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French Civil Supreme Court: Using Famous Marks as Keywords Not Trademark Infringement

By Marie-Andrée Weiss

The commercial chamber of the Cour de cassation, France’s highest civil court, held on January 20, 2015, that a search engine which had used famous marks as keywords had not infringed these marks, nor could it be considered an editor in order to deny it the benefit of the safe harbor provided by French law to Internet intermediaries.

The Société Nationale des Chemins de Fer Français is a French railroad company known since 1937 by its acronym “SNCF.” SNCF is registered as a mark, whether alone or as part of a composite mark, such as “Voyages-SNCF.”

SNCF discovered in late 2008 that the lo.st search engine site used SNCF marks as keywords without authorization. When searching for “SNCF”, users of lo.st. were led to competitors’ sites offering services similar to the ones offered by the SNCF. Such results appeared even ahead of the SNCF’s own sites on the lo.st search results page.

The SNCF filed suit against the Eorezo company, which rented the servers hosting lo.st. Eorezo has since changed its name to Tuto4pc. For purpose of clarity, it will be referred to as Tuto4pc throughout this article.

The court of first instance, the Tribunal de Grande Instance de Paris (TGI) had found on June 11, 2010, that Tuto4pc infringed the SNCF’s marks. Tuto4pc appealed, but the Paris Court of appeals upheld the TGI’s decision on October 28, 2011. Tuto4pc took the case to the Cour de cassation.

Use of Famous Mark as Key Words is not a Trademark Infringement

Article L. 713-5 of the French Intellectual Property Code prevents the unauthorized use of a famous mark. The TGI and the Court of appeals had found that the SCNF’s marks were indeed famous and had been infringed when used as keywords.

But the Cour de cassation disagreed, quoting the European Union Court of Justice (ECJ) Google France v. Louis Vuitton Malletier 2010 case, also known as the Adwords case. The ECJ had explained that an Internet referencing service is indeed storing as keywords signs which are identical to trademarks, so that advertisers may select these signs as keywords, store them and display ads on the basis of these signs. However, this is not a use within the terms of Article 5 of Directive 89/104/EC (the Trademarks Directive). The ECJ concluded: “[a] referencing service provider allows its clients to use signs which are identical with, or similar to, trademarks, without itself using those signs” (at 56). As such, the Cour de cassation held that the decision of the Court of appeals had violated article 5 of the Trademarks Directive.

Is a Search Engine an Intermediary or a Publisher?

The June 21, 2004 law on confidence in the digital economy (LCEN) implemented article 14 of Directive 2000/31/EC (the E-commerce Directive) on hosting. Article 6-I-2 of the LCEN provides a safe harbor to hosts and shields them from liability if they are able to show that they acted “expeditiously” to remove illegal information or make its access impossible.

Tuto4pc argued in front of the TGI that it had a partnership with Google, and that the lo.st site was a search engine in which only “natural results” were shown. Such natural results proceeded exclusively from the flow of data available through its partnership with Google and corresponded to the selection of web pages indexed by Google in response to a particular user query. As such, Tuto4pc claimed it had no power to change the rank or frequency of these links, nor could it add or delete them. As it had no control over the search results, Tuto4pc claimed it was merely a host, not a publisher.

However, this argument had not convinced the TGI, nor the Court of appeals, which both noted that Tuto4pc had failed to prove its partnership with Google. Also, a bailiff report provided as evidence by the SNCF proves that, for the same query search terms using SNCF marks, the search results provided by lo.st and Google were different. Also, the Court of appeals noted that Tuto4pc had deleted the SNCF mark from its main page following the judgment of first instance, which proved that Tuto4pc “had access and control over the keyword.” The TGI and the Court of appeals found that Tuto4pc could not benefit from the LCEN safe harbor, because it had played an active role in the choice of content displayed online, and, as such, had to be considered an editor.

But for the Cour de cassation, the decision of the Court of appeals denying Tuto4pc the benefit of the LCEN safe harbor lacked legal basis, for two reasons. First, merely claiming as SNCF did, that the lo.st search engine and the Google search engine published different results when using the same keywords was not enough evidence to prove that Tuto4pc had knowledge or control of the data stored by the advertisers. Second, the Court of appeals failed to explain why “inserting a keyword as shortcut, leading users to a result page displayed by the search engine, and its subsequent removal, characterized the active role played byTuto4pc … which would give them the knowledge and control of the data stored by advertisers.”

The Cour de cassation “broke” the Court of Appeal’s decision and sent the case back to the court, albeit composed of different judges. Most of the time, the judges then abide by the decision of the Supreme Court, but not always. It remains to be seen if the Paris Court of appeals will rule this time in favor of lo.st.

Italian court confirms hefty fines on Novartis and Roche

By Gabriele Accardo

On 2 December 2014, Italy’s Tribunale Amministrativo Regionale del Lazio (“TAR Lazio”) handed down its ruling (only available in Italian) concerning the alleged anticompetitive agreement between Roche and Novartis in the market for ophthalmic drugs used to treat some serious vascular eyesight conditions, which, in its decision of 27 February 2014,the Italian Competition Authority (“ICA”) found to being in breach of article 101 of the Treaty on the Functioning of the European Union (“TFEU”), and imposed fines totaling Euro 92 million and Euro 90,5 million on Novartis and Roche respectively (see Newsletter 2/2014 p. 18 and Newsletter 1/2013, p. 11, for additional background).

It is recalled that, according to the ICA, Roche and Novartis aimed at excluding the ophthalmic use of Roche’s Avastin in order to advantage the sales in Italy of Lucentis, which is distributed by Novartis. In particular, the decision found that since 2011 the two companies colluded to create an artificial product differentiation by claiming the use of Avastin for ophthalmic purposes to be more dangerous than in reality, in order to influence the prescriptions of doctors and health services in favor of the more expensive Lucentis. The ICA had found that Roche and Novartis had put into effect a “pervasive and continuous” concerted practice via meetings and exchange of emails.

The TAR Lazio essentially upheld the ICA’s findings, notably as to the anticompetitive object of the contacts between the two competitors, based on documentary evidence, such as exchange of written communications as well as companies’ internal documents. However, interestingly the court made an important point as to the scope of the assessment in similar matters, ultimately discarding a significant share of arguments put forward by the parties.

In particular, the TAR Lazio held that the scope of the ICA’s investigation and therefore of the TAR Lazio’s jurisdiction exclusively focuses on the assessment of the allegedly anticompetitive agreement between competing companies concerning the marketing of Avastin and Lucentis. As a result, for the purposes of the decision, all the arguments put forward by the parties in relation to such medical and scientific aspects relating to the products (scientific analysis and safety) go beyond the scope of the ICA’s powers, i.e. safeguarding competition, and thus the protection of patients as consumers of the products at issue.

Likewise, the TAR Lazio further held that pharmacovigilance requirements or even the legitimate contacts between Roche and Novartis, such those relating to the vertical relationship between the two groups owing to their licensing agreement, were also outside the scope of the assessment.

Based on such premise, which resulted in the TAR Lazio discarding the “scientific” arguments put forward by the parties in order to rule out the substitutability between Avastin and Lucentis, the TAR Lazio then concluded that Avastin and Lucentis are indeed substitutable and therefore belong to the same product market based on the wide-spread off-label use of Avastin to treat some serious vascular eyesight conditions (as an anti-VEGF, or anti vascular endothelial growth factor), the fact that even in Italy the NHS reimburses certain drugs used off-label and that, with regards to safety, Avastin has been recognized internationally as the only anti-VEGF drug for ophthalmic use.

Clearly, the TAR Lazio’s approach, which is subject to appeal before the Council of State, questions one of the fundamental aspects of competition law assessment, in particular with regards to allegedly anticompetitive agreements, which is that the assessment has to be performed within the legal and economic context in which such agreements may occur. As the parties have announced the appeal of the TAR Lazio ruling, the Council of State will arguably tell whether, by discarding as not relevant all the considerations relating to the regulatory framework, that is pervasive in the pharmaceutical sector, the ICA and the TAR Lazio may have ultimately gone too far in defining the scope of the relevant factors that have to be assessed in similar cases.

EU Commission approves Facebook’s acquisition of WhatsApp

By Anthony Bochon

On 3 October 2014, the European Commission of the European Union (the “Commission”) approved the acquisition without any commitments. After the approval of the acquisition of Skype by Microsoft in 2011  and of the acquisition of Nokia by the latter in 2013, this was another occasion for the European Commission to examine competition issues in the consumer communications services sector. It merely confirmed its approach adopted in the Microsoft / Skype case, which was endorsed by the General Court in the Cisco Systems Inc. judgment of 11 December 2013.

As a preliminary remark, it must be pointed out that the acquisition project was notified to the European Commission on the ground that the national competition authorities of at least 3 EU member States would be competent to review this concentration. In principle, filings are made with the Commission because the two undertakings involved in the operation have a turnover exceed the notification threshold. However, Article 4 (5) of Regulation 800/2004 (the “Merger Regulation”) provides that any concentration subject to the review of at least three national competition authorities can instead be examined by the European Commission.

A product market definition left open

The Commission first determined that the concentration concerned consumer communications services which have the double characteristic of allowing users to communicate in real time and which are used to communicate with relatives, friends and other contacts.

The Commission immediately drew a distinction with the professional communication services, as it does with other product markets where the professional-consumer dichotomy still has some significance. In the present case, the Commission’s approach could be considered as rather surprising because most of current communication services indistinctively provide the same functionalities to any type of user and professional users could, at least, use WhatsApp for professional purposes. This would be less true for Facebook which was, at first, a social media allowing alumni of universities to keep or get back in touch.

The Commission then decided to segment the market concerned by platforms, as WhatsApp is only available on smartphones and did not have any plan to be available on other platforms such as personal computers where Facebook is already available. The relevant product market was therefore defined as only including consumer communications apps for smartphones.

The Commission considered the issue whether traditional electronic communication services such as voice calls, SMS, MMS and e-mails should be included in the relevant product market. The Commission’s findings that substitutability or complementary between the traditional and the new electronic communications was imperfect were solely speculative. Indeed, the Commission concluded that the inclusion of traditional electronic communication services in the relevant product market would dramatically decrease the market share of Facebook and WhatsApp. As a result, the Commission decided to leave the exact product market definition open, as the concentration did not raise any objection, irrespective of the product market definition.

Plenty of smartphone apps in the European Union

The Commission considered that the regulatory environment of telecommunications in the European Union could, unlike the United States, explain the diversity of smartphone applications. Indeed, the application of roaming and international call charges – despite their decrease over the last decade due to several legislative interventions of the EU institutions – is an incentive for EU consumers to use smartphone apps to communicate rather than via their mobile voice telephony or traditional messaging services. Despite the fact that WhatsApp is subject to subscription fees in some member States and not in others, the Commission was of the opinion that there is no national market and that the geographic market should be European Economic Area wide.

Differences between social networks and consumer communication services

The Commission did not want to define any further the social networking product market suggest by Facebook as being its relevant market, since the concentration did not raise any concern. The Commission took the view that the consumer communication service market should remain the relevant definition for the purpose of the investigation. It however identified notable differences between Facebook and WhatsApp.

The Commission considered that the user’s experience on Facebook is incomparable to that of a WhatsApp user, as a Facebook user can communicate to a wide audience and also the rhythm of communication is not the same because the comments function on Facebook allows users to react long after that an initial message has been posted. WhatsApp is rather an advanced form of messaging service such as SMS or MMS. The existence of a messaging service for Facebook – the so-called “Facebook Messenger” – did not retain the Commission’s attention. The market investigation showed there was a strong interchangeability between messaging services and that most of the WhatsApp users were already Facebook users.

The issue of advertising in the social media

Facebook provides online advertising services, but not on its Facebook Messenger app. The users’ data is currently neither sold nor subject to data analytic services. WhatsApp does not allow any space for advertising. As there was no competition concern, Commission did not consider as necessary to define any further the online advertising product market to know whether advertising on social networking websites has distinctive characteristics. The Commission merely confirmed its findings in the Google / DoubleClick and Microsoft / Yahoo ! Search Business decisions. The prospective analysis of the Commission also showed that Facebook was a minor player among the users’ data collectors with a market share around 6%.

Drivers of competitive interaction between consumer communications apps

The functionalities offered and the underlying network have been identified as the main drivers of competitive interaction between consumer communication apps. In addition, the Commission took into account non-technical factors such as the perceived trendiness and coolness amongst groups of users. Furthermore, the users’ price sensitivity has been confirmed during the investigation, as almost all apps do not charge any fee for their use and most of them only charge a small amount of money when they are downloaded, the other charging nothing when their application is downloaded on the user’s smartphone.

Market shares and innovation cycles : Microsoft / Skype confirmed

The highest combined market share of Facebook and WhatsApp for social media messaging services would amount to 40%. The Commission concludes at paragraph 99 of its decision that “Even if the data provided by the Parties were to underestimate the Parties’ combined market shares, the Commission notes that the consumer communications sector is a recent and fast-growing sector which is characterised by frequent market entry and short innovation cycles in which large market shares may turn out to be ephemeral. In such a dynamic context, the Commission takes the view that in this market high market shares are not necessarily indicative of market power and, therefore, of lasting damage to competition.”

The Commission underlines that the sector is characterized by short innovation cycles and relies therefore on the assumption that market shares could be ephemeral. The Commission thereby confirms its approach already adopted in its decision of 7 October 2011 authorization the acquisition of Skype by Microsoft (case M.6281) where, despite of the high percentage of combined market shares, it approved the acquisition for the same reasons. This justification was also endorsed by the General Court of the European Union which dismissed on 11 December 2013 the appeal brought by Cisco Systems Inc. against the Commission decision approving the Microsoft/Skype concentration (case T-79/12) (see Newsletter 5-6/2013, p. 7).

The General Court said at paragraph 69 of the judgment that “[…] the consumer communications sector is a recent and fast‑growing sector which is characterised by short innovation cycles in which large market shares may turn out to be ephemeral. In such a dynamic context, high market shares are not necessarily indicative of market power and, therefore, of lasting damage to competition which Regulation No 139/2004 seeks to prevent.” Almost all these words have been used by the Commission to justify the acquisition of WhatsApp by Facebook. The General Court’s conclusion at paragraph 74 of the Cisco Systems Inc. judgment definitely legitimized the Commission’s reasoning: “It follows that the very high market shares and very high degree of concentration on the narrow market, to which the Commission referred merely as a basis for its analysis, are not indicative of a degree of market power which would enable the new entity to significantly impede effective competition in the internal market.”

This new decision approving an acquisition in a recent information technology sector confirms that the Commission would adopt the same pro-acquisition approach if other acquisitions in recent new technologies sectors would occur, because the short innovation cycle argument is transposable to other sectors, provided that the innovation cycle is short and the sector is too recent to base the economic assessment on data showing the market trends and market shares evolution.

After a comparison of the functionalities of the two instant messaging services, the Commission concluded that Facebook Messenger and WhatsApp were not close competitors and that, with the exception of network effects, users could still switch from provider in the market of consumer communications apps.

No IP or interoperability issues

The Commission also concluded that there were neither intellectual property nor interoperability issues. Only Facebook owns some patents on messaging technologies which are irrelevant in terms of standardization. Furthermore, both apps are not pre-installed on smartphones and their downloading does not prevent users from using apps from competitors.

Conclusion

This Commission decision is in line with the decision in Microsoft/Skype and paves the way to future favorable approvals of acquisitions in the emerging technologies sector, as the Commission’s assumption that short cycles of innovation exacerbate the instability of market shares can be merely used as a justification for acquisitions as long as the technologies can be developed by competitors and new entrants on the market concerned.

FTC settlement bars patent assertion entity from using deceptive tactics

By Gabriele Accardo

On 6 November 2014, the Federal Trade Commission communicated that MPHJ Technology Investments (“MPHJ”) and its law firm have agreed to settle Federal Trade Commission charges that they used deceptive sales claims and phony legal threats in letters that accused thousands of small businesses around the United States of patent infringement. The settlement would bar MPHJ and its law firm from making deceptive representations when asserting patent rights.

The settlement with MPHJ is the first time the FTC has taken action using its consumer protection authority against a patent assertion entity (“PAE”), which is a company that obtain patent rights and try to generate revenue by licensing to or litigating against those who are or may be using patented technology.

According to the FTC’s administrative complaint MPHJ bought patents relating to network computer scanning technology, and then told thousands of small businesses that they were likely infringing the patents and should purchase a license. In several thousand letters sent under the names of numerous MPHJ subsidiaries, MPHJ appears to have falsely represented that many other companies had already agreed to pay thousands of dollars for licenses.

MPHJ’s law firm authorized letters on the firm’s letterhead that were sent to more than 4,800 small businesses, warning them that the firm would file a patent infringement lawsuit against the recipient if it did not respond to the letter. The letters also referenced a two-week deadline and attached a purported complaint for patent infringement, usually drafted for filing in the federal court closest to the small business receiving the letter. In reality, the complaint alleges, the senders had no intention—and did not make preparations—to initiate lawsuits against the small businesses that did not respond to their letters.  No such lawsuits were ever filed.

The Commission vote to accept the proposed consent order was 5-0. The proposed consent order will be subject to public comment through early December 2014, after which the Commission will decide whether to make the proposed consent order final.

U.S. District Court for the Northern District of Texas dismissed Second Consolidated Amended Complaint against hotel chains and online travel agencies

By Gabriele Accardo

On 28 October 2014 the U.S. District Court of the Northern District of Texas dismissed with prejudice a class action against hotel chains and Online Travel Agencies (“OTAs”), insofar as class action’s plaintiffs have not overcome the pleading deficiencies following the first judicial review of their pleadings which the Court originally dismissed without prejudice on 18 February 2014 (see Newsletter 1/2014, p. 3, for additional background).

The plaintiffs asserted a conspiracy amongst hotels and online travel agencies to impose “rate parity” across hotel booking websites so that the price of a room is the same on a hotel chain’s website as it is on any of the other websites where it may also be sold.

Yet, the Court found that the plaintiffs had not plausibly alleged a conspiracy in violation of the antitrust laws, and concluded that plaintiffs’ attempts to re-plead were futile.

Nonetheless, the Court noted that plaintiffs appear to have made some significant changes to their antitrust complaints.

Most noticeably, rather than allege an industry-wide conspiracy to fix prices, the amended complaint dropped the hotel chains as defendants and asserted a per se price fixing agreement between OTAs, an agreement which caused hotel prices to rise in 2003 and afterwards.

In support of this new theory, plaintiffs emphasized new allegations that the OTAs competed vigorously on price in the period 1999-2002 until an abrupt halt in price competition came in 2003 as a result of the horizontal OTA conspiracy.

Plaintiffs also alleged that the rate parity agreements followed the cessation of price competition between the OTAs as a necessary means of stamping out the OTA’s last remaining source of price competition: their hotel room suppliers.

Likewise, plaintiffs alleged that the OTAs were dominant retailers by 2002 capable of imposing unreasonable vertical restraints.

From this, plaintiffs argued that the rate parity agreements were not the “nub” of amended complaint but rather a necessary tool to effectuate the underlying agreement not to compete between OTAs.

Plaintiffs also made one noticeable change to address proximate causation for their consumer protection claim, namely, the amended complaint explicitly tied harm to the alleged price-fixing scheme, rather than the rate guarantees alone.

The Court noted that dropping the hotel defendants removed an inherent contradiction in the first complaint’s theory, as hotels were no longer simultaneously victims and willing participants in the scheme.

However, the deficiencies of the first complaint were not overcome by the mere re-configuration of the culpable actors. More likely factual allegations did not materially differ from the assertions that the court had already found insufficient.

In addition, the court did not allow the plaintiffs to add a claim that the online travel agencies’ RPM agreements with the hotels were per se unlawful vertical restraints under California state law.

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