App Marketplaces' Digital Dilemma: Samsung's Swatch Infringement Upheld

Samsung maintained that it had not used the Swatch Marks “at all”. It had merely facilitated a platform (the Galaxy Store), through which third-party app developers could offer their Apps. Moreover, Samsung contended that approving the Apps for upload did not constitute use, especially not in relation to relevant goods or services. The app developers, not Samsung, uploaded the Apps to the Galaxy Store. Also, it was the customers, not Samsung, who downloaded the Apps for personal use. Additionally, the customers affixed the watch faces by installing them after purchasing them from the app developers.

Samsung further argued that it could nevertheless rely on the “hosting defence” outlined in article 14 of the e-Commerce Directive (the “Article 14 Defence”), as a complete defence, as the Apps were provided by third-party developers via its Galaxy Store. The Article 14 Defence applies to “information society service” providers, including hosting providers, that (i) do not have actual knowledge of illegal activity or information, or (ii) upon obtaining such knowledge or awareness, act expeditiously to remove or to disable access to the information from their platforms. The CJEU has examined the scope of the Article 14 Defence in relation to online marketplace operators in the cases of Google France³ and L’Oréal v eBay⁴. These cases have illustrated that in order to benefit from the Article 14 Defence, Samsung must have played a neutral role, in the sense that its conduct was purely technical, automatic, and passive, indicating a lack of knowledge or control over the content of the Apps it hosted.

Samsung contended that the Article 14 Defence should not be dismissed due to its cooperative relationship with the third-party app developers, which was crucial in order to “facilitate” the creation and distribution of the Apps on the Galaxy Store. Samsung emphasised that an app marketplace cannot be entirely passive with third-party app developers who create apps for its platform, particularly where such apps were designed for specific operating systems and would need to interact with certain software and hardware. Hence, some level of support from Samsung was necessary to ensure the Apps functioned correctly. Moreover, Samsung, like other online marketplaces, implemented a notice and take-down procedure, enabling anyone to alert Samsung about an app with infringing content. Samsung highlighted that it acted swiftly to remove the Apps from the Galaxy Store upon receiving notification from Swatch. As a result, Samsung claimed that if an adequate notice and take-down procedure existed, an App containing infringing content would not have been “apparent” to Samsung, as per the terms of the Article 14 Defence⁵.  

In 2022, the English High Court ruled in favour of Swatch, finding that Samsung had used the Swatch Marks in the course of trade. The court also dismissed Samsung’s Article 14 Defence, stating that a diligent economic operator should have identified illegal activity based on facts or circumstances it was actually aware of, and that “the existence of notice and take-down procedures does not itself provide a defence”. Samsung appealed the High Court’s decision on three grounds:

1.     Samsung had not used the Signs (the third-party app developers had used the Signs);

2.     The use of the Signs on the Apps did not include use in relation to smartwatches; and

3.     The Article 14 Defence was wrongly dismissed. App marketplaces should not be excluded from the scope of the defence due to their necessary involvement in the app review process. Moreover, Samsung should not be penalised for conducting content reviews to prevent illegal activities, rather than just removing illegal content when notified under a notice and take-down procedure.

The Issues

1.     Did Samsung use the Signs?

The CJEU recently considered “use” in an online context in the Coty⁶ case, indicating that use involves “active behaviour and direct or indirect control of the act constituting the use”⁷. Samsung contended that the High Court judge failed to recognise that Samsung had merely established the technical conditions for the use of the Signs, permitted their use, and accepted payment - implying a passive role. The Court of Appeal dismissed these contentions, agreeing with the High Court that it was appropriate to assess Samsung’s conduct as a whole, taking into account relevant factors such as Samsung:

-        Promoting its smartwatches as being truly watch-like.

-        Advertising the extensive range of Apps in the Galaxy Store to boost the appeal of Samsung products, such as Samsung smartwatches.

-        Assisting third-party app developers, for instance, through the Galaxy Watch Studio tool. A tool that was made available to developers and provided them with user-friendly instructions on how to create Samsung smartwatch apps, for uploading to the Galaxy Store.

-        Reviewing all Apps for functionality and content prior to their upload to the Galaxy Store and certification (the “Content Review Process”).

-        Handling customer complaints and offering customer support for the Apps.

Overall, the Court of Appeal agreed that Samsung went beyond just merely setting up the technical conditions for the use of the Signs through the Galaxy Store, and thus its actions constituted use. Samsung had a clear commercial interest in the availability and presentation of the Apps in the Galaxy Store, as well as their use by consumers. For instance, the Content Review Process showed that Samsung had control over ensuring that only content it considered appropriate for its products would be available to consumers on its Galaxy Store.

2.     Did Samsung use the Signs “in relation to” smartwatches?

In the High Court proceedings, Swatch argued that when a Sign was used by Samsung in an App name, it constituted use in relation to smartwatch face apps and/or smartwatch faces, while Dial Branding on a watch face suggested use in relation to a watch or smartwatch. Samsung argued that there had been no use in relation to watches or smartwatches. The Apps were downloaded by consumers and used as software for their private enjoyment. Moreover, consumers generally understood that third-party app developers produced the Apps, with the App names simply describing the watch face designs, as opposed to denoting origin, similar to phone or laptop wallpaper designs. Therefore, if there had been any use in relation to goods, it was in relation to apps or smartwatch face designs, not in relation to watches or smartwatches.

The High Court judge held that besides being used in relation to the Apps, the Signs were also used in relation to smartwatches. This was due to the Dial Branding on a downloadable watch face, appearing where one would expect it on a traditional watch. Moreover, given Samsung marketed their smartwatch products as “watch-like”, use of the Signs in the Apps was considered to not only indicate the origin of the Apps but also to denote, or attempt to denote, the origin of the watch. Samsung appealed this finding. However, the Court of Appeal determined that it was irrelevant whether Samsung affixed the Signs to smartwatches, as long as Samsung used the Signs in relation to smartwatches “in some way” and upheld the High Court’s decision.

3.     Samsung’s Article 14 Defence

Samsung sought to rely on the Article 14 Defence as a complete defence against Swatch's allegations. However, the High Court judge dismissed Samsung’s defence, pointing to Samsung's Content Review Process which could not be considered to be merely technical, automatic and passive. The Court of Appeal highlighted the fact that the Content Review Process was conducted by a small team of around 14 Vietnamese software engineers with no international or European market experience. The Court of Appeal further noted that these individuals likely had little knowledge of luxury brands and spent a little over six minutes reviewing each App, with each member reviewing an average of 85 apps per day between January 2019 and March 2019.

The Court of Appeal observed that Samsung clearly considered this its strongest ground of appeal, given the emphasis it placed on it. However, the Court of Appeal ultimately agreed with the High Court judge, stating that “Samsung's acts of use of the disputed Signs were active, and gave it knowledge of and control over that content. They were not merely technical, automatic and passive with no knowledge or control” and therefore, they did not fall within the scope of the Article 14 Defence.

Comment

Traditionally, online intermediaries have used the Article 14 Defence to avoid liability for infringing content when they merely act as conduits or hosts for such content. However, this decision implies that English courts may be open to the idea that the Article 14 Defence may not apply to app marketplaces who assist in the creation or promotion of third-party apps. To successfully rely on this defence, online intermediaries should exercise caution around their level of involvement in making apps available to consumers and consider any potential commercial benefits from such activities. The factors that the High Court and the Court of Appeal took into account in determining that Samsung had used the Signs in relation to smartwatches can provide a useful guide for online intermediaries in reviewing their conduct to avoid liability.

While this decision is fact-specific, intermediaries such as app marketplaces might choose to reduce their content review efforts to lower the risk of being seen as actively involved in making apps available to consumers, thereby maintaining the possibility of relying on the Article 14 Defence. However, such an approach could lead to an increase in potentially infringing content being published on their platforms. Alternatively, intermediaries may wish to double down on their due diligence efforts and ensure they have a robust content review process before publishing content on their platforms, accepting the risk that they may not be able to then rely on an Article 14 Defence.