CJEU: On the liability of operators of physical market places

In its decision of July 7, 2016 (file no. C-494/15), the CJEU continued its case law on online-market places (L´Oreal./.ebay, file no: C-324/09) and applied it to so-called offline-market places. The Court of Justice clarified that – just like the operators of online-market places – the landlords of physical market places can be claimed upon to eliminate the trademark infringement of the dealer and to take corresponding measures to prevent further infringements, as long as the order is reasonable.

The plaintiffs were several manufacturers and distributors of trademark products who discovered that counterfeits of their products were being sold in market halls in Prague. They filed a motion with the Czech courts to order the operator of the Prague market halls to cease concluding or renewing rental contracts for the sales area with those individuals who committed trademark infringements. The manufacturers were of the opinion that the so-called Enforcement Directive 2004/48 EC also enables action against the operator of a physical market place.

As the Czech courts of lower instance rejected the suit, the Nejvyšší soud (Higher Court) submitted to the CJEU the question whether the operator of a physical market place can be obliged to stop the trademark infringement committed by the dealers and to take measures to prevent new infringements. The CJEU has now affirmed both questions and has qualified the operator of a physical marketplace as a “middle man” in terms of Art. 11 sec. 3 Enforcement Directive. As the operator rents out sales space and, thereby, enables third parties to sell counterfeit products, trademark owners can file legal claims against him as a middle man. In this connection it is irrelevant whether the sales platform being provided relates to an online or a physical market, as the Enforcement Directive is not limited to electronic trade.

As a consequence, according to the CJEU in continuation of the decision in 2011 on online market places in the matter of L’Oreal./.ebay, the operators of physical market places can also be forced to stop trademark infringements committed by their tenants, in other words the dealers, and to take measures to prevent new infringements. The respective measures must not only be effective and deterring, they must also always be reasonable. They may not create barriers for legal trade.

With its current decision, the CJEU has strengthened the position of the rights owner and has handed them an instrument comparable to the “landlord liability” which is practised in other countries, e.g. China, USA and Australia. Right owners now have the possibility to prevent the sale of counterfeit products of their trademarks and designs, in that they can not only take action directly against the dealers but can also file claims against the landlords of the market stalls. In view of the often costly and difficult traceability of mobile vendors at weekly markets or dealers in wholesale markets, this is a particular advantage as access to the markets can be permanently denied to such dealers.

Claiming against the landlords also seems to be appropriate, as they are in the best position to put an end to violations of rights quickly and effectively. Excessive monitoring and examination obligations of the landlords are not, however, an explicit consequence of the decision of the CJEU. Determining the scope of the monitoring and examination obligations remains at the discretion of the national courts. Although the CJEU gives indications on defining reasonable examination obligations in its L’Oreal./.ebay decision, it would seem that the technically automated control measures which are possible with electronic market places are not implementable with physical market places. Corresponding to the notice-and-takedown-procedure which is commonplace online, control obligations will only be triggered in the offline market upon knowledge of a rights infringement.