Sales are Offline - Advocate General Allows for the Restriction of Third-Party Sales of Goods Online

Selling goods online can be incredibly lucrative, since the potential reach of your business can be near anywhere in the world to millions of people. Many companies therefore sell their goods either exclusively online, or through various third-parties, who could even purchase your goods and then resell them elsewhere without your permission. While the exhaustion of rights is quite pertinent in this scenario (e.g. more on which in relation to patents can be found here), could you still be able to prevent others from selling your goods? After a lengthy spell in the European Courts, a case dealing with just this question has landed on an Advocate General's desk, who has given their opinion on it only some weeks ago.

The case of Coty Germany GmbH v Parfümerie Akzente GmbH dealt with the sale of luxury cosmetics, made by Coty. The company sells its goods through a variety of distributors in a select network, all of which are contracted to do so under a distribution agreement (and its various undertakings). Akzente has been a Coty distributor for some years selling their goods via their retailer stores, including physical locations and via the Internet, primarily through Amazon.de. Coty wanted to make changes to their distributor agreement, which, among others, required that all goods sold online be sold via an electronic store window (not using websites like Amazon) to protect the brand and its image. Akzente refused the amendments, and Coty took the matter to court, which ultimately ended up going to the CJEU.

The crux of the case revolves around the Treaty of the Functioning of the EU and its provisions preventing the distortion of competition. Article 101 of the TFEU, in short, prevents companies from employing contractual measures that affect trade between Member States in a negative way. This could potentially include selective distribution systems, such as Coty's.

The CJEU faced four questions from the referring court, which primarily focussed on the applicability of Article 101 to the above facts.

The first question, as summarized by the Court, asked "…whether selective distribution networks for the distribution of luxury and prestige goods aimed mainly at preserving the luxury image of those goods are caught by the prohibition laid down in Article 101(1) TFEU".

The AG considered both parties' submissions relating to the first question, ultimately deciding that, in his opinion, that selective distribution networks for luxury goods would not be caught by Article 101. Following previous case law, the AG set out the three criteria that have to be met for purely qualitative selective distribution systems not to be prohibited under Article 101:

(1) it must be established that the properties of the product necessitate a selective distribution system, in the sense that such a system constitutes a legitimate requirement, having regard to the nature of the products concerned, and in particular their high quality or highly technical nature, in order to preserve their quality and to ensure that they are correctly used; (2) resellers must be chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all potential resellers and applied in a non-discriminatory manner; and (3) the criteria defined must not go beyond what is necessary.

Online sales definitely make life easier

The first criteria, necessity of the selective distribution system, needs to take into account the qualitative characteristics of the goods themselves, i.e. that it maintains the high quality of the goods when sold. This can include both the physical characteristics and the 'luxury' image of the goods. The AG summarized that "…the selective distribution networks relating to the distribution of luxury and prestige goods and seeking mainly to preserve the brand image of those goods are not caught by the prohibition laid down in Article 101(1) TFEU". Even so, the AG wanted the CJEU to clarify the possible prohibition of these types of clauses, which has been asserted under case law (particularly in Pierre Fabre Dermo-Cosmétique).

The AG considered that the case should not negate prior case law regarding the allowance of selective distribution networks under EU law, as its judgment only related to the review of the proportionality of a clause preventing the sale of goods online outright. However, he still observed that should the objective of protecting the prestige of the goods not be legitimate and therefore not allowed under EU law. Retaining the exemption for the above distribution systems is important for the preservation of trademark rights, which could be compromised if not allowed to be protected.

Ultimately, the AG set out that the answer to question one should be that such selective distribution systems should be allowed under Article 101, provided they conform to the three criteria set above.

The second question was summarized by the AG asking "…whether and to what extent Article 101(1) TFEU must be interpreted as meaning that it precludes the prohibition imposed on the members of a selective distribution system for luxury products, who operate as authorised retailers on the market, from using in a discernible manner third-party platforms for internet sales of the products concerned".

Following Metro SB-Groβmärkte, the AG set out that, to answer the above question, one would have to assess whether "…operators were chosen by reference to objective criteria of a qualitative nature, determined uniformly for all potential resellers and applied in a non-discriminatory fashion, whether the properties of the product(s) concerned require, in order to preserve their quality and to ensure that they are correctly used, such a distribution network and… whether the conditions defined are consistent with the principle of proportionality". He did note that only the necessity and proportionality criteria would have to be considered in this instance.

Should the prohibition of the use of third-party platforms be used legitimately to protect the quality of the goods, the AG considered this to be allowable. Not only does it potentially ensure that the goods are authentic, but also protects the brand. Therefore the prevention of the use of third-party websites in a distribution agreement would not be contrary to competition law. Coty didn't prevent the parties from selling them online altogether, allowing the goods to be sold on the sellers' websites, just not on third-party sites like Amazon.

The AG also considered that the clause would not be disproportionate to the objective pursued. Due to the original supplier not being able to control the third-party pages in the absence of a direct contractual relationship with them (as opposed to with the distributors), the clause would be proportionate to reach the means of controlling quality. He concluded that the clause would therefore be compatible with Article 101.

Finally, the AG, under the guise of a hypothetical determination of an infringement of Article 101 in a clause such as in the matter, set out possible further provisions that might come into play in that event. This would be Article 4(b) and 4(c) of the Vertical Agreements Regulation. These relate to the restriction of the territory in which goods can be sold, and a restriction of passive sales respectively.

In short, the AG considered that the prohibition imposed on members of the distribution system was not a restriction on the seller's customers under Article 4(b). The clause only prevents the seller from selling on third-party websites, and not online entirely, which does not limit the territory or customers accessible to the seller. The prohibition was not a restriction of passive sales under Article 4(c) either, as the restriction only applies to third-party websites, and not the entire internet. Passive sales can happen via the seller's website just as well as from a third-party site.

The case will be very important to suppliers of luxury goods who wish to maintain the image and the distribution networks selling the goods in a very close and controlled fashion. The AG's opinion would seem to be correct, since the disallowance of these types of restrictions could genuinely dilute the image and value of luxury goods, and only guide the way in which the goods are sold, not preventing some avenues like online sales. In the end the CJEU will decide the matter, but it seems unlikely they will deviate from the AG's opinion.

Source: IPKat

Plainly Winning - Australia Wins Plain Packaging Challenge at the WTO

Plain packaging seems to be a nigh inevitability in the current legislative climate, especially with countries pushing for stricter laws surrounding cigarettes and their marketing. This blog has discussed the challenge against the Australian Tobacco Plain Packaging Act 2011 in the WTO and in Asia (discussed here and here) by a number of countries, but the conclusion of those disputes has been coming for some years now. While similar initiatives have been introduced in a number of countries, including the UK, the disputes seem to have put a damper on those efforts, if nothing at least for the duration of the cases.

The WTO dispute (including others made by other nations) concerns the TPP Act 2011, which introduced measures to standardize tobacco product packaging, including changing the color to a boring olive green, and prominently displaying graphic warning labels. The arguments presented against the legislation were that it presents a technical barrier to trade under the Agreement on Technical Barriers to Trade (Articles 2.1 and 2.2), and infringing various provisions under the TRIPS Agreement, for example giving other Member countries more or less favorable treatment (Article 3.1) or creating an obstacle for the registration of a trademark due to the nature of the goods it is used for (Article 15.4). Finally, the Act allegedly gives imported products less favorable treatment under The General Agreement on Tariffs and Trade (Article 3.4).

As discussed above, while the judgment hasn't been released yet, sources at the WTO have claimed that the WTO has sided with the Australian government's argument on the measure qualifying as a legitimate public health measure. The restriction of branding, therefore, does not infringe the above Agreements, and is appropriate for the aim sought by the legislation.

The details of the case will be discussed more when the decision is released in July, but it still remains an important signpost in the development of plain packaging legislation worldwide.

Without a doubt, the tobacco companies and the relevant countries will appeal the decision, as has been indicated by British American Tobacco.

'Quitting clearly had no benefits', Alan thought

According to the WTO, a barrier to trade would amount to, for example, any methods that would give domestically produced goods an unfair advantage. Additionally, countries have the prerogative to "...adopt the standards they consider appropriate — for example, for human, animal or plant life or health, for the protection of the environment or to meet other consumer interests". Even if the standards are brought in to protect these legitimate aims, they still cannot be "...applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade".

This writer does not claim to be a master of international trade law, but would argue that the application of a plain packaging standard to protect human life and health would not amount to a barrier on trade, as the standard would apply equally to Australian and foreign tobacco producers, and is clearly not an arbitrary or unjustifiable measure to do so. Plain packaging evens the playing field for all tobacco producers, but also seeks to stop the starting of a smoking habit, lowering the amounts of tobacco products used in that particular country (Australia showing a drop of 6% in smoking rates in adults, and the reduction of sales of tobacco products by nearly $500 million after the law's introduction).

In the end, plain packaging will be a hard fought, long battle, which will clearly go on for years to come. The tobacco industry is also in a state of transition from the old business models to new ones, including vape products, but the core remains the same and the brands equally valuable to that business. This writer is wholly for plain packaging, but its impact on IP will be a milestone for not just tobacco, but for other possibly harmful products in the future.

Source: Sydney Morning Herald

Beyond the Horizon - Intellectual Property Law in Space

Even with the recent success of the Mars Exploration Rover program and the Juno mission, mankind is still quite far from a life outside of our own little blue planet. While we look up at the sky in anticipation, hopefully one day being able to colonize a far-away place (for better or worse, dependant on your perspective), we have to consider the ramifications of this endeavor in terms of the law. 129 nations so far have signed the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, which dictates that outer space is the common province of mankind, and that all activities conducted therein should be done for the benefit of humanity, not a single nation. That being said, this writer is not concerned with the broader picture, but likes to hone down on the things that matter, namely intellectual property. Therefore, what is the possible position in intellectual property law in our interstellar future?

As there is not much concrete legislation dealing with this area, one can only speculate as to what it might be; however, this writer will aim to share his thoughts on this as best he can on the basis of what exists already.

The closest mankind has reached out into space and inhabited for longer periods of time than hours or days is the International Space Station. The primary legal framework for the ISS is the International Space Station Intergovernmental Agreement, which sets out a "...long term international co-operative frame-work on the basis of genuine partnership, for the detailed design, development, operation, and utilisation of a permanently inhabited civil Space Station for peaceful purposes, in accordance with international law". Further, according to Article 5 of the Agreement, all registered parts of the ISS and its personnel are governed by the laws of their country, which adds a layer of complexity for IP in space. Article 21, however, discusses IP specifically in the context of the ISS. It states that "...for purposes of intellectual property law, an activity occurring in or on a Space Station flight element shall be deemed to have occurred only in the territory of the Partner State of that element's registry". This would indicate that any inventions or findings made would be protectable (given favorable national legislation), although this could still be disputed. The Article also touches on infringement, only allowing for the recovery of damages in one European country, rather than all of them (provided infringement has happened in more registered parts of the ISS).

We're not the only ones seeking our fortune in the stars...

The Treaty on Outer Space also acknowledges the jurisdiction of nations over their registered materials and people, but in the context of Article 1 and 2 of that treaty, all exploration in outer space is for the benefit of all mankind, and no materials or places (including the Moon) can be appropriated by any nation as well. This raises a concern when trying to claim IP rights in findings or materials, and arguably no nation or person could claim them under the treaty.

Most nations do not have provisions dealing with IP in space, or any related issues. The United States, however, has enacted a provision that deals with inventions in space, specifically 35 USC 105. It sets out that "Any invention made, used or sold in outer space on a space object or component thereof under the jurisdiction or control of the United States shall be considered to be made, used or sold within the United States for the purposes of this title, except with respect to any space object or component thereof that is specifically identified and otherwise provided for by an international agreement to which the United States is a party". This would mirror the international agreements above, where US national, space station modules etc. are treated as being under US jurisdiction. One could still envision issues, as discussed above, when it comes to the agreements the US is a party to, but it seems probable that most nations would treat intellectual property in a similar fashion in future legislation.

There remain some issues that do require clarification on a dawning Space Age. As set out in the report of the Workshop on Intellectual Property Rights in Space in 1999 (poignant even after over 15 years) that "More attention should be paid to the protection of intellectual property rights, in view of the growth in the commercialization and privatization of space-related activities... [and to develop] a view to enhancing international coordination and cooperation at the level of both the State and the private sector. In particular, the possible need for rules or principles covering issues such as the following could be examined and clarified: applicability of national legislation in outer space; ownership and use of intellectual property rights developed in space activities; and contract and licensing rules". This writer does agree, although reluctantly, since the inevitable commercialization of space materials, inventions and findings will be a reality in the coming decades, and this needs to be both protected (to incentivize that exploration and invention) yet regulated to retain a high level of openness and freedom for all of mankind and the Universe. For a more in-depth look into other issues, one should consult the WIPO paper on Intellectual Property and Space Activities, which, although a little dated, is a great summary of outstanding questions even today.

Space is indeed in many ways the final frontier, and the law will have to catch up with this new world eventually. While there is no pressure to develop the law in relation to space activities, in the coming decades this will become more and more pertinent, and intellectual property will be at the forefront of this development due to the value of technology, invention and exploration in the field (especially to corporations and other private ventures). It remains to be seen how we treat this future, but one can only hope it'll be a future that holds sharing and equal benefit above individual profiteering.

Free to Sing - 'Happy Birthday to You' In Public Domain After Settlement

The recent saga dealing with the song 'Happy Birthday to You' has been discussed at length by many intellectual property commentators, including in this very blog here and here. The ownership of the copyright in the song, and the licencing practices surrounding it handled by Warner/Chappell, have been a big point of contention, with a recent ruling by the District Court of Central California declaring the copyright in the works to not reside with Warner/Chappell due to a lack of proper transfer of the rights to the ultimate entity. Warner/Chappell undoubtedly would have appealed the earlier decision, but the matter has since come to an abrupt end after a settlement between the relevant parties.

Per the Settlement Agreement, accessible here on Scribd, there are some terms of interest that must be mentioned.

The Settlement was a bitter-sweet end for Lisa

Section 2.1 of the Agreement mandates the establishment of a Settlement Fund, aimed at remunerating those who have paid licencing fees for the use of the song 'Happy Birthday to You'. The maximum amount allocated to the fund, if needed, would be $14 million, clearly demonstrating the understanding that there will be a considerable amount of entities with the relevant Settlement Class (considering that each licence is roughly $1500). This would include all persons who have paid such licencing fees since the 3rd of September 1949 (including, among others, to collecting societies or direct licences to Warner/Chappell). Even so, the realistic periods and sums of payment are set for two specific groups: payments made on or after the 13th of June 2009, or payments made before that date. The former group is entitled to all of their payments, but the latter only a share of 15% of what they have paid out. The difference, according to the claimant's lawyers, is due to the Statute of Limitations, enabling them to recoup some of their costs even in the absence of a proper claim due to the limitation period.

Additionally, section 2.2 sets out an express relinquishment of all claims of ownership over the song, and a requirement to no longer pursue any fee payments over the use of the song. Furthermore, the parties agree that the song is (under all likelihood, outside of any third-party claims in rights) in the public domain after the 8th of February 2016. However, Warner/Chappell did expressly defend their position in the settlement, and retained their position as the holders of the rights in the song. This seems to be mainly a point of principle, as the settlement does dictate that the song is in the public domain.

The Agreement also stipulates certain actions that need to be taken, such as the creation of a website and other administrative duties involved with the settlement and the payment of the settlement fees.

Arguably, the settlement is not much to write home about, but is an important illustration of the importance of challenging even the oldest, most well-known rights, when needed. The first instance decision set the tone for the settlement, and it shows in the one-sidedness of the Agreement, especially in the financial side of things. Nevertheless, the Happy Birthday saga has been an interesting one, and this writer, although underwhelmed by a settlement rather than a prolonged legal battle, is happy that we can all once again sing the song where ever and when ever we want.

Source: Ars Technica