German Court sends online sales bans to ECJ

On 25 April, the German Higher Regional Court in Frankfurt filed a request for a preliminary ruling with the European Court of Justice (“ECJ”) in a case that turns on the ability of branded goods manufacturers to protect the reputation of their brands by controlling online trade.

Coty is suing one of its authorised distributors, Parfümerie Akzente, claiming that, by selling perfumes on Amazon Marketplace, Akzente infringed the condition of Coty’s selective distribution system that prohibited sales on open online platforms (the marketplace ban).  The German Court referred four questions to the ECJ, most relevantly including:

  1. Whether, in a selective distribution system, a supplier can prevent its distributors from selling the supplier’s products via third party online platforms, regardless of whether the online platform fulfils the selective criteria;
  2. Whether a sales ban on third party online platforms amounts to a restriction of ‘passive sales’.

This case follows a number of earlier cases regarding online trade restrictions, particularly restrictions on sales on third party platforms, such as eBay or Amazon. For example, the German Federal Cartel Office (“FCO”) has considered Asics’ and Adidas’ selective distribution systems, which restricted sales on online marketplaces on their retailers.  While Adidas removed the problematic provisions from its distribution agreements, in February 2016, Asics appealed the FCO’s finding that its restrictions were anti-competitive (the appeal is pending).  Other recent investigations involve headphones and headset manufacturer Sennheiser and backpack maker Deuter in Germany, Adidas and Samsung in France and Hewlett-Packard in Austria.

Many branded goods suppliers also use their trademark rights to protect the value of their brands against the perceived reputational damage of supply on online marketplaces. In certain circumstances a licensee may have breached the terms of its licence in a manner that means that the rights holder has not “consented” to the marked goods being put on the market in the EEA.  The ECJ has found, in relation to breaches relating to the quality of the goods, that trademarks are not “exhausted” in these circumstances. (Case C-59/08, Copad SA v Christian Dior SA).  This exception to the exhaustion doctrine is not being reconsidered by the ECJ in the present case.

UK CMA Opens Investigation into Online Sales of Licensed Sport and Entertainment Merchandise

The UK Competition and Markets Authority (“CMA”) has opened an investigation into suspected anticompetitive arrangements relating to online sales of licensed sport and entertainment merchandise and other consumer products.

The opening of the investigation follows raids on December 1, 2015 at the headquarters of Trod Limited, a UK retailer of toys and sports products (doing business as Buy 4 Less, Buy For Less, and Buy-For-Less-Online).  The house of one of the company’s officers was also searched.

The CMA expects to reach a decision on whether to proceed with the investigation or close it in April 2016.  Until then, the CMA will continue gathering information (including through information requests).

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FTC Closes Investigation of Watch Manufacturer’s “Made in USA” Claims

In a reminder that the agency still has an interest in “Made in the USA” claims, on November 20, 2015, staff from the U.S. Federal Trade Commission (“FTC”) issued a letter to Niall Luxury Goods, LLC (“Niall”) closing an investigation of the company’s claims that its watches are made in the United States.  Although the Missouri-based company’s watches were marked “USA Made,” the watch movements were manufactured in Switzerland.  The FTC expressed concern that a “USA Made” claim would not be appropriate in these circumstances but closed the investigation in light of remedial steps the company had taken to clarify the marking on its product.

The FTC’s letter to Niall stated that “unqualified ‘Made in USA’ or ‘Built in USA’ claims likely suggest to consumers that products are ‘all or virtually all’ made in the United States.” The agency added that it may analyze a variety of factors in determining whether a product is all or virtually all made in the United States, noting three factors in particular: (1) the proportion of the product’s total manufacturing costs attributable to process and production in the United States, (2) “how far removed any foreign content is from the finished product,” and (3) “the importance of the foreign content or processing to the overall function of the product.” Continue Reading

French probe of Adidas’ online sales restrictions closed

On 18 November 2015, the French competition authority announced that it had closed its investigation into Adidas’ online sales terms, after the company changed the terms. The French competition authority carried out this investigation in cooperation with the German Federal Cartel Office (the Bundeskartellamt).

Adidas operates a selective distribution system under which distributors were prohibited from selling Adidas products on online, open, third-party platforms. Both the Bundeskartellamt and the French authority took the position that this restriction went beyond what was justifiable to ensure quality.

As a consequence, on 2 July 2014, Adidas removed this provision from its German distribution agreements, allowing distributors to also sell on online markets, including Amazon.com and eBay. On the same day, the Bundeskartellamt announced that it had closed the proceedings against Adidas. Wednesday’s decision by the French competition authority brings to an end all pending investigations into Adidas’ online sales terms.

The parallel investigations confirm the appetite of national competition authorities to police suppliers imposing tighter restrictions on online sales by branded goods suppliers that go beyond what is necessary to ensure quality and, as a result, reputation.

Covington to provide workshops to Central Saint Martin’s MA Fashion Students

Covington recently announced its support for the highly esteemed MA Fashion course at Central Saint Martins (CSM) in London. CSM has an outstanding reputation for educating fashion students. Successful alumni of CSM include Alexander McQueen, Christopher Kane, Simone Rocha and Roksanda Ilincic. MA Fashion is the only course that has a show on the official London Fashion Week schedule. The course offers four pathways of study: Womenswear, Menswear, Knitwear and Textiles for Fashion.

As part of the relationship, Covington will offer several workshops during the duration of the course with the aim of helping students with the legal and business matters that they are likely to encounter in the fashion industry.

Fabio Piras, the MA Fashion Course Director, said: “I regard our relationship with Covington as a great opportunity to help the MA Fashion course bring our students the initial insight and general awareness they will need as designers entering the industry”.

Louise Nash, partner at Covington and head of Covington’s brands practice that the firm is “absolutely thrilled to be supporting Central Saint Martins and to be working with Fabio and his students to help them develop a better understanding of the business environment brands need to navigate in order to succeed”.

 

 

EU’s Highest Court Invalidates Safe Harbor with Immediate Effect

Today, the Court of Justice of the European Union (the “CJEU”) invalidated the European Commission’s Decision on the EU-U.S. Safe Harbor arrangement (Commission Decision 2000/520 – see here). The Court responded to pre-judicial questions put forward by the Irish High Court in the so-called Schrems case. More specifically, the High Court had enquired, in particular, about the powers of European data protection authorities (“DPAs”) to suspend transfers of personal data that take place under the existing Safe Harbor arrangement. The CJEU ruled both on the DPAs’ powers and the validity of the Safe Harbor, finding that national data protection authorities do have the power to investigate in these circumstances, and further, that the Commission decision finding Safe Harbor adequate is invalid.

This decision affects all companies that rely on Safe Harbor. They now need to consider alternative data transfer mechanisms.

The Powers of the DPAs

First, the CJEU emphasized that the DPAs cannot invalidate a Commission adequacy decision themselves; only the CJEU has this power. However, the DPAs must have the power to examine complaints brought by data subjects against transfers on the basis of Safe Harbor or other adequacy decisions of the European Commission based on Article 25 (6) of the EU Data Protection Directive and be able to engage in legal proceedings to make a reference for a preliminary ruling by the CJEU with the aim of examining the decision’s validity. In addition, the European Commission struck out the provision in the Safe Harbor decision which allows the DPAs to suspend data flows, subject to restrictive conditions establishing a high threshold for intervention. According to the CJEU, this provision denies the DPAs the powers which they have under the EU Data Protection Directive and the Commission has no competence under Article 25(6) to restrict the DPAs’ powers under Article 28 of the Directive.

Safe Harbor

Second, the CJEU declared the Safe Harbor decision invalid, without providing for a transitional period, based on the following reasoning:

  • Article 25 (6) of the EU Data Protection Directive empowers the Commission to find that a third country ensures an adequate level of protection. The CJEU held that, once the Commission has made such a finding, it must check periodically whether the finding is still factually and legally justified, especially when evidence gives rise to doubt.
  • The CJEU further held that, although Article 25 (6) cannot be interpreted as requiring a level of protection identical to that guaranteed in the EU legal order, the level of protection must be essentially equivalent, by reason of the third country’s domestic laws or its international commitments. In other words, the legal order of the third country must prove to be effective, in practice, to meet this level of protection.
  • In the present case, the Court decided that the standard of “essentially equivalent” is not met by the United States, in particular, because:
    • The United States public authorities are not required to comply with the Safe Harbor Principles.
    • Where U.S. law imposes an obligation conflicting with the Safe Harbor Principles, certified U.S. organizations must comply with the law.
    • The applicability of the Safe Harbor Principles may be limited on the basis of a broad “national security, public interest or law enforcement requirements” exemption contained in the Safe Harbor decision.The general nature of this derogation interferes with the fundamental rights of the individuals concerned, and the Safe Harbor decision does not contain any reference to rules adopted by the U.S. which would limit such interference. In fact, the Commission itself had found that the U.S. authorities were able to access and use transferred personal data for purposes that go beyond what is strictly necessary and proportionate to the protection of national security. In the CJEU’s view:“Legislation is not limited to what is strictly necessary where it authorises, on a generalised basis, storage of all the personal data of all the persons whose data has been transferred from the EU to the U.S. without any differentiation, limitation or exception being made in the light of the objective pursued and without an objective criterion being laid down by which to determine the limits of the access of the public authorities to the data, and of its subsequent use, for purposes for which are specific, strictly restricted and capable of justifying the interference which both access to that data and its use entail.”The CJEU further found that the Safe Harbor decision also does not refer to the existence of effective remedies against interference of this kind. “Legislation not providing for any possibility for an individual to pursue legal remedies in order to have access to personal data relating to him, or to obtain the rectification or erasure of such data does not respect the essence of the fundament right to effective judicial protection.

What Does It Mean in Practice?

The judgment applies to everyone (erga omnes), not only to the parties in the case. It is definitive without possibility of appeal and has immediate effect.

The judgment will have an important impact on organizations and the broader political discussions regarding EU-U.S. data flows.

  • Organizations relying on Safe Harbor to transfer personal data to the U.S. will have to consider alternative transfer mechanisms in order to transfer personal data lawfully to the U.S. Immediate short-term alternatives are likely to include standard contractual clauses and, in more limited instances, consent and possibly other statutory derogations (Article 26 (1) of the EU Data Protection Directive). Binding Corporate Rules are another alternative, but would require more time to put in place.
  • Negotiations on the revised EU-U.S. Safe Harbor framework are still under way (see our earlier posts here and here). It will be interesting to observe the impact that the CJEU’s findings have on these negotiations. The European Commission is determined to continue these negotiations, as Commissioner for Justice, Consumers and Gender Equality Věra Jourová confirmed in a press conference today (the full statement is available here).

Interestingly, the CJEU does not consider a system of self-certification in itself to be contrary to Article 25 (6) of the EU Data Protection Directive; however, it seems that such a system may be open to challenge unless the domestic law or international commitments of the third country ensure a level of protection which is essentially equivalent to that guaranteed in the EU legal order.

A working group of the Article 29 Data Protection Working Party—an EU advisory body, comprised of representatives of the DPAs of all EU Member States, the European Data Protection Supervisor and the European Commission—is meeting later this week to discuss the implications of this ruling. Moreover, the European Commission will release guidance shortly.

It is hoped that the DPAs will come up with pragmatic solutions as thousands of companies will be struggling to put in place alternative data transfer mechanisms which, in many cases, cannot be done overnight.

CJEU gives guidance on 3D shape marks

On September 16, 2015, the Court of Justice of the European Union (“CJEU”) responded to three preliminary questions referred to it last year from the High Court of England and Wales. The CJEU gave guidance on the registrability or otherwise of 3-dimensional shapes as trade marks. Although the facts concerned the bitterly fought dispute concerning Cadbury’s opposition to Nestlé’s application to register the shape of the four-finger chocolate-coated wafer bar, Kit Kat, (following the two companies’ colour purple dispute, this is the latest battle in the “Chocolate Wars”) the CJEU’s decision is of importance to 3-dimensional shapes more generally. The court’s guidance on gaining trade mark protection by showing acquired distinctiveness through use is particularly significant.

Issue 1 – Absolute grounds of refusal

The CJEU found that the whole shape needs to be covered by one of the absolute grounds of refusal under the Trade Mark Directive (2008/95/EC). This means that where a shape has numerous features that in their own right fall under an absolute ground of refusal (i.e., that feature is necessary to obtain a technical result or it from the nature of the goods itself) the shape will only be refused trade mark protection if at least one of those absolute grounds is applicable to the shape as a whole, rather than in relation to just that particular feature.

Issue 2 – Shapes necessary to obtain a technical result

The CJEU also found that whilst the Trade Mark Directive provides that registration may be refused of signs consisting exclusively of the shape of goods which is necessary to obtain a technical result this must be interpreted as referring only to the manner in which the goods at issue function and it does not apply to the manner in which the goods are manufactured.

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German Federal Supreme Court confirms successor liability for coffee roasters in spite of corporate restructuring

Early this month, the German Federal Supreme Court (BGH) published its judgment in the appeal filed by Melitta Europa GmbH & Co. (Melitta Europa) against the 2014 judgment of the Düsseldorf Higher Regional Court (OLG). The OLG confirmed a 55 million euro fine imposed in 2009 by the German Federal Cartel Office on Melitta Kaffee, finding that, economically, Melitta Europa was Melitta Kaffee’s legal successor and, as such, was liable to pay the fine.

The BGH affirmed the OLG’s ruling, finding that Melitta Europa had taken over all of Melitta Kaffee’s assets and continued to operate Melitta Kaffee’s coffee business from the same locations, under the same management and with the same staff. Further, it found that Melitta Europa achieves more than half of its sales and most of its profits from the predecessor’s coffee business, and Melitta Kaffee’s assets represent a significant part of Melitta Europa’s business. Given this, the BGH concluded that Melitta Europa was the economic successor to Melitta Kaffee.

The BGH’s guidance regarding the treatment of successor liability in case of restructuring has been overtaken by legislation. The 8th Amendment to the Act against Restraints of Competition, which came into force on 30 June 2013, closed the loopholes in the old legislation that allowed undertakings to circumvent cartel fines through corporate restructuring.

FTC Announces First Consent Order With a Retail Tracking Company

The Federal Trade Commission (“FTC”) today announced that it has entered into a proposed consent order with Nomi Technologies (“Nomi”), marking the agency’s first action against a retail tracking company.  The announcement comes one year after the agency held a workshop on mobile device tracking in the retail environment.  Although the action may indicate increased interest in retail tracking, the FTC did not focus on the unique aspects of that technology but instead focused on a single statement in Nomi’s privacy policy that the FTC claimed was material and deceptive.  Notably, two of the FTC’s five commissioners disagreed and dissented from the action.

Nomi provides a technology that allows brick-and-mortar retailers to track how consumers in possession of mobile phones move through their stores, which can help retailers determine how to display merchandise, deploy sales staff, and design more efficient retail layouts, among other things.  According to the FTC’s complaint, Nomi places sensors in retail stores that collect the media access control (MAC) addresses of consumer mobile phones when those devices are  detected in and around the store.  Nomi then hashes the MAC addresses, which are unique to each device, prior to storing them, and provides retailers with aggregated information on how many consumers pass by the store instead of enter it, how long consumers stay in the store, the types of devices consumers use, and how many repeat customers enter a store, among other information. Continue Reading

UK CMA launches Article 101 investigation into fashion markets

The UK Competition and Markets Authority (CMA) has opened an investigation into suspected anti-competitive arrangements in UK fashion markets.  Little information has been released, but the case was opened on 24 March 2015 into anticompetitive agreements and concerted practices under Chapter I of the UK Competition Act 1998 and/or Article 101 of the Treaty on the Function of the European Union.

The relevant legislation prohibits companies from entering into agreements with other companies or concerting to engage in practices which may affect trade within the UK or between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the UK or the internal market.  If a company is found to have breached competition law, it can be fined up to 10% of its worldwide turnover, and involved individuals can face criminal prosecution and disqualification from acting as directors.

The case timetable released by CMA indicates that the initial stages of the investigation – including information gathering, issuance of information requests to involved parties – will take place between now and September, with a decision on whether to proceed with the investigation coming in October 2015.

The case is at an early stage, no information about alleged participants has been released, and it is not clear whether there has even been an infringement of competition law.

The timing of the CMA investigation is interesting.  On 10 March 2015, the European Commission (EC) – the EU’s antitrust watchdog – dawn raided the premises of several unnamed online electronics retailers.  These are part of the on-going investigation of pricing and cross-border trade restrictions in the online supply of consumer electronics that was initiated by dawn raids in summer 2013.

Beyond this, Competition Commissioner Vestager announced this morning that the EC is launching a sector enquiry that will focus on cross-border restrictions on online retailing.  She also noted that the debate about regulation of online platforms should be “kept alive”, emphasising the need to identify what an ‘online platform’ is (including identifying the “common denominator” between different sites, including Facebook, eBay, SAP and Spotify) before doing anything.

The EC and UK are not alone in focusing on e-commerce.  The German Monopoly Commission, for example, is currently working on a Special Report on the Internet Economy, which will be published before the summer and will make recommendations.

 

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