Online distribution – Restrictions of online sales: latest decisions

13 January 2019

Europe
Germany

Distribution

The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.

The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.

Change the name of the contract

The first idea is to make a contract “similar” to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts “are what they are” and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.

Limitation of compensation in the contract

Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.

None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.

Linking different agency contracts

Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.

This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.

For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that “nothing has to be claimed by the parties” and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.

Submitting the agreement to a foreign law

In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.

The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.

In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.

Submit the contract to non-national rules and judges

Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.

This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.

Submit the contract to arbitration

The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.

Mediation in the agency contract

Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.

In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.

Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.

Imputing to the agent a previous breach

When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.

The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.

“Luxury goods justify online sales bans” on third party platforms – as stated in the press release no. 30/2018 of the Higher Regional Court of Frankfurt of July 12, 2018. After the long-awaited Coty-ruling of the ECJ (see the article of December 2017, https://www.legalmondo.com/2017/12/eu-court-justice-allows-online-sales-restrictions-coty-case/), the Higher Regional Court of Frankfurt has now applied the ECJ’s guidelines to Coty’s ban of sales via third party platforms and declared it effective – which was actually expected (I). Other high-quality goods – also outside the luxury segment – can justify platforms bans as well – at least this was decided by the Court of Appeal of Hamburg with regard to an eBay ban (II.). The article ends with some practical conclusions (III.).

Luxury products justify platform bans

According to the judgment of the Frankfurt Court of Appeal, Coty can prohibit the distributor from selling its products via third party platforms. Based on Coty’s wording in the selective distribution agreement, however, any distributor is free to establish advertising cooperations with third party platforms, where customers are redirected to the distributor’s own online shop. According to the judgment, the online marketplace ban is already admissible under the EU Vertical Block Exemption Regulation, since it does not constitute a hardcore restriction. The distribution ban could possibly even be exempted from the cartel prohibition, in the field of selective distribution; in this case, it would only be doubtful whether the prohibition of all “sales cooperation with a third party platform, outwardly recognisable from others, regardless of its concrete structure, would be a reasonable mean for the intended aim” (translated text from the original German version), i.e. whether it would be proportionate or whether there would be other means, less interfering with the dealer’s competitiveness. This question was left open by the Court.

Also other high-quality goods may allow platform bans

The case decided by the Hamburg Higher Regional Court (decision of March 22, 2018, file no. 3 U 250/16) concerns a qualitative selective distribution system for food supplements and cosmetics, which runs via the so-called network marketing, as well as via internet. The distribution guidelines contain, among other things, specific indications regarding the distributor’s website, the contact possibilities for customers in accordance with the “principle of personal sales of goods” (since the distribution system aims to sell the product tailored to the customers’ personal needs based on personal advice), as well as the quality of information and the product presentation. The “distribution … via eBay and comparable e-commerce platforms” is expressly prohibited, as it does not meet the quality requirements, at least not “according to the current state” (translated text from the original German version).

The Court of First Instance considered the platform ban to be admissible (District Court of Hamburg, judgment of November 4, 2016, Case No. 315 O 396/15) – which has now been confirmed by the Higher Regional Court of Hamburg. This is because qualitative selective distribution systems are not only admissible for luxury goods and high-technology goods, but also for (other) high-quality goods, “if the goods sold are high-quality and the distribution is combined with parallel customer consulting and support services, with the aim, among other things, of illustrating to the customer an overall sophisticated, high-quality and upscale end product and building up or maintaining a specific product image” (translated text from the original German version).

Within such a selective distribution system for the distribution of food supplements and cosmetics, it could then be admissible “to prohibit the distribution partners, by means of suitable company guidelines, from selling those goods via a specific online sales platform, in order to preserve the product image and the related practice of customer-binding support, as well as to prevent product- and image-damaging business practices of single distribution partners as occurred and consequently pursued in the past” (translated text from the original German version).

The peculiarity here was that they were not “pure prestige products” and, moreover, the Hamburg Higher Regional Court did not limit itself to the – in view of the market shares readily feasible – verification that the platform under Article 2 of the Vertical Block Exemption Regulation was admissible. Rather, the Court vividly and precisely declined the so-called Metro criteria.

Practical conclusions

The Internet remains a growth driver for consumer goods, as also the market data from the German Trade Association confirm: “E-commerce remains a growth driver“.
At the same time, brand manufacturers in particular want growth to be regulated according to the rules of their distribution system and to their requirements. These include, especially for luxury and technically sophisticated products, as well as other products requiring intensive assistance, strict specifications regarding brand identity and advertising appearance (specifications regarding brick store clauses, marketplace bans) and the services to be offered (e.g. chat and / or hotline with information on availability).
Manufacturers should check whether their platform bans comply with ECJ’s requirements or if they wish to impose platform bans – in selective, exclusive, franchise and open distribution.
Who wants to take as little risk as possible, should remain cautious with platform bans outside the selective distribution of luxury goods. In its first reaction, also the Federal Cartel Authority (BKartA, short for “Bundeskartellamt”) declared that the Coty-ruling should apply exclusively to original luxury products: “#Brand manufacturers still have no carte blanche on #platform bans. First assessment: “Limited impact on our practice” (BKartA on Twitter, December 6, 2017). Nevertheless, the European Commission has now spoken against this: in its Competition Policy Brief of April 2018 (“EU competition rules and marketplace bans: Where do we stand after the Coty judgment?), the European Commission states – rather incidentally – that the argumentation of the ECJ in the Coty case should also apply regardless of the luxury character of the distributed products:

„The arguments provided by the Court are valid irrespective of the product category concerned (i.e. luxury goods in the case at hand) and are equally applicable to non-luxury products. Whether a platform ban has the object of restricting the territory into which, or the customers to whom the distributor can sell the products or whether it limits the distributor’s passive sales can logically not depend on the nature of the product concerned.“

In fact, the ECJ has broadly defined “luxury goods” in its judgment: namely as goods whose quality is “not just the result of their material characteristics” but of intangible values – which is usually the case for branded goods (see the Coty-judgment of the ECJ of December 6, 2017, para. 25 and, with regard to “quality goods”, the conclusion of the EU Advocate General of July 26, 2017, para. 92). Furthermore, the ECJ only requests that the goods be bought “also” because of their prestige character, not “alone” or “above all” because of it. In conclusion, a lot of aspects suggest that all brand manufacturers can include platform bans in their distribution agreements – at least in case of market shares up to max. 30%.

Those who are not afraid of confrontations with dealers and antitrust authorities can definitely impose platform bans outside the selective distribution of luxury goods as well – or increasingly rely on premium products and luxury – such as at the perfumery chain Douglas (see the Süddeutsche Zeitung of March 8, 2018, p. 15: “Active and unconventional, Tina Müller ends discounts on Douglas and aims at luxury“).
To ensure consistent quality of sales, specific quality targets are recommended, especially for online sales. The list of possible quality targets is very long. The specifications that have proven to be best practice concern in particular:

– the positioning as a retailer (platform, product range, communication)

– the design of the website (quality, look & feel, etc.)

– the content and product offer of the website,

– the processing of online purchases,

– the consulting and customer service, as well as

– the advertisement.

It is also essential to note that manufacturers are not allowed to totally prohibit distributors from selling online; nor are sales requirements allowed to amount to such a total ban – as the Courts now see in the case of Ascis’ ban of price comparison engines (to this regard, see the following article from April 2018: https://www.legalmondo.com/2018/04/germany-ban-of-price-comparison-engines-and-advertising-on-third-party-platforms/).
Further details can be found in German in the following Law Journals:

– Rohrßen, Vertriebsvorgaben im E-Commerce 2018: Praxisüberblick und Folgen des „Coty“-Urteils des EuGH, in: GRUR-Prax 2018, 39-41;

– Rohrßen, Internetvertrieb von Markenartikeln: Zulässigkeit von Plattform-verboten nach dem EuGH-Urteil Coty, in: DB 2018, 300-306;

– Rohrßen, Internetvertrieb: „Nicht Ideal(o)“ – Kombination aus Preissuchma-schinen-Verbot und Logo-Klausel, in: ZVertriebsR 2018, 120-123;

– Rohrßen, Internetvertrieb nach Coty – Von Markenware, Beauty und Luxus: Plattformverbote, Preisvergleichsmaschinen und Geoblocking, in: ZVertriebsR 2018, 277-285.

If 2017 was the year of Initial Coin Offerings, 2018 was the year of Blockchain awareness and testing all over the world. From ICO focused guidelines and regulations respectively aimed to alarm and protect investors, we have seen the shift, especially in Europe, to distributed ledger technology (“DLT”) focused guidelines and regulations aimed at protecting citizens on one hand and promote DLT implementations on the other.

Indeed, European Union Member States and the European Parliament started looking deeper into the technology by, for instance, calling for consultations with professionals in order to understand DLT’s potentials for real-world implementations and possible risks.

In this article I am aiming to give a brief snapshot of firstly what are the most notable European initiatives and moves towards promoting Blockchain implementation and secondly current challenges faced by European law makers when dealing with the regulation of distributed ledger technologies.

Europe

Let’s start from the European Blockchain Partnership (“EBP”), a statement made by 25 EU Member States acknowledging the importance of distributed ledger technology for society, in particular when it comes to interoperability, cyber security and efficiency of digital public services. The Partnership is not only an acknowledgement, it is also a commitment from all signatory states to collaborate to build what they envision will be a distributed ledger infrastructure for the delivering of cross-border public services.

Witness of the trust given to the technology is My Health My Data, a EU-backed project that uses DLT to enable patients to efficiently control their digitally recorded health data while securing it from the threat of data breaches. Benefits the EU saw in DLT on this specific project are safety, efficiency but most notably the opportunity that DLT offers data subject to have finally control over their own data, without the need for intermediaries.

Another important initiative proving European interests in testing DLT technologies is the Horizon Prize on “Blockchains for Social Good”, a 5 million Euros worth challenge open to innovators and tech companies to develop scalable, efficient and high-impact decentralized solutions to social innovation challenges.

Moving forward, in December last year, I had the honor to be part of the “ Workshop on Blockchains & Smart Contracts Legal and Regulatory Framework” in Paris, an initiative supported by the EU Blockchain Observatory and Forum (“EUBOF”), a pilot project initiated by the European Parliament. Earlier last year other three workshops were held, the aim of each was to collect knowledge on specific topics from an audience of leading DLT legal and technical professionals. With the knowledge collected, the EUBOF followed up with reports of what was discussed during the workshop and suggest a way forward.

Although not binding, these reports give a reasonably clear guideline to the industry on how existing laws at a European level apply to the technology, or at least should be interpreted, and highlight areas where new regulation is definitely needed. As an example let’s look at the Report on Blockchain & GDPR. If you missed it, the GDPR is the Regulation that protects Europeans personal data and it’s applicable to all companies globally, which are processing data from European citizens. The “right to erasure” embedded in the GDPR, doesn’t allow personal data to be stored on an immutable database, the data subject has to be able to erase data anytime when shared with a service provider and stored somewhere on a database. In the case of Blockchain, the consensus on personal data having to be stored off-chain is therefore unanimous. Storing personal data off-chain and leaving an hash to that data on-chain, is a viable solution if certain precautions are taken in order to avoid the risks of reversibility or linkability of such hash to the personal data stored off-chain, therefore making the hash on-chain personally identifiable information.

However, not all European laws apply to Member States, therefore making it hard to give a EU-wide answer to most DLT compliance challenges in Europe. Member States freedom to legislate is indeed only limited/influenced by two main instruments, Regulations, which are automatically enforceable in each Member State and Directives binding Member States to legislate on specific topics according to a set of specific rules.

Diverging national laws have a great effect on multiple aspects of innovative technologies. Let’s look for instance at the validity of “smart contracts”. When discussing the legal power of automatically enforceable digital contracts, the lack of a European wide legislation on contracts makes it impossible to find an answer applicable to all Member States. For instance, is “offer and acceptance” enough to constitute a contract? What is considered a valid “acceptance”? What is an “obligation”? “Can a digital asset be the object of a legally binding agreement”?

If we try to give a EU-wide answer to the questions such as smart contract validity and enforceability it is apparently not possible since we will need to consider 28 different answers. I, therefore, believe that the future of innovation in Europe will highly depend on the unification of laws.

An example of a unified law that has great benefits on innovation (including DLT) is the Electronic Identification and Trust Services (eIDAS) Regulation, which governs electronic identification including electronic signatures.

The race to regulating DLT in Europe

Let’s now look briefly at a couple of Member States legislations, specifically on Blockchain and cryptocurrencies last year.

EU Member States have been quite creative I would say in regulating the new technology. Let’s start from Malta, which saw a surprising increase of important projects and companies, such as Binance, landing on the beautiful Mediterranean Island thanks to its favorable (or at least felt as such) legislations on DLT. The “Blockchain Island” passed three laws in early July to regulate and supervise Blockchain projects including ICOs, crypto exchanges and DLT, specifically: The Innovative Technology Arrangements and Services Act regulation that aims at recognizing different technology arrangements such as DAOs, smart contracts and in future probably AI machines; The Virtual Financial Assets Act for ICOs and crypto exchanges; The Malta Digital Innovation Authority establishing a new supervisory authority.

Some think the Maltese legislation lacks a comprehensive framework, one that for instance, gives legal personality to Innovative Technology Arrangements. For this reason some are therefore accusing the Maltese lawmakers of rushing into an uncompleted regulatory framework in order to attract business to the island while others seem to positively welcome the laws as a good start for a European wide regulation on DLT and crypto assets.

In December 2018, Malta also initiated a declaration that was then signed by other six Members States, calling for collaboration for the promotion and implementation of DLT on a European level.

France was one of the signatories of such declaration, and it’s worth mentioning since the French Minister for the Economy and Finance approved in September a framework for regulating ICOs and therefore protecting investors’ rights, basically giving the AMF (French Authority for Financial Market) the empowerment to give licenses to companies wanting to raise funds through Initial Coin Offerings.

Last but not least comes Switzerland which although it is not a EU Member State, it has great degree of influence on European and national legislators when it comes to progressive regulations. At the end of December, the Swiss Federal Council released a report on DLT and the law, making a clear statement that the existing Swiss law is sufficient to regulate most matters related to DLT and Blockchain, although some adjustments have to be made. So no new laws but few amendments here and there, which will allow the integration of the specific DLT applications with existing laws in order to ensure legal certainty on certain uncovered matters. Relevant areas of Swiss law that will be amended include the transfer of rights utilizing digital registers, Anti Money Laundering rules specifically for decentralized trading platforms and bankruptcy when that proceeding involves crypto assets.

Conclusions

To summarize, from the approach taken during the past year, it is apparent that there is great interest in Europe to understand the potentials and to soon test implementations of distributed ledger technology. Lawmakers have also an understanding that the technology is in an infant state, it might involve risks, therefore making it complex to set specific rules or to give final answers on the alignment of certain technology applications with existing European or national laws.

To achieve European wide results, however, acknowledgments, guidelines and reports are not enough. The setting of standards for lawmakers applicable to all Member States or even unification of laws in crucial sectors influencing directly or indirectly new technologies, will be the only solution for any innovative technology to be adopted at a European level.

The author of this post is Alessandro Mazzi.

When considering the requirements for online food distribution in the European Union the first question to address is: does the food product in question fall under the definition of “food”?

Almost every food product fall under this definition.

“Food” (or “foodstuff”) means any substance or product, whether processed, partially processed or unprocessed, intended to be, or reasonably expected to be ingested by humans (according to Article 2 of Regulation (EC) No 178/2002).

“Food” includes drink, chewing gum and any substance, including water, intentionally incorporated into the food during its manufacture, preparation or treatment. This definition includes also food supplements and dietary food products.

It does not include amongst others: feed, medicinal products and cosmetics.

Is there any requirement of applying for a license in order to sell food products online over the internet on the EU market?

The only general requirement for all foodstuffs in this respect is the registration with the competent food control authority as any other food business which distributes its products offline is obliged to do.

According to article 6 par. 2 of Regulation (EC) Nr. 852/2004 every food business operator, and this includes also the online-shop retailers (E-retailers), shall notify the appropriate competent authority, of each establishment under its control that carries out any of the stages of production, processing and distribution of food, with a view to the registration of each such establishment.

This means, that even storerooms which are used only for a certain time have to be notified with the competent authority.

Food business operators shall also ensure that the competent authority always has up-to-date information on establishments. This includes the notification of any significant change in activities and any closure of an existing establishment. There are also some exceptions to this rule.

Food businesses distributing their products online are controlled in a risk-based manner in the same way as conventional retailers.

What applies to food businesses trading in food of animal origin?

A large number of companies which place food of animal origin on the market are subject to a duty to obtain authorisation. The companies authorised by the competent authorities of the German federal states are recorded in a respective database in accordance with Regulation (EC) No 853/2004.

The corresponding lists, with companies from other Member States and from third countries, which export food of animal origin into the EU, can be found on the European Commission’s website.

This way, all parties, including consumers, who are interested in the manufacturing and trading of foodstuffs, are able to obtain information about the current state at any time.

Free movement of goods in the single European market vs. national regulations

The principle of free movement of goods applies in the European Union. What does this mean?

It means, for example, that products which do not conform with German regulations but which can be legally placed on the market in other Member States must also be legally distributed on the German market and other Member States.

Nevertheless, in the case of Germany, this regulation is limited by Section 54(1) Sentence 2 Point 2 of the German Food and Feed Code. According to this stipulation products which do not conform with German legal provisions can only be brought to market if they have been granted an appropriate general permission.

These general permissions must be applied for from the German Federal Office of Consumer Protection and Food Safety (Bundesamt für Verbraucherschutz und Lebensmittelsicherheit). This office then checks, together with other authorities, whether there are health objections to the product. Finally, they may accept the application or reject it.

In case a general permission was issued for one food business, then it also applies to alike products which are already on the market in EU Member States. Other importers can therefore refer to already issued general permissions and introduce their products to Germany under the conditions named in the general permission.

With what other laws and regulations do the food products have to comply with, when placed on the market?

There are a lot of EU-provisions as well as German laws and regulations to be met.

Roughly, one can differentiate between horizontal and vertical regulations.

Horizontal provisions apply to all foodstuffs and Vertical provisions apply only to specific food products, such as pastries, non-alcoholic beverages, gourmet food, meat, honey, spicery, chocolates, milk products, cheese products, potato products, food supplements, ice-cream, fruit processing products, tea, coffee, sugar and so on.

What happens if national food control authorities discover a “transnational infringement”?

A “transnational infringement” arises when a food control authority in one members state (e.g. Germany) concludes that a foodstuff could include health risks or does not comply with the legal requirements and this foodstuff originates from another EU Member State or a third country. This could happen when the food control authority takes a sample of the respective foodstuff and comes to this conclusion.

In such cases, the respective complaint of the authority, including all files (laboratory results, official reports etc), is forwarded via the German Federal Office of Consumer Protection and Food Safety to the competent authorities in the respective country of origin for the foodstuff.

The measures effected locally are generally disclosed to the Federal Office of Consumer Protection and Food Safety by the competent authority of the Member State or third country and forwarded to the federal states by the Federal Office of Consumer Protection and Food Safety.

What kind of marketing tool can an E-retailer use in order to distinguish himself from others?

Four existing seals meet the quality criteria of the so-called D21 initiative. These seals are thought to help consumers in order to reliably identify reputable suppliers. Food businesses can purchase one of the following four seals only if they are registered. Like this, they identify themselves to the consumer as being a store under official control.

The author of this post is Olga Dimopoulou

Geoblocking is a discriminatory practice preventing customers (mainly on-line customers) from accessing and/or purchasing products or services from a website located in another member State, because of the nationality of the customer or his place of residence or establishment.

The EU Regulation no. 2018/302 of 28 February 2018 on addressing unjustified geoblocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market will enter into force on 2 December 2018.

The current situation

The EU Commission carried out a “mystery shopping” survey on over 10 000 e-commerce websites in the EU. The geoblocking figures are quite high! 63% of the websites do not let shoppers to buy from another EU country (even 86% for electric household appliances and 79% for electronics and computer hardware).

The survey shows also that 92% of on-line retailers require customers to register on their website and to provide them with e-mail address, physical address and telephone number. The registration is denied most of the time because of a foreign delivery address for 27% of the websites. Almost half of the websites give no information about the place of delivery while shopping on the website although this information on delivery restrictions has to be provided in due time during the shopping process. At the end, according to this EC survey, only 37% of the websites truly allow e-shoppers to freely buy on-line from another EU country (without restriction as regards place of establishment, place of delivery and mean of payment).

On the other side, only 50% of European customers buy products from on-line shops based in another EU member State while the value and the volume of e-commerce, globally speaking increase thoroughly year after year, but only on a domestic scope not throughout Europe.

On 23 June 2017, the European Council asked for a real implementation of the Digital Single Market strategy in all its elements including cross border partial delivery, consumer protection and prohibition of undue geoblocking.

The lack of the current legal frameworks

The service directive (n°2006/123/CE) and article 101 of the TFUE address already the discrimination practices based on nationality or place or residence or establishment.

According to article 20 (2) of the service directive, the EU member States must ensure that professionals do not treat customers differently based on their place of residence or establishment or nationality (unless objective exception). On the other side, EU competition law on vertical restraints (article 101 TFUE and the block exemption regulation and its guidelines) considers restrictions on passive sales as hard core restrictions violating EU competition rules. However, both set of rules (service directive and competition law framework) appear not to be fully effective in practice.

With this respect, the recent report of the European commission about the competition enquiry in the e-commerce sector shows, among others, that geoblocking was used at a large scale within the European e-commerce sector.

The aim of the geoblocking regulation

The goal of the geoblocking regulation is to prevent professionals from implementing direct or indirect discrimination based on the nationality, the place of residence or the place of establishment of their customers when dealing with cross border e-commerce transactions.

The scope of the geoblocking regulations

The new Regulation will only apply to online sales between businesses and end-user consumers or businesses.

The new Regulation will apply to websites operated within the European Union or to websites operated outside the European Union but proposing goods or services to customers established throughout in the European Union.

What are the new rules of management of an e-commerce website?

As regards the access to the website

Under the Regulation, a business may neither block nor restrict, through the use of technological measures, access to their online interfaces for reasons related to nationality, place of residence or place of establishment of an internet user. However, businesses are authorized to redirect customers to a different website than the one they were trying to access provided the customer expressly agrees thereto and can still easily visit the website version they originally tried to access.

As regards the terms and conditions of sales of the website

The Regulation forbids businesses from applying different general conditions of access to goods or services according to a customer’s nationality or place of residence or place of establishment (as identified by their IP address in particular) in the following three cases:

where the goods sold by the business are delivered in a different member state to which the business offers delivery (or where the goods are collected at a location jointly agreed upon by the business and the customer);
where the business offers electronically supplied services such as cloud, data storage, hosting services etc. (but not services offering access to copyright-protected content such as streaming or online-gaming services);
where the business supplies services received by the customer in a country in which the business also operates (such as car rental and hotel accommodation services or ticketing services for sporting or cultural events).

As regards the means of payment on the website

The Regulation forbids businesses from applying different conditions for payment transactions to accepted means of payment for reasons related to a customer’s nationality, place of residence or place of establishment, or to the location of the payment account or the place of establishment of the payment service provider (provided that authentication requirements are fulfilled and that payment transactions are made in a currency accepted by the business).

What are the impacts of this regulation on e-retailers?

Although formally excluded from the scope of the Regulation, relations between suppliers and distributors or wholesalers will still be impacted by it since provisions of agreements between businesses under which distributors undertake not to make passive sales (e.g., by blocking or restricting access to a website) for reasons related to a customer’s nationality, place of residence or place of establishment “shall be automatically void”.

The geoblocking regulation therefore impacts distributors twofold: first, directly in their relations with customers (end-user consumers or user-businesses), and second, indirectly in regard to their obligations under the exclusive distribution agreement.

The geoblocking regulation shall have to be coordinated with the existing competition law framework, especially the guidelines on vertical restraints which set up specific rules applying to on-line sales. On-line sales are likened to passive sales. The guidelines mention four examples of practices aiming to indirectly guarantee territorial protection which are prohibited when supplier and exclusive distributor agree:

that the exclusive distributor shall prevent customers in another territory from visiting their website or shall automatically refer them to the supplier’s or other distributors’ websites,
that the exclusive distributor shall terminate an online sale if the purchaser’s credit card data show that the purchaser is not from the exclusive distributor’s exclusive territory,
to limit the share of sales made by the exclusive distributor through the internet (but the contract may provide for minimum offline targets in absolute terms and for online sales to remain coherent compared to offline sales).
that the exclusive distributor shall pay a higher price for goods intended for sale on the internet than for goods intended for sale offline.

Manufacturers will have to decide whether they adopt a unique European gateway website or multiple local commercial offers, it being known that price differentiation is still possible per category of clients.

Indeed, the new Regulation does not oblige the e-retailers to harmonize their price policies, they must only allow EU consumers to access freely and easily to any version of their website. Likewise, this Regulation does not oblige e-retailers to ship products all over Europe, but just allow EU consumers to purchase goods from whichever website they want and to arrange the shipment themselves, if need be.

Finally on a more contractual level, it is not very clear yet how the new geoblocking rules could impact directly or indirectly the conflict of law rules applicable to consumer contracts, as per the Rome I regulation especially when the consumer will be allowed to handover the product purchased on a foreign website in the country of this website (which imply no specific delivery in the country where the consumer is established).

Therefore B2C general terms and conditions of websites would need to be reviewed and adapted on both marketing and legal sides.

We have cross-border posting of workers when an employer from a State provides its services in another State, sending there its employees.

The phenomenon has been spreading out in Europe in the last 20 years, mostly since Eastern countries, with lower labour costs, joined the EU. Therefore various legislative measures have been discussed with regard to this subject at European and national level and it has been dealt with in some major decisions of the European Court of Justice too.

Indeed, the cross-border posting of workers involves many fundamental rights recognised by the EU and requires a careful balancing of the interests at stake.

Free movement of workers, capitals and goods and especially free provision of services (art. 56 TFEU) shall be granted, but also fair competition and workers’ protection are to be ensured.

In 1996 the European Parliament and the Council adopted a first directive on the matter (Directive 96/71/EC, implemented in Italy with D. Lgs. 72/2000); in 2014 another directive was adopted (Directive 2014/67/EU, implemented in Italy with D. Lgs. 136/2016) in order to better enforce the principles set out in the first one.

European and national rules pursue two main goals:

– to prevent and combat fictitious postings through letterbox companies, ensuring a level playing field for the service providers in Europe;

– to ensure uniform treatment and protection of posted workers, avoiding ‘social dumping’ phenomena.

To achieve these goals the 1996 Directive laid down a nucleus of mandatory rules to provide a minimum protection for posted workers all over Europe. To enforce this protection, the 2014 Directive strengthened the cooperation system among national authorities and set out a series of factual elements to be considered in order to determine whether a posting is ‘genuine’ or not.

Art. 4 of the 2014 Directive (transposed into art. 3 of Italian Law) details many of these elements concerning the companies involved and the posted workers.

As far as the companies are concerned the following elements are deemed relevant:

a) the place where the company has its registered office and its head office, where it uses premises, pays taxes and social security contributions and where it is registered with the Chamber of Commerce;
b) the place where posted workers are recruited and from which they are posted;
c) the law applicable to the contracts concluded both between the company and its workers and between the company and its customers;
d) the place where the company carries out its main business activity and where its administrative staff is employed;
e) the number of contracts performed and/or the turnover of the company in the Member State of establishment, taking into account the specific situation of newly established companies and of SMEs.

As far as the workers are concerned, the following elements should be taken into consideration:

a) whether the work is carried out for a limited period of time in another Member State;
b) the date on which the posting starts;
c) whether the work is usually carried out in the country of origin;
d) whether the posted worker will resume work in the Member State from where he has been posted;
e) the nature of activities performed;
f) whether travel, board and lodging costs are reimbursed by the employer;
g) any previous period during which the activities have been carried out by the same or by another posted worker.

None of these elements shall be deemed final; it’s up to the national authorities to make an overall assessment of all factual elements and decide whether a posting is genuine or not.

If it proves not to be genuine, financial administrative penalties and fines can be imposed both on the posting and on the host company; moreover both of them are held responsible for the workers’ credits.

Italian law has also strengthened that provision, confirming its hostility towards any kind of labour brokering. If the Italian authorities assess that the posting is not genuine, the “posted worker is considered in all respects a direct employee of the company taking advantage of his work (art. 3 of Italian Law).

To protect posted workers and ensure a level playing field, art. 3 of the 1996 Directive (art. 4 of Italian law) requires that each Member State grants posted workers employment conditions comparable to those granted to local workers, whatever the laws applicable to the working relationship are. In particular, posted workers shall be entitled to equality of treatment concerning the following matters:

– maximum work and minimum rest periods;

– minimum paid annual leave;

– minimum rates of pay;

– health, safety and hygiene at work;

– protective measures for mothers, children and young people;

– equal treatment of women and men and non-discrimination.

As a matter of fact, the most challenging aspect is the ‘minimum rates of pay’. Actually, in each Member State wages are made up of many different entries, not always easy to be compared, and are defined from different sources (law / administrative provisions / collective agreements). By the way economic issues are obviously crucial to companies and workers when they have to decide whether the posting is worthwhile.

For these reasons, the European Court of Justice set out that the rates of pay granted to posted workers shall be compared with those of the host country workers on an overall basis and not by comparing individual entries. Besides, the ECJ has specified that the only elements to be taken into consideration for such comparison shall be those strictly connected to the work performed, thus excluding bonuses or cost refund. European case-law has also made clear that the pay items to be taken into account shall be transparent and available to posting employers.

Lastly, European Provisions impose to the Member States to allow access to the legal protection instruments provided for local workers to the workers posted within their territory.

For that purpose, art. 5 of Italian Law enables workers posted in Italy to call on the competent administrative authorities and to take judicial action to defend their rights.

The General Data Protection Regulation (EU regulation 2016/679) comes into force on May 25, 2018. It applies to all processing, whether automated or not. The most extraordinary part of the regulation, however, is its territorial field of application. Many believed that the virtual world had wiped out borders with the biggest players in the internet world having developed a quantity of arguments, in particular in tax matters, to escape from local legislation. Europe therefore decided to set the record straight. The message is clear, whether you are in America, in Asia or elsewhere, you must comply with the rules when processing the personal data of European residents. The high cost of the sanctions mean that this new legal framework must be taken very seriously. The maximum fine has been fixed at 4% of turnover for the preceding year, which is 2017 for any businesses that are sentenced in 2018. For example, the maximum risk for the GAFAs, if they do not comply with the Regulation, could be estimated as follows: for Amazon 7.1 billion for turnover of around 178 billion (higher than the profit…); for Apple, 5.6 billion for a turnover of around 141 billion; for Google, 4 billion for a turnover of around 100 billion and for Facebook, 1.28 billion for a turnover of around 32 billion (in dollars).

The limited territorial field of application of the preceding directive

European directive 95/46EC of October 24, 1995, transposed in France by law n° 2004-801 of August 6, 2004, updated the French data protection act (loi Informatique et Libertés) 78-17 of January 6, 1978.

The Directive may of course apply to Data Controllers who are not established on the territory of the European Union, but it obliges them to use a means of processing situated in the territory of the European Union.

It came to light that many processors were managing to avoid the European data protection regulations on the basis of the extraterritoriality of their processing.

For many years Google claimed that the data it collected in France and in Europe were not governed by French regulations but by Californian regulations since the company and its servers were based in California.

As the aim of the European Commission is to protect personal data, the new Regulation should rectify this shortcoming.

The extraterritorial field of application of the Regulation

Starting from May 25, 2018, the European Regulation will be applicable to all processing of personal data for which the Data Controller or the Data Processor (in general the IT service provider) is established in the European Union, irrespective of whether or not the processing itself takes place within the European Union.

The Regulation also provides for its application in cases where the Controller or Processor are not established in the European Union when the processing targets a data subject situated in the European Union, irrespective of the nationality of the person concerned.

Controllers or Processors established in the European Union

The notion of establishment is not defined in the Regulation. It has been interpreted extensively by the French and European courts, which give priority to a functional analysis based on the effective and real exercise of activity through a stable arrangement.

Establishment has already been judged to exist through the presence in the Member State concerned of a representative, a bank account and a letter box (CJEU October 1, 2015, Weltimmo).

Furthermore, the legal form of such an establishment is not decisive. Consequently, the processing of personal data carried out by a simple branch, which has no legal personality, by a non-European Controller, must be carried out in accordance with the Regulation.

Controllers or Processors not established in the European Union

When the Controller or Processor is not established in the European Union and has no establishment there, the Regulation applies when the processing relates to persons situated in the European Union and when the processing activities are linked to an offering or the monitoring of internet users in the 28 countries making up the European Union, comprising 520 million inhabitants.

(i) To the offering of goods or services destined to these persons, whether these services are free or paying services

The Regulation does not contain any definition of the offering of goods and services but it provides indications making it possible to characterise such an offering (whereas clause n°23), such as the use of the language or currency generally used in one or more Member States with the possibility of ordering goods and services in this language or even the mention of clients or users situated in the European Union.

However, the mere accessibility of a website, e-mail address or other contact details is insufficient to ascertain this intention.

In other words, it is necessary to check the intention of the Data Controller with regard to the persons concerned. Did he intend to offer goods or services to the persons concerned in the European Union or not?

(ii) To the monitoring of the behaviour of these persons, if this behaviour takes place in the European Union.

In particular, the Regulation provides for the profiling of a natural person in order to make decisions concerning him/her or to analyse or predict his/her personal preferences, behaviour and attitudes.

These two conditions (i) and (ii) are alterative and not cumulative.

What about the transfer of the personal data outside the European Union?

In principle, the transfer of personal data outside the European Union is prohibited. The aim is to protect personal data against data havens which apply more flexible regulations in this respect.

There are many exceptions to the principle:

1. Transfer of data towards countries belonging to the European Economic Area

These countries have signed an agreement with the European Union through which they have adopted personal data protection regulations.

1. Transfer of data towards countries with an adequacy agreement

Certain countries are recognised by the European Union as having regulations on the protection of personal data that are equivalent to European regulations.

1. The transfer of data towards countries that have signed standard contractual clauses or BCR (“Binding Corporate Rules”)

These are countries for which no adequacy decision has been made or which have no personal data protection regulations. The idea is therefore to establish contractual rather than legal protection for data through standard clauses or an agreement within a group of companies.

Standard contractual clauses

Standard clauses have been drafted by the European Commission and are accessible via its website. These are agreements concluded between the Data Controller and the Processor established abroad either in the framework of an IT service agreement or in the context of the sending of personal data to a group subsidiary or entity.

Currently, the Data Controller may obtain authorisation from the national regulatory authority (CNIL in France) before using these clauses. This request for authorisation will be discontinued as of May 25, 2018.

Binding Corporate Rules (BCR)

BCR concern groups of companies exclusively. A charter is adopted within the group under the terms of which all the group subsidiaries and entities undertake to comply with the European data protection regulations.

Once the charter has been drafted, it is submitted for authorisation to the European data protection authorities via a mutual recognition system.

This request for authorisation will be maintained after May 25, 2018.

1. Transfer of personal data towards the USA: the “Privacy Shield” system

This is an international agreement between the European Union and the American Federal Trade Commission (FTC) which American companies are free to adhere to. Under the terms of this agreement, the FTC undertakes to ensure that the companies that sign up to this system comply with the data protection rules contained in this international agreement.

To conclude, the aim of the European Regulation on the protection of personal data is to apply to companies all around the world which process the personal data of European residents.

It puts an end to the hide-and-seek of forum shopping which, for all services supplied on-line, made it possible to choose the most favourable and least strict country to develop a company’s economic model.

The level of sanctions removes any doubt as to the firmness with which this new framework is going to be implemented. It generates risks that can hardly be considered as minor.

It requires an in-depth thought process and the implementation of a compliance project for any company that uses the personal data of persons situated in one of the 28 European Union countries comprising 520 million inhabitants.

The author of this post is Thierry Aballéa.

Pursuant to the European Directive on administrative cooperation in the field of taxation (2011/16/EU), Member States must cooperate with each other with a view to exchanging information relevant for tax purposes. The directive allows, inter alia, that a Member State (the requesting Member State) requests another Member State (the requested Member State) to provide information concerning a specific taxpayer. The requested information must be ‘ foreseeably relevant ‘ to the tax authorities of the requesting Member State.

Based on the aforementioned directive, the tax authority of the requested Member State may request information from e.g. an affiliated company, a financial institution, an employer, … of the taxpayer. The tax authority of the requested Member State forwards the collected information to its counterpart in the requesting Member State.

A question that arises is whether that affiliated company, financial institution, employer, … may ask its national courts to verify the legality of the sanction imposed by its tax authority because of an incomplete answer and whether it may ask to vary the penalty. Another question is whether a court in the requested Member State may verify the relevance for tax purposes of the requested information.

These questions were raised in the Berlioz case of the Court of Justice (judgement of 16 May 2017): Berlioz (a Luxembourg company) only partially answered the request for information from the Luxembourg authorities (at the request of France). Berlioz stated in this regard that certain questions were irrelevant for tax purposes in the requesting Member State.

The answers to the questions raised are not obvious, as the starting point is that the requesting State has a margin of discretion as to what is foreseeably relevant for its tax purposes. This explains why (in this case the Luxembourg) courts doubted whether a relevance test was possible. The questions were referred for a preliminary ruling to the Court of Justice.

In its assessment, the court took into consideration the EU Charter of Fundamental Rights and, more specifically, the right to a fair hearing by an impartial judge.

The Court of Justice ruled that courts in the requested Member State may review the foreseeable relevance for tax purposes of the requested information and that they may vary the penalty imposed. The courts in the requested Member State should be reluctant however upon review of the legality of the request for information: the review is limited to verification whether the requested information manifestly has no relevance for tax purposes.

To this end, the courts must have access to the request for information. The affiliated company, financial institution, employer, … is only entitled to receive the identity of the person under investigation and to be informed about the tax purpose for which the information is sought. The Court of Justice indeed emphasizes in the interest of the investigation the principle that the request for information must remain secret.

Relevance of the judgment: When requested by a national tax authority to respond to a request for information from another Member State, it is important to check the relevance for tax purposes of the requested information. If the information requested is irrelevant to the tax investigation, a proceeding against the request for information or against the penalty may succeed. Regarding the foreseeable relevance for tax purposes, the national courts may only review whether the requested information manifestly has no relevance to the tax investigation in the requesting Member State.

Benedikt Rohrssen

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