Stalls selling items of questionable origin in marketplaces across major cities in the European Union abound. In their fight to safeguard their rights, trademark owners have a difficult time chasing tenants selling counterfeit goods.

In a recent decision that is of significant interest to landlords, the Court of Justice of the European Union (CJEU) places liability on operators of physical marketplaces in the case of trademark infringement committed by their tenants.

This judgment complements a landmark ruling delivered by the CJEU in the context of virtual marketplaces involving proceedings brought by L’Oreal and others against eBay in 2011. The L’Oreal case revolved around a dispute between a number of brand owners against operators of online marketplaces. The Luxembourg Court in that case had ruled that operators of internet markets may be forced to take measures that contribute effectively towards putting an end to infringements of intellectual property rights committed by users through their marketplace, and prevent further infringements.

The more recent judgment delivered by the CJEU mirrors the 2011 ruling with the only difference that this time operators of physical marketplaces have been targeted.

This time operators of physical marketplaces have been targeted

The more recent case arose when several trademark holders, including Tommy Hilfiger, Burberry and Lacoste, discovered that counterfeits of their goods bearing their trademarks were being sold at a main market hall in Prague frequented by tourists and locals alike. Delta Centre, the tenant of the marketplace, sublet space to market traders who sold these fake items to consumers.

Taking a cue from the L’Oreal judgment, the brand owners decided to act directly against Delta Centre, rather than chasing the individual traders who were actually selling the counterfeit goods, and filed for an injunction before the Czech courts to order Delta Centre to stop renting sales areas to traders who committed such infringements. They argued that, in like fashion to operators of online marketplaces covered by the judgment in L’Oreal, the operator of a physical marketplace should be burdened with similar obligations.

The case ended up before the Czech Supreme Court, which held that the dispute should be settled by determining whether operators of physical marketplaces should be considered intermediaries within the meaning of the EU Enforcement Directive. The Enforcement Directive allows trademark holders to bring an action against intermediaries whose services are used by a third party to infringe their trademarks. The Czech Court decided to stay the proceedings and the case was referred to the CJEU.

In its preliminary ruling, the CJEU considered that Delta Centre essentially performed an identical role to an online market operator, albeit on the street. It further ruled that whether the sales point is online or physical is irrelevant, as the scope of application of the Enforcement Directive is not limited to online trade. Therefore the principles spelled out in the L’Oréal judgment were deemed to apply to physical marketplaces too.

Thus the CJEU held that an operator that lets or sublets space in a marketplace is providing a service to a third party and offering the possibility to that third party of selling counterfeit products in that marketplace. This was deemed by the Court to fall squarely within the meaning of an ‘intermediary’ under the Directive. The Court did not go so far as to establish which other service providers may be caught within the meaning of an intermediary. Certainly, though, an operator of a physical marketplace may be forced to put an end to infringements of intellectual property rights by market traders and to take measures to prevent new infringements.

This decision is not surprising given that operators of online marketplaces have been exposed to this risk since the CJEU’s 2011 judgment. However, this decision makes it clear that the route to enforcement for brand owners against infringers in physical marketplaces will be easier as they will be able to act directly against the landlord, as well as the primary infringer.

Landlords may thus face additional risks. Although landlords may not be required to ensure permanent surveillance of their tenants, they may be forced to contribute to the avoidance of new infringements of the same nature by the same market trader. The national courts will determine what this entails and ensure that a fair balance is struck between the protection of trademark owners and the avoidance of obstacles to legitimate trade.

jgrech@demarcoassociates.com

Josette Grech is adviser on EU law at Guido de Marco & Associates.

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