International Commercial Law Blog

Commission adopts revised competition rules on horizontal co-operation agreements

The European Commission has revised its rules for the assessment of co-operation agreements between competitors, so called horizontal co-operation agreements. As it is often vital for companies to work together to achieve synergies, there exist a vast number of horizontal co-operation agreements in many industries.

“Horizontal co-operation agreements” are agreements concluded between competitors (as opposed to vertical agreements which are between companies at different levels in the supply chain), for example with a view to co-operate on research and development, production, purchasing, commercialisation, standardisation, or exchange of information. Horizontal co-operation can be pro-competitive and lead to substantial economic benefits, allowing companies to respond to increasing competitive pressures and a changing market place driven by globalisation. However, where the parties have market power, horizontal co-operation can also lead to serious competition problems.

The texts update and further clarify the application of competition rules in this area so that companies can better assess whether their co-operation agreements are in line with those rules. Modifications concern mainly the areas of standardisation, information exchange, and research and development (R&D).

Today the Commission has adopted a revised set of Guidelines and two Regulations which describe how competitors can co-operate without infringing EU competition rules. The “Horizontal Guidelines” provide a framework for the analysis of the most common forms of horizontal co-operation such as agreements in the areas of R&D, production, purchasing, commercialisation, standardisation, standard terms, and information exchange.

The two Regulations exempt from the competition rules certain R&D, specialisation and production agreements that are unlikely to raise competition concerns. Two key features of the reform are a new chapter on information exchange in the Horizontal Guidelines and a substantial revision of the chapter on standardisation agreements.

The Guidelines promote a standard-setting system that is open and transparent and thereby increases the transparency of licensing costs for intellectual property rights used in standards. The revised standardisation chapter sets out the criteria under which the Commission will not take issue with a standard-setting agreement (“safe harbour”). Moreover, the chapter gives detailed guidance on standardisation agreements that do not fulfil the safe harbour criteria, to allow companies to assess whether they are in line with EU competition law.

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Mere use of a website by the trader does not in itself trigger application of the rules of jurisdiction for the protection of consumers in other Member States

The European Court of Justice in its Judgment in Joined Cases C-585/08 and C-144/09 Peter Pammer v Reederei Karl Schlüter GmbH & Co. KG and Hotel Alpenhof GesmbH v Oliver Heller explains the rules of jurisdiction in European Union law that are applicable to consumer contracts, in relation to services offered on the internet.

The European Union regulation on jurisdiction in civil and commercial matters (see Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) provides that actions against a person domiciled in a Member State must, as a general rule, be brought in the courts of that State. It also provides that cases resulting from a contractual relationship may be decided by the courts for the place of performance of the contractual obligation. In the case of consumer contracts, however, rules protecting the consumer apply. If the trader “directs its activities” to the Member State in which the consumer is domiciled, the consumer can bring proceedings before the courts of the Member State of his domicile and he can be sued only in that Member State.

In its judgment, the Court states that mere use of a website by a trader in order to engage in trade does not in itself mean that its activity is “directed to” other Member States, which would trigger application of the protective rules of jurisdiction in the regulation. The Court holds that, in order for those rules to be applicable in relation to consumers from other Member States, the trader must have manifested its intention to establish commercial relations with such consumers.

In order to determine whether a trader whose activity is presented on its website or on that of an intermediary can be considered to be “directing” its activity to the Member State of the consumer’s domicile, within the meaning of Article 15(1)(c) of Regulation No 44/2001, it should be ascertained whether, before the conclusion of any contract with the consumer, it is apparent from those websites and the trader’s overall activity that the trader was envisaging doing business with consumers domiciled in one or more Member States, including the Member State of that consumer’s domicile, in the sense that it was minded to conclude a contract with them.

In this context, the Court considers what evidence can demonstrate that the trader was envisaging doing business with consumers domiciled in other Member States. Such evidence includes clear expressions of the trader’s intention to solicit the custom of those consumers, for example when it offers its services or its goods in several Member States designated by name or when it pays a search engine operator for an internet referencing service in order to facilitate access to its site by consumers domiciled in those various Member States.

Nevertheless, other less patent items of evidence, possibly in combination with one another, are also capable of demonstrating the existence of an activity “directed to” the Member State of the consumer’s domicile. These include: the international nature of the activity at issue, such as certain tourist activities; mention of telephone numbers with the international code; use of a top-level domain name other than that of the Member State in which the trader is established, for example “.de”, or use of neutral top-level domain names such as “.com” or “.eu”; the description of itineraries from one or more other Member States to the place where the service is provided; and mention of an international clientele composed of customers domiciled in various Member States, in particular by presentation of accounts written by such customers. Likewise, if the website permits consumers to use a language or a currency other than that generally used in the trader’s Member State, this can also constitute evidence demonstrating cross-border activity of the trader.

On the other hand, the mere accessibility of the trader’s website in the Member State in which the consumer is domiciled is insufficient. The same is true of mention of an email address and of other contact details, or of use of a language or a currency which are the language and/or currency generally used in the Member State in which the trader is established.

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By authorising the use of the name “pure chocolate” Italy has infringed EU Law

The European Court of Justice (see judgment in Case C-47/09 Commission v Italian Republic) finds that Italy has failed to fulfil its obligations under EU law concerning the labelling of cocoa and chocolate products which harmonises the sales names for such products (see Directive 2000/13/EC of the European Parliament and of the Council of 20 March 2000 on the approximation of the laws of the Member States relating to the labelling, presentation and advertising of foodstuffs Directive 2000/36/EC of the European Parliament and of the Council of 23 June 2000 relating to cocoa and chocolate products intended for human consumption).

The Commission brought infringement proceedings against Italy before the Court of Justice, claiming that Italy has introduced an additional sales name for chocolate products, depending on whether they can be regarded as “pure” or not, which constitutes an infringement of the directive and conflicts with the case-law of the Court. According to the Commission, the consumer must be informed whether or not substitute vegetable fats are present in the chocolate through the labelling and not through the use of a separate sales name.

Where they contain up to 5% of vegetable fats other than cocoa butter (“substitute vegetable fats”), their name remains unchanged but their labelling must display, in bold lettering, the specific statement “contains vegetable fats in addition to cocoa butter”.

In the case of chocolate products containing only cocoa butter, that information may be given on the labelling, provided the information is correct, neutral, objective, and does not mislead the consumer.

Under the Italian legislation, the phrase “pure chocolate” may be added to or incorporated in the sales names, or indicated elsewhere on the labelling of products not containing substitute vegetable fats, and administrative fines are laid down for any infringement of those rules.

The Court notes as a preliminary point that the European Union has introduced full harmonisation of sales names for cocoa and chocolate products in order to guarantee the single nature of the internal market. Those names are both compulsory and reserved for the products listed in the EU legislation. That being so, the Court holds that that legislation makes no provision for the sales name “pure chocolate” and does not permit its introduction by a national legislature. In those circumstances, the Italian legislation runs counter to the system of sales names created by EU law.

The Court notes also that the system of double names introduced by the Italian legislature does not comply either with the requirements of EU law concerning the need for the consumer to have information that is correct, neutral and objective, and that does not mislead him.

The Court has heldthat the addition of substitute vegetable fats to cocoa and chocolate products which satisfy the minimum contents required under EU legislation does not substantially alter their nature to the point where they are transformed into different products and therefore does not justify a difference in their sales names.

The Court holds, however, that, under EU legislation, the inclusion elsewhere in the labelling of a neutral and objective statement informing consumers of the absence from the product of vegetable fats other than cocoa butter would be sufficient to ensure that consumers are given correct information.

Consequently, the Court concludes that, to the extent it enables the coexistence of two categories of sales names essentially designating the same product, the Italian legislation is likely to mislead consumers and thus interfere with their right to obtain correct, neutral and objective information.

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Incoterms 2010

The Incoterms rules have become an essential part of the daily language of trade. They have been incorporated in contracts for the international sale of goods and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade.

The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree.

Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This can give rise to misunderstandings, disputes and litigation, with all the waste of time and money that this entails.

In order to remedy these problems, the International Chamber of Commerce first published in 1936 a set of international rules for the interpretation of trade terms, first conceived in 1921.

These rules were known as “Incoterms 1936″. Amendments and additions were later made in 1953, 1967, 1976, 1980, 1990, 2000 and presently in 2010 in order to bring the rules in line with current international trade practices.

As of 1 January 2011 the eighth edition, “Incoterms 2010″, shall have effect. Among other changes therein affected all of the five terms in section D are obsoleted and replaced with the following three: DAT (Delivered at Terminal), DAP (Delivered at Place), and DDP (Delivered Duty Paid). Such new terms apply to all modes of transport.

Rules for any mode or modes of transport:

  • EXW   Ex Works
  • FCA    Free Carrier
  • CPT     Carriage Paid To
  • CIP     Carriage And Insurance Paid To
  • DAT    Delivered At Terminal
  • DAP    Delivered At Place
  • DDP    Delivered Duty Paid

Rules for sea and inland waterway transport:

  • FAS     Free Alongside Ship
  • FOB    Free On Board
  • CFR    Cost And Freight
  • CIF     Cost, Insurance and Freight

It should be stressed that the scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold (in the sense of “tangibles”, not including “intangibles” such as computer software) as they help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers.

The current Incoterms 2000 rules are endorsed by UNCITRAL.

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Legal advice from in-house lawyers is not protected by legal professional privilege

The European Court of Justice (see judgment in Case C-550/07 Akzo Nobel Chemicals Ltd v Commission) has ruled that in the competition field the European Commission has the right to seize and use as evidence legal advice given by in-house lawyers.

In its judgment the European Court of Justice has confirmed the existing position under EU Law that legal advice from in-house lawyers is not protected by legal professional privilege.

The Court had the opportunity to give a ruling on the extent of legal professional privilege (see judgement in Case C-155/79 AM&S Europe v Commission), holding that it is subject to two cumulative conditions. First, the exchange with the lawyer must be connected to “the client’s rights of defence” and, second, that the exchange must emanate from “independent lawyers”, that is to say “lawyers who are not bound to the client by a relationship of employment”.

As regards the second condition, the Court, in its judgment, observes that the requirement that the lawyer must be independent is based on a conception of the lawyer’s role as collaborating in the administration of justice and as being required to provide, in full independence and in the overriding interests of that cause, such legal assistance as the client needs.

It follows that the requirement of independence means the absence of any employment relationship between the lawyer and his client, so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers.

The Court did not address the question of whether advice from non-EU qualified lawyers should be protected by legal professional privilege, leaving the position as it currently stands, namely that the advice is not protected.

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The Lego brick is not registrable as a Community trademark

The Lego brick is not registrable as a Community trademark as it is a sign consisting exclusively of the shape of goods necessary to obtain a technical result.

The European Court of Justice (see judgment in Case C-48/09 Lego Juris v OHIM) finds that the main purpose of the prohibition on registration as a trademark of any sign consisting of the shape of goods which is necessary to obtain a technical result is to prevent trademark law granting an undertaking a monopoly on technical solutions or functional characteristics of a product. Thus, undertakings may not use trademark law in order to perpetuate, indefinitely, exclusive rights relating to technical solutions.

When the shape of a product merely incorporates the technical solution developed by the manufacturer of that product and patented by it, protection of that shape as a trademark once the patent has expired would considerably reduce the opportunity for other undertakings to use that technical solution. In accordance with the law of the European Union, technical solutions are capable of protection only for a limited period, so that subsequently they may be freely used by all economic operators.

In addition, the Court finds that by restricting the prohibition on registration to signs which consist “exclusively” of the shape of goods which is “necessary” to obtain a technical result the legislature duly took into account that any shape of goods is, to a certain extent, functional and that it would therefore be inappropriate to refuse to register a shape of goods as a trademark solely on the ground that it has functional characteristics. By the terms “exclusively” and “necessary”, the legislature sought to ensure that solely shapes of goods which only incorporate a technical solution, and whose registration as a trademark would actually impede the use of that technical solution by other undertakings, are not to be registered.

As regards the fact that the ground for refusal covers any sign consisting “exclusively” of the shape of goods which is necessary to obtain a technical result, the Court finds that that condition is fulfilled when, as in the present case, all the essential characteristics of a shape perform a technical function, the presence of one or more minor arbitrary elements with no technical function being irrelevant in that context.

The Court also finds that the position of an undertaking which has developed a technical solution cannot be protected – with regard to competitors placing on the market slavish copies of the product shape incorporating exactly the same solution – by conferring a monopoly on that undertaking through registering as a trademark the three-dimensional sign consisting of that shape, but can, where appropriate, be examined in the light of the rules on unfair competition.

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UNCITRAL Arbitration Rules 2010

On 25 June 2010, the United Nations Commission on International Trade Law adopted the revised UNCITRAL Arbitration Rules (the “Rules”).

The original UNCITRAL Arbitration Rules were adopted in 1976 and have been used for the settlement of a broad range of disputes, including disputes between private commercial parties where no arbitral institution is involved, investor-State disputes, State-to-State disputes and commercial disputes administered by arbitral institutions.

The revision is aimed at enhancing the efficiency of arbitration under the Rules and does not alter the original structure of the text, its spirit or drafting style.

The Rules, as revised, include more provisions dealing with, among others, multiple parties arbitration and joinder, liability, and a procedure to object to experts appointed by the arbitral tribunal. A number of innovative features contained in the Rules aim to enhance procedural efficiency, including revised procedures for the replacement of an arbitrator, the requirement for reasonableness of costs and a review mechanism regarding the costs of arbitration. The Rules also include more detailed provisions on interim measures.

The Rules will take effect from 15 August 2010 and will be presumed to apply to all arbitration agreements referring to UNCITRAL arbitration concluded after that date, unless the parties have agreed otherwise.

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New ISVAP Regulation No 35 2010 on transparency and advertising of insurance products

On 26 May 2010 ISVAP, the Italian insurance regulator, following a two-stage consultation process which began a couple of years ago, published Regulation No 35 (the “Regulation”) on the disclosure duties of insurance undertakings (with particular reference to pre-contractual information to proposed insured) and the advertisement of insurance products.

The Regulation shall apply to undertakings operating in the Italian market both under the freedom of establishment as set out in Article 49 of the Treaty and under the freedom to provide cross border services as set out in Article 56 of the Treaty.

The main purpose of the Regulation, which will come into force on 1 December 2010, is to strengthen the transparency and clarity of documents used in the offer of insurance products. The Regulation does not apply to reinsurance.

For the purpose of consolidating the duties of transparency and disclosure for insurance undertakings, ISVAP has introduced the obligation to deliver to the policyholders an information booklet (“fascicolo informativo“) containing all general and special terms and conditions applicable to the insurance contract, the proposal form and a information notice (“nota informativa“).

In detail, the information booklet shall include:

  • a cover;
  • an information notice, which shall be drafted in accordance with the forms attached to the Regulation and provide more information to the insured than is required at present;
  • a glossary;
  • general terms and conditions; and
  • the proposal form, if any.

With regards to the information notice, ISVAP has developed new and more detailed schemes which shall include specific “warnings” concerning inter alia exclusions, limits and deductibles of the cover making references to each article of the terms and conditions of policy. For this reason it will be necessary to prepare an information notice for each single product which contains the information requested by ISVAP and the specific references to the related terms and conditions.

The Regulation includes prescribed forms of pre-contract information notice which are dependent upon class of business. These are:

  • annex 6 (non-life insurance);
  • annex 7 (accident insurance );
  • annex 8 (health insurance).

The purpose of the Information Notice is to enable the proposed insured to “come to a reasoned conclusion concerning contractual rights and obligations”, as set forth in article 185 of the Code of Private Insurance Code (the “Code”).

Since these forms are standard forms they cannot cover all specific aspects of all insurance contracts. Accordingly, each undertaking shall need to supplement them with additional clauses to ensure that the information notice meets the Regulation’s requirements.

Particular attention shall be given to those provisions regarding “policyholders’ and insureds’ burdens and obligations, nullity, time-limits, exclusions, suspension and limitation of the guarantee, subrogation” which shall be highlighted in accordance to Section 166 of the Code, as implemented by the Regulation.

Moreover, the Regulation requires that the terms and conditions specify the policyholders’ premium payment obligations and highlight the risk that false or incomplete pre-contractual statements or representations by the policyholder may prejudice their right to performance of the contract.

In all cases, pursuant to Section 166 of the Code, the obligation to highlight the clauses mentioned above regarding the information notice shall also apply to any other part of the information booklet including the terms and conditions of policy and any other documents delivered to the policyholder prior to on or after inception of the policy.

Finally, a declaration of the contracting party confirming delivery of the information booklet shall be always included into the policy pursuant to Section 32.2 of the Regulation.

The obligations of disclosing the Information Booklet shall apply to all new insurance contracts concluded on or after 1 December 2010.

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European Commission adopts revised competition rules for distribution of goods and services

The European Commission has adopted a Regulation (see Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices) block exempting agreements between manufacturers and distributors for the sale of products and services.

The Regulation and accompanying Guidelines take into account the development, in the last 10 years, of the Internet as a force for online sales and for cross-border commerce, something that the Commission wants to promote as it increases consumer choice and price competition.

The basic principle remains that companies are free to decide how their products are distributed, provided their agreements do not contain price-fixing or other hardcore restrictions, and both manufacturer and distributor do not have more than a 30% market share. Approved distributors are free to sell on the Internet without limitation on quantities, customers’ location and restrictions on prices.

The new rules introduce the same 30% market share threshold for distributors and retailers to take into account the fact that some buyers may also have market power with potentially negative effects on competition. This change is beneficial for small and medium-sized enterprises (SME’s), whether manufacturers or retailers, which could otherwise be excluded from the distribution market.

This does not mean agreements between companies with higher market shares are illegal. Only that they must assess whether their agreements contain restrictive clauses and, whether they would be justified.

The new rules also specifically, address the question of online sales. Once authorised, distributors shall be free to sell on their websites as they do in their traditional shops and physical points of sale. For selective distribution, this means that manufacturers cannot limit the quantities sold over the Internet or charge higher prices for products to be sold online. The Guidelines further clarify the concepts of “active” and “passive” sales for exclusive distribution. Terminating transactions or re-routing consumers after they have entered their credit card details showing a foreign address will not be accepted.

With the new rules in force, dealers will now have a clear basis and incentives to develop online activities to reach, and be reached, by customers throughout the EU and fully take advantage of the internal market.

The new rules will come into force on 1 June 2010 and will be valid until 2022, with a one-year transitional phase.

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