ECJ: Landlords are liable for IP rights infringements by tenants

23.09.2016

The European Court of Justice (ECJ) has decided on whether the operator of a physical marketplace is liable for infringements of IP rights by the tenants of its retail space (case C-494/15). In its judgment, the ECJ has equated such landlords to the operators of online marketplaces in terms of liability.

In the underlying case, the company Delta Center had run the Prague Market Halls, which it had leased from the City of Prague, for many years. Delta Center had sublet the retail units located in the grounds to market traders. A few traders were selling counterfeit goods on their stalls.

After a group of trade mark owners, including Tommy Hilfiger, Lacoste and Burberry, had found that fake versions of their products were being sold in the Prague Market Halls, they brought the matter to the Czech courts. They requested that Delta Center was or-dered to stop leasing the retail space to market traders who were selling the fakes. The trade mark owners based their action on the Czech standards transposing the implement-ing EU Directive (Directive 2004/48/EC on the enforcement of intellectual property rights) under which claims on account of trade mark infringements can be enforced not only against the infringer, but also against intermediaries whose services are being used by a third party to infringe trade mark rights.

Following an appeal, the Supreme Court of the Czech Republic referred to the ECJ the question of whether the operator of a physical marketplace is obliged to stop trade mark infringements committed by traders and prevent further infringements.
In its decision, the ECJ followed the opinion held by the rights holders and found that a company letting and subletting space to third parties, thereby allowing the traders leasing the space to offer counterfeit goods there, is to be regarded as an intermediary for the purposes of European law. In the ECJ’s view, it is irrelevant whether sales outlets are pro-vided in an online marketplace or a physical marketplace in a market hall. It held that the provisions of the implementing EU Directive are not limited to electronic commerce.

The ECJ justifies its standpoint by explaining that intermediaries of physical sales areas therefore have the same obligations as operators of online marketplaces. Since the ECJ’s decision in the L'Oréal/eBay case (judgment of 12 July 2011, case C-324/09) it is clear that although intermediaries are required to take effective and dissuasive measures to prevent infringements of IP rights, at the same time they can only be expected to take steps that are fair and proportionate. Intermediaries cannot be expected to implement excessively expensive control measures or measures creating barriers to legitimate trade. Similarly, intermediaries cannot be expected to oversee their customers on a general, continued basis. However, they can be forced to take measures to prevent new infringements as soon as they have been made aware of initial infringements.

Although the ECJ’s decision is no surprise in the light of the L’Oréal/eBay case law, it nev-ertheless appears ground-breaking and will be welcomed above all by rights holders. In certain cases they will now also be able to force the operators and tenants of physical trading places to put a stop to intellectual property rights infringements. In addition, the ECJ’s decision could not only apply to operators and tenants of physical marketplaces in the strict sense, but also to the tenants and operators of shopping centres and specialist retail centres as marketplaces in the wider sense. Now operators will no longer be able to turn a blind eye to infringements of IP rights by their tenants. If tenants sell counterfeit goods and landlords or operators fail to take action despite being aware of this, they will definitely be liable under the concept of “disturbance liability” (“Stoererhaftung”) under German law. Warnings to the tenants would in particular come into question as necessary preventative measures. If they continue to sell counterfeit goods, injunctions could be brought against them due to continued use of the rented property in breach of their con-tract. In certain cases this may lead to the rental contract being terminated without no-tice. However, caution should always be exercised: if landlords act too hastily and their tenant has not actually infringed any IP rights, they may make themselves liable for dam-ages. Thus in future the question of whether the tenant is guilty of infringing IP rights may (additionally) have to be decided in litigation between the tenant and landlord.

Any questions? Please contact: Janina Voogd und Jessica Ploss

Practice Group: Intellectual Property & Media, Real Estate Investments, Commerce & Trade