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The McFadden Case – signals of relief for public WiFi providers


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Summary: The Court of Justice of the European Union (CJEU) has given a number of judgments in recent times that have had the effect of placing more and more responsibility for policing IPR infringements at the door of facilitating parties, such as online market places and landlords, rather than the individuals that are carrying out the infringement.

The logic from the rights holders’ perspective is clear; suing the general public is always going to be a risky strategy (not least from a PR perspective), and after all, it makes sense to go after parties with deeper pockets and that can also potentially prevent widespread infringement. However, on 15 September 2016, the CJEU’s ruling in Tobias McFadden v Sony Music Entertainment Germany GmbH can be seen as a step, albeit a small one, to redress the balance in favour of service providers when it comes to liability for infringements by users of a public Wi-Fi service. 

L'Oréal v eBay

Before looking at the McFadden case, which was mainly concerned with liability under the E-Commerce Directive (2000/31/EC), it would be worth taking a brief look at one of the landmark cases in this area of law, L'Oréal SA v eBay International AG. Essentially, L'Oréal succeeded in its action against eBay, which was based on the Intellectual Property Enforcement Directive (2004/48/EC) (the “Enforcement Directive”), in respect of the sale of counterfeit goods by eBay’s sellers. In this case, after a referral from the High Court, the CJEU confirmed that under Articles 3 and 11 of the Enforcement Directive, Member States must ensure that rights holders can hold intermediaries, such as eBay, to account by granting injunctions to prevent trade mark infringements. However, the CJEU made it clear that a proportionate approach was needed so that intermediaries like eBay would not be forced to vet every product before it is advertised.

Tommy Hilfiger v Delta Center

It has now been confirmed by the CJEU in Tommy Hilfiger Licensing and Others v Delta Center a.s .that the scope of the Enforcement Directive is broad enough to capture physical market places too.  Judgement in this case was given on 7 July 2016. The facts were relatively similar to the L'Oréal case, except here, Tommy Hilfiger were unhappy about counterfeit goods being sold at a famous market hall in Prague by market stall holders that were renting space from Delta Center. The matter was referred to the CJEU by the Czech Supreme Court and the CJEU decided that the Enforcement Directive must be interpreted in a way that applied equally to physical market places as it did to online market places. An injunction could therefore be granted to force Delta Center to ensure that trade mark infringements would not continue to take place from its premises.

Tobias McFadden v Sony Music Entertainment Germany GmbH

Following on from the Delta Center case, landlords and other physical market place operators are increasingly taking steps to ensure that arrangements are in place with their tenants to cover situations where tenants are or are allegedly infringing a third party’s intellectual property rights. A similar area for concern for many landlords and property managers is what kind of risk are they exposing themselves to by offering tenants and other users access to public WiFi services at their sites. Would rights holders seek to hold them responsible for the infringing actions by such users?  

These issues were discussed and to a large extent dealt with under the recent McFadden case. McFadden, a German retailer offered a free and unsecure WiFi service to the general public. One of the reasons for offering this service was to try to attract potential customers to his lighting and sound system store. Back in 2010, a musical work owned by Sony was made available over his network for download; a clear copyright infringement by one of McFadden’s users. But would McFadden be liable for the use of his network in this way or could he rely on one of the defences that were available under the E-Commerce Directive?

The first thing the CJEU had to decide was whether the E-Commerce Directive protected McFadden from Sony’s claims. Under the E-Commerce Directive, there is a “mere conduit” defence for providers of an “information society service”. Under this defence, a provider will not be liable for the information that is transmitted by a third party receiving the provider’s service if the following three conditions are satisfied: (i) the provider of the service must not have initiated the illicit transmission; (ii) it must not have selected the recipient of the illicit transmission; and (iii) it must neither have selected nor modified the information contained in the illicit transmission (the “Conditions”).  

The CJEU confirmed that, despite McFadden offering the WiFi service free of charge, the WiFi service that he was offering would still be considered an “information society service” under the Technical Standards Directive (98/34/EC). This is because they decided that despite McFadden offering the service free of charge, he was still deriving a benefit from providing the WiFi to the public as he used the opportunity to engage with users to advertise his own goods and services.

However, whilst the CJEU agreed that Sony might be capable of obtaining an injunction to prevent the relevant copyright infringement from taking place and forcing McFadden to password protect his service (so that information about users committing infringements could be obtained), it was not entitled to claim compensation or its costs from McFadden as a result of the Conditions being satisfied. Further, the CJEU made it clear that there is no general obligation on network access providers to monitor the information that is transmitted over the network – in other words, it was not McFadden’s responsibility to check to make sure whether users were using the service for illicit means.

What does this mean to me?

Despite the recent McFadden decision, businesses (and landlords, in particular), should remain alive to intellectual property right infringements that occur in their online and physical environments. The E-Commerce Directive, for example, makes it clear that parties like McFadden must act expeditiously to prevent users from undertaking illegal activity upon becoming aware of such activities. Increasingly rights holders are looking at ways to protect the value of their brands and content, which increasingly means pursuing those with the resources to compensate them for their losses (rather than individual infringers). Parties should ensure that all their relevant contracts, such as landlord/tenant, user/supplier or customer/service provider, contain comprehensive IPR and liability provisions to ensure that you are not on the wrong side of a claim.


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