Internet Service Provider Liability

The Case

In the case at hand, eBay participants were found to have used eBay's platform to sell replicas of the plaintiffs' products ' a manufacturer of luxury watches. European law, namely the E-Commerce-Directive and the TMG, has implemented a privilege concerning liability of Internet service providers for infringing content. According to the TMG, Internet service providers cannot be held liable for infringing acts of their customers as long as the provider does not have knowledge of the content and the customer's infringing activity ('10 TMG). Does this principle limit the general liability of disturbance for past infringement as contained in the B rgerliche Gesetzbuch ('German Civil Code'), which very well constitutes a liability for third-party acts entailing claims to monitor, take down and further cease and desist? No ' this was the Federal Court's finding in the 2004 decision as regards a cease-and-desist claim for past infringements and thus obliged the provider to take down the offer and institute controls that would ensure that an identical or similar offer wouldn't be brought again. In its new decision, the German Federal Court had to take sides concerning further preconditions of a preventive claim to prevent future infringements and analysis of the relationship between German disturbance liability and European trademark law. The court also had to evaluate the question as to when sales activity has to be considered 'commercial,' since only commercial offers can be attacked under German trademark law.

The plaintiff had brought a motion that the provider be obliged to always and thoroughly check every new item on its platform for potential pirated product and infringement of its trademarks before publishing. The defendant argued that even with using special software, filtering the offers still could not be carried out in a sufficiently effective and accurate way. Accordingly, it would be necessary to have employees check and screen every offer manually in order to comply with this motion, which apparently would imply an unreasonable burden on their business.

The Decision

First, the Federal Court had to rule on the applicability of the TMG and the privilege in it concerning claims to monitor and take down content. In confirmation of its 2004 decision, the Federal Court, however, argued that ”7-10 TMG did not exclude such claims.

Second, the Federal Court had to decide whether this finding could be applied to infringements of European Community trademarks in special ' the problem being that the Council Regulation on the Community Trademark (40/1994/EC) ('RCT') and its wording in Art. 98 only allows claims for injunctive relief to be brought against the trademark infringer in person. Intermediaries such as ISPs were not explicitly included. To resolve this issue, the Federal Court referred to section 11 para. 3 of the European Directive on the Enforcement of Intellectual Property Rights (2004/48/EC), which can be compared to the U.S. Digital Millennium Copyright Act. The court took the view that this provision modifies Art. 98 RCT and extends the scope of available injunctive relief onto third enterprises whose services are being received in conjunction with intellectual property, i.e., ISPs. On the basis of this interpretation of Art. 98 RCT, the court applied the principles of German law regarding the scope of liability.

So the immediate result of the Federal Court's findings is that preventive monitoring and take down claims can be pursued and enforced against ISPs in compliance with general German civil law ('1004 BGB, German Civil Code) if the plaintiff is able to prove the concrete danger of infringing acts. It remained in question whether knowledge of the ISP is additionally required. Multiple authors had followed the previous court order in 2004 in principle, but had pointed out that knowledge at least of the circumstances of the infringements should be considered necessary for any claim against Internet service providers. That arguement was made in reference to '7 TMG, which prohibits requiring ISPs from monitoring offers and the communications of customers and users. Because the plaintiff's claim concerned potential future activity, the Internet service provider's 'knowledge' is not conceivable. The Federal Court has refused to follow this argument. Under the condition that the ISPs have been put on notice about past infringements, the providers must undertake due efforts to prevent such infringement in the future. After having reached this point, the court had to specify the extent of the ISPs' monitoring obligation.

As disturbance liability does not require negligence, deliberate acts or omissions, such liability potentially could be excessive. The German Federal Court, however, has repeatedly limited the scope of obligations in the past. As a principle, the obligation to monitor users' activities has to be reasonable and must not endanger the business model in general. In the case at hand, the court referred back to the Court of Appeals to check whether it was not reasonable for eBay to, for example, implement filtering software to check items by using several keywords regarding the plaintiff's products that would be considered indications of suspicious offers. Once the suspicious offerings were detected by the software, employees could inspect them. The court indicated that to the extent that attributes and keywords can be named that allow for an effective software search, such monitoring could not be considered unreasonable. If the defendant exerts technically possible measures, then, on the other hand, he cannot be held accountable when some items escape the automatic filtering detection. In this respect, the Federal Court emphasized that low pricing for luxury goods in and by itself is not sufficient to assume trademark infringement. This could be assumed only if a general coherence of low pricing and right violations have been established; the Federal Court, however, sees the burden of proof against such coherence resting with the defendant.

In principle, the judgment aims at finding a fair balance between the Internet service provider's economic interests and those of rights holder's coping with Internet resale of pirated goods. It has, however, left sufficient challenge for the rights holder, because on the basis of trademark law, only commercial offers can be attacked, and the task to establish this criterion adds to the general burden of proof on the rights holder's part. The Federal Court handed the case back down, asking the plaintiff to specify in detail when an offer is considered to be of a commercial nature. In this context, the court pointed out, the offering of a multitude of goods would not suffice to assume commercial action, even though the items are offered to a multitude of potential buyers. On the other hand, repeated offers of identical, especially new, goods and the resale of recently acquired items could indicate commercial activity. The Court of Appeals will have to maneuver through these gateways to decide further on the plaintiff's claims.

Context and Significance of the Decision

As already pointed out, the German Federal Court ruled on a similar case in 2004. The new judgment should end a debate within the legal community concerning the relationship of the TMG and general principles of civil law.

The decision will, however, start a new discussion on the scope of obligations. Several lower courts have ruled on the obligations of the providers of bulletin boards, guestbooks, the adminstrator of Web sites and providers of wireless networks. Many of these rulings contradict other decisions. Particularly, the monitoring obligation of bulletin-board providers for possible infringements regarding users' articles has been debated and decided on different occasions. The German Federal Court has failed to give broader guidance in that respect. It has yet to be seen to what extent the new statements of the court can be applied to other Internet service providers rather than Internet auction providers. The question of the Internet service providers' liability has to this point not been finally resolved. Quite certainly, the decision will help to elaborate and specify the set of obligations among legal commentators and the courts in future cases.

Related Articles

Check out these articles for some topics related to the main story.

1. 'Sale of Used Software Licenses in Germany: Federal Court Expected to Decide a Hot Issue Soon That Will Affect Europe,' e-Commerce Law & Strategy, June 2007.

2. 'Policing the Internet: Helping Trademark Owners to Fight Counterfeiters on the Internet Is a Growth Business for Law Firms and Consultants Alike,' Internet Law & Strategy, July 2007.

3. 'Foreign Patent Disputes Are Off-Limits for U.S. Courts,' The Intellectual Property Strategist, April 2007.

One of the first decisions in these matters, the CompuServe judgments of the Munich Court of First Instance and the Court of Appeals, received widespread attention (AG M nchen NJW 1998, 2836; LG M nchen I NJW 2000, 1051; comments on the judgment: Hoeren, NJW 1998, 2792; K hne, NJW 1999, 188; Koenig/Loetz, CR 1999, 438).

The case discussed the possibility of criminal liability of CompuServe's German general manager for pornographic content that was accessible through the Internet access points of CompuServe. After first having blocked the content following a notice served by the public authorities, CompuServe again allowed access to the newsgroups with offending content. Accordingly, the Court of First Instance found that the general manager had violated obligations to prevent illicit activity and, thus, had to be convicted according to the German criminal code. The penalty was released on license. The Court of Appeals remanded the case and acquitted the German CompuServe general manager (LG M nchen I NJW 2000, 1051; comments on the judgment K hne, NJW 2000, 1003; Moritz, CR 2000, 117).

This line of legal practice has been followed later in the context of criminal-code liability and civil-code indemnity only. On the other hand, Internet service providers have repeatedly been found accountable in cases of civil-code disturbance liability. While Internet service providers argued that the German act on teleservices ('TMG') included a privilege excluding them from liability for acts that their business partners and customers committed, the German Federal Court had early on confirmed that Internet service providers are very well to be considered liable under certain circumstances. In 2004, the Federal Court handed down a first decision against eBay regarding trademark infringements that obliged eBay to remove infringing content from the platform, as well as to prevent future infringements. In its new decision, the Federal Court has confirmed this position and has substantiated the preconditions for liability claims.

The Case

In the case at hand, eBay participants were found to have used eBay's platform to sell replicas of the plaintiffs' products ' a manufacturer of luxury watches. European law, namely the E-Commerce-Directive and the TMG, has implemented a privilege concerning liability of Internet service providers for infringing content. According to the TMG, Internet service providers cannot be held liable for infringing acts of their customers as long as the provider does not have knowledge of the content and the customer's infringing activity ('10 TMG). Does this principle limit the general liability of disturbance for past infringement as contained in the B rgerliche Gesetzbuch ('German Civil Code'), which very well constitutes a liability for third-party acts entailing claims to monitor, take down and further cease and desist? No ' this was the Federal Court's finding in the 2004 decision as regards a cease-and-desist claim for past infringements and thus obliged the provider to take down the offer and institute controls that would ensure that an identical or similar offer wouldn't be brought again. In its new decision, the German Federal Court had to take sides concerning further preconditions of a preventive claim to prevent future infringements and analysis of the relationship between German disturbance liability and European trademark law. The court also had to evaluate the question as to when sales activity has to be considered 'commercial,' since only commercial offers can be attacked under German trademark law.

The plaintiff had brought a motion that the provider be obliged to always and thoroughly check every new item on its platform for potential pirated product and infringement of its trademarks before publishing. The defendant argued that even with using special software, filtering the offers still could not be carried out in a sufficiently effective and accurate way. Accordingly, it would be necessary to have employees check and screen every offer manually in order to comply with this motion, which apparently would imply an unreasonable burden on their business.

The Decision

First, the Federal Court had to rule on the applicability of the TMG and the privilege in it concerning claims to monitor and take down content. In confirmation of its 2004 decision, the Federal Court, however, argued that ”7-10 TMG did not exclude such claims.

Second, the Federal Court had to decide whether this finding could be applied to infringements of European Community trademarks in special ' the problem being that the Council Regulation on the Community Trademark (40/1994/EC) ('RCT') and its wording in Art. 98 only allows claims for injunctive relief to be brought against the trademark infringer in person. Intermediaries such as ISPs were not explicitly included. To resolve this issue, the Federal Court referred to section 11 para. 3 of the European Directive on the Enforcement of Intellectual Property Rights (2004/48/EC), which can be compared to the U.S. Digital Millennium Copyright Act. The court took the view that this provision modifies Art. 98 RCT and extends the scope of available injunctive relief onto third enterprises whose services are being received in conjunction with intellectual property, i.e., ISPs. On the basis of this interpretation of Art. 98 RCT, the court applied the principles of German law regarding the scope of liability.

So the immediate result of the Federal Court's findings is that preventive monitoring and take down claims can be pursued and enforced against ISPs in compliance with general German civil law ('1004 BGB, German Civil Code) if the plaintiff is able to prove the concrete danger of infringing acts. It remained in question whether knowledge of the ISP is additionally required. Multiple authors had followed the previous court order in 2004 in principle, but had pointed out that knowledge at least of the circumstances of the infringements should be considered necessary for any claim against Internet service providers. That arguement was made in reference to '7 TMG, which prohibits requiring ISPs from monitoring offers and the communications of customers and users. Because the plaintiff's claim concerned potential future activity, the Internet service provider's 'knowledge' is not conceivable. The Federal Court has refused to follow this argument. Under the condition that the ISPs have been put on notice about past infringements, the providers must undertake due efforts to prevent such infringement in the future. After having reached this point, the court had to specify the extent of the ISPs' monitoring obligation.

As disturbance liability does not require negligence, deliberate acts or omissions, such liability potentially could be excessive. The German Federal Court, however, has repeatedly limited the scope of obligations in the past. As a principle, the obligation to monitor users' activities has to be reasonable and must not endanger the business model in general. In the case at hand, the court referred back to the Court of Appeals to check whether it was not reasonable for eBay to, for example, implement filtering software to check items by using several keywords regarding the plaintiff's products that would be considered indications of suspicious offers. Once the suspicious offerings were detected by the software, employees could inspect them. The court indicated that to the extent that attributes and keywords can be named that allow for an effective software search, such monitoring could not be considered unreasonable. If the defendant exerts technically possible measures, then, on the other hand, he cannot be held accountable when some items escape the automatic filtering detection. In this respect, the Federal Court emphasized that low pricing for luxury goods in and by itself is not sufficient to assume trademark infringement. This could be assumed only if a general coherence of low pricing and right violations have been established; the Federal Court, however, sees the burden of proof against such coherence resting with the defendant.

In principle, the judgment aims at finding a fair balance between the Internet service provider's economic interests and those of rights holder's coping with Internet resale of pirated goods. It has, however, left sufficient challenge for the rights holder, because on the basis of trademark law, only commercial offers can be attacked, and the task to establish this criterion adds to the general burden of proof on the rights holder's part. The Federal Court handed the case back down, asking the plaintiff to specify in detail when an offer is considered to be of a commercial nature. In this context, the court pointed out, the offering of a multitude of goods would not suffice to assume commercial action, even though the items are offered to a multitude of potential buyers. On the other hand, repeated offers of identical, especially new, goods and the resale of recently acquired items could indicate commercial activity. The Court of Appeals will have to maneuver through these gateways to decide further on the plaintiff's claims.

Context and Significance of the Decision

As already pointed out, the German Federal Court ruled on a similar case in 2004. The new judgment should end a debate within the legal community concerning the relationship of the TMG and general principles of civil law.

The decision will, however, start a new discussion on the scope of obligations. Several lower courts have ruled on the obligations of the providers of bulletin boards, guestbooks, the adminstrator of Web sites and providers of wireless networks. Many of these rulings contradict other decisions. Particularly, the monitoring obligation of bulletin-board providers for possible infringements regarding users' articles has been debated and decided on different occasions. The German Federal Court has failed to give broader guidance in that respect. It has yet to be seen to what extent the new statements of the court can be applied to other Internet service providers rather than Internet auction providers. The question of the Internet service providers' liability has to this point not been finally resolved. Quite certainly, the decision will help to elaborate and specify the set of obligations among legal commentators and the courts in future cases.

Related Articles

Check out these articles for some topics related to the main story.

1. 'Sale of Used Software Licenses in Germany: Federal Court Expected to Decide a Hot Issue Soon That Will Affect Europe,' e-Commerce Law & Strategy, June 2007.

2. 'Policing the Internet: Helping Trademark Owners to Fight Counterfeiters on the Internet Is a Growth Business for Law Firms and Consultants Alike,' Internet Law & Strategy, July 2007.

3. 'Foreign Patent Disputes Are Off-Limits for U.S. Courts,' The Intellectual Property Strategist, April 2007.