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September 2013

CONSUMER BRANDS FOR A SUSTAINABLE DIGITAL MARKET PLACE> PRINCIPLES AND POLICY

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AIM MEMORANDUM

AIM MEMORANDUM SEPTEMBER 2013 1

Brands are in a unique position to make use of the latest technological advances and bring alive online the quality that is associated with branded consumer goods. Brands are also natural enablers of the essential trust that is required for the digital economy to thrive, simply because consumers feel more confi dent trading online when they know what they buy.

Through innovative products, services and communication o� ered in the digital environment, brands are already a major digital stakeholder and digital content provider. This role played by the branded goods industry for innovation is essential not only for individual consumers but also for the broader economy: research shows1

that one euro invested in R&D in the brands industry creates twice as much added value as in the non-branded industry.

The e-commerce value chain is complex. Apart from brand manufacturers other actors such as online service providers, resellers/retailers, payment providers, distributors and social media play important roles. For the digital supply chain to function better all links in the chain need to act responsibly and fairly. Further, the rules governing the digital market place – not yet mature – need to be improved.

1 A virtuous cycle: Innovation, consumer, value, and communication - IMD and PIMS Associates (2000)

I. Executive Summary


The challenges facing the digital supply chain become clear when one considers the widespread marketing of fake products and other misuse of trade marks taking place online today, practices that undermine innovation, investment and job creation in Europe. There are also many regulatory barriers to e-commerce as identifi ed by the European Commission in its 2012 communication2.

In this Memorandum AIM, the European Brands Association, calls on all actors, private and public, to assume their role and responsibility in creating a trustworthy and sustainable digital environment to the long term benefi t of both consumers and businesses. We have adopted our own set of principles for consumer brands when doing business digitally (p. 4-5), our contribution to good practices for the digital market place. The principles cover topics such as business responsibility, safety, privacy and consumer access to redress.

We also make policy recommendations (p. 5-11) focussing on the need for better governance for the digital economy by:

> applying equivalent rules and regulatory principles online and o� ine > defi ning clearer principles on the “duty of care” for online service

providers and clarifying liability limitations for such intermediaries (“safe harbour”) in the context of the E-Commerce Directive adopted in 2000 (both can be done without reopening the directive)

> removing the many other barriers linked to payments, goods delivery, consumer rights, privacy etc.; there is an urgent need for regulation that is both clear, consistent and uniformly applied across the EU and will foster long term consumer trust in the digital market place without hampering innovation.

2 Communication ”A coherent framework to build trust in the Digital single market for e-commerce and online services“ of 11 January 2012


Since the early days of the internet, brands have embraced the possibilities o� ered by the increasing range of digital platforms to develop exciting new ways of reaching and interacting with consumers.

The internet allows consumers to discover their favourite brands in a “brand new” way: brands are sold online through their own websites or approved third-party websites, and can communicate their individual heritage and style in more interactive ways and to a broader range of consumers than ever before.

Brands are in a unique position to make use of the latest technological advances and bring alive online the quality that is associated with branded consumer goods. Through their innovative products, services and communications o� ered in the digital environment, brands are already a major digital stakeholder and digital content provider.

Consumers also benefi t from brand investment in digital business on another level, as most online services are o� ered free of charge and funded by advertising spend.

II. Opportunities for consumer brands in the digital world


A recent study shows that advertising fi nances a consumer surplus of some 100 billion euros annually1.

To enhance further those consumer benefi ts and the contribution of brands to the European economy2, a secure and sustainable digital market place, with high standards of business conduct and a smart regulatory framework, is needed. In this spirit, AIM has developed this Memorandum for brands in the digital economy that

> lists principles that consumer brands support when doing business in the digital market place,

> identifi es present challenges related to the functioning of the digital value chain and the European digital single market and

> makes policy recommendations on ways to improve the regulatory framework to create long term value.

Here are a range of real-life examples on how brands’ relations with consumers have evolved.

1 ‘Consumers driving the digital uptake – the economic value of online advertising-based services for con-sumers’, IAB Europe – September 20102 In the Commission’s impact assessment related to its proposals for a revision of the review of the EU’s trade mark law (27 March 2013), the Commission sums up the economic importance of brands as follows: “Europe’s economy relies on powerful brands, requiring strong and e� ective trade mark protection. In the EU, the value of the top ten brands per country amounts to almost 10% in relation to their GDP (PPP). The percentage is even higher in smaller countries with valuable brands where the fi gure can amount to over 30%. As such, the economic value of trade marks serves as an indicator for the economic wealth of a country. The average value of the top ten brand values per Member State equals € 35 billion but amounts to € 145 billion in Germany and € 138 billion in the United Kingdom. Annual communication and advertising expenditure in Europe on brands of € 174 billion benefi ts media as well as sport, arts and entertainment. In microeconomic terms, trade marks are important and valuable business assets for companies across all sectors, and able to signifi cantly increase in value as businesses expand and grow. With regard to interna-tional trade dimension, 48% of EU exports are upmarket branded goods.”

To fi t a new reality of its brands’ presence on digital platforms and social media and

make sure its message on responsible drinking is heard in new contexts, Pernod-Ricard

defi ned digital guidelines for Corporate Social Responsibility. The group moderates

conversations happening on social media sites, and makes sure its brand platforms

display the company’s ‘responsible drinking’ message with minimum size combined

with auto exclusion of people below legal drinking age. For more information see:

http://pernod-ricard.com/80/csr

EXAMPLE


LVMH-owned Benefi tcosmetics.com leverages social media to facilitate purchase decisions. Realising that consumers do a lot of research online before buying beauty

products and place great trust in what they learn from expert blogs and social media

users, Benefi t started engaging early on with these communities and giving their

customers a forum to share their own recommendations and experiences with specifi c

products. Benefi t continues to focus on fostering dialogue about its products and was

one of the fi rst companies world-wide to integrate customer-submitted rating and

reviews with its Facebook fan page.

EXAMPLE

Partnering with the UK’s largest newspaper site GSK launched a new type of campaign

to make its message on preventive gum health heard by consumers. Gum disease

a� ects over 80% of the British population, but often people will seek out information

when it’s too late. By using digital media and linking its message more generally to

lifestyle and beauty GSK managed to reach over 10 million people and make them

check their symptoms.

EXAMPLE

Building brand commitment through fan to fan interaction In 2013, the LEGO Group launched www.ReBrick.com to provide consumers all over

the world with a quick overview and easy access to share their enthusiasm for LEGO

brick creations. RedBrick is a free portal, set up to give everyone – fans and ordinary

consumers alike an opportunity to set up links to content, on e.g. YouTube, Flickr

or other websites. There is only one criterion: The subject must be the LEGO brick.

Consumers are able to see, rate the quality of the creations and discuss the millions

of articles, videos and images of inspiring creations and fi nally to share their creativity

with friends and acquaintances via social network sites.

The website is intended to be a space for the fans to communicate with each other

and the LEGO Group does not advertise on the site nor do we link to the online shop.

EXAMPLE


Use of social media for consumer education purposesPepsiCo Romania, one of the biggest players in potato chips in Romania with the Lay’s

brand, realized that consumers had no understanding of how chips were being produced

in Romania. The Lay’s local team turned to social media to inform consumers that

chips – and especially the Lay’s brand - are made out of real potatoes, more than 80%

grown in Romania, and that the Lay’s recipes have no artifi cial colorants, preservatives

and no taste enhancers. During 2012, 12 bloggers were invited to witness the process

of seeding, growing and harvesting the potatoes for Lay’s chips, and then see the

potatoes being turned into chips. The bloggers told the stories on their blogs, their

Facebook and Twitter accounts. The project generated a lot of positive conversation

in social media about the brand, created relevant and positive online content about it

and addressed some myths around the product.

EXAMPLE

Brands contributing to a better oral health via digitally sharing and spreading knowledge amongst health professionals.Brands often work with the best researchers in the world and frequently have access

to scientifi c knowledge that can be highly valuable to the professionals in the fi eld. It is

with that knowledge that Procter & Gamble has launched Dentalcare.com many years

ago.

Dentalcare.com is an online platform where dental professionals can fi nd many

resources to help them in their everyday practice. All in one place, dental professionals

can keep up to date with the very latest industry research, news and events, as well as

Oral-B product innovations. Access to Oral-B’s continuous professional development

courses together with interactive educational webinars is provided alongside patient

education tools, including videos on a large range of oral health topics and leafl ets to

download for later sharing with their patients. It contains tips and advice on working

in a dental practice and a gives access to a database with over 600 scientifi c articles.

Over time, the site has grown to a Dentistry Institute and is serving the needs of Dental

Professionals for over 15 years in di� erent parts of the world. On average, more than

50,000 dental professionals use the website every month.

Dentalcare.com helps dental professionals to motivate patients to gain more control

over their oral health. It is is one means by which the Oral-B brand supports professionals

in their endeavours to improve patients lives.

EXAMPLE


AIM believes that engaging in the digital market place is an opportunity for the branded goods industry to strengthen relations with consumers and o� er them more innovative products and services.

AIM supports the following principles for consumer brands in the digital economy.

1. CONSUMER BENEFITS> Brands are committed to delivering new consumer benefi ts through

the use of digital technology.> Consumer benefi ts can include value, quality, innovation, choice,

convenience, transparency and social responsibility.

2. TRUST AND PRIVACY> Brands are committed to making the digital world as trusted a place to

do business as the physical world, making consumers feel confi dent to engage in the digital market place.

> Brands will help counter activities such as identity theft or deceptive web sites, and support trust-enhancing rules and practices on fraud prevention and transparency in the origin of products and services.

III. Brands’ role in enabling a sustainable digital environment – AIM principles


> Brands are also committed to respect the privacy of consumers and protect their personal data.

3. INNOVATION> Brands are committed to the pursuit of innovation in the digital market

place that meets the evolving needs and expectations of consumers. > Brands support and help create a digital environment that is responsive

to the speed of change in the digital world.

4. FAIR COMPETITION> Brands seek to create an environment of fair and vigorous competition

guaranteeing maximum value to consumers in the digital as well as the physical world.

> Brands will behave fairly and strive to free the digital world from unfair or illicit practices.

5. GOVERNANCE > The digital world requires global, multi-stakeholder engagement and

coordination to solve issues related to consumer trust and protection.> Brands are open to dialogue with all relevant stakeholders, including

developing and signing up to co- and self-regulatory initiatives where appropriate.

6. SINGLE MARKET> Brands are strong supporters of the European Single Market, without

barriers to cross-border e-commerce. A well-functioning Digital Single Market will benefi t both consumers and the competitiveness of European businesses and economies.

7. SAFETY > Brands are committed, also in their digital business, to provide products

and services that are safe for their intended use.

8. RESPONSIBILITY> Brands recognize their responsibility to take into account wider societal

interests and to include in their sustainability policies and activities all relevant aspects of doing business digitally.

9. REDRESS> Brands support consumer access to online dispute resolution (ODR)

mechanisms where relevant.


With the digital revolution, brand manufacturers have embraced and helped shape the new business environment while preserving the inherent character of the brand.

In this context they are faced with a number of opportunities and risks relating to the framework in which they do business. In this section three distinct challenges are described, and a number of policy recommendations are made.

CHALLENGE NR. 1: Creating a good governance system of the digital value chain - defi ning clear responsibilities along the e-commerce channel to secure a reliable and safe outcome for consumers

The e-commerce value chain is complex, not least because of the many economic actors involved: brand manufacturers, online service providers, resellers/retailers, payment providers, distributors etc.

Like in the o� ine environment, opportunities and responsibilities must be shared among operators along the digital value chain, taking into account the nature of each

IV. Key online challenges for brands – policy recommendations

>


operator’s business model. However, the development of e-commerce in Europe is currently hindered by a lack of clear responsibilities along the digital value chain. AIM believes that the biggest obstacle to the development of e-commerce today is that consumers and businesses do not have su� cient legal certainty and trust when operating online. If legal certainty and consumer trust can be increased, e-commerce, and particularly cross-border e-commerce, will thrive in Europe.

One source for this lack of trust can be found in illicit practices that are made possible by new functionalities developed by certain operators, who neglect their responsibilities to consumers and other economic entities.

This is the case when online auction sites o� er counterfeit goods for sale or when trade marks are used in paid referencing systems without the consent of the trade mark owner (see examples on the following pages).

The problems are made worse when online service providers and social media do not take adequate precautions to prevent illicit online activities.

As recognised by the European Commission (Commission Sta� Working Document on Online Services 2012) the E-Commerce Directive from 2000 has been followed by the adoption of a myriad of national regulations a� ecting the operation of online services. This again has led to national courts delivering divergent and contradictory rulings in cases concerning equivalent situations, bringing about legal uncertainty to the EU-wide operation of online services. This also goes for rules concerning the duties and liability of online service providers regarding the information hosted by them (for details see annex attached to this memorandum).

Online auction sites o� ering counterfeit goods. The online sale of counterfeit goods

is one of the most crucial issues faced by brand owners when it comes to e-commerce.

Counterfeiting has a dramatic and damaging e� ect on consumers and businesses and

its production processes do not comply with social, ethical or environmental standards.

While the internet is not in itself the source of counterfeiting, it has nevertheless

become an important vehicle for the sale of fake goods worldwide. Its global reach

and accessibility, the possibility for traders to remain anonymous and for o� ers to be

placed and withdrawn instantly has made it one of the most attractive channels for the

sale of counterfeit goods, in particular through online auction sites not exercising any

control.

EXAMPLE


Trade marks used in paid referencing systems without the consent of the trade mark owner. A striking example is the active sale by search engines of trade marks as ad

triggering keywords to third-party advertisers without the consent of the trade mark

owner. Companies invest a great deal in developing their products and promoting their

trade marks and it is legitimate that they try to protect them from abuses. In the o� ine

environment, it is well established that a company can prevent its trade marks from

being used by a competitor to boost its own sales. However, this is what is happening

with online paid referencing systems, which allow the use by any third party advertiser

of a registered trade mark without the consent of the trade mark’s owner in order

to generate sponsored links and take advantage of them to attract new clients. This

compromises two essential functions of trade marks, as a guarantee to consumers

concerning the origin of goods and services, and as a means of preventing companies

from taking unfair advantage of the good reputation of others.

EXAMPLE

In August 2013, the toy manufacturer LEGO became aware of yet another case of

unauthorized commercial use of the LEGO trade mark and design, a “LEGO Brick

Speaker” shaped as a LEGO block o� ered for sale on an auction website. The sales

o� er was detected in the course of LEGO’s Internet monitoring and enforcement

programme. A complaint based on trade mark infringement was fi led via complaint

procedure on the website as would usually be available on larger e-commerce

websites. Such procedures often work relatively well in clear-cut cases resulting in

infringing sales o� ers being removed from the site. But very often it is a dilemma that

it is not possible to get data from the website operator about the specifi c seller of the

infringing product as direct contact to the seller is desirable in order to avoid future

sales of the product in question.

EXAMPLE

To address the challenges linked to irresponsible behaviour by some actors in the digital supply chain described above, AIM makes the following policy recommendations:

> Apply equivalent rules and regulatory principles online & o� ine taking into consideration the specifi cities of the online environment

As an overarching guiding principle, we believe there is a need to adapt the regulatory framework so that the o� ine and online worlds receive an equivalent treatment and protection, for consumers as well as intellectual property rights.


> Provide guidance for a uniform approach of the principle of “duty of care” for intermediaries

Given the questions raised in the application of provisions of the E-Commerce Directive, and the cross-border factor inherent to e-commerce services, further guidance and clarifi cation is required by the Commission regarding a harmonised defi nition and application of the “duty of care”. A uniform and EU-wide principle of “duty of care” based on proportionality should as a minimum apply to online service providers as regards trade mark infringements which are “manifestly illegal”. Indeed, trade mark infringements tend to occur in the context of specifi c online services (ad word referencing services, or online market places) on which a “duty of care” may be presumed due to their specifi c commercial activity and function.

As described above, introducing a “duty of care” for online service providers, especially e-commerce platforms, social networks and search engines providing ad word referencing services, would encourage all players involved in the digital value chain to take reasonable and proportionate measures to protect others from damage on their services.

For example, such a duty would require an online service provider to take precautions such as securing the identity of their commercial customers. Online service providers should also apply proactive fi ltering measures in order to detect and block posts or keywords that contain words which usually indicate that the products associated with them are not original goods. A full list of precautionary measures naturally following from the duty of care principle are described in the annex.

> Harmonise, at EU level, the protection of consumers against unfair commercial practices online

The lack of clarity regarding the application of consumer protection rules in the online world has led to a situation where consumers do not have clear rights of redress against unfair practices. Hence, the protection of consumers against unfair commercial practices online should be urgently harmonised at EU level based on guidelines from the European Commission.

> Clarify the scope of the “safe harbour” provided to online service providers, including the defi nition of “active” and “passive” role in the commercial transactions of third parties

The liability exemption for passive intermediaries was created to protect pure data transmitters from third party lawsuits. As established by the European Court of Justice and the E-Commerce Directive, only transmission and storage operations of a mere technical, automatic and passive nature are intended to be covered by it.


However, the implementation and application of the “safe harbour” provision has led to contradictory interpretations. In some instances, considering the text of the national transposition, it is di� cult to imagine how the case law of the European Court of Justice can apply correctly. This situation has been abused and is currently used to avoid business responsibilities on the internet.

There is therefore a need for clarifi cation and realignment with the original intention of what constitutes a truly passive role excluding situations where for instance an online service provider infl uences or determines in any manner the drafting of commercial messages or the selection of keywords, or engages contractually to supervise the information hosted by it (for details see annex).

> Clarify the scope of injunctions to include prevention of subsequent infringements

Injunctions are important tools for brand owners in the battle against counterfeiting and other illicit behaviour. Such court orders allow brand manufacturers to request an online service provider to stop an infringement within its control. Clarifying that the scope of these court orders also covers similar subsequent infringements would ensure the sharing of responsibilities more evenly along the digital value chain. For example, an injunction against subsequent infringements would not only oblige an e-commerce platform to take down the o� er of a counterfeit product, but also not to allow the same seller to re-register to the e-commerce platform to continue its sales of illicit products.

> Introduce EU-wide harmonisation of compulsory notice-and-takedown procedures.

Currently, internet platforms and right holders deal with a plethora of voluntary notice-and takedown systems, all of which vary from platform to platform. There is a need to analyse how strong sound harmonised procedures could be set up for the long term. Harmonisation would create legal certainty and clarify the roles and responsibilities of all actors involved.

CHALLENGE NR. 2: A truly European digital market place – creating a barrier-free Single Market

Companies developing their online business cross-border in the European Union encounter many other barriers resulting from di� erent regulatory frameworks, either because rules are not (well) harmonised or because harmonised rules are implemented di� erently in the member states.

>


AIM agrees with the broad range of barriers to cross-border e-commerce in Europe that the European Commission has identifi ed in its 2012 communication and the need to take EU policy initiatives to improve the situation. Among the main ones are:

> Harmonising e-signatures in the EU> Harmonising payment systems> Improving cross-border parcel delivery > Implementation of consumer rights in the online environment> Alternative dispute settlement schemes, including online

The Commission’s communication also refers to a particularly damaging example of legal disparity for companies who want to develop their digital business on a European scale: the European rules on data privacy that are of high relevance for e-commerce and the many new ways of communicating with consumers, not least in relation to online advertising.

The EU e-privacy directive was revised in 2009 to address privacy concerns and harmonise rules on obtaining user consent when placing “cookies” on computers, for instance for “online behavioural advertising” (OBA). Unfortunately, essential elements of the e-privacy directive, among them the consent rules, are interpreted di� erently by EU member states, creating legal uncertainty.

The Commission’s legislative proposals on data protection from January 2012 also a� ect legal obligations for handling personal data as part of online advertising and selling, as they would oblige companies to obtain individuals’ explicit consent for all categories of information before processing their data.

As the proposals stand, they could undermine the business models that drive the digital economy (advertising-funded free internet services). Of particular concern are (1) the new and broader defi nitions of “data subject” whereby sensitive and non-sensitive data are subject to the same (strict) protection and (2) the new requirement for a single form of explicit consent for the handling and storing of all categories of information. This requirement would for instance a� ect the self-regulatory initiative for online behavioural advertising developed by the European Advertising Standards Alliance to give internet users more transparency and control over the way their data is used.

It will be essential to fi nd workable defi nitions of “consent” and “personal data”/”sensitive data” that both truly protect consumers’ right to privacy and foster the long term development of the digital market place to meet the needs of both the economy as a whole and the demands and expectations of individual consumers.


To address the challenges described above, AIM makes the following policy recommendations

> Clarify and adapt the regulatory framework on e-privacy and data protection

The present EU rules on e-privacy (2009 e-privacy directive) are not clear and are interpreted and implemented di� erently by EU member states. Furthermore, Commission proposals from January 2012 on revised European data protection rules would unnecessarily restrain the future development of the digital market place because of too broad defi nitions of “personal data” and “consent for data handling”. There is a need for rules that are clear, consistent and uniformly applied across the EU and will foster long term consumer trust in the digital market place without hampering innovation.

> Adopt the other measures identifi ed in the Commission’s e-commerce communication

Progress can only be achieved by fi nding di� cult compromises among member states and with the European Parliament on the broad range of issues and proposals identifi ed by the Commission. Such compromises need to be found urgently, also taking into consideration the potential administrative burdens on companies and the fl exibility needed to safeguard the on-going innovation in the digital market

Diageo launched a new to world, luxury e-commerce brand, Alexander & James in late

January 2013 in Great Britain which is also now live in Germany. Whilst the front end

of this site can be prepared for each country and currency fairly easily, the back end

fulfi lment is fraught with challenges. These come from a complete lack of consistency

in two key areas across the EU: VAT, and in particular excise duty, created by the

ambiguous nature of the Holding and Movement Excise Directive which includes a

section specifi cally on “Distance selling” that has no common interpretation across

revenue authorities in the EU. Alexander & James creates content that informs and

educates consumers responsibly about the luxury spirit brands, accessories and

experiences it sells. However the operational implementation of shipping alcohol

and goods cross border has required extensive negotiations with customs and tax

authorities. In addition there are some countries that it is just not viable entering

because of their very di� erent and complex VAT requirements. These barriers are

restricting the expansion of business across borders, increasing costs and complexity

and not supporting consumers having a truly ‘hassle-free’ experience.

EXAMPLE


place. Many policy makers predict that the internet economy will be a primary driver of growth but they sometimes underestimate the dampening e� ect of an overly complex regulatory framework.

CHALLENGE NR. 3: Reliable consumer information - improving and managing product data online

The internet and the many platforms, tools and services developed on it can result in the generation of inaccurate or confusing information about branded products.

For consumers it is important to rely on accurate product information, such as its composition, or instructions for use. A trusted source of such product data is critical for brand manufacturers.

An industry-wide initiative is currently underway through the Brussels-based international standards body GS1.

To address the challenges described above, AIM makes the following recommendations:

> Pursue with GS1 the development of a trusted source of concise and accurate product data which consumers can trust.

> Where appropriate make use of online consumer information to simplify on-pack non-commercial non-essential consumer communication thus avoiding consumer confusion.

>

Providing consumers with a mobile-friendly gateway to useful, fact-based information... beyond the labelIn early 2013 Nestlé launched a new global initiative encouraging consumers to go

‘Beyond The Label ‘ by scanning a QR code which takes them to a mobile product

website at the point of purchase or consumption. Through its Brands Nestlé wants

to enable consumers to make informed choices by providing transparency of the

nutritional profi le and environmental and social impacts of its products.

This also helps building brand trust as consumers will be able to fi nd out more about

what the products are made of, how they fi t into a balanced diet and lifestyle, how they

were produced, and how Nestlé acts and promotes sustainable sourcing and supplies.

Nestlé is rolling out the use of QR codes across its product portfolio in both emerging

and developed markets to help people discover more about the products they purchase

and consume.

EXAMPLE


The digital market place is developing with exceptional speed, helped along by fast technological advances and an ever increasing consumer appetite for new digital services and products.

Branded good manufacturers have embraced and help shape the new business environment, and are major contributors to the innovation and value-creation that is taking place in the digital environment. As recognised by the European Commission, Europe’s economy relies on strong brands. Allowing them to make full use of their opportunities in the digital marketplace is important for Europe’s future growth and competitiveness.

V. CONCLUSIONS


ANNEX

Annex to AIM Memorandum of September 2013 on ‘Consumer brands for a sustainable digital market place’ - specifying proposals on clearer principles on the “duty of care” for online service providers and clarifying liability limitations for such intermediaries (“safe harbour”) in the context of the e-commerce directive

1. POLICY RECOMMENDATION ON PROVIDING GUIDANCE FOR A UNIFORM APPROACH OF THE PRINCIPLE OF “DUTY OF CARE” FOR INTERMEDIARIES (P. 8 OF THE MEMORANDUM)

One of the main goals of the E-Commerce Directive is to harmonise and coordinate national regulatory measures adopted in relation to the activity of online service providers within the EU. However, as the Commission acknowledged in the 2012 Commission Sta� Working Document on Online Services, the E-Commerce Directive was followed by the adoption of a myriad of national regulations a� ecting the operation of online services (including their own legal specifi cities)1. This has led to national courts delivering divergent and contradictory rulings in cases concerning equivalent situations, bringing about legal uncertainty to the EU-wide operation of online services2. The rules concerning the duties and liability of online service providers regarding the information hosted by them have not been an exception to this general trend.

1 See 2012 Commission Sta� Working Document on Online Services, at Section 3.1.1 and 3.2.1.

2 See 2012 Commission Sta� Working Document on Online Services, at Section 3.4.2.1.


In the preamble of the E-Commerce Directive, Recital 40 indicates that online service providers have a “duty to act, under certain circumstances, with a view to preventing or stopping illegal activities”. Moreover, Recital 48 declares that Member States may require online service providers to apply “duties of care” that can reasonably be expected from them in order to detect and prevent certain types of illegal activities. The lack of a uniform interpretation of the concept of “duty of care” as well as the potential national fragmentation of its application can be particularly burdensome once applied to the e-commerce environment which is cross-border by nature. Last but not least, the interaction of the “duty of care” with the concept of “actual knowledge” or “awareness” (Article 14) and the absence of a “general obligation to monitor” (Article 15) is far from straightforward.

Given the questions raised in the application of these provisions, and the cross-border factor inherent to e-commerce services, further guidance and clarifi cation by the Commission is required regarding a harmonised defi nition and application of the “duty of care”.

AIM considers that a uniform and EU-wide principle of “duty of care” based on proportionality should as a minimum apply to online service providers as regards trade mark infringements which are “manifestly illegal”3. Indeed, trade mark infringements tend to occur in the context of specifi c online services (ad word referencing services, or online market places) on which a “duty of care” may be presumed due to their specifi c commercial activity and function4. The following arguments should be taken into account in a uniform approach of the principle of “duty of care” across the EU:

1. Trust and E-Commerce: In the Commission’s words, trust is an undisputed prerequisite of online services, without which potential buyers may not even consider going online5. However, previous and current e� orts to increase trust online are failing to target the true open character of the Internet world and the role of online service providers in providing a trustworthy environment and a high level of consumer protection. This includes minimum ex ante “duties of care” and cooperation by online service providers, for example to prevent the sale of counterfeit or grey market goods in breach of EU trade marks.

2. Administrative Economy: A “duty of care” for online service providers would also be most consistent with the principle of administrative economy and e� ciency6. Instead of causing the multiplication of lengthy administrative and court proceedings

3 See 2012 Commission Sta� Working Document on Online Services, at Sections 3.4.1 and 3.4.3.1. In Ger-many, the Federal Court has established that certain trade mark infringements may be manifestly illicit insofar they refl ect situations that have made the object of previous rulings (e.g., counterfeit goods). In France, the sale of IP protected goods at abnormal low prices was also found to constitute a “manifest” infringement.4 See national case law having reached similar conclusions, e.g., in Germany, Internetversteigerung I andInternetversteigerung II, regarding online marketplaces.5 See 2012 Commission Sta� Working Document on Online Services, at Section 4.16 See Study on the Liability of Internet Intermediaries (2007), at Section B.F, pg. 2


across the EU, which impose on right holders the burden of searching and providing notice of infringers, it would be more e� cient for the problem to be tackled by the party closest to the technical information and better positioned to control and manage it: the online service provider. This does not preclude cooperation from right holders in order to increase the e� cient operation of the precautionary measures established by the online service provider in the context of its “duty of care”.

3. Proportionality: A “duty of care” shall not be understood as a general obligation to monitor, but rather an obligation for online service providers to be proactive in the prevention of infringements through their services. It should entail the survey of those commercial advertisements or keywords used in specifi c commercial services which meet certain criteria detected in application of specifi c fi lters (e.g., trade mark keywords). In particular, as regards the fi ltering of data to prevent trade mark infringement, brand manufacturers consider the following7:

> First, as regards the fulfi lment of its purpose, it seems preferable that online service providers implement underblocking fi lters rather than oblige right holders to deal with all infringers individually. Further, the blocking of commercial messages or posts including trade marks, or using these as keywords, is not susceptible of being circumvented through a technological “arms race”, nor is liable to reduce connection speeds (provided that the fi ltering is carried out ex ante). Thus, fi ltering technologies applied in the context of trade mark protection cannot be discarded as meaningless or capable of hindering technological developments.

> Second, one of the recurrent criticisms is that fi ltering technologies are extremely costly. In this regard, the Commission should take into account the vast fi nancial resources of online service providers such as search engines (providing ad word referencing services) and online marketplaces, partly obtained through the abuse of a system which enables them to use trade marks without “using” them in the sense of trade mark protection rules. In comparison with the level of revenues obtained, the implementation of fi ltering technologies by these Internet Service Providers would hardly represent an economic obstacle. The Study on the Liability of Internet Intermediaries requested by the Commission in relation to search engines (ad word referencing services) indicated that “it is hard to conceive of liability exemptions in a system that is designed to generate revenues for the search engine operator and which is, in principle, controlled by the search engine operator. […] the adwords/commercial link system of search engine operators is clearly profi t oriented. Hence, […] there is no reason to shift the risks of

7 See 2012 Commission Sta� Working Document on Online Services, at Section 3.4.5.3.


trade mark infringements to right holders.8” It therefore seems entirely fair that, if these online service providers are exempted from liability, they are at least compelled to implement precautionary measures in application of a “duty of care”.

As described above, introducing a “duty of care” for online service providers (especially: e-commerce platforms, social networks and search engines providing ad word referencing services)9 would encourage all players involved in the digital value chain to take reasonable and proportionate measures to protect others from damage on their services. For example, such a duty would require an online service provider to take the following precautions:

> Commercial customers’ (i.e. advertisers) identity: Online service providers should take commercially and technically reasonable steps to request genuine and accurate information from the commercial customers of their services and to verify this information in order to gain a reasonable assurance of their identity. This obligation should be found to derive directly from the E-Commerce Directive (Article 6(b)), which establishes that the natural or legal persons on whose behalf the commercial communication is made should be clearly identifi able (i.e., traders should not be allowed to operate anonymously online any more than they are o� ine)10.

> Identifi able infringements: Online service providers should apply proactive fi ltering measures in order to detect and block/make subject to the right holder’s analysis certain identifi able infringements, even where such measures entail the provision of input by right holders11. For example:

a) “Fake/imitation/etc.” + brand: Online service providers should proactively fi lter and block posts or keywords that contain words, and their most common variations and voluntary misspellings, which usually indicate that the products associated with them are not original goods (such as “fake”, “imitation”, “knock-o� ”, “false”, etc.), used alone or in connection with a trade mark or other distinctive sign.

8 See Study on the Liability of Internet Intermediaries (2007), at Section B.E.III.2, at pg. 19-20.9 See national case law having reached similar conclusions, e.g., in Germany, Internetversteigerung I andInternetversteigerung II.10 Certain online service providers have agreed to similar duties. See Memorandum of Understanding, at para. 24.11 See national case law having adopted similar fi ltering mechanisms, e.g., in Germany, Internetverstei-gerung I and Internetversteigerung IIand Internetversteigerung IIand .


b) Imports into EU/EEA in breach of trade mark rights: Online service providers should proactively fi lter and block advertisements corresponding to a trade mark or other distinctive sign where (1) the advertisement is intended to appear upon a relevant search by consumers within the EU/EEA, and (2) the advertiser is established outside the EU/EEA (i.e. the advertisement would lead to the sale of goods within the EU/EEA in breach of trade mark rights)12.

c) Patterns of infringement: Where a right owner notifi es an online service provider that sellers are o� ering for sale products under a particular trade mark in breach of the trade mark right, where it is possible to confi rm that such breach does exist (e.g., by reference to a particular photograph and a “trap” purchase), the online service provider should remove and fi lter o� ers that conform to that pattern in the future.

d) Repeat o� ending sellers: Where a right owner notifi es an online service provider of a commercial customer who repeatedly commits illicit online practices, the online service provider should remove and block all relevant illicit posts by that customer. This should be the case even where the customer uses another user name to conceal his identity.

e) Introduce a harmonised, simplifi ed and compulsory notice and take down procedure.

> IPR Policies: Online service providers should adopt and enforce transparent and e� ective policies aiming at protecting right owners’ legitimate rights, and refl ected in the contracts with their commercial customers. For example, when online service providers authorise commercial customers to use their services, they should declare that any commercial use of trade marks (e.g., their introduction in commercial posts) shall be in compliance with applicable rules.

12 Given that the current TRIPS Agreement does not provide for the international exhaustion of IP rights, trade mark holders are entitled to oppose imports of trade marked goods where they have not been put in the EEA market by them or with their consent (e.g., case Zino Davido� & Levi Strauss v. Tesco). The Zino Davido� & Levi Strauss v. Tesco). The Zino Davido� & Levi Strauss v. Tescolimited character of the EEA market was emphasised by the European Court of Justice in case Silhouette International, where it established that national rules providing for exhaustion of trade mark rights in res-pect of products put on the market outside the EEA under that mark by the proprietor or with its consent are contrary to EU trade mark rules.


2. POLICY RECOMMENDATION ON CLARIFYING THE SCOPE OF THE “SAFE HARBOUR” PROVIDED TO ONLINE SERVICE PROVIDERS, INCLUDING THE DEFINITION OF “ACTIVE” AND “PASSIVE” ROLE IN THE COMMERCIAL TRANSACTIONS OF THIRD PARTIES (P. 9 OF THE MEMORANDUM)

The liability exemption for passive intermediaries was created to protect pure data transmitters from third party lawsuits. As described by the European Court of Justice and the E-Commerce Directive, only transmission and storage operations of a mere technical, automatic and passive nature are intended to be covered by it.13 However, the implementation and application of the “safe harbour” provision has led to contradictory interpretations. In some instances, considering the text of the national transposition, it is di� cult to imagine how the case law of the European Court of Justice can apply14. This situation has been abused and is currently used to evade business responsibilities on the internet.

AIM considers that the “safe harbour” provisions should be clarifi ed in order to refl ect the spirit of the E-Commerce Directive and recent developments in EU case law:

“Passive role” leading to absence of “actual knowledge” or “awareness”: As described in the E-Commerce Directive, online service providers should be covered by the liability exemption where their particular activity or service is limited to the:

> technical;> automatic; and> passive

process of operating and giving access to a communication network where information stored by third parties is available or temporarily stored.

“Active role” leading to “actual knowledge”: Online service providers should be deemed to have played an “active role” where their activity does not fulfi l any of the conditions above regarding “passive role”. Although not exhaustive, the European Court of Justice and EU courts have provided some indications regarding how such an “active” role may be determined15:

> Not technical: an online service provider shall not be deemed to have played a passive role where it involves intervention in any way (e.g., infl uencing the order in which the information may appear to users).

> Not automatic: an online service provider shall not be deemed to have played a passive role where it processes the data entered by its

13 See E-Commerce Directive, at Recital 42.14 See, for example, Articles 16 and 17 of the Spanish LSSI transposing Article 14 of the E-Commerce Direc-tive, according to which “actual knowledge” may only be obtained through “e� ective knowledge-based means”, thereby excluding potentially the case law of the European Court of Justice on “active role”.15 See Case C-237/08 Google v. LVMH [2010] ECR I-02417; and Case C-324/09 L’Oréal v eBay [2011] ECR p. 0000. See further cases at national level involving eBay’s activity (e.g., in France, Paris Civil Court, Olivier M. v. Google, Paris Commercial Code, Christian Dior Couture v. eBay, and Paris Civil Court, L’Oréal v. eBay).L’Oréal v. eBay).L’Oréal v. eBay


commercial customers (the fact that online service providers require that commercial customers provide them with the data in advance may constitute a presumption that an automatic processing has not existed).

> Not passive: an online service provider shall be deemed to have played an active role where it provides customers with assistance services, for example:

a) Infl uences or determines in any manner the drafting of commercial messages or the selection of keywords.

b) Engages contractually to supervise the information or data hosted by it.

c) Optimises the presentation of the information in relation to commercial activities (e.g., the appointment of sales managers and the creation of “online boutiques” o� ering the option to become a “power seller”).

d) Promotes those commercial activities: e.g. the purchase of online search advertising keywords to advertise the services carried out.

e) Profi ts fi nancially from those commercial activities.

“Acting under the authority or control” precluding the application of the “safe harbour”: AIM considers that the interpretation of the exception to the safe harbour should include all situations in which online service providers are intrinsically linked with the activity of hosting illicit content. These situations would include, for example:

> The introduction and hosting by the online service provider of links to its own or third-party websites which include illicit content, unless such content was included afterwards and without the knowledge or reasonable expectation of knowledge by the online service provider.

> The advertising by an online service provider of its provision of services (including data hosting) with specifi c reference to illicit content (e.g., online marketplaces directed to a great extent to such material).

> Prevent the abuse of brand reputation through unauthorised keyword advertising with registered trade marks. Current case law allows such search engines to free-ride on the value of brands they do not own through the sale of advertising keywords that correspond to trade marks.

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