating Secondary Trademark Liability After "Tiffany v. eBay"' (n 126), 505. 142 Tiffany (n 132), 106. 143 Mark Bartholomew, 'Copyright, Trademark and Secondary Liability after Grokster' (2008) 32(4) Columbia Journal of Law and the Arts 445, 445; Miquel Peguera, 'Converging Standards of Protection from Secondary Liability for Trademark and Copyright Infringement Online' (2013) 37(4) Columbia Journal of Law & the Arts 609, 609. 144 Katja Weckstrom, 'Secondary Liability for Trademark Infringement in the United States' (2010) 49(4) University of Louisville Law Review 555, 568-570; Peguera, 'Converging Standards of Protection from Secondary Liability for Trademark and Copyright Infringement Online' (n 143), 611. 40 contribution to wrongdoing by another. A general doctrine of contributory liability was recognized by the Supreme Court already in 1924, but it is not necessary, for the purposes of this paper, to search so far back.145
The seminal case on contributory trademark infringement, and the only time the Supreme Court has dealt expressly with the matter, is Inwood Laboratories v Ives Laboratories.146 Inwood sold colored capsules of a drug under its trademark CYCLOSPASMOL. When Inwood's patent on the vasodilator expired, Ives and other generic drug manufacturers imitated the appearance of the capsules and sold these to various pharmacies. Many of the defendants appealed to their customers by presenting price comparisons and emphasizing the similarity in appearance of the capsules. A number of pharmacists proceeded to dispense, mislabel and sell the generics as CYCLOSPASMOL, acts clearly constituting trademarking infringement. Inwood brought suit against the other manufacturers, claiming that they contributed to the infringement.147
The novelty of the case before the Supreme Court was that Inwood did not, and could not, allege any use of the CYLOSPASMOL mark by the generics companies themselves. The plaintiff nevertheless called on the Court to hold them accountable for inducing the infringement through the aforementioned marketing tactics.148 In the previous instances, both the district court and the appellate court had suggested that liability for trademark infringement could, in theory, extend beyond those who actually mislabel goods. The Supreme Court agreed and, with that, stated that “if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result”.149
The two prongs of would come to be known as the Inwood test thus established two ways in which a manufacturer could become liable for infringement further down the distribution chain. Firstly, liability could flow from an intentional inducement of the infringer. Secondly, the producer would
145 Mark Bartholomew and Patrick F McArdle, 'Causing Infringement' (2011) 64(3) Vanderbilt Law Review 675, 683-688; Levin, 'A Safe Harbor for Trademark: Reevaluating Secondary Trademark Liability After "Tiffany v. eBay"' (n 126), 505-509. 146 Inwood Laboratories Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982). 147 Ibid, 844. 148 Ibid, 851. 149 Ibid, 845-855. 41 also be held accountable if it did not cease to supply the product used for infringement, knowing or having reason to know that its customer is infringing.
A decade later, the linguistic limitations of Inwood would come to be tested by the Seventh Circuit in the Hard Rock case.150 There it was no longer a question of a producer-distributor relationship, but one between a landlord and tenant or licensee. Hard Rock Cafe, the plaintiff, owned and used several trademarks in connection with its clothing line. The company discovered that several vendors were selling counterfeit versions of its products from stands at venues owned by Concession Services Incorporated (CSI). The goods of vendors were not examined before entry into the venues, although there were rules against selling illegal goods. Hard Rock Cafe decided to sue CSI, claiming that it had contributed to the infringement of its trademarks by not preventing the sale of counterfeits at its marketplaces.151
Reciting the Inwood test, the appellate court acknowledged the dissimilar circumstances and relationship at issue. Not only was the relationship between the infringer and defendant of a different nature, but there was also a question as to the level of knowledge required by CSI. The court believed, nevertheless, that the common law basis for contributory infringement as a tort allowed a certain degree of flexibility. Hard Rock thus determined that the same duty could be extended to a landlord who leases his land to an infringing tenant. Moreover, the Seventh Circuit did not think that the Inwood test was intended to exclude those who shield themselves from knowledge of infringements. Even he who “[suspects] wrongdoing and deliberately [fails] to investigate” would thus fulfill the knowledge requirement of the continued supply prong. However, the judgment emphasized that this “does not impose any duty to seek out and prevent violations”.152
Having begun the trend of analogous application, the extension of the Inwood test to online service- providers was finally realized in 1999. Taking the arguments in Hard Rock as a starting point, Lockheed Martin tackled the key consideration behind punishing an intermediary’s knowledge- based, continued supply.153 With the second prong, the Supreme Court’s focus was interpreted to rest on the defendant’s “direct control and monitoring of the instrumentality used by a third party
150 Hard Rock Cafe Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143 (7th Cir. 1992). 151 Ibid, 1146-1148. 152 Ibid, 1149-1150. 153 Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999). 42 to infringe”. While the Ninth Circuit did not find a domain registrar to be in this position, it confirmed that the provision of an online service could, in principle, be encompassed by Inwood.154 As one commentator notes, the phrase “direct control and monitoring” implied that the degree of control necessary to establish contributory infringement is somewhat higher for (online) services.155
Following the gradual developments of the previous three decades, the case law on contributory trademark infringement came to a climax, with regards to the topic covered here, in Tiffany. Although, as was noted above, eBay was sued for several different types of infringement, Tiffany is perhaps known best for its guidance on the contributory liability of online intermediaries.156
Over the years, eBay's online marketplace had been used by third parties to sell a meaningful number of counterfeit products bearing Tiffany's trademarks. To counter transactions of this kind, eBay employed and developed a number of anti-counterfeit measures during the course of its business. Not only did it implement an automated filter system, but it also had employees who manually reviewed listings which were suspected of violating its policies (which prohibited the sale of counterfeit goods). The “VeRO program” further allowed verified rightholders to notify their "good-faith belief" of IP infringement by particular listings to which eBay would react in a matter of hours. Numerous other measures were also employed to counteract the illegal conduct, but eBay was not able to stop every sale of counterfeit Tiffany goods. Tiffany alleged that this failure constituted a basis for contributory trademark infringement.157
In its analysis, the Second Circuit began by recalling the Inwood standard and the principles established in Hard Rock and Lockheed Martin. It relied on the district court's finding that eBay retained "significant control" over the transactions and listings enabled by its online service. eBay could and did, after all, identify and remove listings which it considered not to be in compliance with its own policies. The parties did not dispute that this was the case, and the Inwood test was thus applied to eBay's conduct. The Second Circuit did not consider whether eBay intentionally induced third parties to sell counterfeit Tiffany goods, as this was never alleged by Tiffany. It did,
154 Ibid, 984-986. 155 Peguera, 'Converging Standards of Protection from Secondary Liability for Trademark and Copyright Infringement Online' (n 143), 613. 156 Michael Pantalony, 'Contributing to Infringement: Intermediary Liability after Tiffany v. eBay and Louis Vuitton v. Akanoc' (2015) 105(3) Trademark Reporter 709, 709-710. 157 Tiffany (n 132), 97-102. 43 however, engage in a detailed analysis of whether eBay had continued to supply its services to counterfeiters knowing, or having reason to know, that they were infringing Tiffany's rights.158
In agreement with the district court's preceding opinion, the Second Circuit first established that "a service provider must have more than a general knowledge or reason to know that its service is being used [for trademark infringement]". The appropriate standard was rather "some contemporary knowledge of which particular listings are infringing or will infringe in the future". This requirement was not one which could be derived directly from Inwood, because the Supreme Court had been silent on that prong of the test and was explicit only as regards inducement.159 In the later Sony case, however, the Supreme Court distinguished the liability standard it applied in copyright law from the much "narrower" one in trademark law. More specifically, the Supreme Court rejected bringing into the law of contributory copyright liability the knowledge as to "identified [infringing] individuals” supposedly stemming from Inwood.160 As the highest court’s only discussion of the continued supply prong, the Second Circuit determined this to be the authoritative approach.161
In applying the new standard to the case at hand, eBay was not found to have had knowledge of, or a reason to know of, particular infringements that it continued to enable. Indeed, notices provided by Tiffany and buyers gave rise to a reason to know of particular infringements, but eBay had always taken action against these by removing listings and suspending repeat offenders.162
Tiffany suggested that eBay was, in any case, willfully blind towards the infringements, given that it knew of their occurrence but did not take further steps to investigate and understand the issue. The jewelry-purveyor pointed to the costs of bearing the investigative burden and indicated that it, along with similar retailers, would be required to police online marketplaces "24 hours a day, and 365 days a year". Tiffany implied that, in the absence of a broader duty to act, service-providers would have no incentive to prevent trademark infringement. The appellate court did not consider this to be a valid argument, stating that “we could not, even if we thought it wise, revise the existing law in order to better serve one party's interests at the expense of the other's”. In doing so,
158 Ibid, 104-107. 159 Ibid, 108-109. 160 Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984). 161 Tiffany (n 132), 109. 162 Ibid, 110. 44
Dinwoodie comments, the court rejected a requirement for online intermediaries to take reasonable precautions in anticipation of trademark infringement.163
Citing Hard Rock, the Second Circuit instead reaffirmed that "willful blindness is equivalent to actual knowledge for the purposes of the Lanham Act". This would be a principle that the court would continue to apply. The general knowledge held by eBay could not, however, trigger liability under that standard. Rather, eBay would have had to suspect infringing sales and intentionally shield itself from discovering which particular sale or seller was infringing.164
Overall, Tiffany reinforces a fairly high standard for contributory trademark infringement in the US without “simply [immunizing] intermediaries”.165 The inducement prong of the Inwood test punishes those who promote illegal conduct as an obvious abuse of their position. At the same time, indifference in the face of clear infringements is not a valid excuse to be let off the hook if an intermediary exercise sufficient control over the means of infringement. Whether an intermediary chooses to tolerate those it knows will infringe via its services or actively tries to shield itself from such knowledge, the culpable enabler will be held to account. But an intermediary who takes responsibility for the harm it discovers is not a culpable one. According to Tiffany, that responsibility sets in when a reasonably specific knowledge of the harm can be expected. Indeed, a lower threshold may frustrate the ability of intermediaries to facilitate legitimate commerce.166
4.3.2. Vicarious liability There is, of course, no question of legitimate commerce when an intermediary works with and profits off the wrongdoing of infringers, and this is where vicarious liability may be appropriate. Although this form of liability is rarely invoked, it has been contemplated by the courts and the current test vis-à-vis trademark infringement was formulated in Hard Rock. Recognizing the culpability of a joint tortfeasor as a general principle of tort law, the Seventh Circuit considered that such a characterization requires a particular relationship between the infringer and intermediary. Accordingly, they must "have an apparent or actual partnership, have authority to
163 Ibid; Dinwoodie (ed), Secondary Liability of Internet Service Providers (n 91), 23. 164 Tiffany (n 132), 110-111. 165 Dogan, 'Principled Standards vs. Boundless Discretion: A Tale of Two Approaches to Intermediary Trademark Liability Online' (n 130), 516. 166 Ibid, 516-517. 45 bind one another in transactions with third parties or exercise joint ownership or control over the infringing product".167
Undeniably, this test is a difficult one to satisfy, and for good reason. By their nature, legitimate intermediaries typically only take on a supervisory role and do not (directly) reap the financial benefits of trademark infringement. The test thus targets those whose inherent purpose is to profit off wrongdoing. According to Bartholomew, this rigor explains why vicarious trademark infringement “has become a dead letter”; notably, of all the claims directed at eBay, Tiffany did not even appear to consider invoking vicarious liability.168 Insofar as trademark owners are considered, contributory trademark infringement thus remains the most, if not only, viable course of action against online intermediaries in the US.
4.4. Conclusion In contrast to the situation under copyright law, the US legislature does not appear convinced that internet intermediaries need special legal treatment in relation to trademark liability. Neither the Lanham Act nor any safe harbor instruments exempt intermediaries from liability for third-party use of their services for trademark infringement. Despite the open-ended notion of use enabling infringement claims, however, courts have struggled to fit these online middlemen into the traditional framework advanced by statute and case law. As a result, principles of contributory and vicarious infringement have instead been extended from the offline context to encompass the novelties of online commerce. Whereas the bilateral legal relationships required by vicarious liability are intrinsically absent, contributory infringement standards have genuine regulatory effect. Intermediaries may not plead ignorance when they know, or it is reasonable under the particular circumstances to know, of specific infringements. The contrary will result in the enabling conduct or tolerant inaction being punished as a material contribution to trademark infringement.
167 Hard Rock (n 150), 1151. 168 Bartholomew, 'Copyright, Trademark and Secondary Liability after Grokster' (n 143), 451 & 453. 46
5. Keyword advertising: A case study
5.1. About keyword ads As one big meeting point for business and consumers all over the world, the internet is both a blessing and an evil for trademark owners. In 2019, nearly 70% of individuals between the ages 16 and 74 in the EU-28 sought out information about goods and services on the internet.169 The convenience and ease with which commercial communication can be realized online makes the internet particularly valuable real estate for brand promotion. With the increasingly sophisticated marketing techniques that have followed, however, so have new methods of potential trademark infringement.170
One business which has thrived for nearly two decades now, and which checks both boxes in terms of sophistication and a potential for abuse, is keyword advertising, or “sponsored links”. This advertising solution is used in conjunction with search engines, making Google, the most popular search engine operator, the largest and primary service-provider.171 The sponsored link-aspect of Google Ads (formerly known as “AdWords”) works as follows: advertisers begin by selecting the keywords or phrases that are to be associated with their advertisement. They draft the content of their ad – typically several short lines of text – and link their businesses’ website. When a search engine-user executes a search of that particular keyword, and potentially variants of it, the ad will appear on the user’s search results page. An advertiser pays Google for the number of impressions made by the ad on users or for the number of “click-throughs” to their website, bidding against others using the same keyword for result position.172 Keyword advertising on Google is
169 Eurostat, 'Individuals using the internet for finding information about goods and services' (Eurostat, 2020)
Considerations of trademark law become relevant when an advertiser uses marks in or for keyword advertising. As will be shown in this part, both the EU (Section 5.2.) and US (Section 5.3.) regimes have had to adapt to this phenomenon and take a stance on whether and how advertisers or service- providers should be held liable. Brand-owners argue that search engines like Google are parasitical, profiting off a trade in their goodwill by offering their trademarks for sale as keywords. Meanwhile, the search engine model proves to be highly beneficial to the other parties involved; users have a free, powerful referencing service and competitors can capitalize on the voluntary attention of a large and diverse group of relevant consumers.174 The overhanging policy question is how a balance can be struck between effective trademark rights, legitimate advertising tactics and the consumer’s interest in better choice and competition.175
5.2. The European Union: Google France Between 2010 and 2011, the CJEU experienced a peak in the referral of preliminary questions on keyword advertising under trademark law. During this period, the Court produced five judgments on the topic, each of these building on its previous reasonings in light of the new circumstances brought before it.176 The first ruling, however, would already come to definitively settle the legal position of search engines in this context.
Google France covered three referred cases of keyword advertising, one of which entailed Louis Vuitton opposing the promotion of imitation products. Viaticum and CNRRH, the other claimants, were a trademark proprietor and a licensee, respectively, which sought to generally prevent the use of marks as keywords by their competitors.177 All of the claimants alleged that Google should be held liable for its provision of the advertising service.
173 Google, 'Keyword Planner: Search for new keywords' (Google, 2020)
By the Court’s decision, Google’s conduct would not even pass the first step to a finding of trademark infringement under the EUTMR and the EUTMD. Recalling the various conditions which have to be met for double identity infringement, “use in the course of trade” was the first element explored. In the case of advertisers (i.e. Google’s customers), it was clear to the CJEU that the choice of trigger for advertisements promoting their goods or services constituted such use.178 Unlike them, however, Google did not use the marks “in its own commercial communication” by merely allowing others to do so. That the AdWords service created the necessary technical conditions for advertisers to infringe did not suffice, in and of itself, to establish an independent use.179 The Court was not moved by the fact that Google sometimes stored phrases combining a trademark and terms like “imitation” or “copy” – even though this may point to exploitation by the advertiser, it did not affect the trademark-relevance of Google’s involvement.180 Without this act, there was thus no need for further analysis with respect to the search engine.181
The integration of a trademark-use doctrine entails that it is impossible for search engines to directly infringe trademarks by arranging sponsored links. Under Article 9 EUTMR and Article 10 EUTMD, use of a sign is always a prerequisite for action by the rightholder, despite the focus in Google France on double identity. The theoretical basis for the “own commercial communication” test remains a mystery, as it is does not derive from the text or preambles of the legislative acts themselves. Rather, it appears to be a vague notion by which the judiciary can realize policy goals. Only the practical consequences which are pursued by this test are obvious: the CJEU explicitly stated that the role of search engines can only “be examined from the angle of rules of law other than [Article 9 EUTMR and Article 10 EUTMD]”.182
Even if a search engine were scrutinized under principles of secondary liability, however, the safe harbor provisions severely restrict the potential for an affirmative finding of liability. Per Google France, keyword advertising services fall under Article 14 ECD if the search engine maintains a neutral role through “merely technical, automatic and passive” conduct.183 Taking into account the
178 Ibid, [51]-[52]. 179 Ibid, [56]-[57]. 180 Ibid, [104]. 181 Ibid, [59]. 182 Ibid, [57]. 183 Ibid, [114]. 49 essential characteristics of the business model, the Court highlighted that search engines do not lose their exemption simply by being able to set the terms of payment or by matching search terms with purchased keywords. Supposedly, none of these things demonstrate that the intermediary has knowledge or control over the infringing ads selected by advertisers.184 The only factor which seems liable to affect the search engine’s privilege is its role in “drafting the ad contents or selecting the keyword”, which may constitute conduct that is not purely passive.185
With its generous and swift dismissal of infringement by Google in the context of the AdWords service, the CJEU is clearly attempting to protect legitimate keyword advertising. The policy reasons underlying the sudden “commercial communication” test are not explicitly divulged in the rulings, but there seems to be a fear of indirectly hindering lawful comparative advertising. Google France draws a clear dividing line between the advertising service-provider and the advertisers. Claims against the former are completely excluded, in that case and those that followed, as irrelevant to trademark law and those against the latter are extensively analyzed to establish the boundaries of non-infringing trademark use. That the CJEU attempted, at all costs, to preempt the infringement question is supported by the fact that it completely neglected to discuss whether the Keyword Suggestion Tool uses trademarks.186 The recommendation of trademarks as keywords should probably be characterized as a search engine’s own commercial communication, but it was only characterized as a factor under Article 14 ECD. Perhaps because the Court is disinclined to make Google an aggressive trademark-police, it sought to reserve only the possibility of lower- degree liability under national tort laws.
5.3. The United States: Rescuecom and Rosetta Stone The favorable treatment of search engines’ keyword advertising services outlined above has, by contrast, not been observed in the US. In fact, what has emerged on the other side of the Pacific is instead a surprising anomaly in an otherwise generous legal regime for online intermediaries. Far fewer disputes targeting keyword advertising seem to have reached the circuit courts when compared to the CJEU, and this may explain why the standards therein have not been fully elaborated and reinforced.
184 Ibid, [116]-[117]. 185 Ibid, [118]. 186 Cornwell, 'Keywords, case law and the Court of Justice: the need for legislative intervention in modernising European trade mark law' (n 175), 88. 50
The first judgment considered here, Rescuecom, was handed down by the Second Circuit in 2009 under circumstances comparable to Viaticum’s case in Google France.187 The plaintiff, Rescuecom, provides computer repair and related services. It discovered that many competitors were using its word mark, “Rescuecom”, as a keyword for their own businesses on AdWords. According to the complaint, the advertisements were not clearly identifiable to consumers as such, causing many to be diverted to competitors by deceit. Moreover, Google’s own Keyword Suggestion Tool had recommended the use of that word mark to a number of the competitors, presumably leading some of them to select it. Rescuecom sued Google for direct trademark infringement, claiming that the use of its mark to produce those advertisements mistakenly caused a belief of affiliation or endorsement in consumers’ minds.188
According to the Second Circuit, the law applicable to keyword advertising had to be distinguished from a previous ruling on pop-up advertising. The advertising software targeted in 1-800 Contacts189 was triggered by the website addresses a user visited, which were not trademarks. User activity activated ads belonging to a relevant category of goods or services, and advertisers were not able to pay for specific triggers. As a result, none of the steps were committed in relation to trademarks. By contrast, Google’s business was essentially characterized by recommending and selling Rescuecom’s trademarks to advertisers. Not only did the AdWords service entail the display, offer and sale of those marks, but their purchase was also recommended to competitors by the Keyword Suggestion Tool. Rather than being merely internal, these acts aimed at the sale of advertising services and were thus uses “rendered in commerce”.190
By its ruling, the Second Circuit refused to adopt a trademark-use requirement akin to that found in Google France. Direct trademark infringement was not conclusively established, because the appeal only concerned a motion to dismiss at first instance.191 However, the appellate court clearly rejected the idea that operators of keyword advertising services fall outside the concept of trademark-use. The rationale behind the decision does not seem to be some doctrinal distinction between direct and contributory infringement, but simply a fear of creating a general defense by
187 Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2nd Cir. 2009). 188 Ibid, 126-128. 189 1-800 CONTACTS, Inc. v. WhenU. com, Inc., 414 F.3d 400 (2nd Cir. 2005). 190 Rescuecom (n 187), 129-130. 191 Ibid, 132. 51 technicality.192 Indeed, the court worried that it would open the floodgates to ill-intending actors, stating that "the operators of search engines would be free to use trademarks in ways designed to deceive and cause consumer confusion".193
An appendix to the judgment explains that the definition of “use in commerce” found in Section 45 of the Lanham Act194 should not apply to infringement. Because the provision refers to “bona fide use”, the court reasoned, the legislator intended to determine only what constituted use for the purposes of good faith registration and the invocation of rights. A contrary finding would limit infringement to good faith infringers, paradoxically allowing actors in bad faith to escape liability. It followed that a separate meaning could and had to be attached to use in the context of infringement.195
As to the likelihood of confusion, the appellate court had much less to say. It acknowledged Rescuecom’s argument that the apparent relevance of competitors in search results could lead to a belief of sponsorship or affiliation with the advertiser. That this confusion could stem from the manner in which Google presented sponsored links was not objectionable in principle, but the court could not draw a conclusion on the basis of the facts presented so far.196 The ruling ultimately left much to be desired in terms of elaboration, as Rescuecom later withdrew the case remanded to the district court after a self-declared victory for trademark owners.197
Some years after, the Fourth Circuit delved somewhat deeper into the prospects of both direct trademark infringement and secondary liability in Rosetta Stone.198 Among other things, Rosetta Stone created and sells a language-learning software under the same name, one of its several trademarks linked to such goods and services. Following a 2009 policy change by Google in relation to its AdWords business, Rosetta Stone observed a significant increase in the advertisement and sale of counterfeit Rosetta Stone software via sponsored links. While Google had earlier only sanctioned the use of trademarks as keywords, the change now allowed their use
192 Stacey L. Dogan, 'We Know It When We See It: Intermediary Trademark Liability and the Internet' (2011) 7 Stanford Technology Law Review 1, 6-7. 193 Rescuecom (n 187), 131. 194 15 USC § 1127. 195 Rescuecom (n 187), 133-134. 196 Ibid, 131-132. 197 RESCUECOM, 'A Case of David versus Googleiath' (RESCUECOM.com, 2010)
The Fourth Circuit partially vacated the summary judgment entered against Rosetta Stone at first instance, holding that further proceedings were necessary. For whatever reason, Google had this time around not disputed the claim that it used Rosetta Stone's marks in commerce. The court simply assumed, therefore, that this was established.200 In great detail, the Fourth Circuit evaluated the non-exhaustive factors laid down in previous case law, some of which had been considered by the district court and others not. The analysis highlighted Google's internal research which, on the one hand, suggested that keyword sales of trademarks generated a large amount of revenue and, on the other hand, that it generally caused confusion among many users "at least once".201 The court concluded that the summary judgment was unjustified; it remained questionable whether Google's policy was likely to lead to confusion.202
This conclusion is strange given the court’s own characterization of Google’s conduct. Per the court, important factors in assessing a likelihood of confusion are the similarity of the marks and of the goods or services to which they refer, as well as the distinctiveness of the infringed mark. Early on, the Fourth Circuit recognized that Google’s use “is referential or nominative in nature”, meaning that Google used Rosetta Stone’s marks in relation to the latter’s own goods. It also noted that “Google offers no products or services under Rosetta Stone’s mark”, making consideration of the goods themselves irrelevant.203 It is difficult, if not impossible, to understand how Google could cause confusion as to source or affiliation if it apparently was both referring to Rosetta Stone’s own goods using the latter’s own mark and had no relevant goods of its own. The answer seems to be that the acts of Google and the advertisers were conflated, as the Fourth Circuit broadly attributed evidence relating to the effects of counterfeit ads to Google’s AdWords policy.204
199 Ibid, 151-153. 200 Ibid, 153-154. 201 Ibid, 156-157 & 159. 202 Ibid, 153-161. 203 Ibid, 155-156. 204 Ibid, 157-160; Dogan, 'Principled Standards vs. Boundless Discretion: A Tale of Two Approaches to Intermediary Trademark Liability Online' (n 136), 522. 53
In part, Rosetta Stone thereafter proceeded to weaken the position of search engines also as to secondary liability. The appellate court agreed that vicarious liability had not been established, because control over the sponsored links did not amount to control over the counterfeit Rosetta Stone products.205 However, it expressed doubt as to whether the plaintiff had really failed to show the specific knowledge required by the Inwood test, as interpreted in Tiffany.
Over the course of about six months, Rosetta Stone had reported around 200 sponsored links, run by counterfeiters, to Google. Subsequently, Google nevertheless allowed some of the same advertisers to register the “Rosetta Stone” keyword for new websites. The district court did not think that this constituted sufficient knowledge, but that finding was overturned because there was “a question of fact as to whether Google continued to supply its services to known infringers”.206 Whereas the knowledge of “specific instances of infringement” had been considered at first instance, in accordance with Tiffany, the Fourth Circuit sought only a continued supply to “known infringers”. Implicitly, the court thus lowered the requisite specificity of knowledge for contributory infringement.207
With a view to legal clarity, it is unfortunate that neither Rescuecom nor Rosetta Stone concluded in a final judgment.208 It is unclear how far the courts’ views will extend to contemporary practice, and there has been no further development of legal principles at the appellate level. Despite the aggressive approach taken to keyword advertising in these cases, their non-resolution seems to have made Google the ultimate winner; to this day, Google Ads continues to allow the use of trademarks in its service,209 with little effective opposition from proprietors.
205 Rosetta Stone (n 198), 166. 206 Ibid, 163-166. 207 Dinwoodie (ed), Secondary Liability of Internet Service Providers (n 91), 26. 208 Terry Baynes, 'Rosetta Stone and Google settle trademark lawsuit' (Reuters, 2012)
6. Diverging methods, converging results
6.1. Infringement and trademark use Staying true to the definition of online intermediaries adopted in this paper, it is not difficult to see why trademark law struggles to fit these actors into its rather fixed statutory scheme. Typical cases of trademark infringement consist of a trader itself effectuating some misleading, or otherwise exploitative, physical display of commercial origin. The law was designed for these kinds of situations, dealing mainly, since its early days, with acts like affixing signs to goods or packaging and drawing on the qualities of particular goods or services in advertisements.
This traditional view is challenged by actors who appear to play a merely facilitative role in the process of distorting perceptions of commercial origin. While it is difficult enough to settle on the culpability of a mere link in the causal chain in the physical world, the underlying reasoning can become even more convoluted in cyberspace. Faced with the intricate web of invisible data transactions that comprises an online intermediary’s service, it can be tempting to blend together the various interactions between human users and algorithms.
It is against this background that the debate on the value of a trademark use doctrine has become particularly relevant. Such a doctrine disregards certain conduct as irrelevant to trademark law and is thus capable of tempering the liability of intermediaries. As the developments covered earlier in this paper suggest, the judicially preferred view is not, in this regard, common to the US and the EU.
6.1.1. Non-distinction of trademark-relevant use in the US From the rulings handed down by American courts so far, it can only be inferred that US judges do not subscribe to use as a limiting factor for trademark infringement claims. Chapter 4 showed that, in nearly all the early intermediary cases, plaintiffs did not even bother suggesting that the intermediary in question had directly infringed its rights. In Tiffany, the claim was simply dismissed based on the use being descriptive and non-confusing by nature (nominative fair use). Of course, the absence of a discussion on trademark use per se, in those cases, tells us little about 55 which view is adopted. This makes the rejection of the doctrine in Rescuecom, the only case to explicitly cover the topic at a higher instance, the leading authority. The Ninth Circuit later endorsed this view in Network Automation but did not develop the discussion any further.210
The Rescuecom court and other opponents of trademark use theory argue that it is overly static and disconnected from trademark law. Indeed, incorporation of such a requirement into the infringement formula limits the potential for courts to regulate marketplaces through trademark law.211 This is, for instance, a limitation that now exists in relation to providing keyword advertising services and operating online marketplaces in the EU. While the outcome may not be indefensible at present, it is argued that a premature delimitation of relevant use may fail to account for more reprehensible behavior enabled by technological advancements in the future.212 As noted by the Second Circuit, there also does not seem be any legislative support for the theory in the Lanham Act (see Section 5.3.).213 The same seems to be true for the EUTMR and EUTMD, which contain neither an actual definition of “using” nor an indication to that effect in the preamble.
6.1.2. Commercial communication and active behavior in the EU The manner in which trademark use theory has, contrastingly, been subsumed into European trademark law is especially burdened by this latter argument. By invoking its “commercial communication” test in Google France,214 the CJEU took its first step. No explanation as to the legal origin of this test was provided and, in fact, the Court did not attempt to justify it in any way. The same test was nevertheless recited in defense of eBay’s auction service (although not insofar as it acted as a regular third party by keyword advertising), still without explanation.215
In 2015, Daimler gave rise to a new test for identifying trademark use, without any mention of commercial communication. Here, the Court appealed to the “ordinary meaning [of] the expression […] ‘using’”, stating that it “involves active behavior and direct or indirect control of the act constituting the use”.216 Support for this was apparently found in Article 5 Directive 2008/95 (now Article 10 EUTMD) based on, firstly, the listed examples of use which refer “exclusively to active
210 Network Automation, Inc. v. Advanced Systems Concepts, Inc., 638 F.3d 1137, 1145-1146 (9th Cir. 2011). 211 Graeme B. Dinwoodie and Mark D. Janis, 'Confusion over Use: Contextualism in Trademark Law' (2007) 92(5) Iowa Law Review 1597, 1603; Rescuecom (n 187), 131. 212 Dinwoodie and Janis, 'Confusion over Use: Contextualism in Trademark Law' (n 211), 1604. 213 Rescuecom (n 187), 132-142. 214 Google France (n 55), [56]. 215 L’Oréal (n 58), [102]. 216 Daimler (n 70), [39]. 56 behavior” and, secondly, the fact that the provision is a tool by which rightholders prohibit use of their trademarks. Accordingly, if the defendant is not in a position to effectively end use of the mark (through direct or indirect control), a finding of trademark use would have effects violating the principle impossibilium nulla obligatio est.217 The introduction of this new test suggests an awareness on the CJEU’s part with regards to the legal inadequacies of Google France.
Undoubtedly, the explanation put forward in Daimler is much more convincing than the earlier invention of “commercial communication”. The Court nevertheless decided to bring both tests into this year’s Coty ruling.218 Although the conduct at issue in Coty falls within the physical realm (stocking of goods for the Amazon Marketplace), it would be surprisingly inconsistent if the CJEU chose to not to extend the Daimler standard to digital conduct as well.
6.1.3. Discussion Despite the judicial creativity required by the Court to incorporate trademark use theory, it is arguably, and ironically, legally coherent to exclude certain conduct from trademark law. In the US, the non-distinction between acts facilitating use and use as such has clearly led to a blurred boundary between primary and secondary liability. For example, the Rosetta Stone ruling, outlined above, left open the possibility of Google having committed both direct trademark infringement and contributory infringement through the same “use” (in selling keyword ads). Within a unified system of rules, it is clearly contradictory to characterize the same action as being both a wrongdoing in its own right and merely accessory to another.
Rather than simply granting intermediaries immunity, a trademark use rule serves to maintain the proper legal distinction between different degrees of liability. By allocating different types of “use” to different theories of liability, analysis through the lens that is best placed to account for the context is ensured. Trademark law focuses on the characteristics of the parties, signs, goods and services, as well as the harm of the defendant’s actions to the rightholder’s protected interests. Where a defendant only by the action of a third party and by being a link in the chain of causation can be said to impede the goals of trademarks, this framework is inherently a mismatch. It is desirable to promote the separate development of secondary liability for this latter category of
217 Ibid, [40]-[41]. 218 Coty (n 71), [37] et seq. 57 actors instead of distorting the pre-existing methodology and principles used to evaluate direct infringement.219
At least in the context of online intermediaries, bringing US infringement theory closer to that of the EU through a use doctrine would thus advance the coherence of the trademark regime. Contrary to the allegations of opponents, it would not significantly weaken the position of trademark proprietors. Despite Rescuecom’s opening, lower courts have, for the past decade, been forced to throw out direct infringement claims against keyword advertising operators due to the absence of a likelihood of confusion anyway.220 In one way or another, that will always be the result of an attempt to force conduct into a legal framework that it inherently cannot offend. Establishing a bright line rule for trademark-relevant use would empower rightholders by shifting focus to accessory liability and instigating further growth of this underdeveloped body of law. At the same time, this would provide clarity on the standards which intermediaries must abide by and enhance the cooperation mechanisms which are currently in place.
6.2. Responding to notices In both the EU and the US, it is clearly incumbent on online intermediaries to cooperate with rightholders by acting on notices of trademark infringement. The legal systems share the commonality that the process is left largely unregulated and vague. However, the sources of this obligation are largely opposite in nature.
6.2.1. NTD in EU safe harbors As implied in Section 3.2., the primary impetus for action in the EU comes from the safe harbor provisions. In line with the negative approach to defining liability, online intermediaries are in principle exempted from liability, as long as they fulfill the conditions of the ECD. Article 14(1)(b) requires expeditious action upon obtaining actual knowledge or awareness of illegal activity or information. Failure to follow the implicit NTD scheme established by Article 14 thus opens operators up to claims of accessory liability at the national level. An issue with this method is that because the ECD is a directive, the undefined particulars of the process are a national matter and likely to differ by Member State.
219 Stacey L. Dogan, 'Beyond Trademark Use' (2010) 8 Journal of Telecommunications and High Technology Law 135, 138 & 141-145. 220 J Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, (5th edn, Thomson West 2020), §25A:7. 58
The extent to which national laws specify procedural criteria for NTD, including the way in which notice can amount to actual knowledge or awareness, varies greatly. In the UK, for instance, minimum statutory rules apply in relation to all kinds of illegal content. Under the Electronic Commerce Regulations 2002, courts are obliged to consider whether the notifier has substantiated their identity (full name and address), pinpointed the location of the unlawful information or activity and detailed why it is unlawful (Regulation 22). In Germany, the Netzwerkdurchsetzungsgesetz regulates only social networks and there is no generally applicable law on NTD covering trademark infringement.221 It is doubtful whether the ECD really fulfills its goal of serving as an “appropriate basis for the development of rapid and reliable procedures for removing access to illegal information”.222
The Commission has observed that these disparities impede intermediaries and rightholders from understanding their legal position and from effectively applying Article 14 ECD. Core issues highlighted as early as in 2011 are notice requirements, fundamental rights balancing, timeframes, consequences for wrongful notices and the legitimacy of private actors as “judges”.223 According to Horten, the Commission was drafting a proposal for a “notice & action directive” in 2013 to address the deficiencies of the ECD. However, this legislative initiative never saw the light of day, apparently as a result of lobbying from the copyright industry.224 By 2018, the Commission seemed to have given up prospects of a new legal act, instead releasing a Recommendation outlining broad principles for tackling illegal content online.225
6.2.2. NTD standards in US case law Since US law, on the other hand, does not provide for safe harbors in relation to trademark law, an obligation to respond to rightholder-notices is instead incorporated into contributory liability. Under the second prong of the Inwood test, a sufficient knowledge of infringement combined with
221 ICF, Grimaldi Studio Legale and 21c Consultancy, 'Overview of the legal framework of notice-and-action procedures in Member States SMART 2016/0039' (European Commission, 2019)
Rather than striving for concrete legal rules, the US courts seem to be guided merely by an intuitive perception of “good” or “bad” behavior on the intermediary’s part. It does not appear coincidental that intermediaries (both online and offline) who partner with trademark proprietors through brand protection mechanisms, of their own volition, escape infringement claims unscathed.227 This dichotomy manifests itself in the different outcomes of Tiffany and Rosetta Stone which ultimately both concerned marketing counterfeits through intermediate services. Whereas eBay had well- established procedures to cooperate with trademark owners, Google had recently loosened its ad policies to increase profits (while recognizing that some search-engine users struggled to distinguish sponsored links from normal research results). In their judgments, the courts spent much time highlighting eBay’s valiant efforts and noting Google’s apparent disregard. Against this background, it is not surprising that Tiffany was unwilling to stiffen standards of contributory liability while Rosetta Stone was remanded for misapplication of those same standards.228
6.2.3. Suggestions There is clearly room to improve the (implicit) NTD schemes of both the EU and the US. The utility of Article 14 ECD would perhaps be greater for online intermediaries and rightholders alike if an NTD (or “notice-and-action”) directive had been passed. Mixed results are produced across the Union due to varying standards and criteria, and the safe harbor thus falls short of creating an effective and reliable notification procedure. This makes it difficult for online intermediaries to
226 Tiffany (n 132), 108-110. 227 Thomas C. Rubin, 'Leveraging Notice and Takedown to Address Trademark Infringement Online' (2014) 37(4) Columbia Journal of Law & the Arts 585, 587. 228 Dogan, 'We Know It When We See It: Intermediary Trademark Liability and the Internet' (n 192), 8-9. 60 assess their responsibilities and for rightholders to assess the sufficiency of their knowledge as to infringing conduct.
Irrespective of liability and the ECD obligations, trademark proprietors are already entitled to the cooperation of intermediaries in terminating and preventing prosecuted infringements under IPRED. Both NTD and IPRED injunctions require an infringement to be identified by the rightholder in the first place. The merit in relying on injunctions is that both the measure and its underlying legal assessment are issued by a legally competent authority, and not a private actor. Ideally, the rightholder’s interest in inexpensive and expedient enforcement should be weighed against the public interest in a legitimate and transparent manner. Although the provision leaves the procedure undefined, this is clearly the goal pursued by the recently passed DSM Directive’s counter-notice mechanism (Article 17(9)) under copyright law.229 If Article 14 ECD is not complemented by unambiguous and fair NTD rules, it may simply make more sense to limit the cooperation of intermediaries to injunctive relief.
For the same reason, US case law on contributory infringement should provide inspiration for a trademark version of the DMCA. The gradual reveal of takedown standards, which has so far been realized on a case-by-case basis, fails to clarify the legal position of the disputants. The Rosetta Stone case, which never reached a final disposition, put into question the exact bounds of knowledge under Tiffany. Mere reliance by courts on an impression of whether the defendant- intermediary seems like a “good guy” or not is unsustainable for legal clarity on the expected level of cooperation. Particularly in the context of borderless online services, it is surely not desirable to have the country’s circuit courts invoking different standards of responsibility on a whim. Although a safe harbor would be somewhat superfluous given the general absence of secondary liability, a well-defined NTD procedure would prove more reliable for rightholders and provide other stakeholders with legally enforceable safeguards.
6.3. Policing infringement Perhaps the clearest point of law is that online intermediaries are under no obligation to generally seek out and prevent instances of infringement within their services. This is true for both the EU and the US but, again, achieved through different mechanisms.
229 Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC [2019] OJ L 130/92, recital 70. 61
6.3.1. Trademark-policing in the EU Article 15 ECD explicitly prohibits EU Member States from imposing general monitoring obligations on operators who are entitled to rely on the safe harbors. The consequences of this prohibition are two-fold: firstly, the NTD scheme implied by Article 14 ECD should not be read as transforming intermediaries into trademark-polices who must strive to acquire “actual knowledge or awareness”. Secondly, rightholders cannot use IPRED injunctions to make these service-providers their personal detectives. According to L’Oréal, this is inherent to IPRED’s Article 3 conditions as well.230
In practice, this limitation distinguishes between infringers who are already known to the intermediary, whether by notice or otherwise, and those who are not. An obligation to prevent infringements of the same kind, that is “in respect of the same trademarks”, is allowed in relation to a known infringer. The Court thinks this is a sufficiently specific obligation that falls outside the notion of general monitoring.231
With respect to new infringements, whether directed at a new mark or by a new user, the ECD regime actually seems to discourage proactive policing by online intermediaries. In L’Oréal, the Court noted that actionable possession of knowledge includes the results of “an investigation undertaken on [the intermediary’s] own initiative”. Simultaneously, operators playing an active role cannot benefit from Article 14 ECD.232 As a result, intermediaries who voluntarily monitor the use of their services for IP infringement could be characterized as overly active and prone to acquiring “actual knowledge or awareness” of illegal activity. Paradoxically, Good Samaritans shoot themselves in the foot because, by being proactive, they run the risk of losing their own safe harbor.233
6.3.2. Trademark-policing in the US The corresponding limitation in the US derives from a basic tenet of the trademark regime: “the corporate owners of trademarks have a duty to protect and preserve the corporation's trademark
230 L’Oréal (n 58), [139]. 231 Ibid, [141]. 232 Ibid, [122]-[123]. 233 Aleksandra Kuczerawy, 'The EU Commission on voluntary monitoring: Good Samaritan 2.0 or Good Samaritan 0.5?' (KU Leuven Centre for IT & IP Law, 2018)
Unlike what has been argued for the ECD, however, American standards of contributory infringement should not be interpreted as discouraging proactive intermediaries. The previous section has described the implicit bias of appellate courts in favor of service-providers who actively, although imperfectly, defend the interests of rightholders. From this perspective, it is unlikely that the Inwood test’s knowledge requirement would be turned on its head to punish those investigating, and in some form working against, infringing conduct.237
234 McCarthy, McCarthy on Trademarks and Unfair Competition (n 220), §11:91. 235 Tiffany (n 132), 110. 236 Dogan, 'Trademark Remedies and Online Intermediaries' (n 128), 482. 237 Note: Not to be confused with a situation of willful blindness, wherein an intermediary intentionally shields itself from further investigation after discovering an infringement (Section 4.3.1.). 63
7. Concluding remarks
This paper began by highlighting the onerous effects of trademark territoriality on proprietors in the face of increasingly borderless and obscure transgressions of their rights. It was shown how the EU and the US attempt to balance the challenges of online infringement against the unique position of intermediaries. By application to keyword advertising, the dissimilarity of their legal mechanisms was illustrated but it is clear that the de facto outcomes for stakeholders are, by and large, the same. However, the last chapter described several flaws which persist with each of the EU and US methods and put forward conceivable remedies for these.
Practical obstacles associated with counteracting online infringement are certainly amplified when it is carried out via intermediate internet services. Intuitively, it seems fair to hold operators of these services responsible for the wrongs they enable, particularly as a counterbalance to the profits their mixed-use business model generates. Despite the obvious importance of protecting trademark rights, however, it is necessary to take into account the economic significance and the social utility of these types of services. Insofar as search engines, online marketplaces, social media, and other types of intermediaries are a major driver of legitimate digital interactions, it is destructive to disincentivize further technological development through an excessive exposure to legal threats.
The comparison of the EU and US approaches to intermediary liability shows that there is not necessarily a single, optimal method of striking a balance. Two opposing starting points are adopted in these legal systems: the EU perspective is that online intermediaries are, at the outset, conditionally exempted from all kinds of trademark liability under the ECD. By contrast, US trademark law makes no assumptions about the unique nature of intermediate internet services and their operators. In principle, they are treated the same as any other legal subject, and their position is directly determined by application of liability standards. Interestingly, these contrasting methods produce comparable results.
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As reflected by both EU and US case law, it is not legally tenable to hold online intermediaries liable as primary infringers for merely supplying the facilities necessary to infringe. While the CJEU has established this by adopting a trademark use doctrine, US courts have either resorted to the principle of nominative fair use or found intermediary use unlikely to confuse. This outcome is a logical consequence of trademark law’s high degree of contextuality. To a greater degree than other IPRs, harm to the rightholder’s interests is dependent on how and in relation to who and what a mark is used.
Intermediaries are not free to conduct themselves as they please simply because they do not fit the traditional trademark framework. An active encouragement of infringing conduct cannot be tolerated; this sort of behavior is dealt with under inducement theory in the US and clearly falls outside the scope of EU law’s safe harbors. Even knowing about specific infringements and doing nothing leaves operators open to claims by trademark owners: under American tort law this can amount to contributory infringement and it constitutes a failure of the obligations prescribed in Article 14 ECD. In the latter case, EU Member States are free to impose secondary liability on the basis of national law.
Thus, despite the different legal mechanisms used to guide the behavior of online intermediaries in the EU and the US, the expected standards of care have largely converged. As to the extent of liability imposed on intermediaries for third-party infringement, it seems that both systems chiefly view traditional trademark law as an inappropriate forum for regulation. However, this realization has given way to more contextual assessments of culpability. Not only the extent to which an intermediary knows or should know of infringements realized via its service but also its actual response to such knowledge are determinative. They are not expected to police trademark issues, but they must at least terminate or prevent infringements of which they become aware, whether on their own or through rightholder-notices. A failure to do so allows for legal consequences under principles of tort law.
The problem is perhaps not so much that trademark issues involving intermediaries have been funneled into other fields of law, but that the latter remain substantively poor and unclear. Secondary trademark infringement is underdeveloped in the US and applicable principles of tort law are not harmonized in the EU. An absence of statutorily defined NTD procedures makes cooperation between intermediaries and trademark owners impetuous and unstable at the cost of
65 legal certainty and safeguards. That these profound legal lacunas still exist is remarkable given the long period during which online trademark infringement has been a concern. While the balance currently achieved by the law is, arguably, satisfactory, neither the EU nor the US have achieved frameworks that altogether could be characterized as such.
Correcting these faults may require renewed legislation in both the EU and the US that balance clarity with the flexibility needed to account for future technological developments. There may be some value in drawing inspiration from other fields facing issues of infringement on the internet, such as copyright law. One example is the counter-notice mechanism found in Article 17(9) of the recent DSM Directive which, despite its open-endedness, is a more effective safeguard than the complete absence of any corresponding provision in the ECD. However, the legal nature of the problems faced by trademark and copyright owners are certainly different. A nuanced approach to online trademark infringement is required, and this calls for a clarification of the legal standards applicable to intermediaries, not only in their own interest but in that of all stakeholders.
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