EU highlights role of ISPs, damages and trade agreements in reducing IP infringements

The EU just published a report reviewing the effectiveness of the EU Directive 2004/48/EC of the European Parliament and the Council of 29 April 2004 on the enforcement of intellectual property rights. That Directive, which recognized that effective means of enforcing intellectual property rights are essential for promoting innovation and creativity, harmonized the minimum means available  to right holders and public authorities for fighting infringements of intellectual property rights in the EU. It also established a general framework for exchanging information and administrative co-operation between national authorities and with the Commission.

It is widely accepted in the EU that “infringements of intellectual property rights cause widespread economic harm and that a “significant number of products infringing intellectual property rights now pose a real threat to consumer health and safety.” Further, the proper protection of intellectual property rights “is fundamental to stimulate innovation and culture in a competitive, wealth-generating, knowledge-based economy.”

The report found that the Directive had led to progress in combating intellectual property infringement by, among other things, creating high European legal standards to enforce different types of rights that are protected by independent legal regimes such as copyright, patents, trademarks and designs. However, it also found that despite an overall improvement of enforcement procedures, “the sheer volume and financial value of intellectual property rights infringements are alarming.” One reason given “is the unprecedented increase in opportunities to infringe intellectual property rights offered by the Internet.”

The Internet and digital technologies have added an extra, challenging dimension to enforcing intellectual property rights. On the one hand, the Internet has allowed creators, inventors and their commercial partners to find new ways to market their products. On the other hand, it has also opened the door to new forms of infringements, some of which have proved difficult to combat.

The multi-purpose nature of the Internet makes it easy to commit a wide variety of infringements of intellectual property rights. Goods infringing intellectual property rights are offered for sale on the Internet. Search engines often enable fraudsters to attract Internet users to their unlawful offers available for sale or download. File-sharing of copyright-protected content has become ubiquitous, partly because the development of legal offers of digital content has not been able to keep up with demand, especially on a cross-border basis, and has led many law-abiding citizens to commit massive infringements of copyright and related rights in the form of illegal up-loading and disseminating protected content. Many online sites are either hosting or facilitating the online distribution of protected works without the consent of the right holders. In this context, the limitations of the existing legal framework may need to be clearly assessed.

The EU Directive gives a broad interpretation to the concept of “intermediaries” to include all intermediaries “whose services are used by a third party to infringe an intellectual property right”. This means that intermediaries with no direct contractual relationship or connection with the infringer are subject to these measures provided for in the Directive.

Nevertheless, the report found that “uncertainties remain over intermediaries and the specific measures to which they are subject by contributing to or facilitating an infringement, regardless of their liability.” The report noted that “Internet platforms such as online market places or search engines can also play an important role in reducing the number of the infringements, in particular through preventive measures and ‘notice and take-down’ policies.”

Other EU Directives also employ a variety of means to incent or procure ISPs to cooperate with rights holders to reduce online infringement. For example, under the EU Directive on ecommerce (as in the USA, Australia and elsewhere), ISPs cannot obtain the benefit of safe harbors (exceptions from liability) when they provide hosting services, if they have actual or constructive knowledge that their systems are being used to facilitate infringement and they fail to remove or disable access to the infringing conduct. EU Member States must also under Article 8(3) of the EU Copyright Directive give their courts the power to grant injunctions against ISPs to enjoin the use of their systems by third parties who use them to infringe copyright. This jurisdiction has been used in countries such as Italy and Belgium to require ISPs to block foreign pirate sites such as The Pirate Bay.

Notwithstanding these laws, the report referred to the findings in the Staff Working Paper that accompanied the report indicating that the currently available legislative and non-legislative instruments were not powerful enough to combat online infringements of intellectual property rights effectively. The report stated that “Given intermediaries’ favourable position to contribute to the prevention and termination of online infringements, the Commission could explore how to involve them more closely.”

The report also considered whether there was a need to increase damages in IP infringement cases to ensure that they play a dissuasive role on infringements. The report observed that “Measures, procedures and remedies provided for by the Directive must be effective, proportionate and dissuasive. However, “present, damages awarded in intellectual property rights cases remain comparatively low.” The report explained that damages need to be high enough to really be dissuasive.

According to information received from rightholders, damages awards do not currently appear to effectively dissuade potential infringers from engaging in illegal activities. This is particularly so where damages awarded by the courts fail to match the level of profit made by the infringers.

The main aim of awarding damages is to place the rightholders in the same situation as they would have been in, in the  absence of the infringement. Nowadays, however, infringers’ profits (unjust enrichment) often appear to be substantially higher than the actual damage incurred by the rightholder. In such cases, it could be considered whether the courts should have the power to grant damages commensurate with the infringer’s unjust enrichment, even if they exceed the actual damage incurred by the rightholder.  Equally, there could be a case for making greater use of the possibility to award damages for other economic consequences and moral damages.

In cases where the infringer is a legal person and the rightholder fails to obtain damages because the infringer has no assets, has been liquidated or is in any other way insolvent, an assessment could be made as to whether the rightholder is able to claim damages from the company’s managing director(s) under national law, and if so under what conditions.

The report acknowledged that infringements of intellectual property rights taking place outside of the EU also constitute a major source of concern. The report stated that the Commission is addressing them in different ways, for instance by including ambitious chapters on intellectual property rights in bilateral trade agreements (such as CETA) and through participation in international initiatives such ACTA.

The EU report provides an interesting lens to compare the divergent approaches of Canada and the EU when it comes to intellectual property rights protection. For example, as noted above, the EU already has copyright laws that promote cooperation between ISPs and rights holders. This is achieved, inter alia, by conditioning ISP safe harbors on ISPs not having knowledge of infringement or taking down or disabling infringing content when knowledge of infringement becomes apparent and through measures like Article 8(3) of the EU Copyright Directive. Yet, the EU has recognized that effective measures will require even more active cooperation by ISPs.

By contrast, under Bill C-32, ISPs have almost no legal incentives to cooperate with rights holders. For example, the Bill does not condition the hosting safe harbor on ISPs taking steps to remove or disable access to infringing content even if infringement is apparent (except in the rare case where there is a take down order of a court). Moreover, there is nothing comparable to Article 8(3) of the Copyright Directive. There is only the relatively ineffective requirement to pass on notices of infringement under the notice and notice system.

The EU report also stresses the importance of damages to act as a deterrent against infringements. By contrast, Bill C-32 would make statutory damages unavailable against the most virulent pirates on the internet who are liable for enabling infringement. The Bill also could make statutory damages unavailable against pirate sites and services and other infringers which operate without motive of commercial gain.

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