Online platforms should Swatch out: Samsung found liable for infringing third-party content available on the Samsung Galaxy App store

The Court of Appeal in Montres Breguet SA v Samsung Electronics [2023] EWCA Civ 1478 has dismissed Samsung's appeal and upheld a first instance decision which found it liable for trade mark infringement in relation to third-party watch faces available on the Samsung Galaxy App store. This judgment provides guidance on what constitutes "use" of a sign by an online app store and the applicability of the e-Commerce Directive hosting defence.

Background 

The Swatch group of watchmakers, known for brands such as Swatch, Tissot, Omega and Longines (Swatch) brought a claim against Samsung for infringement of 23 of its registered trade marks between October 2015 and February 2019. Swatch alleged that the marks were infringed by 30 watch face apps, which users could download from the Samsung Galaxy app store (the SGA store) to use on Samsung smartwatches. Samsung acknowledged that the disputed apps were downloaded approximately 160,000 times by users in the UK and EU. Despite each of the apps being developed by third party app developers, Swatch claimed that "Samsung was intimately involved in, and controlled, the whole process by which the apps were made available."

High Court decision 

At first instance the High Court allowed Swatch's claim for trade mark infringement, with the judgment focusing on the following:

Use in an online environment – Samsung argued that it did not use the signs, but rather provided a mere vehicle, in the form of the SGA store, through which app developers provided apps. However, the judge rejected this argument and instead considered Samsung's conduct as a whole in determining that it had used the signs in the course of trade for the purposes of Article 9 of the EU Trade Mark Regulation (EUTMR). Key to the finding were that Samsung: (i) marketed its smartwatches as "truly watch-like"; (ii) advertised the availability of a wide range of watch face apps in the SGA store; (iii) provided material assistance to developers of watch face apps via the Galaxy Watch Studio tool; and (iv) reviewed all apps for functionality and content before they were made available in the SGA store. Additionally, the apps in question were designed exclusively for, and operated only on, Samsung smartwatches. As such, Samsung had taken more than a passive role when it came to the distribution of the watch face apps. 

Identity and similarity of goods – It was held that watch face apps were not identical goods to those covered by Swatch's registered marks, specifically, "computers worn on the wrist", "electronic apparatus incorporating a time display", "smartwatches" or "smartphones in the shape of a watch". As an aside, this is an interesting finding in itself, particular in an NFT context where digitalised versions of real world goods are created and sometimes promoted under registered trade marks. However, on the basis of complementarity, the watch face apps were considered to be similar goods to the smartwatches listed in Swatch's trade mark registrations as each are essential for the other's operation. 

Use "in relation to" the goods – The judge held that the average consumer would understand that a sign in an app name within the SGA store would: (i) be used in relation to that app; and (ii) signal what would be represented once downloaded. By way of example, it was considered that an app with the name "Tissot Watch Face" would be understood to denote that the app would produce a Tissot watch face when downloaded to the smartwatch. This analysis also applied to any preview of the watch face that a consumer could view before downloading the app. As such, the judge concluded that signs that appear on watch faces produced by watch face apps are used in relation to smartwatches, which are at least highly similar to watches. 

Article 14 of the e-Commerce Directive ("ECD") – Article 14 of the ECD protects hosting providers from financial remedies for content shared on their sites, if they have no knowledge of their illegal nature or if they act expeditiously to remove or disable access to that content as soon as they become aware of it. Samsung argued that this "safe harbour" provision provided a complete defence to Swatch's claims. However, the judge rejected this argument and instead relied on L’Oréal v eBay, which outlined that the test is one of whether a diligent economic operator should have identified the illegality by reference to facts or circumstances of which they are actually aware. The content review process would have resulted in the reviewer, and through it Samsung, becoming aware of the app name and the appearance of the watch face. The judge was critical of Samsung's content review process, which was carried out by a small team of Vietnamese software engineers, who had limited knowledge of luxury brands and had no international or European market experience. In fact, Samsung itself acknowledged that the apps in question would not have passed the review process if the review team had been aware of the Swatch brand. 

Court of Appeal decision

Samsung appealed to the Court of Appeal, claiming that the judge had erred in three main respects. Each was dismissed by the Court of Appeal for the following reasons:

'Use' of the signs complained of was 'use' by Samsung, as opposed to by the relevant app developer – Samsung's appeal contended that the judge had taken an "overly broad" approach by considering certain irrelevant factors which the average consumer would not be aware of, and not considering other relevant factors. The Court of Appeal rejected this, finding that the judge had been entitled to conclude that there had been 'use' by Samsung for the following reasons:

• Samsung's actions went well beyond merely creating the technical conditions for use of the signs, allowing use of the signs and receiving payment. The factors the judge relied on (Samsung's marketing of its wide range of smartwatch faces, encouragement of app developers to create the watch faces, commercial interests in hosting third-party apps and review of all apps for both functionality and content before they were made available on the SGA store) were not inherent in the operation of an app store and did have a bearing on the context in which the signs were used.
• The judge was correct to consider matters which, even if unknown to consumers, nevertheless affected the average consumers' perception of the signs, including the presentation of the disputed apps in the SGA store and the grouping together of Samsung-developed and independently developed apps. While the judge did not have the benefit of the CJEU's decision in Louboutin at the time of her decision, the Court of Appeal considered that her approach was "entirely consistent" with that test. 
• The judge had not failed to take into account relevant factors such as: that the price of the app would be set by the developer; how the customer would encounter the signs; or that Samsung discouraged app developers from infringing third party IP rights. While the judge had in fact considered the first two of these factors explicitly, the Court of Appeal concluded that these were not factors which the average consumer would be aware of, and so would not impact their perception of the signs.

'Use' of the signs complained of included 'use' in relation to smartwatches – Samsung argued that the judge had been wrong to find use in relation to smartwatches because there was no realistic likelihood of persons other than the wearer of the smartwatch perceiving the signs to denote the origin of the smartwatch. This ground of appeal essentially challenged a finding of fact, yet Samsung failed to demonstrate that the judge's finding was not open to her and the Court of Appeal held that the judge was correct to make the finding she did. Whether such use in relation to smartwatches amounted to use by Samsung was also considered. However, the Court of Appeal agreed with the judge that the definition of "use" in Article 9(3) of the EUTMR is open-ended, and so it did not matter whether Samsung affixed the signs to smartwatches, provided that they used the signs in relation to smartwatches in some way.

Samsung could not rely on Article 14 of the ECD – Samsung appealed the judge's finding that it was "aware of facts or circumstances from which the illegal activity…is apparent", and, as such, was unable to rely on the hosting defence, pursuant to Article 14(1)(a). Swatch contended that Samsung's acts were not within Article 14(1) at all, on the basis that Samsung's role was an active one, rather than "merely technical, automatic and passive" with "no knowledge of or control over the content it stores". 

Samsung argued: (i) that app stores were not specifically excluded from Article 14(1) by an operator deciding whether an app could appear in its store or by reviewing for illegality; and (ii) that it should not be penalised for undertaking content review, as opposed to only implementing a notice and take down procedure. The Court of Appeal rejected Samsung's first point on the basis that Article 14(1) is concerned with the acts in issue, not the type of business carrying out such acts. The key question was whether Samsung's acts were active, which the Court of Appeal found they were and therefore gave Samsung knowledge of, and control over, the content on the SGA store. Samsung was therefore not entitled to benefit from the hosting defence as its role went beyond the parameters of this. 

On Samsung's second point, the Court of Appeal acknowledged this "familiar conundrum" with the exemptions in the ECD. In the UK, as the law currently stands, an intermediary service provider is not obliged to undertake content review and may choose simply to implement a notice-and-take down process. However, if content is reviewed, the Court of Appeal said that the provider has to accept the risk that they may lose their ability to rely on the hosting defence.

Comment 

This is the latest in a recent string of decisions in which online platforms have been held liable for third-party IP infringements. For many years, online platforms have been able to rely on the ECD defences in avoiding financial remedies where they are a mere conduit of, or are caching or hosting, third party IP infringing content. ECD defences apply only where the service provider is not actively involved in the wrongdoing. The result is that brand owners often find themselves engaged in a costly and time-consuming game of "whack-a-mole" when tackling online infringements (as opposed to be able to successfully pursue the platform so as to cut infringement off at source). Recent decisions suggest that the courts are redressing the balance between rights holder and online platform, by shifting the burden onto online platforms to take greater responsibility for illegal content. The alternative is that the cases merely complement the swathes of new regulation targeting online platforms and online content such as the Online Safety Act 2023 and the Digital Markets, Competition and Consumers Bill in the UK and the Digital Services Act and the Digital Markets Act in the EU.

Whatever the rationale, these recent cases show that the courts will not shy away from scrutinising the approach taken by online platforms in relation to third-party content. Online platforms will therefore need to weigh up whether to: (i) implement a content review process in a bid to weed out infringing content pre-distribution but accept that doing so may negate reliance on the hosting defence if infringement nevertheless occurs; or (ii) rely on a notice-and-take down process, in the hopes of being able to benefit from the hosting defence but accept the risks associated with not reviewing third-party content in advance, which could result in an uptick of infringing content making its way onto platforms, causing both financial and reputational damage. That decision is likely to be platform-specific, based on risk appetite and profile and above all difficult as neither option carries a certain outcome.