The existence of a selective distribution network may be included among the ‘legitimate reasons’ for not exhausting trademark rights, provided that it complies with antitrust law, the trademarked product is a luxury item and there is a real harm to the image of prestige the manufacturer seeks to maintain through the adoption of a selective distribution system as a result of product marketing by third parties not belonging to the network.

Selective distribution is defined in Article 1, letter e) of Regulation (EU) No. 330/2010 as “selective distribution system’ means a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorised distributors within the territory reserved by the supplier to operate that system”.

Therefore, the prohibition of reselling products to resellers outside the network represents the distinctive feature of selective distribution, since by means of such system products are sold exclusively through resellers who meet specific standards of professional competence. This allows the manufacturer to ensure service consistency at the points of sale, coordinated management of logistics, training of specialists and monitoring of the disposal phase of unsold products.

Two recent orders of the IP Chamber of the Court of Milan sanctioned the interference with the selective distribution system legitimately implemented by the trademark holder, making findings of trademark infringement. These rulings have confirmed the situations in which there may be exceptions to the principle of trademark exhaustion once the products have been put on the market by the brand owner.

The first action was brought by L’Oréal and Helena Rubinstein against a retailer outside their selective distribution network and decided with an interim order issued on 19 November 2018. It also concerned the resale of products under the trademarks “Giorgio Armani”, “Lancôme”, “Cacharel”, “Yves Saint Laurent Beauté” and others of which the claimants in the action are licensees, in the outlets and on the e-commerce platform of an unauthorized reseller. The claimant argued, in particular, that (i) the principle of trademark exhaustion does not apply if packaging is altered by removing the Anti-Diversion Code; (ii) the lack of consent to the placing on the market of products parallelly imported from countries outside the European Economic Area; (iii) and that a deliberate interference with the selective distribution system had occurred.

The second decision was brought by Landoll as proprietor of the trademarks ‘Nashi’ and ‘Nashi Argan’, and decided with an interim order issued on 18 December 2018. It also concerned the resale of the claimant’s professional cosmetic products bearing its trademark by a reseller not belonging to its selective distribution network, who resold products online both on its own website and a third-party e-commerce platform.

Both decisions are in line with the established case-law which, in order to come within the exceptions to the principle of exhaustion, requires the following conditions to be satisfied:

(i) the selective distribution system implemented by the trademark owner complies with the antitrust rules;

(ii) the adoption of a selective distribution system is necessary to protect the trademarked products, which is particularly the case for luxury items;

(iii) the reselling methods put in place by third parties outside the network damage the image of luxury and prestige that the trademark owner seeks to maintain by means of a selective distribution system, or produce a confusing effect regarding the existence of an actual commercial link between the trademark holder and the unauthorized reseller.

 

(i) The legitimacy of the selective distribution system

The first requirement to be met is the legitimacy of the selective distribution system implemented by the trademark owner, i.e. its compliance with antitrust law is met.

According to established case law of the EU Court of Justice, a selective distribution system can be considered compliant with the rules set forth in Article 101 of the EEC Treaty, if selectivity is made necessary by particular technical requirements, linked to the peculiarities of the trademarketed products (e.g. they require special pre- and after-sales assistance services that not all dealers are able to provide), or it is necessary to protect the prestige and reputation of the brand, provided that the selection of distributors is based on “objective criteria relating to the qualifications of the seller, his staff and his facilities”, which are “laid down uniformly for all potential resellers” and “not applied in a discriminatory fashion” (CJEU, 11 December 1980, C-31/80; CJEU, 13 October 2011, C-439/09).

More recently, in a well-known case concerning the resale of luxury cosmetic products on a third-party e-commerce platform, it was confirmed that Article 101 TFEU should be interpreted as meaning that a selective distribution system for luxury items primarily aiming at preserving the luxury image of products complies with such provision on condition that the choice of retailers is made in accordance with the criteria developed by the EU case-law referred to above (CJEU, 6 December 2017, C-230/16, ‘Coty’).

It is up to the national court, which is called upon to determine whether there are ‘legitimate reasons’ for the trademark holder to be able to oppose the further marketing of its goods, to determine whether selective distribution contracts comply with antitrust law. In particular, it should verify that the distribution agreement does not contain any of the hard-core restrictions set out in Article 4 of Regulation (EU) No. 330/2010 (price, territory, consumer sales and cross-selling), or that it is exempted from market share threshold set forth in Article 3 (market share not exceeding 30%), and that the agreement complies with the three conditions for selective distribution, based on purely qualitative criteria, laid down in paragraph 175 of the Guidelines on Vertical Restraints of the European Commission – i.e. (i) the nature of the product in question must necessitate a selective distribution system, in the sense that such a system must constitute a legitimate requirement, having regard to the nature of the product concerned, to preserve its quality and ensure its proper use; (ii) resellers must be chosen on the basis of objective criteria of a qualitative nature which are laid down uniformly for all and made available to all potential resellers and are not applied in a discriminatory manner; (iii) and that the criteria laid down must not go beyond what is necessary.

In the above rulings, the Court of Milan examined the distribution contracts put in place by L’Oréal and Landoll and concluded that the quality criteria developed, implemented and used in selecting authorised dealers were fully consistent with the aim of safeguarding the luxury image of the products being distributed, that they had been applied in a non-discriminatory manner and were proportionate to the objective pursued.

In particular, the Court noted that “the general sales conditions applied by L’Oréal, in accordance with the Guidelines on Vertical Restraints of the European Commission, expressly specify that the trademarked products were intended to be sold throughout the European Economic Area through a network of authorised selective distributors on the basis of quality criteria which are described in detail …. establish in detail the quality and location of the sales outlets, the characteristics of the brand and the sales outlet, and the minimum professional skills of authorised retailers’ (L’Oréal Order, p. 11). In the same way, the Landoll ruling also noted that the adoption of a selective distribution system ‘appears to be aimed at ensuring, by means of the proven professional training of authorised persons – or by means of training and specialisation – the appropriate use of the products in relation to the needs of the final customer, thereby also contributing in this respect to the need to safeguard the image and prestige of the products’ (Landoll Order, p. 3).

 

(ii) Luxury products

Having established the existence and lawfulness of the selective distribution system, there is a requirement to assess whether there is a need to protect the trademarked products which is particularly the case for luxury items.

In this respect, EU case-law affirmed that the quality of luxury goods is not only the result of their material characteristics, but also of the style and prestigious image which bestow on them an aura of luxury, which is essential for them in order to be distinguished by consumers from other similar products. Damage to said luxury aura may therefore affect the quality of the products themselves (see CJEU, 6 December 2017, C-230/16; CJEU, 23 April 2009, C-59/08).

Therefore, according to EU case law, due to their characteristics and nature, luxury products may require the implementation of a selective distribution system to preserve their quality and ensure their proper use. However, no criteria were established to determine when a product can be considered as ‘luxury’.

In the two cases examined by the Court of Milan, the products in question were clearly considered luxury items, so that no in-depth examination of the applicability of the judgement of EU case-law was necessary in this case.

The reasoning in Coty specifically concerned luxury goods, since this was the reference subject for the preliminary ruling. However, one might ask whether it can also be applied to products of a different nature. It seems reasonable to presume that the reasons justifying the legitimacy of the provisions for the distribution of luxury products can also be applied in other contexts where the same sort of protection that legitimize the adoption of a selective distribution system is necessary, or where the access of dealers to third-party e-commerce platforms is likely to undermine the legitimate objectives pursued by choosing this form of distribution, such as, for instance, ensuring pre-sales consultancy for a proper use of the product.

 

(iii) The Existence of Prejudice

The trademark owner must then prove that the resale methods put in place by the third party outside the network is such as to damage the reputation of the products bearing the mark and the image of luxury and prestige that the trademark owner seeks to maintain precisely by means of the adoption of a selective distribution system.

The existence of a prejudice is undoubtedly the most controversial requirement, as it implies an assessment by the Court of both the third party’s specific selling methods and the conditions applied by the owner to his authorised dealers.

In this regard, both decisions examined here are in line with the quite restrictive approach already adopted in many cases by the Court of Milan, according to which the existence of a selective distribution network, even if lawful and concerning luxury goods, does not in itself exclude the exhaustion of the exclusive rights. Based on this restrictive approach, it is also necessary to prove the existence of significant harm to the trademark (or to the products bearing the trademark) caused by the third party and resulting from the factual circumstances of the case (see Court of Milan 13 March, 2016).

On this point, the L’Oréal order clarified that it would not be sufficient to demonstrate that the method adopted by the retailer outside the network does not comply with the quality standards required of authorised distributors (and therefore with the conditions laid down in the selective distribution contracts). It is still necessary to ascertain the concrete existence of a prejudice. In this respect, the order states that “the sales methods provided for by the L’Oréal selective distribution system do not constitute a parameter for the lawfulness of the defendant’s conduct. As already clarified by this Court, the conditions of sale stipulated by the holder of the right with the resellers, as clauses having inter partes effect, are not enforceable against third parties pursuant to Article 1372, second paragraph of the Italian Civil Code. The methods of selling cash & carry are not incompatible in their essence with the prestige and aura of luxury of the brand … the danger or the possibility of a serious harm would not be sufficient to justify an exception to the principle of exhaustion, but its actual existence is required. It follows thus that the harm in question must result from specific factual circumstances of the case”.

In the Court’s view, it is therefore not sufficient to show that the arrangements adopted by the third party do not comply with those imposed on authorised dealers. The trademark owner needs to prove that they are in fact detrimental to the aura of prestige of the mark.

It could be argued that in this respect the EU case-law highlights the mere lack of control by the trademark owner in the context of a sale by dealers not belonging to the network, which, according to the CJEU, leads to the existence of harm. Specifically, the CJEU in Coty stated that: “The absence of a contractual relationship between the supplier and third-party platforms is, however, an obstacle which prevents the supplier from being able to require, from those third-party platforms, compliance with the quality conditions that it has imposed on its authorised distributors. The internet sale of luxury goods via platforms which do not belong to the selective distribution system for those goods, in the context of which the supplier is unable to check the conditions in which those goods are sold, involves a risk of deterioration of the online presentation of those goods which is liable to harm their luxury image and thus their very character” (cf. “Coty”, pt. 48-49).

It would be reasonable to acknowledge that any sale outside the selective distribution system legitimately established by the trademark holder is liable to cause harm, both to the holder and to its network of authorised distributors, who undertake to comply with the conditions specifically laid down in the contract in order to protect the reputation and renown of the trademarked products. In other words, there is no need to prove a serious and significant harm to the trademark caused by the third party resulting from the factual circumstances of the case.

On January 10, 2019, the Commercial Chamber of the Court of Rome issued a decision on the applicability of the exemptions of liability provided for in Directive 2000/31 EC to internet service providers. With this decision, the video sharing platform Vimeo – which offers services similar to those of YouTube – was ordered to pay Euro 8.5 million  in damages to Mediaset – the largest commercial broadcaster in Italy.

The decision brings to an end proceedings which lasted more than six years commenced by the well-known Italian television broadcaster after realizing that numerous excerpts of its own television programmes were being published on the defendant’s platform. According to Mediaset, Vimeo – even though not itself responsible for the act of uploading – should nevertheless be held liable for such publications, since it had not removed the disputed content upon receipt of the plaintiff’s requests which were sent before and after the commencement of the proceedings.

Vimeo requested that the case be dismissed and based its defence on the argument that it was to be classified as a mere intermediary which does not control the content published by users and is therefore covered by the exemptions from liability under Directive 2000/31 EC. Regarding the requests received, before and after the start of the proceedings, Vimeo considered removing those individual videos accessible through specific links (URLs) identified by the righ tholders – and such removals were made by Vimeo – was sufficient action on its part. On the other hand Vimeo alleged that it was under no obligation to remove videos which – though extracted from the same programmes as those set in the requests – were published on different links (URLs).

With the decision of 10 January, the Court of Rome upheld the claims of the plaintiff and held Vimeo liable for negligence having failed to comply with what the Court regarded as its removal obligations.

The Judge, in reaching its decision, reiterated a consolidated approach of both the Court of First Instance and the Court of Appeal of Rome, dismissing Vimeo’s argument on the need to specify links (URLs). The Court found that there was ‘no legal basis of the sector, nor Community case-law’ which obliges the right holder to communicate link (URL) data to the provider, whereas ‘a precise indication of the programme’ titles’ must be regarded as sufficient to obtain the removal of all the videos extracted from the programmes themselves. In fact, the Court of Rome confirmed that the ‘URL is technical data that does not coincide with the individual detrimental content on the digital platform, but only represents the ‘address’ where the content is available’.

The Court of Rome also pointed out that providers are always required to comply with the ‘duty of care’ obligation so that it is reasonable to expect – in order to detect and prevent certain types of illegal activities – that the level of care required is determined by the state of the art.

In this case, in the opinion of the Court Appointed Expert, there are technologies currently in existence (so-called ‘video fingerprinting’) that allow the provider to ‘identify, within the material present on its digital platform, material corresponding to specific illegal content, even without the prior knowledge of the URL’.

According to the Court, ‘it would be reasonable’ to expect Vimeo to use the existing technology ‘to identify [ex-post] the specific audiovisual content illegally published on its website, following the appropriate request’ received by Mediaset.

Vimeo, having ‘limited itself to remove from its own website only the infringing contents’ Mediaset had identified with the URL ‘without making any further effort made possible by the state of the art to also identify and remove further audiovisual contents’ extracted from the same television programmes (reported by the copyright holder in the requests), had not been diligent. The Court also observed that Vimeo had never even argued ‘what detriment its hosting provider activity would have suffered if it had adopted the available technologies to carry out the necessary verification and control activities’.

Regarding the damages the Court used – as a benchmark – settlement agreements made between Mediaset and different providers and ordered Vimeo to pay Euros 563,00 for each minute of the videos unlawfully published.

According to the Court of Rome, the actions which – pursuant to Article 14 of Directive 2000/31 EC – must be taken by providers ‘upon obtaining knowledge of facts or circumstances from which the illegal activity or information is apparent’ may vary over time and must be assessed in the light of technological developments.

While waiting for the Supreme Court’s decision on a case concerning similar issues – expected in the coming months – the web giants will have to assess whether the procedures currently implemented to protect copyright are appropriate or if the principles expressed by recent case-law require them to update such policies taking into account their duty to remove infringing content using existing technology.

In the aftermath of the publication of the Commission’s Communication on standard essential patents (SEPs), two rival workshops were established within the framework of the European Standards Organizations CEN and CENELEC with the purpose of establishing a code on best practices for SEP licensing.

After the first workshop (WS-SEP), backed by IP Europe, produced a first draft of its Guidance for licensing SEPs in 5G and the IoT, it is now the turn of the second workshop (WS-SEP2), acting with the support of the Deutsches Institut für Normung (DIN), and jointly chaired by the Fair Standards Alliance and ACT | The App Association. On January 29, 2019, a draft document setting out principles and approaches to the licensing of standard essential patents (SEPs) for 5G technologies and IoT devices was published by the working group and is now open for consultation.

The document is an interesting read for the entire FRAND community and proposes a number of fundamental principles, the main ones being the following:

  1. Injunctions: SEP holders should not threaten or seek exclusionary remedies, including injunctions, except in exceptional circumstances and only where FRAND compensation cannot be addressed via adjudication (e.g. due to the risk of insolvency of the alleged infringer).
  2. License availability: A FRAND license should be made available to anybody wishing to implement the relevant standard, including upstream component suppliers. In addition, requests by OEMs to have the supplier engage in the process and negotiate a license with the SEP holder should not be viewed as an indication of unwillingness by the OEM.
  3. Transparency: SEP holders should provide prospective licensees with sufficient information to assess the FRAND nature of the offer, including regarding the terms of comparable licenses. Patent holders should not exploit their information advantage regarding the value of the SEP portfolio or prior licenses and should not rely on secrecy claims and NDAs to impair the possibility for licensees to valuate the portfolio on a FRAND basis (on this last point, the draft guidance also provides a template list of materials SEP holders should allegedly provide to meet their FRAND obligation).
  4. FRAND methodologies: in line with the position taken by the Commission in its Communication on SEPs, FRAND methodologies should not “include any element resulting from the decision to include the technology in the standard” and should take account of royalty stacking, to set “a reasonable aggregate rate for the standard.”

All interested parties can send comments on the draft document until March 28, 2019 (see here for additional details on the consultation process).

La blockchain si sta facendo strada anche nell’IP quale strumento di lotta alla contraffazione.

Questa tecnologia, sviluppata come sistema per concludere transazioni finanziarie e che letteralmente significa catena di blocchi, consente la creazione di un database distribuito per la gestione di transazioni condivisibili dai partecipanti alla rete, strutturato appunto in blocchi contenenti al loro interno transazioni, che sono collegati tra loro in modo tale che ogni transazione contenuta in essi debba essere validata dalla rete stessa.

Il crescente interesse per l’applicazione della tecnologia blockchain nella lotta alla contraffazione risiede nel meccanismo di aggiunta delle transazioni al registro distribuito, che consente, in sintesi, di attribuire a quest’ultimo caratteristiche di non duplicabilità, incorruttibilità e trasparenza.

La blockchain sta trovando applicazione in una sempre crescente varietà di campi tecnici, dal web-monitoring alla tracciabilità dei prodotti agroalimentari e di lusso e non solo.

Com’è noto, in Italia la norma che avrebbe attribuito una sorta di riconoscimento giuridico del sistema dei registri distribuiti (blockchain) e dell’efficacia probatoria delle transazioni ivi annotate è stata recentemente stralciata dal Decreto Semplificazioni 2019.

Notizie diverse arrivano invece dalla “terra di mezzo”. La Corte Suprema del Popolo Cinese lo scorso settembre ha emanato delle Rules che hanno ammesso la blockchain come mezzo di prova legale. Queste Rules hanno in particolare stabilito che i dati provenienti dal mondo digitale possono essere utilizzati come prove in giudizio, sempreché possano essere verificati con metodi che includono firme digitali, timestamp e blockchain.

Tutto ciò è stato accolto positivamente in un paese in cui regna la rigidità e il formalismo nella raccolta della prova e avrà conseguenze interessanti in particolare in materia di raccolta della prova nei giudizi IP, sia in materia di contraffazione, che di validità del titolo.

Includere la blockchain tra i mezzi di prova consente infatti di semplificare il gravoso onere in capo al titolare del diritto, che in Cina di norma è obbligato a disporre investigazioni e notarizzazioni di siti web, con costi e tempistiche molto elevati. Le prove che sono state archiviate e verificate su piattaforme blockchain possono dunque essere utilizzate in giudizio, senza la necessità di coinvolgere un notaio che ne autentichi l’autenticità.

Le Rules si collocano nell’ambito delle norme procedurali dei nuovi tribunali specializzati nelle controversie di internet, che si occupano di svariate materie collegate all’uso di internet nelle transazioni (Proprietà intellettuale e non solo). Questi tribunali specializzati sono stati istituiti nelle città di Hangzhou nell’agosto 2017, Beijing e Guangzhou, rispettivamente ad agosto e settembre 2018.

Recent GDPR Developments in Italy

Can we say that Italy took the new privacy rules set out in GDPR seriously?

Italian businesses have carried out many preparatory activities in view of 25 May 2018, the date of full applicability of the European Union’s General Data Protection Regulation No. 679/2016 (“GDPR”): a large number of privacy policies have been amended and updated, Data Protection Officers have been appointed and mailing lists have been reviewed and updated to comply with the new provisions

After the first few months with the GDPR in full force, this article takes a critical look at the current state of affairs

Although the GDPR has direct effect in Italian law and thus required no implementation, the Italian Council of Ministers approved a Legislative Decree (no. 101/2018) with the purpose of harmonizing the Italian Privacy Code (D. Lgs. n. 196/2003) with the new GDPR provisions. The Italian decree entered into force on 19 September 2018.

There are several new provisions regarding amongst others the consent of minors, which in relation to the direct offer of “information society services” must be given by those exercising parental responsibility where a child is under 14 years; the legal basis for data processing have been identified in laws and regulations as well as in “the performance of a task carried out in the public interest or in the exercise of official authority”; privacy policies on the management of CVs must be provided to the candidate at the time of the “first useful contact”, after the candidate spontaneously sends the CV to a company/organization; privacy requirements for small to medium sized enterprises have been simplified; new penalties have been introduced in relation to unlawful data processing; illegal communication and disclosure of data processed on a large scale; violations of the provisions on remote controls and surveys of workers’ opinions, etc.

Moreover, based on a recent public notice from the Italian Data Protection Authority (“IDPA”), it appears that the number of complaints filed with the IDPA are up 42% since 25 May this year: more than 2.500 complaints and reports have already been filed with the IDPA compared to 1,795 received in the same period last year.

In addition, the IDPA has received more than 40,000 communications of DPO data and more than 300 cases of data breaches have been notified.

In conclusion it seems the GDPR provisions have evidently been taken very seriously by Italy becoming more and more widely applied, thus enabling more effective protection of personal data.

As all FRAND aficionados should already know, with a judgment handed down yesterday the Court of Appeal of England and Wales upheld Birss J’s first instance decision in Unwired Planet v Huawei (the appeal decision is available here, whilst Birss J’s decision is available here).

In doing so, the Court agreed with the first instance court in holding that a global SEP portfolio owner can comply with its FRAND obligations by offering a worldwide licence, whose terms can be determined by the UK Courts, and, if that offer is refused by the implementer, is entitled to an injunction covering the UK territory based on the UK SEPs in dispute in the UK national proceedings.

In reaching this conclusion, the Court agreed with Birss J’s findings that global portfolio licensing is efficient and in line with industry practice of the mobile industry, echoing the relevance given to “recognised commercial practices in the field” by the CJEU’s decision in Case C‑170/13 – Huawei (not expressly cited by the Court of Appeal in support of this finding, though).

The Court also dismissed Huawei’s appeal on the non-discrimination prong of the FRAND commitment, holding that the FRAND obligation does not amount to a “most favoured nation” approach to licensing, an approach which had been rejected by ETSI at the time it set its IP Policy. Instead, in the Court’s view, a SEP holder’s FRAND undertaking only requires it to offer licences which reflect the proper valuation of its portfolio, in a global assessment which has to consider the FRAND obligation as a whole. This, of course, does not exclude the relevance of the parallel obligations stemming out of competition law, as mandated by the CJEU in its Huawei decision (which expressly refers to “licensing agreements already concluded with other competitors” as a relevant factor “to check whether [the SEP holder’s] offer complies with the condition of non-discrimination”) or in MEO-Serviços de Comunicações e Multimédia SA v Autoridade da Concorrência. This issue, and the meaning in the context of FRAND licensing of the notion of competitive disadvantage under Article 102 TFEU, was however left unaddressed by the Court, as it only focused on the obligations not to discriminate stemming out of the FRAND commitment.

Finally, the Court confirmed Briss J’s view that the steps outlined by the CJEU’s Huawei decision only amount to a safe harbour and do not automatically trigger liability under Article 102 TFEU if not complied with by the SEP holder: whether an abuse of dominance exists is to be assessed taking all circumstances of the case into account. In the Court’s view, the only exception to this principle is to be found in the SEP holder’s obligation to alert the alleged infringer prior to file suit, as the language used by the Huawei decision on the point is clear cut and excludes interpretations that do not view this step as a compulsory pre-condition for bringing action.

In terms of next steps, the Court of Appeal refused permission to appeal to the Supreme Court and, unsurprisingly, Huawei has indicated that they intend to seek permission to appeal to the Supreme Court itself.

The decision has already received a warm welcome by SEP holders, as it opens the door to global FRAND rate setting in the framework of national infringement proceedings. It is yet to be seen, however, whether the Court’s findings will remain applicable in future cases, where the defendant timely objects to jurisdiction or applies for a stay of the FRAND related issues pending resolution of other preliminary issues to be decided in foreign, more convenient, fora . These steps were indeed not taken by Huawei and it is also on this basis that the Court of Appeal dismissed Huawei’s jurisdictional challenges (see [112]). Also, should these jurisdictional issues be overcome in future cases (such as in the pending Conversant v. Huawei and ZTE appeal, where some of these issues are currenly being discussed), one is left wondering whether the current praise might soon be reconsidered, as the approach of the UK Courts is progressively adopted by jurisdictions where SEP holders might be less inclined to litigate matters such as the global FRAND rate for their entire SEP portfolios.

Also, there is one passage of the decision of the Court which is difficult to reconcile with the CJEU’s Huawei decision and the general consensus on the contents of the FRAND obligations of SEP holders. The Court of Appeal indeed disagreed with Briss J that there is only one set of FRAND terms for any given set of circumstances. In the Court’s view, it is perfectly possible that there is more than one set of FRAND terms. The Court then went on arguing that if both the SEP holder’s and the implementer’s offers are found to be FRAND, it is the offer of the SEP holder that should prevail and should be accepted by the licensee. With the words of the Court, if both the (global) license offered by SEP holder and the (national) license offered by the implementer were FRAND, “the global licence would, on this hypothesis, be fair, reasonable and non-discriminatory. It would then be a matter for the prospective licensee whether to accept it”. This of course implies that, in the Court’s view, the SEP holder would be entitled to injunctive relief against a willing licensee, i.e. against an implementer willing to take a license on terms which, even if diverging from the equally FRAND terms requested by the SEP holder, were nonetheless found to be FRAND by the Court. This is obviously a conclusion hard to agree with, which is probably the result of the fact that the point was addressed only in obiter in the decision, given that the Court had previously found that Huawei’s offer limited to the UK patents was not FRAND.

The decision also includes additional interesting findings on a variety of aspects (from the presumption of dominance conferred by SEPs, to the, partially unsatisfactory, attempt to reconcile its findings on non-discrimination with the US and German precedents on the point). We will cover them all very soon.

As the proposed “Directive on Copyright in the Digital Single Market” suffers a halt with the European Parliament declining to vote and rescheduling approval for September 2018, one of the main stumbling blocks is the likely ‘invasive’ nature Art. 13 requiring Internet Service Providers to pre-emptively scan, filter and block copyright-infringing contents which many in the industry consider too onerous.  A recent ruling by the Court of Milan, once again, had to tackle the tricky and difficult issue of the extent the ISP’s liability, determining the scope of the injunction against ISP. In particular, the Court of Milan ruled on the admissibility of a Preliminary Injunction order issued against network access providers that extends not only to the domain name whose content has been found to be illegal, but also to all the different domains that provide the same content to the public (the so-called “alias” sites). The IP Milan Chamber found that such a ruling is compatible with the general prohibition according to which ISPs do not have a surveillance obligation, challenged at the EU level, and at the same time complies with the principles of proportionality, effectiveness and dissuasiveness of PI measures.

Following the PI proceedings brought by Arnoldo Mondadori S.p.A., the Court of Milan, on 12 April 2018, ordered Fastweb S.p.A., Telecom Italia S.p.A., Tiscali Italia S.p.A., Vodafone Italia S.p.A. and Wind Tre S.p.A., in their role as network access providers,  to pay the costs for the implementation of the most appropriate technical measures that prevent users from accessing a portal that provided complete versions of Mondadori’s publications, either through the domain name “Italiashare.net” – the content of which was deemed unlawful – or through the “alias” sites, accessible through any domain name.

The case stemmed from an initial PI appeal brought by Mondadori against the same network access providers, as well as the hosting company, to obtain an order preventing access to the “Dasolo” portal by the recipients of the services, regardless of the top level domain adopted (“.it”, “.org”, “.net”). “Dasolo” illegally catalogued and provided the users with full versions of numerous magazines published by Mondadori (among many, “Chi”, “Cucina Moderna”, “Donna Moderna”, “Grazia”, “Panorama”, “Sale & Pepe”).

After having examined and distinguished the different liability profiles of the providers that perform data transport functions (the so-called “mere conduits”) and of those that store contents (the so-called “hosting” activity), the Judge for the first PI proceedings ordered the service providers to disable access “to all the sites with second-level domain name ‘dasolo’ regardless of the top level domain adopted” (“a tutti i siti con nome di dominio di secondo livello ‘dasolo’ indipendentemente dal top level domain adottato”, Milan Court, ord. 24 July 2017).

However, this measure did not prove to be sufficiently effective, since in a short time the “Dasolo” portal had become operational again by changing its second-level domain to “Italiashare”, while continuing to publish the same illegal content.

Therefore, Mondadori requested out-of-court that the network access providers adopt all the technical measures necessary to also disable this new domain. The providers refused on the grounds that a specific judicial or administrative measure would be necessary to extend the injunction to the different second-level domain “Italiashare”. Hence Mondadori’s new PI motion was aimed at obtaining a more far-reaching injunction, which could be extended to all different second-level domains that provide the same illegal content to the public (the so-called “alias” sites).

This is the framework for the recent order which is examined here. In fact, the Milan Court clarified that such an order is compatible with the fact that ISPs do not have a preventive surveillance obligation, since they are not subject to any general obligation to monitor the network, since their intervention is always subject to specific notification by the right holder.

The Directive on electronic commerce only prohibits the imposition on ISPs of a general duty of preventive surveillance, and conversely requires them to implement effective measures for both repression and prevention of offences, using the detailed reports of the right holders, who are therefore reserved a proactive role in the protection of their rights. The First Instance Court further observes that the prohibition of a general obligation to monitor is not in any event of exempting effect here, since the electronic commerce Directive provides that “this does not concern monitoring obligations in a specific case” (DIRECTIVE 2000/31/EC, Whereas No. 47).

Such an order was also considered to be both effective and proportionate. The principle of the proportionality of PI measures must always be balanced with the principle of the effectiveness of copyright protection, which requires the court to take all appropriate measures to prevent the recurrence of unlawful acts since, if, for any infringement subsequently found, the intervention of the court was necessary “no injunction could ever be issued for the future, contradicting the very nature of this type of conviction, ontologically projected to prevent the continuation and repetition of the offences to come”.

It is in this perspective that the Court of Justice has in fact ruled that injunction orders “must be sufficiently effective to ensure genuine protection of the fundamental right at issue,” that is to say “they must have the effect of preventing unauthorised access to the protected subject-matter or, at least, of making it difficult to achieve” (CJEU, 27 March 2014, in Case C-314/12, Telekabel).

The Court further observes that the admissibility of the so-called “Dynamic Injunction“, i.e. orders which also extend to sites not expressly indicated in the PI order and which therefore overcome the inconvenience of having to establish subsequent judgements to strike and pursue phenomenologically identical violations, has also been confirmed by the European Commission, when interpreting the Enforcement Directive.

The Court therefore concludes the order by requiring the Respondents, in their capacity as network access providers, take the most appropriate technical measures to prevent the recipients of their services from gaining access to the portals which provide the public with the same illegal content as that at issue in the proceedings and relating to the Magazines, either through the domain name “Italiashare.net” or through the “alias” sites, reachable through any domain name, within a maximum of ten working days of receipt of specific notification of violations reported by the applicant, with the right of the recipients of the request to reimbursement of technical costs strictly necessary and inherent to the request itself.

A positive injunction, supported by a penalty that requires ISPs to take all necessary measures to prevent access to all future alias sites that make the same illegal content available to the public and regardless of the first or second level domain actually adopted, is certainly a far-reaching order, but one that poses many implementation issues.

With particular reference to the implementation of the order, the Court of Milan, in the well-known Mediaset Premium case decided by the Court of Milan, had instead refused to extend the order to alias sites that did not yet exist, even if their content was identical, since this would have required a private party to check whether the content was lawful or not, whereas “the current legal system does not seem to allow a private party to be given the status of a body permanently delegated by the judge to fill in the preceptive content of a measure of its own” (Court of Milan, order  27 July 2016, Mediaset Premium).

The order under review seems to go beyond the conclusions of the previous Mediaset Premium in favour of a more effective protection for right holders, which is certainly desirable, following the most recent and extensive interpretation of Community case-law on the liability of intermediaries, while at the same time denoting the growing attention of national courts to the need for right holders to obtain effective measures to combat online piracy.

However, there remain the problems that the previous Mediaset case had reported with regard to the methods of execution of the PI order, since the positive order commented herein shifts the assessment of illegality to a private level, leaving it in fact to the agreement or unity of views on the illegality of the content between the holder of rights and the ISP, relegating the intervention of the judge at the time of non-compliance by the ISP to the request for disabling the alias.

With a judgement dated 26 April 2018, the General Court of the EU held that the famous Argentinian football player – and multiple Ballon d’Or winner,  Lionel Andrès Messi, could  register his mark ‘MESSI’ for sports and gymnastics clothing, footwear and equipment notwithstanding the opposition by the owner of a highly similar earlier sign “MASSI” registered  for similar goods. The trade mark applied for is represented below:

This matter commenced back in November 2011 when Mr Messi’s trademark was opposed by Mr. Jaime Masferrer Coma who had an earlier trade mark registration for clothing, shoes and bicycle helmets, protective clothing and gloves.  The Opposition Division upheld the opposition against Mr. Messi’s application on the basis of the similarity of the signs ‘MESSI’ and ‘MASSI’ and the similarity and identical nature of the goods.  Mr. Messi lodged an appeal to the Board of Appeal of the EUIPO against this initial decision but the appeal was dismissed in 2014.

According to the Board of Appeal, there would be a likelihood of confusion between the two trade marks in view of the high similarity of the signs and of the goods covered (in particular, sports equipment and clothing, though not limited to the field of football).  The Board of Appeal held that there was a likelihood of confusion because of the similarity between the dominant elements of the two marks which are almost identical visually and phonetically. Regarding the conceptual differences arising due to the fame of Mr. Messi, the Board of Appeal considered that this differentiation would only be perceived by the football and sport lovers ie: only by a part of the relevant public and not by the whole of the relevant public, and that this was not sufficient to result in a risk of confusion for the public.

The Sixth Chamber of the General Court, led by the Italian President, Judge Rapporteur Mr. Berardis, took a different view. The EU judges did not question the findings of the Board of Appeal concerning the visual and phonetic similarity of the signs, but they did challenge the assessment of the conceptual similarity and the resulting assessment of the likelihood of confusion between the two signs.

According to the General Court decision, Mr. Messi is a public personality well-known to the vast majority of the public. The average consumer “reasonably well informed and reasonably observant and circumspect” when purchasing sport-related (but not just football-related) clothing and accessories could only but associate the sign “MESSI” with the famous football player. Although it would be true that not all the public would know the details regarding his career and achievements, the General Court thought it highly unlikely that a part of the public would have never heard of him or know who he is.

The General Court considered that the fame of Mr. Messi did not need to be further demonstrated by the applicant with documentary evidence – which had not been done in a timely fashion during the administrative phase of proceedings before the EUIPO – as – according to the General Court – Messi’s name is so well known, that there is no need for further proof. Such fact could have been known and thus taken into account by the Board of Appeal when reaching its decision, thus it did not need to be invoked or supported by evidence by any of the parties even in the administrative phase.

The General Court concluded that the conceptual differences between the signs, linked to the fame of Mr. Messi, are so striking that they are able to neutralise the visual and phonetic similarities between the signs at issue. Thus, it affirmed that the Board of Appeal erred in considering that there was a likelihood of confusion and it annulled the decision of the EUIPO.

The Spanish company, JM-EV e hijos, current owner of the sign “MASSI” has two months to decide whether to bring an appeal against this judgement, limited to the points of law, before the Court of Justice.

This judgement recalls the “PICASSO” case (T-185/02 and appeal C-361/04 P) where the reference to the famous painter (whose heirs, who had licensed the use of the name to the car manufacturer Citroën, were the opponents), due to his fame, ruled out any conceptual similarity with respect to the contested DaimlerChrysler’s trade mark application “PICARO”, both covering similar goods which had nothing to do with art painting, namely motor vehicles.

Hence, according to the EU case law in question, famous persons’ names as trademarks seem to be double edged weapons when it comes to the likelihood of confusion test. On the one hand they can be very resistant to oppositions like in the recent “MESSI” case, but also, on the other hand, oppositions having famous persons’ names as their basis are not able to impede similar signs to be later registered, as in the “PICASSO” case.

It will be interesting to see how famous personalities will actually ride the wave of this EU case law – and whether an appeal is filed.

 

 

Benedetta Marsicola

A landmark decision of the European Court of Justice (ECJ) issued on 6 December 2017 confirmed that a supplier of luxury goods may prohibit authorised retailers part of a selective distribution system from selling its products on third party e-commerce platforms.[1]

In the case at issue the request for a preliminary ruling was submitted by the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main) in 2016 in the context of a dispute between Coty Germany GmbH, a supplier of luxury cosmetics established in Germany, and Parfümerie Akzente GmbH, an authorised distributor of those goods, concerning the prohibition, under a selective distribution contract between Coty Germany and its authorised distributors, of the use by the latter, in a discernible manner, of third-party undertakings for internet sales of the contract goods.

Specifically, Coty Germany brought an action before the national court seeking an order prohibiting Parfümerie Akzente from distributing products via the platform ‘amazon.de’.

The Oberlandesgericht Frankfurt am Main, also in view of the divergent interpretations of the earlier ECJ’s Pierre Fabre decision issued in 2011[2], by the courts and competition authorities of the Member States   decided to stay the proceedings and to refer to the European Court of Justice questions concerning whether a selective distribution system that has as its aim the distribution of luxury goods constitutes an aspect of competition that is compatible with Article 101(1) TFEU and, specifically, whether the general prohibition imposed on members of a selective distribution system to use, in a discernible manner, for internet sales, e-commerce platforms of third-party companies, is compatible with that rule.

In its ruling the ECJ’s, referring to its settled case-law, stated first of all that a selective distribution system for luxury goods designed primarily to preserve the luxury image of those goods does not breach the prohibition of agreements, decisions and concerted practices laid down in EU law, provided that the resellers are chosen on the basis of objective criteria of a qualitative nature, which are laid down uniformly and are not applied in a discriminatory fashion, nor go beyond what is necessary.

The Court then found that EU law does not preclude a contractual clause which prohibits authorised distributors of a selective distribution network of luxury goods from using, in a discernible manner, third-party platforms for internet sales of the goods in question, provided that the clause is appropriate to preserving the luxury image of the goods, it is laid down uniformly, not applied in discriminatory manner and is proportionate in the light of the objective pursued.

The ECJ further noted that, in circumstances such as those of the main proceedings, these conditions are met and therefore prohibition of the use, in a discernible manner, of third-party undertakings for internet sales does not constitute a restriction of customers nor a restriction of passive sales to end users. Such latter restrictions are automatically excluded from the benefit of a block exemption because they are liable to have severely anticompetitive effects.

1. Selective distribution system: general remarks

The adoption of a selective distribution system for companies operating in the field of luxury and fashion is one of the key factors in the process of evaluation, which allows the trademark owner to protect the prestige and renown of its brand and to guarantee the quality of the products to be distinguished, from the time of the product ideation to its delivery to the final user.

Article 1, let. e) of  Regulation (EU) No 330/2010 broadly defines it as a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorised distributors within the territory reserved by the supplier to operate that system.

Therefore, the ban on the resale of products to subjects other than end consumers, unrelated to the network established by the manufacturer, is therefore the “heart” of selective distribution, because through it the goods bearing the trademark are marketed exclusively through retailers who meet certain standards of professional competence, which allows the manufacturer to guarantee uniformity of service at points of sale, coordinated management of logistics, training of personnel specialized in the sale of prestigious products and the control of the disposal of unsold products.

The products subject to selective distribution are usually high-class goods with a high symbolic value, bearing trademarks which convey a message of exclusivity, which can be jeopardized even in the absence of likelihood of confusion.

Selective distribution systems are therefore justified not only in the interests of the trademark owner to consolidate its brand awareness and to preserve around its own products an aura of luxury which enables consumers to distinguish them from similar goods, but also in the interest of the consumers to be guaranteed a high level of quality of service, in line with the standard set by the manufacturer.[3]

These principles have been applied and confirmed by the European Court of Justice in the Coty case, where the Court noted that the quality of luxury goods is not simply the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury.

These aspects, the ECJ further noted, are essential for luxury goods since they enable consumers to distinguish them from other similar goods. Therefore any impairment to that aura of luxury is likely to affect their actual quality.

2. Selective distribution and trademark exhaustion

The success of this kind of distribution system cannot, in any case, be independent of effective control by the trademark owner.

The development of the free riding phenomenon in the context of a selective distribution system lies in the fact that third party resellers, not belonging to the system, appear on the market as apparent authorized retailers generating in consumers the belief that the reseller belongs to the selective distribution network arranged by the trademark owner.

In recent years this phenomenon has been the subject of a wide debate amongst scholars and case-law, often with opposing positions on the interpretation of trademark exhaustion doctrine and unfair competition by the unauthorized reseller.

Article 5 of the Italian IP Code (likewise Article 15 of the EU Directive No. 2015/2436) provides that the exclusive rights of the trademark’s owner “are exhausted once the products protected by an industrial property right have been put on the market by the owner or with his consent in the territory of the Country or in the territory of a Member State of the European Union or the European Economic Area”. Paragraph 2 further specifies that “This limitation on the powers of the owner does not however apply when there are legitimate reasons for the owner himself to oppose further marketing of the goods, in particular when the condition of the same has been modified or altered after being put on the market”.

In this regard, the ECJ settled case law clearly states that the existence of a selective distribution agreement is one of the “legitimate reasons” which excludes the application of the exhaustion doctrine of the trademark after the goods have been put on the market, pursuant to Art. 7 No. 2 of Directive 2008/95/C.E. (now, Article 15 EU Directive No. 2015/2436).

Applying these principles, the ECJ clarifies that what is important for the exclusion of the exhaustion doctrine is the confusing effect of the existence of a commercial link between the unauthorized reseller and the trademark’s owner which jeopardizes, or potentially jeopardizes, the aura of luxury and prestige that the trademark’s owner tries to preserve through the adoption of a selective distribution system.

Leading scholarly literature and settled case law have often acknowledged that also the use of false capacity, i.e. pretending to be an authorized reseller which is part of the selective distribution system implemented by the trademark owner, might amount to trademark infringement.[4]

In this regard, the Court of Catania, in a recent ruling issued on 29 November 2016 in proceedings brought by the fashion company Bulgari against an unauthorized reseller, acknowledged that the use of the brand “BVLGARI” on the unauthorized reseller’s web site in order to advertise the sale of Bulgari’s products generated the belief in the public that reseller was part of Bulgari’s distribution network.[5]

The Court further stated that the burden of proof of the existence of “legitimate reasons” pursuant to Art. 15 EU Directive No. 2015/2436 had been fulfilled by the trademark owner since Bulgari was able to prove:

1 – The implementation of a selective distribution system, based on contractual clauses to impose precise quality standards on distributors;

2 – That the goods at issue were luxury or prestige items;

3 – That the sale of Bulgari’s product by an unauthorized reseller, for its specific methods which were not in accordance with the well-known trademark’s owner standards, resulted in an actual prejudice to the prestigious and exclusive image of Bulgari, not respecting any of the quality standards imposed on authorized resellers.[6]

 3. Violation of a selective distribution system and unfair competition

Italian case law also analysed a further aspect concerning the role of the third party unauthorized reseller in the context of a selective distribution system, i.e. whether inducing an authorized dealer to violate its contractual obligations may amount to a violation of the selective distribution system and therefore a breach of contractual obligations.

Selective distribution agreement is legally binding only between the parties. Therefore, the ban on the resale of products to subjects unrelated to the network established by the manufacturer, other than end consumers, is not binding to third parties, such as the unauthorized reseller.

In the past decade, Italian case law often held the view that the unauthorized reseller is always free to buy the goods intended for selective distribution, pursuant to the constitutional freedom of the enterprise. The violation of a selective distribution system by those who are not contractually bound by such a system does not amount to unfair competition, since the obligations between the manufacturer and its authorized dealer are not binding for the third party.[7]

In this regard, a landmark case of the Court of Palermo, following a more recent trend[8], acknowledged that the interference of a third party with a selective distribution system may amount to an act of unfair competition such as “involving in another’s breach of obligations”, which has to be considered an independent act of unfair competition prohibited pursuant to Art. 2598, No. 3 Italian Civil Code.[9]

If the selective distribution network is legitimately created by the trademark’s owner, in compliance with the antitrust regulations, the acts of third parties not belonging to the network consisting in selling (despite having been made aware of the existence of the selective distribution system) products bearing that mark may be considered acts of unfair competition.

Specifically, the Court noted that there may be unfair competition exclusively in the case whether the unauthorized reseller is aware, or has been made aware, of the existence of a selective distribution agreement. Therefore, “once he receives such communication it is no longer a question of irrelevance due to the relativity of obligations principle exclusively between the manufacturer and the distributer” and then “continuing to sell trademarked products even after the manufacturer has notified that a selective distribution system was implemented amounts to unfair competition”.

4. Practical implications

The above mentioned cases deal with different aspects related to the same issue: enforcing trademark rights in the context of a selective distribution strategy in the luxury field in order to protect brand owners against different forms of free riding.

These rulings provide helpful guidance for companies in the luxury field as to what is permissible and can be done to enforce selective distribution against distributors in breach of their contractual obligations and unauthorized resellers.

In conclusion some basic guidelines in this area of luxury goods are:

1. the selective distribution system implemented by the trademark owner to distribute luxury goods must be based on contractual clauses which impose precise quality standards on distributors, i.e. it must be compliant with the antitrust regulations,

2. it is essential to prove that  the products in questions are luxury items and that the selective distribution system is necessary to protect their luxury image,

3. the restrictions imposed on distributors must be consistent with the aim of protecting that luxury image, they must be applied in a non-discriminatory manner and should not go beyond what is necessary.

4. the requirements of the selective distribution system need to be regularly assessed by the brand owner to guarantee they remain fit for purpose,

5. restrictions on sales on third-party platforms, such as Amazon or Ebay, to protect a luxury image are allowed only provided that this does not give rise to a total prohibition on online sales,

6. beside trademark infringement, in order to prove unfair competition by the unauthorized reseller for interfering in the selective distribution agreement, i.e. involvement in another’s breach of obligation, it is necessary to prove awareness on the part of the unauthorized distributor of the existence of a selective distribution agreement between the trademark’s owner and its reseller.

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[1] ECJ, 6 December 2017, C‑230/16, “Coty”.

[2] ECJ, 13 October 2011, C-439/09, “Pierre Fabre”, which, purely for the goods at issue in that case, stated that the need to preserve the prestigious image of cosmetic and body hygiene goods was not a legitimate requirement for the purpose of justifying a comprehensive prohibition of the internet sale of those goods.

[3] See ECJ, 23 April 2009, C-59/08, “Copad”, which stated that “the quality of luxury goods…is not just the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury. Since luxury goods are high-class goods, the aura of luxury emanating from them is essential in that it enables consumers to distinguish them from similar goods. Therefore, an impairment to that aura of luxury is likely to affect the actual quality of those goods. Given that context, it must next be examined whether, in the case in the main proceedings, the sale by the licensee of luxury goods to discount stores which are not part of the selective distribution network set up under the licence agreement, may constitute such impairment…Setting up a selective distribution system such as that at issue in the main proceedings which, according to the terms of the licence agreement between Dior and SIL, seeks to ensure that the goods are displayed in sales outlets in a manner that enhances their value, ‘especially as regards the positioning, advertising, packaging as well as business policy’, contributes… to the reputation of the goods at issue and therefore to sustaining the aura of luxury surrounding them”.

[4]  Please see, amongst others, Court of Rome, 28 April 2004, which granted to Jaguar urgency measures against an unauthorized reseller using its distinctive trademark, stating that “the use of a service mark, if carried out in such a way as to appear to consumers as an indicative sign of the third party’s affiliation to the service network of the trade mark owner, constitutes trademark infringement, since the public falls into error about the inclusion of the retailer in the sales network of the trademark owner”.

[5]  Court of Catania, 29 November 2016.  See also Galli, Bulgari successfully enforces selective distribution network against former distributor, WTR, 27 March 2017.

[6] Specifically, the Court found that there was no assortment of products, nor adequate display stands and the unauthorised reseller was applying excessively high discounts, which were not in keeping with Bulgari’s standards.

[7] Court of Venice, 10 March 2004; Court of Milan, 8 March 2004; Court of Bari, 11 July 2008.

[8] See also Court of Milan, 13 March 2009, which stated that “The entrepreneur who, having been aware of the existence of a selective distribution network for products of a certain brand, since he was specifically excluded, and he led the consumers to believe is an authorized distributor of those products violates unfair competition law”.

[9] Court of Palermo, 28 February 2013, which stated that the unauthorized seller of Thun’s products, the well-known manufacturer of artistic ceramics, was aware of the implementation of a selective distribution network since he has been notified by the trademark owner through a letter prior to the preliminary injunction proceedings.

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Every transmission or retransmission of a work which uses a specific technical means must, as a rule, be individually authorised by the author of the work in question”.

This is one the main principles ensuing from the Court of Justice of the European Union (CJEU) in the its recent decision of 29 November 2017 (Case C-265/16).

Continue Reading CJEU on VCAST Recording Service: is a Different Means of Transmission an Essential Condition for the Existence of a New Communication to the Public?