Osborne Clarke welcomes you to its regular news feed, Upstream, in which we endeavour to keep you up-to-date with the ever changing European legal scene and provide you with a window into the European business community. Osborne Clarke's network of European offices continues to offer European legal service to a host of international businesses, with our office in Palo Alto offering access to that service within the West Coast timezone, and we're always keen to share our experience and knowledge with all.
Please click on the links below to find out more about each of the topics covered in this issue
If you would like any further information about any of the issues raised in this update, please get in touch with your usual Osborne Clarke contact, or Andy James or Steve Wilson.
Software 2010 - challenges of new and evolving software models
How does VAT in Europe affect US E-Commerce?
Pharmaceutical sector - no case for special treatment
Cartel to cell - OFT secures first UK criminal convictions
Winning the data security battle: strategies for keeping your information safe
eBay condemned for trademark infringement
The Apprentice interview challenge - are yours legal?
Software vendors are increasingly embracing open source, new means of delivery and flexible or innovative sales models. Factor in some technological disruptions such as virtualisation and service-orientated architecture (SOA) and you may conclude that the software industry is at a crossroads. How is this changing the way it is sold? And how is this impacting the humble software licence?
Click here to view our recent hot topic which addresses these issues.
As the e-commerce industry is constantly evolving, it is important that non-European businesses are aware of the pitfalls that the EU system of VAT can present as they do business with customers in Europe, and the solutions and opportunities that are available to the well-advised business.
Value Added Tax (VAT) is a vast and complex subject. We focus here on the special VAT rules that apply to supplies of broadcasting, telecommunications and online services like downloadable software ('digitised services') to customers in the UK and other EU Member States.
In February 2008, the EU adopted new legislation changing the rules on the place of supply of services for VAT purposes. Ultimately, these rules will eliminate the advantages of establishing Business to Consumer (B2C) businesses in low-rate Member States.
The changes are intended to create a level playing field between EU and non-EU suppliers by making all supplies to private consumers of electronically delivered services taxable in the Member State where the customer is resident. However, it has been announced this change to the treatment of digitised services will not be implemented until 2015, leaving plenty of time to take advantage of the opportunities offered by the current system, which we look at in more detail in the remainder of this article.
What is VAT?
VAT is in essence an EU tax. All 27 EU Member States are required to operate VAT and there is a high degree of harmonisation
between the various national systems across the EU. Like its US counterpart, European VAT is a tax on consumption, borne
by the end consumer of the goods or services supplied. The standard rate varies between Member States from 15 to 25% of the
price of the goods or services supplied. The standard rate of VAT in the UK, for example, is 17.5%.
Whilst VAT is a tax borne by the end consumer it is generally paid over to the relevant country's revenue service by the supplier of those goods or services. A supplier will generally pay over to the revenue service the difference between the VAT they have incurred on goods or services they have bought for use in their business ('input tax') and the VAT they have charged on the goods or services supplied to their customers ('output tax').
Businesses that are registered for VAT in a Member State can generally recover any input tax they have suffered.
Place of supply - the basic rules
Supplies of digitised products are generally treated as supplies of services for VAT purposes. A supply of services will
be subject to VAT in the Member State in which it is made, which (see below) is usually taken to be the Member State where
the supplier has established his business under the "place of supply" rule. If a supplier has establishments in more than
one Member State the place of supply will be in the country most closely connected to the supply.
It is possible for a US business unwittingly to acquire an establishment in an EU Member State for the purposes of VAT, merely by trading through an agent. If this occurs a US business may be required to register and account for VAT in the relevant Member State, and the agent's fees will also be subject to VAT.
These rules are particularly complex and can vary depending on the EU countries involved. Businesses should always seek advice on the VAT implications of any agency relationship.
Digitised and International services in Europe
Digitised services and so-called "international services" (such as advertising or professional services performed outside
the EU for EU customers) have a special place of supply rule, which is where the customer belongs.
Business to Business (B2B)
When a US business supplies digitised services or international services to a business customer based in Europe (for example,
a UK business customer) the US business is not required to register for or charge VAT in the UK.
However, this does not give the US business the competitive advantage that you might first imagine. In such circumstances
its UK business customer will be required to account for VAT as if it had supplied the services to itself in the UK. This
rule is referred to as the 'reverse charge' or 'tax shift mechanism'. The cost to the UK business customer of standard-rated
services worth €100 will therefore be €117.50, after the reverse charge at the UK standard rate of 17.5 %.
Business to Consumer (B2C)
When services are supplied by a US business to a private consumer (or other non-business customer such as a government department)
in the UK, the consumer is not obliged to operate the reverse charge. This means that, except in the case of digitised services
(see below), no VAT can be charged on most international services.
As competition might be distorted if the supplies were not subject to VAT at all, special rules treat digitised services supplied
to private consumers (and other non-business consumers such as government departments) as made in the country where the consumer
belongs (or, in certain cases, where the services are used or enjoyed), regardless of the location of the supplier.
This means that, where a US business supplies digitised services direct to private consumers in more than one EU country, it will be required to register and account for VAT in each country separately and charge its customers VAT at the local rate.
Special EU Scheme for Non-EU Suppliers
To ease the administrative burden for suppliers when making supplies to consumers, businesses have the option of registering
electronically for VAT in a single country under the Special Scheme for Non-EC Suppliers of Electronically Supplied Services.
In the example above, the US business would still charge its EU customers VAT at the customer's local rate but account for
this to a single EU country online. That country would then distribute the VAT collected to the countries where the services
were consumed. This scheme is currently only available if the US business:
VAT Planning opportunities under the current rules
A US business making a large volume of supplies to private consumers might choose to set up a trading establishment and register
for VAT in a low-rate state such as Luxembourg from which it can make its supplies around the EU charging VAT at 15%, with
a lower overall cost to the consumer.
For example, if services worth €100 were supplied to a UK-based private consumer by a Luxembourg-established business, it would have to account for €13.04 in VAT, giving a net price of €86.96. If the same services worth €100 were supplied to a UK customer by a business established in Sweden, it would have to account for €20 in VAT, giving a net price of €80.
Registration for VAT also has the advantage of allowing the business potentially to recover any VAT that it incurs on purchasing goods or services which it then uses to make its own Vatable supplies of digitised services.
The direct tax and commercial implications will need to be carefully considered, particularly given that such structures will no longer be effective once the new VAT rules are introduced.
When the Companies Act 2006 received Royal Assent on 8 November 2006 it had the notable distinction of being the longest piece of legislation to have gone through British Parliament, running to 701 pages and containing 1,300 separate sections. As well as restating the existing law and codifying common law principles, one of the aims of the new act was, in the words of Margaret Hodge MP (then Minister of State for Industry and the Regions), "to bring major benefits to business by modernising and simplifying company law".
Due to the sheer size of the Companies Act 2006, a staggered timetable for implementation has been put into place which will give companies time to prepare for changes in the law. Already parts of the new act have been implemented during January, April and October 2007 and at the beginning of April this year. Further changes are due to come into force later this year on 1 October 2008 and the remainder in October 2009.
One such change due be implemented on 1 October 2008 is the abolition of the current law which prohibits a private company from giving financial assistance in connection with the purchase of its own shares. In relation to the acquisition or investment into English companies the removal of this prohibition is an example of modernisation and the simplification of a law which has become costly and time-consuming.
Financial Assistance - the current law
Under the Companies Act 1985 it is currently unlawful for an English registered public or private company to provide financial
assistance in connection with the purchase of its own shares (or the purchase of shares in its parent company). The assistance
can take many forms including the provision by the company, whose shares are being purchased to the purchaser of the shares,
of a loan, gift, guarantee, security or anything else which would materially reduce the company's net assets. Breach of this
provision is not only punishable by way of fine it is also a criminal offence.
The most common example of financial assistance occurs in a leveraged acquisition where a lender (be it institutional lender, investment bank or private equity house) requires security over the assets of, or a guarantee from, the target company (and if relevant, each of its subsidiaries) to secure or guarantee the money that the acquiring company is borrowing to finance the purchase of the shares in the target company.
For public companies this is an absolute prohibition. However, for private companies financial assistance can be given if the target company undergoes a "whitewash" procedure, which, in a nutshell, requires from each company giving financial assistance (i.e. target and any subsidiaries):
It is the last two requirements which often prove to be the more time-consuming and costly aspects of a leveraged acquisition, particularly when the target has multiple subsidiaries.
It is quite common that previous financial assistance given by subsidiary companies (either in relation to previous acquisition funding or the re-financing of the funding of previous acquisitions) will need to be "whitewashed" as the provision of new funding to discharge previous funding liabilities will constitute financial assistance. Therefore it is often found that even on the most standard of leveraged acquisitions multiple declarations are required from all the directors on the board of the target company and each subsidiary prior to the completion of the acquisition. If you couple this with the requirement that declarations for each company must be given by all the directors on the same day (and technically at the same time), and add the extra complexity of having directors situated in various international locations, the result is a "whitewash" exercise which can be a logistical headache, not to mention the cause of unwanted business disruption.
When even with the most standard of "whitewash" exercises auditors costs for a report will start from £5,000 (and increase depending on the number of subsidiaries the target has and on the complexities of the acquisition and funding structure), this procedure is seen by the legal and financial communities as expensive, laborious and often far from simple. So it seems apt that the new legislation seeking to modernise and simplify would seek to remove the need for such a procedure that is required in the overwhelming majority of leveraged acquisitions.
Financial Assistance - from 1 October 2008
1 October 2008 is the date on which it is now envisaged that the prohibition of financial assistance by private companies
will be abolished and the legal requirement for the "whitewash" procedure swept away. The prohibition will still remain in
respect of public companies, if the target company is a public company and financial assistance will not be able to be given
by any subsidiary which is a public company. However financial assistance will be able to be given if the procedure for the
re-registration of a public company as a private company is undertaken prior to completion.
So what will be required of companies proposing to give financial assistance from 1 October 2008 onwards? Although there will
be no need for the "whitewash" procedure to be followed the target company and each of its subsidiaries will need to give
careful consideration as to whether the giving of the financial assistance:
So with the statutory "whitewash" procedure gone, what will lenders require from the target company (and any subsidiaries) by way of documentation to approve the entry into security documentation prior to lending any money to finance a transaction? The answer is unfortunately unclear. It currently appears that the company giving financial assistance will need to:
What is clear however is that it will not be legally necessary for either a declaration from the all of the directors as to the company's solvency or an auditors' report in support of such declaration to be produced and this represents a major logistic, time and cost saving.
However rumblings have begun suggesting that where lenders have concerns over the solvency of either the target company or any subsidiary giving financial assistance, some form of evidence as to the company's financial position will be required from the company's auditors. In addition given the extensive list of codified considerations directors must give before approving transactions it may be likely that directors will also seek independent confirmation from the auditors as to a company's solvency before approving the giving of financial assistance.
With the City of London Law Society Committee still due to provide guidance on the financial assistance procedure from 1 October 2008 onwards and lenders unwilling to pin their colours to the mast as regards their requirements, it appears that the ins and outs of the new financial assistance procedure won't become clear until 1 October 2008 comes around and market practice dictates the way forward.
What you need to know about the reform bill
Introduction
In Germany, foreign shareholders find various forms of legal entities available to launch their businesses. Fast to establish
and easy to manage, the GmbH (Gesellschaft mit beschränkter Haftung - Company with limited liability) has been the all time
favourite legal entity of national and international players.
However, the formalities of the incorporation of a GmbH are much stricter than in other European legal systems, in particular regarding the minimum registered share capital and the business seat. Therefore, in recent years many German businesses have selected other European countries to set up their businesses, specifically the UK and the Ltd.
Now, the German legislator plans to implement a major reform of the GmbH including the provisions on the incorporation of a GmbH. The legislator's objective is clearly to facilitate the process of incorporating a GmbH compared to the past and make the German GmbH more competitive.
What are the changes? What are the options? We briefly introduce you to the main innovations of the process of setting up a GmbH.
Reduction of minimum registered share capital
A significant change will be the reduction of the minimum registered share capital. Currently, a GmbH requires a minimum registered
share capital of EUR 25,000.00, a rather high amount compared to international standards.
Although the legislator does not abandon this requirement totally, the minimum registered share capital will be reduced to an amount of EUR 10,000.00. This obviously aims to make the German GmbH more attractive for small enterprises, in particular start-up businesses, in comparison to competing legal forms in other European legal systems.
Simplification of registration
Also, the registration process is expected to be simplified. In some German cities and regions the process of the registration
of a GmbH may take up to 6 weeks and longer.
To serve the needs for a fast and flexible incorporation of a GmbH the reform bill provides for an alternative way of establishment: If there are no more than three founding shareholders of the GmbH and if the registered share capital is paid in cash these founders are allowed to make use of a legal template of the Articles of Association of their GmbH provided for by the legislator. This practice will make cost and time consuming notarization of the Articles dispensable.
Furthermore, the obtaining of public administrative licences, if any, will not be a requirement for the registration of a GmbH any more. Any such licences, e. g. required by construction companies and restaurants, may be submitted in due time after the registration of the GmbH.
Free choice of the administrative seat
Another key modification will address the free choice of the administrative seat of the GmbH.
It is mandatory for a GmbH to have its registered business seat within Germany. This will not change. However, under the new law, the administrative seat may be transferred outside of Germany. Currently, any such transfer would result in the dissolution of the GmbH with the risk of triggering severe tax consequences.
The reform bill gives way to a free choice of the administrative seat, either in Germany or abroad, when incorporating the GmbH. This will increase the mobility of the GmbH and should create a highly appreciated flexibility.
"Entrepreneur Company (limited liability)" - the new "little sibling" of the GmbH
The GmbH will get a little sibling. This sibling will be called "Unternehmergesellschaft (haftungsbeschränkt)" / "Entrepreneur
Company (limited liability)" and creates another option of a flexible incorporation process for the shareholders.
The "Entrepreneur Company (limited liability)" will not be required to have a minimum registered share capital of EUR 10,000.00. Any registered share capital above EUR 1.00 will suffice. However, 25% of the revenues per year must be entered into a legally restricted reserve. As soon as the legally restricted reserve amounts to EUR 10,000.00 the "Entrepreneur Company (limited liability)" may be registered as a GmbH.
The "Entrepreneur Company (limited liability)" is likely to avoid liquidity strains and should be attractive to businesses, which in general do not require the financing of major assets, e. g. service companies.
Conclusion
The reform bill takes into consideration many practical needs to simplify the incorporation process of a GmbH and intends
to create a level playing field for the GmbH in its competition to comparable forms of limited liability companies in other
European legal environments.
The reform bill is expected to be implemented in October 2008. However, until then the bill in its current form might be changed. Furthermore, once the reform is passed legal uncertainties may have to be addressed when applying the new law.
We will closely follow the developments and work out the best options for your current business and future enterprises.
The UK is updating its laws in the controversial area of embryo use in scientific research, in light of the significant scientific advances that have taken place in the past decade. Of particular interest are the provisions relating to human-animal hybrid embryos.
Allowing hybrid embryos
In an important vote on the Human Fertilisation and Embryology Bill earlier in the summer, a cross-party attempt to ban human-animal
hybrid embryos was defeated. The votes followed the news in April that scientists created part-human, part-animal embryos
for the first time in Britain.
The new legislation will therefore allow scientists to continue injecting human DNA into cows' eggs that have had virtually
all their genetic material removed, as well as other hybrid embryo processes for stem cell research.
This clears the way for a solution to the shortage of human eggs available for research. The stem cells harvested from the
hybrid embryos will be used in the search for treatments to challenging conditions such as Parkinson's and Alzheimer's.
Leading the field
The UK is one of the only countries in the world which has taken this step, retaining its position as a world leader in Biotech
research. Many other countries have banned the creation of such hybrids, limiting the possibilities for detailed research.
In the US, although such experiments are currently legal if privately funded, the Human-Animal Hybrid Prohibition Act was introduced for consideration in November with 18 co-sponsors, including the presumptive Republican presidential nominee Senator John McCain. If enacted, this would amend the US federal criminal code to penalize anyone who creates or attempts to create an embryo with human and non-human tissue.
Background
The UK government has a proven track record in supporting scientific advances, particularly in the field of stem cell research.
The proposed legislation will update the provisions of the Human Fertilisation and Embryology Act 1990 and the Surrogacy Arrangements
Act 1985.
The vote took place on 19 and 20 May 2008 as a "free vote", also known as a conscience vote, as the issues involved were considered to be such that individual Members of Parliament should vote on conscience, rather than according to party lines. Those in favour of the ban have pointed to religious, moral and even scientific grounds. Those opposed to the ban pointed to the scientific progress and potential to improve the quality of life for individuals suffering from serious diseases.
Advocate General gives latest opinion on GSK refusal to supply
In the latest development in the ongoing dispute between GlaxoSmithKline's Greek subsidiary (GSK) and Greek pharmaceutical
wholesalers, Advocate General Ruiz-Jarabo Colomer ("AG Colomer") has given his opinion on whether a refusal by a dominant
company to meet the full orders of wholesalers, with the objective of preventing parallel trade, amounts to an abuse of dominance
contrary to Article 82 EC. In what is the second Advocate General's opinion on this case, AG Colomer has shown himself to
be much less open to arguments that the particular characteristics of the pharmaceutical industry might provide objective
justification for a dominant firm to take steps to limit parallel imports without infringing Article 82.
Background
The case relates to the distribution of three patented GSK pharmaceutical products (Imigran, Lamictal and Serevent) in Greece.
For a number of years, intermediary wholesalers purchased these products in order to supply them not only in Greece, but in
other EU countries such as the UK and Germany where prices were higher. In November 2000, GSK stopped supplying these wholesalers
altogether, arguing that their export policies were leading to shortages in the Greek market. It resumed supply to wholesalers
in 2001, but restricted the quantities which it supplied of the three drugs.
Syfait preliminary ruling
Syfait and other wholesalers complained to the Greek Competition Commission, which in turn referred questions to the European
Court of Justice ("ECJ") on whether a refusal by a dominant company to meet orders in full, in order to limit its customers'
export activity, constituted a breach of Article 82.
In his answering opinion, Advocate General Jacobs ("AG Jacobs") concluded that EC case law provides that dominant companies can put forward an objective justification for conduct which would otherwise be an abuse of dominance. He considered that, in the particular circumstances of the Greek pharmaceutical market, GSK's restriction of supply was objectively justifiable in defence of its commercial interests.
However, the Advocate General's opinion is non-binding and, when it finally issued its decision, the ECJ declined to address the substance of the case because it found the Greek Competition Commission's questions inadmissible on procedural grounds. The Greek Competition Commission subsequently went on to determine that GSK had not breached Article 82, although its decision was reached without the benefit of any binding guidance from the ECJ.
The Appeal
A number of wholesalers appealed the Greek Competition Commission's decision. This, in turn, led to the Athens Court of Appeal
referring certain questions to the ECJ on whether a refusal by a dominant company to meet the full orders of wholesalers,
with the objective of preventing parallel trade, amounts to an abuse of dominance contrary to Article 82 EC.
The Opinion of AG Colomer
Automatic breach of Article 82?
AG Colomer concluded that Article 82 does not provide a basis for an per se offence, even where there is no doubt that the
intention and effect of the conduct is anti-competitive.
Objective justification
If there is no automatic breach of Article 82, this means that parties will be allowed to put forward objective justifications
for their conduct. AG Colomer concluded there are three possible bases for justification:
As a result, AG Colomer concluded that there was therefore no objective justification for GSK's actions and GSK could not rely on the pricing system for medicinal products, the duty to supply, or the impact on incentives to innovate, in defending its conduct towards wholesalers.
Implications
The Advocate General has not closed the door on objective justification for behaviour that would otherwise breach Article
82. In his opinion, there are no per se breaches of Article 82 and if it can be shown that the regulation of the market compels
a company to act in a certain way to protect its legitimate business interests, this may constitute objective justification
for its behaviour. However, while in this respect AG Colomer's opinion matches that of AG Jacobs, he has been much less open
to the argument that the special conditions of the pharmaceutical industry and the need to invest heavily in R&D formed a
basis for such an objective justification.
The Advocate General's opinion is not binding and the ruling of the ECJ, which has now begun its deliberations, is awaited with interest. Although AG Colomer's opinion and the case are based on the particular circumstances of the Greek pharmaceutical market, the factors considered by the Advocate General may also apply to other geographic markets within the EU. If, as it generally does, the ECJ follows the Advocate General's decision, this is likely to make it harder for pharmaceutical manufacturers to justify potentially abusive conduct on the basis of the special conditions of the pharmaceutical market.
Click here to view the press release.
In a landmark decision earlier in the summer, three UK businessmen were sentenced to between two and a half and three years imprisonment for cartel offences, the first ever criminal cartel convictions since the Office of Fair Trading (the UK's front line antitrust authority) was given prosecution powers by the Enterprise Act 2002. Their convictions follow plea bargains reached in the US, under which each defendant agreed to a fine of between $75,000 and $100,000 and jail terms of between 20 and 30 months.
The increasingly tough line on cartel enforcement being adopted on both sides of the Atlantic reinforces the need for companies to maintain clear competition compliance programs, and for management and employees to understand the significant personal risks involved in cartel activity.
Marine hose cartel
The marine hose cartel was the subject of international investigation, and is the first example of coordinated dawn raids
by the US Department of Justice, the European Commission and the OFT. The three men (Bryan Allison and David Brammar of Dunlop
Oil and Marine Limited; and Peter Whittle, an independent consultant engaged full time by the company) were originally arrested
at a trade conference in the US in May 2007. The arrests were timed to coincide with simultaneous dawn raids by the OFT and
the Commission. This resulted in the OFT seizing what it describes as "extensive and compelling evidence of the cartel arrangements".
As part of the US plea bargains, the defendants were returned to the UK to cooperate with the OFT's investigation. After pleading guilty here to dishonestly participating in a cartel to allocate markets and customers, restrict supplies, fix prices and rig bids for the supply of marine hose and ancillary equipment in the UK, the three were given additional prison terms and disqualified from acting as company directors for between five and seven years.
Narrow escape for Norris
These high profile convictions are the product of close cooperation, not just between the OFT and the Commission, but also
with their US counterparts. This transatlantic cooperation is something which Ian Norris, the former Morgan Crucible chief
executive charged in Pennsylvania with conspiring to fix the price of carbon in the 1990s, knows only too well. Norris narrowly
escaped extradition to the US in March 2008, when the House of Lords overturned the decision that price-fixing had been an
offence in the UK before the Enterprise Act 2002 came into force.
The case centred on controversial UK-US extradition rules, originally designed to fast-track cases involving terrorists, which mean that the US can request extradition on the basis of minimal evidence. Although price-fixing before the Enterprise Act 2002 was not a statutory criminal offence in the UK, the US authorities claimed it was tantamount to the common law offence of conspiracy to defraud.
Limits of the House of Lords' decision in Norris
While those under the threat of extradition for cartel offences may be breathing a sigh of relief, this landmark decision
relates only to price-fixing that predates the Enterprise Act. As the marine hose convictions clearly demonstrate, there
is no such protection for cartel behaviour committed since the Enterprise Act came into force in 2003. In fact, the OFT's
behaviour throughout this investigation suggests that it is only too willing to cooperate with the DoJ in pursuing UK and
US citizens who commit cartel offences that span the Atlantic.
The US is becoming increasingly proactive in pursuing foreign cartelists, making it clear that it is keen to get its hands
on cartel members outside its jurisdiction. The US also appears to be getting tougher, with the percentage of defendants
sentenced to jail increasing from 38% in 2000 to 87% in 2007. The average prison term imposed on foreign defendants in international
cartel cases has increased from 3.4 months in 2000 to 12 months in 2007.
Setting the scene for more convictions?
For the US and now the OFT, securing substantial jail sentences for cartelists is seen as the most effective deterrent for cartel behaviour. Certainly, given the continuing number of leniency applications being made, the substantial fines already being imposed on companies have yet to prove their effectiveness in deterring cartel activity.
While a company may carry out a risk/benefit analysis on the likelihood of being fined for a cartel, given the increasing prospect of hefty fines and a stint in jail, the authorities hope that individuals will think twice before getting involved, or will protect themselves by blowing the whistle.
Minimising the potential liabilities
These mounting risks reinforce the need for companies to maintain clear competition compliance programs, and for management
and employees to understand the competition rules which apply to them, and the significant risks involved in any cartel activity.
While Norris has escaped for now, the marine hose cartelists have not been so lucky. The OFT's recent approach to cartel cases has proven it is willing to impose serious penalties, as well as providing full cooperation to the US authorities. If you suspect your company may be participating in a cartel, you should seek legal advice immediately. Acting quickly to blow the whistle may save your company and its management from significant fines and personal criminal liability.
Losing sensitive customer data is one of the worst things that could happen to your organisation. The potential fines are just the tip of the iceberg – it could take years to recover from the reputational and legal fallout.
Click here to read our latest hot topic on this issue.
Topic:Brands
Who: eBay France - eBay International AG v. Hermes International
When: June 4, 2008
Where:France
Law stated as at: 30 June 2008
What happened:
In a judgment rendered on June 4, 2008, the High Civil Court of Troyes ("Tribunal de Grande Instance de Troyes") condemned
eBay France and eBay International AG ("eBay") jointly with a French member seller, to pay Hermes International 20,000€ as
damages for the sale of four counterfeit Hermes bags on the French website www.ebay.fr.
The issue at stake was eBay's liability when it appears that a transaction made on the eBay auction website infringes a third
party's trademark rights.
The basis of the claim:
In its claim against eBay, Hermes alleged mainly that:
Ebay principally argued in its defence that:
The decision:
The judge rejected the characterisaton of eBay as an editor.
The judge held that eBay could not be considered as an editor within the meaning of the French Press Law since eBay only offers to its users, via a personal eBay account, to place an advertisement for the sale of items via an auction process, without any incentive role in the content of the information published.
Indeed, the seller has full discretion to choose the texts and pictures published in support of its advertisement and must guarantee that the advertisement published does not infringe other third parties' rights.
For the judge the fact that eBay provided the users with a technical assistance for the storage of such information and classifies such advertisements was not sufficient to confer on eBay control over the content of the information so published.
This solution is in line with some recent decisions rendered against community platforms as Google or Dailymotion and is likely to become a standard solution.
However, the judge took a new approach which does not seem to fall within the exact parameters laid down by the Act and considered eBay to have a dual role.
First, the judge held eBay to be a hosting provider and second as an "Editor of brokerage online communication services" . The judge found that, in addition to the storage of information activity, eBay carried on brokerage activity by connecting sellers and buyers and by providing them with a technical structure for the display of the items offered for auction.
Using this double status, the judges obviously enlarged the scope of the intermediary services providers' duties as provided for by the Act. The judge basically ruled that providers do not bear any general obligation to monitor the information they host, but on the other hand they should provide the appropriate means to ensure that their websites are not used for illicit purposes.
By ruling thus, the judge created a middle way between internet services providers and editors.
Regarding the specific issue of respect for third parties' intellectual property rights, the judge defined the scope of eBay's obligations, as follows:
The judge concluded that, when the disputed bid took place, eBay did not fulfil the above obligations and he ruled that eBay was liable for trademark infringement despite the absence of notification made by Hermes denouncing the product offer.
Why this matters:
This is the very first time that eBay has been condemned in France for trademark infringement.
The decision is subject to appeal but by enlarging intermediary services providers' duties, the verdict will give some level of comfort to the luxury goods world, which considers eBay as a huge channel for counterfeit goods. New decisions against eBay that should confirm this orientation are expected in the near future.
News arrives of another verdict against eBay
Indeed, news has just come in that the Paris court has ordered on 30 June, 2008 eBay to pay LVMH and various of its subsidiaries more than 38M€ in damages for negligence in allowing the sale of fake goods and for having violated the company's perfumes distribution network (Kenzo, Dior, Givenchy and Guerlain). eBay says it intends to appeal this decision but notwithstanding any appeal, the judgment is enforceable with a penalty of €50,000 for non compliance.
Whilst in the Hermes case, the damages level was not high and there might be doubts as to the effectiveness of the measures against the sale of counterfeit products which the judge required eBay to take, the exponentially higher damages award in the LVMH case, may well concentrate the minds of providers of these services.
Elise Weisselberg
Litigation team
Stehlin & Associés, Paris, a member of the Osborne Clarke Alliance
The trans-Atlantic hit TV show "The Apprentice" features the infamous interview challenge. Following last year's accusations in the UK that Sir Alan Sugar's (the UK's version of Donald Trump) interview style fell foul of discrimination rules, European law firm Osborne Clarke is offering some practical tips for interviewers in the real world looking to stay on the right side of the law.
Richard Brown, employment partner at law firm Osborne Clarke said:
"There are is a whole raft of unwritten rules governing interview practice from how you advertise to the feedback you offer.
For the unwary, these rules can be a real minefield.
"Many interviews are conducted with a representative from both the business and HR. It's critical that anyone unfamiliar with the rules take direction from HR before they start the process.
"As Sir Alan found out last year, one of the key areas to watch out for are the discrimination rules. Interviewers must ensure not only that their actions do not discriminate, but also that they could provide the documentation to prove this if their process fell under the microscope of an employment tribunal."
Top Tips for interview success …
