By Giuseppe Colangelo
On November 29, 2017, the European Commission released the much-awaited Communication on standard essential patents (SEPs) licensing [“Setting out the EU approach to Standard Essential Patents”, COM(2017) 712 final].
The Communication comes in the wake of the UK judgement Unwired Planet v. Huawei, recently delivered by Mr. Justice Birss and analyzed in our previous newsletter. As highlighted by the UK decision, after the judgment in Huawei/ZTE (Case C-170/13), in which the European Court of Justice identified the steps which SEPs owners and users must follow in negotiating a FRAND royalty, there are still several unresolved questions. Notably, the different approaches adopted by Germany and the UK have spurred the Communication to set out “key principles that foster a balanced, smooth and predictable framework for SEPs”.
The key principles reflect two stated objectives: incentivizing the development and inclusion of top technologies in standards by providing fair and adequate returns, and ensuring fair access to standardized technologies to promote wide dissemination.
First, the Commission takes the view that the quality and accessibility of information recorded in standard development organizations (SDOs) database should be improved. Therefore, the Commission calls on SDOs to ensure that their databases comply with basic quality standards, and to transform the current declaration system into a tool providing more up-to-date and precise information on SEPs. Moreover, the Commission stated that declared SEPs should be scrutinized to assess their essentiality for a standard, and will launch a pilot project for SEPs in selected technologies in which an appropriate scrutiny mechanism will be introduced.
Second, the Commission sets out certain general principles for FRAND licensing terms, stating that it is necessary and beneficial to establish a first set of key signposts on the FRAND concept, so as to provide for a more stable licensing environment, guide parties in their negotiations, and reduce costly litigation. In this regard, provided that the parties are best placed to arrive at a common understanding of what are fair licensing conditions and fair rates, the Commission states that:
- there is no one-size-fit-all solution on what FRAND is: what can be considered fair and reasonable can differ from sector to sector and over time;
- determining a FRAND value should require taking into account the present value add of the patented technology: that value should be irrespective of the market success of the product which is unrelated to the value of the patented technology;
- to avoid royalty stacking, parties must take into account whether the aggregate rate for the standard is reasonable;
- the nondiscrimination element of FRAND indicates that rightholders cannot discriminate between implementers that are ‘similarly situated’ (see Unwired Planet);
- for products with a global circulation, SEP licenses granted on a worldwide basis may contribute to a more efficient approach and therefore can be compatible with FRAND (see Unwired Planet).
A third part of the Communication is devoted to providing guidance in order to achieve a balanced and predictable enforcement environment. With regards to the availability of injunctive relief, the FRAND process requires both parties to negotiate in good faith, including responding in a timely manner. The willingness of the parties to submit to binding third-party FRAND determination – should the (counter-)offer be found not to be FRAND – is an indication of a FRAND behavior. Furthermore, in terms of the timeliness of the counter-offer, no general benchmark can be established, as case-specific elements play a role. Nonetheless, there is a probable trade-off between the time considered reasonable for responding to the offer and the detail and quality of the information provided in the SEP holder’s initial offer.
Even if injunctive relief can be sought against parties acting in bad faith (i.e. parties unwilling to take up a license on FRAND terms), courts are bound by Article 3(2) of the IPR Enforcement Directive, and notably the requirement to ensure that injunctive relief is effective, proportionate, and dissuasive.
Finally, the Commission states that patent assertion entities should be subject to the same rules as any other SEP holder.
  E.W.H.C. 711 (Pat).
European Commission Presents Comprehensive Soft Law Measures to Ensure that Intellectual Property Rights are Well Protected, Including Issuing Guidance on the Enforcement Directive
By Kletia Noti
On November 29, 2017, the European Commission (“Commission”) adopted a comprehensive package of measures aimed at further improving the application and enforcement of intellectual property rights (IPRs) within the EU Member States, in the EU and internationally (hereinafter, “IPRs enforcement package”). The measures encompass several soft law instruments in the form of Communications, accompanied by staff working documents and reports.
The IPRs enforcement package is the last in a series of efforts undertaken by the Commission over the last few years to enhance enforcement of IPRs and ensure that these rights are well-protected in the online environment. In its July 2014 communication, the Commission laid down an Action Plan proposing ten specific actions marking a shift in its policy approach towards new enforcement tools to fight IPR infringements. Instead of focusing on penalizing users for IPRs infringements, the Commission announced that it would seek to foster better enforcement of IPRs through the “follow the money” approach, aimed at depriving commercial-scale infringers of their revenue flows. The Commission also expressed the view that non-legislative measures (including cooperation between stakeholders) should be encouraged. In its Digital Single Market and the Single Market communications, the Commission announced its commitment towards improving IPR enforcement in light of the digital developments. In the May 2017 Mid-Term Review on the implementation of the Digital Single Market Strategy, the Commission indicated that it was finalizing its evaluation of the current legal framework for the enforcement of all IPRs, including copyright. Against this background, the IPRs enforcement package constitutes a culmination of the Commission’s efforts on this front.
The IPR package: an overview
Communication COM (2017) 707 describes the different measures adopted as part of the broader package and provides the framework for the Commission’s proposed actions on IPRs enforcement. First, it sets out measures aimed at further improving the judicial enforcement of IPRs in the EU. These measures encompass guidance on the application of the Enforcement Directive (contained in a separate Communication, also adopted as part of the package); awareness raising and improving cooperation with national judges (whose specialization in IPR-related matters is encouraged); increasing transparency of EU Member States’ judgments on IPRs enforcement, as well as fostering the development of alternative dispute resolution mechanisms to solve IPR disputes. Second, the Communication prescribes actions to support industry-led initiatives to fight IP infringements, including self-regulatory initiatives (such as voluntary agreements between rights-holders and intermediaries) and steps to better protect supply chains against counterfeiting. A Staff Working Document on self-regulation measures to fight the sale of counterfeited products accompanies the Communication. In addition, the Commission announces that a new MoU aimed at withholding advertising on IP infringing websites is being developed by stakeholders. At the same time, it encourages stakeholders to further cooperate through voluntary agreements. It also encourages the industry to further promote due diligence in supply chains, explore the potential of new technologies (e.g. blockchain) and encourage the further inclusion of IP protection in accreditation processes. Third, the Communication also lays down initiatives to strengthen the administrative authorities’ capacity to enforce IPRs. Fourth, in this Communication the Commission announces its support for measures to strengthen efforts to fight IP infringements at a global scale, including through the promotion of best practices and stepping up co-operation with third countries.
In addition to the above measures, in its IPRs enforcement package, the Commission also issued its long-awaited guidance on the EU approach to Standard Essential Patents (SEPs).
The Commission’s Guidance on the Enforcement Directive
The Commission’s Guidance on the Enforcement Directive (hereinafter, “Guidance”) follows its public consultation launched in 2015, as well as its evaluation of the Enforcement Directive carried out in 2016 in the context of its steps to further improve the application and enforcement of IPRs, as announced in the Single Market Strategy and Digital Single Market Strategy communications. While the evaluation found the Enforcement Directive to be fit for purpose, the consulted stakeholders asked for more clarity as to how its provisions should be applied.
First, the purpose and scope of the Guidance will be briefly highlighted. Subsequently, the article will zoom into the Commission’s clarifications on injunctions which national courts can adopt on the basis of Articles 9 and 11 of the Enforcement Directive.
A piece of EU legislation of minimum harmonization, adopted more than a decade ago, the Enforcement Directive has led to diverging interpretations of its provisions across the EU Member States, many of which prompted national courts to refer questions to the Court of Justice in preliminary rulings. The Commission considers this to be due to several reasons, not the least of which the different procedural frameworks across Member States. Such divergence may reduce legal predictability for the stakeholders involved. Against this background, the Guidance aims at clarifying certain aspects of the Enforcement Directive, so as to ensure a more consistent and effective interpretation and application of its provisions by competent judicial authorities and other parties involved in the enforcement of IPRs.
The Commission acknowledges that, in all cases where the Enforcement Directive provisions interpreted and applied and where various conflicting fundamental rights protected in the EU’s legal order are at stake, a fair balance must be struck between these rights, in light of the principle of proportionality. Its clarifications encompass several aspects of the Directive, including its scope, the rules on evidence, damages, reimbursement of legal costs, the right for rights-holders to obtain information on the infringers enshrined under Article 8, and the right to provisional and precautionary measures and injunctions under Section 4 of the Directive. Additionally, it seeks to clarify what “fair and equitable” measures and remedies means, as laid down under Article 3(1) of the Directive.
In particular, the Enforcement Directive requires EU Member States to make certain measures available to rights-holders, including the ability to apply for an (interlocutory or permanent) injunction to prevent an imminent infringement, or to prohibit the continuation of the alleged infringement (see Article 9(1)(a) for interlocutory injunctions and Article 11 for permanent injunctions), subject to the requirements set out under Article 3.
While the interpretation of these provisions under EU law has led to a rich body of case law of the Court of Justice of the European Union (CJEU), uncertainties as to the scope of injunctions issued by national judges remain. In order to provide guidance to national courts and parties involved in IPRs disputes, the Commission tackles the following aspects:
- Liability and injunctions. The Commission clarifies that, under EU law, liability for an alleged infringement and the possibility for the competent judicial authorities to issue injunctions are two separate questions. According to the Commission, the possibility to issue an injunction on the basis of Article 9(1)(a) and Article 11 of the Enforcement Directive does not depend on the intermediaries’ liability for the alleged infringement. Therefore, the competent judicial authorities cannot compel plaintiffs to prove that the intermediary is liable (even indirectly) as a condition for an injunction to be granted.
To this end, the Commission references the CJEU’s case law, both applicable to the online and offline world. In the landmark L’Oréal v eBay judgment, which among others concerned the interpretation of Article 11 of the Enforcement Directive, the CJEU (in Grand Chambers) held inter alia that “the third sentence of Article 11 of Directive 2004/48, according to which the Member States must ensure ‘that rights-holders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right …’ (…) involves determining whether that provision requires the Member States to ensure that the operator of an online marketplace may, regardless of any liability of its own in relation to the facts at issue, be ordered to take, in addition to measures aimed at bringing to an end infringements of intellectual property rights brought about by users of its services, measures aimed at preventing further infringements of that kind”. In addition, the Commission also references the more recent Tommy Hilfiger judgment. This latter judgment interestingly did not concern online intermediaries, but rather the imposition of an injunction on Delta Center, a physical marketplace, which the CJEU considered as caught by the scope of Article 11 of the Enforcement Directive.
- Notion of “intermediary” caught by the scope of Articles 9(1)(a) and 11 of the Enforcement Directive. Both these provisions refer to “any intermediary whose services are used by a third party to infringe intellectual property rights”. However, the Commission recalls that the notion of “intermediary” is not further clarified in the Enforcement Directive. Against this background, the Commission draws attention to the CJEU’s UPC Telekabel and Tommy Hilfiger judgments: importantly, the Commission notes that in Tommy Hilfiger the CJEU clarified the notion of “intermediary” in the sense of UPC Telekabel. In UPC Telekabel the CJEU considered that the notion of “intermediary” whose services are used by a third party to infringe copyrights under Directive 2001/29 also encompasses those internet service providers which do not have a specific relationship with the person infringing the copyright and the related rights. In Tommy Hilfiger the CJEU declared that an intermediary in the sense of the Enforcement Directive need not have a specific relationship, such as a contractual link, with the IPR infringing party. The Commission also reiterates that “the application of Articles 9(1)(a) and 11 of the Enforcement Directive spans across different sectors and includes both online and offline services.” Importantly, the Commission considers that the case law of the CJEU acknowledging that several categories, such as internet service providers (“ISPs”), social networking platforms, online marketplaces and physical marketplaces should be seen as “intermediaries” for the purposes of the Enforcement Directive is merely illustrative but not exhaustive. Therefore, the notion of “intermediary” is flexible and capable of being interpreted on a case by case basis.
In addition, the Commission considers that when the intermediary is so distant from the (alleged) infringement he cannot reasonably be expected to contribute to the enforcement of IPRs and its involvement in such enforcement would be “disproportionate” and “unnecessarily burdensome”. However, the Commission does not further clarify what an involvement “so distant or immaterial to the alleged infringement.” is. What does this mean concretely and—where is the line drawn between “distant” and “close involvement”? Does this mean that the rights-holders can ask intermediaries “close to the infringement” to bear the burden of ensuring the effective enforcement of IPRs and under which criteria? This is likely to lead to additional preliminary references before the CJEU, since it is likely judges in various EU Member States may interpret this notion differently.
- Scope of injunctions. In the context of the balancing of rights and interests which underpins how the scope of injunctions can be interpreted, the Commission reiterates the importance of the principle of proportionality, one of the primary law principles of the European Union. It also recalls the respect for Art. 3 of the Enforcement Directive, as well as fundamental rights by national courts. When it comes to proportionality, the Commission considers that judges ought not to issue injunctions which require measures that go beyond what is appropriate and necessary in light of the facts and circumstances of the case at hand to prevent an imminent infringement or to prohibit the continuation of an infringement. Recalling the limitations to the scope of injunctions that the CJEU gave in UPC Telekabel, the Commission frames them in the following fashion: “the CJEU also clarified that the competent judicial authorities may decide not to explicitly describe the specific measures which the provider must take to achieve the result sought. However, the CJEU also made it clear that in such cases a number of conditions are to be respected, notably that the measures do not go beyond what is reasonable, respect the principle of legal certainty, compliance with the fundamental rights of the parties concerned including the internet users’ freedom of information, strict targeting of the measures and a possibility for the competent judicial authorities to verify that these conditions have been complied with, notably through a possibility for the internet users concerned to assert their rights once those measures are known”.
Importantly, the Commission considers that the measures ordered via an injunction need not lead to a complete cessation of the IPR infringements, as long as they make the infringing acts difficult or seriously discourage them. However, the intermediary should not be required to bear “unbearable sacrifices”.
Against the above background, two observations are necessary: first, the Commission clarified that the limitations to the scope of injunctions that the CJEU laid down in UPC Telekabel, a case concerning copyright, apply also to other IPRs. Second, the Commission reiterates that injunctions should respect Article 15 of the E-Commerce Directive, laying out a ban on general monitoring and any such broad injunction violating such provision, according to the Commission, would concomitantly infringe Article 3 of the Directive. However, the Commission recalls that the E-Commerce Directive at Recital 47 allows for specific monitoring obligations and Recital 48 adds that this Directive does not affect the possibility for Member States to require the service providers concerned to apply reasonable duties of care in order to detect and prevent certain types of illegal activities. In the light of this, according to the Commission “where appropriate and within the limits of the abovementioned provisions, certain due diligence obligations may be imposed e.g. on providers of online hosting services with a view to preventing the upload of IPR infringing content identified by rights-holders and in cooperation with them”.
Can an injunction ordering the prevention of future infringements be a possible example of “due diligence” obligations? What is the scope of these obligations in the light of the limitations that the Commission recalls? Recent doctrine interprets the Tommy Hilfiger ruling as confined to allowing only the extent of specific injunctions to prevent future infringements to measures which contribute to avoiding new infringements of the same nature by the same market trader.
At the same time, while as an example of such obligations, the Commission refers to Article 13 of the Commission’s proposed Copyright Directive, some authors, in response to questions asked by various EU Member States in the context of the Commission’s proposal, consider that the current drafting of this proposed article itself may raise concerns in terms of compliance with EU law.
 Commission Press Release, Intellectual property: Protecting Europe’s know-how and innovation leadership, November 29, 2017.
 Communication “A balanced IP enforcement system responding to today’s societal challenges”, COM (2017) 707, accompanied by Staff Working Document SWD (2017) 430 “Overview of the functioning of the Memorandum of Understanding (MoU) on the sale of counterfeit goods via the internet.”, Communication “Guidance on certain aspects of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights”, COM (2017) 708 (hereinafter “Guidance on the Enforcement Directive”), accompanied by Staff Working Document Report on the Evaluation of Directive on the enforcement of intellectual property rights, SWD (2017) 431, COM(2017) 712 final, Communication “Setting out the EU approach to standard essential patents”.
Commission Communication, COM/2014/0392 final, “Towards a renewed consensus on the enforcement of Intellectual Property Rights: An EU Action Plan”. Also see, for its strategy on improving the fight against IPR infringements in third countries, Commission Communication, “Trade, growth and intellectual property – Strategy for the protection and enforcement of intellectual property rights in third countries”, COM(2014) 389 final, 1 July 2014.
Commission Communication, “A Digital Single Market Strategy for Europe”, COM/2015/0192, May 6, 2015.
Commission Communication, “Upgrading the Single Market: more opportunities for people and businesses”, COM/2015/0550, October 28, 2015.
 Between 2015 and 2016, the Commission ran a public consultation to assess the functioning of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights (“Enforcement Directive”).
 Commission Communication, COM(2017) 228 final, May 10, 2017.
The Commission also adopted initiatives aimed at updating the legal framework applicable to copyright in order to adapt the existing rules to the Internet technological developments: see Communication “Promoting a fair, efficient and competitive European copyright-based economy in the Digital Single Market”, COM(2016)592, September 14, 2016 and Proposal for a Directive of the European Parliament and of the Council on Copyright in the Digital Single Market of September 14, 2016 (“proposed Copyright Directive”).
 See supra, fn. 2.
See Guidance on the Enforcement Directive, supra, fn. 2.
 Staff Working Document SWD (2017) 430 “Overview of the functioning of the Memorandum of Understanding (MoU) on the sale of counterfeit goods via the internet.” On the basis of a set of key performance indicators (KPIs), the Staff Working Document provides an empirical overview on how the MoU, first adopted in 2011 and subsequently updated in 2016, functioned between June 21, 2016 and June 21, 2017. Such indicators show that the MoU is proving effective and has already significantly contributed to curbing online counterfeiting.
 See supra, fn. 2.
 See, Enforcement Directive Guidance, Section III, page 11.
 Under Article 3(1) of the Enforcement Directive, the measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights covered by this Directive (…) shall be fair and equitable and shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.
 See supra, fn. 14. Under Article 3(2), “those measures, procedures and remedies shall also be effective, proportionate and dissuasive and shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.”
 For a thorough overview, see M.Husovec, Injunctions Against Intermediaries in the European Union, Accountable but not Liable, Cambridge University Press, 2017.
 See Judgment of the CJEU (Grand Chamber) of 12 July 2011, C-324/09, L’Oréal SA and Others v eBay International AG and Others, para. 127. In this judgment, the court considered that measures to prevent further infringements can be applied under Article 11 of the Directive.
 Id. The Commission also recalls cases C-70/10, Scarlet Extended, para. 31; C-360/10, SABAM, para. 29.
 Case C-494/15, Tommy Hilfiger, para. 22. In this case, the Court of Justice recalled para. 127 of the L’Oréal v eBay judgment, reiterating it, and said that the matter was thus “settled case law”. Arguing that the limitations to the scope of the injunction set out by the CJEU in Tommy Hilfiger bind national judges also in granting injunctions to intermediaries in the online world, see M.Husovec, Injunctions Against Intermediaries in the European Union, Accountable but not Liable, Cambridge University Press, 2017, pages 120-121.
 C-314/12, UPC Telekabel Wien GmbH v Constantin Film Verleih GmbH and Wega Filmproduktionsgesellschaft mbH, EU:C:2014:192.
 Tommy Hilfiger, supra, para. 23: according to the Court, “for an economic operator to fall within the classification of ‘intermediary’ within the meaning of those provisions, it must be established that it provides a service capable of being used by one or more other persons in order to infringe one or more intellectual property rights, but it is not necessary that it maintain a specific relationship with that or those persons”.
Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonization of certain aspects of copyright and related rights in the information society (hereinafter, “Copyright Directive” or “InfoSoc Directive”).
 The Commission recalls Recital 59 of the Copyright Directive, which states that without prejudice to any other sanctions and remedies available, rights-holders should have the possibility of applying for an injunction against an intermediary who carries a third party’s infringement of a protected work or other subject-matter in a network. Such possibility is concretely foreseen under Article 8(3) of the Directive.
 Accordingly, on the one hand, the involvement of such economic operators, which did not themselves engage in any infringing activity, in the process of IPR enforcement under the Enforcement Directive can be required to ensure that rights-holders are in a position to effectively enforce their rights. On the other hand, there may in a given case be no justification for such involvement where the services provided are so distant or immaterial to the (alleged) infringement that the economic operator in question cannot reasonably be expected to significantly contribute to such effective enforcement, meaning that its involvement would be disproportionate and unnecessarily burdensome.
 In the context of measures tackling infringements of IPRs, the principle of proportionality has been codified under Art. 3(2) of the Enforcement Directive.
 In that case at stake was a blocking injunction against UPC Telekabel, an internet service provider, taken on the basis of Article 8(3) of the InfoSoc Directive.
C-314/12, UPC Telekabel Wien GmbH v Constantin Film Verleih GmbH and Wega Filmproduktionsgesellschaft mbH, EU:C:2014:192, paras. 52-57.
 C-314/12, UPC Telekabel, para. 52-57.
 Section IV(3) of the Enforcement Directive Guidance.
 C-484/14, Tobias Mc Fadden v Sony Music Entertainment Germany GmbH, EU:C:2016:689, para. 93-95; C-314/12 UPC Telekabel, para. 56 and paras. 58-62.
 C-314/12, UPC Telekabel, para. 53.
 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market, OJ L 178, 17.7.2000, p. 1-16.
 The Commission recalls that in the abovementioned Scarlet and Sabam judgments the Court of Justice considered the measures at stake (broad injunctions ordered by a national judge) to be incompatible both with Article 15 of the E-Commerce Directive and Article 3(2) of the Enforcement Directive, when read with in conjunction with the requirement to respect fundamental rights.
 The Commission considers that, in certain specific circumstances, dynamic injunctions, which are forward looking and allow for a targeting of URLs when the infringement reoccurs (namely, in the presence of a whac-a-mole effect) can be an effective way to ensure enforcement of IPRs without the plaintiff having to reapply for a separate injunction,.
 Namely, Article 15 of the E-Commerce Directive, Article 3of the Enforcement Directive, the case law of the CJEU and fundamental rights as enshrined in the Charter of Fundamental Rights of the European Union.
 Husovec, supra, note 14, page 106. Arguing that: “providing policy plug-ins by means of injunctions isn’t a good way forward”, see again Husovec, id, page 18.
 See Max Planck Institute for Competition and Innovation contribution in response to the questions raised by the authorities of Belgium, the Czech Republic, Finland, Hungary, Ireland and the Netherlands to the Council Legal Service regarding Article 13 and Recital 38 of the Proposal for a Directive on Copyright in the Digital Single Market, available at: http://www.ip.mpg.de/fileadmin/ipmpg/content/stellungnahmen/Answers_Article_13_2017_Hilty_Moscon-rev-18_9.pdf. The proposed Copyright Directive is expected to be considered by the JURI committee of the European Parliament in the next few months.
European Patent Office Adopts Study on Patents and Publishes First Edition of the Unitary Patent Guide
By Kletia Noti
On November 14, 2017, the European Patent Office (“EPO”) published a study titled “Patents, trade and foreign direct investment in the European Union” (hereinafter, “Study”). Inter alia, the Study assesses “the impact of the European patent system on the circulation of technologies through trade and foreign direct investment in the EU single market. The Study opines that the current patent system in Europe could bring increased benefits if further harmonization were accomplished. Under the current patent system, fragmentation post-grant gives rise to limitations which may hinder cross-border trade and investment in IP- and technology-intensive industries. According to the Study, the Unitary Patent will remove many of these limitations.
The Study follows the EPO publication, on 18 August 2017, of the first edition of the Unitary Patent Guide (hereinafter, “Guide”). The Guide aims to provide companies, inventors and their representatives with an outline of the procedure involved in obtaining a Unitary Patent from the EPO, once the EPO has granted a European patent on the basis of the provisions laid down in the European Patent Convention (“EPC”). In particular, the Guide addresses the mechanisms to obtain and renew a Unitary Patent, the information which will be rendered available about the already granted Unitary Patents, who can act before the EPO with regard to a Unitary Patent and how to record changes of ownership and licenses.
In addition to the classic routes to obtain a patent in the EU (i.e. the national route; the European patent), a Unitary Patent can be sought as a result of the Unitary Patent reform. The Unitary Patent will make it possible to get patent protection in up to 26 EU Member States by submitting a single request to the EPO, making the procedure simpler and more cost effective for applicants. More specifically, the Unitary Patent is a “European patent with unitary effect”, which means a European patent granted by the European Patent Office under the rules and procedures of the European Patent Convention (EPC).
At the pre-grant phase, the procedure will follow the same steps as those for European patents granted by the EPO under the rules of the EPC. If the criteria set out under the EPC are met, the EPO grants a European patent. Once the European patent is granted, the patent proprietor will be able to request unitary effect, thereby obtaining a Unitary Patent which provides uniform patent protection in up to 26 EU Member States. Namely, what distinguishes the European patent from the Unitary Patent is that, after the grant, the proprietor may ask the EPO for unitary effect to be attributed for the territory of the participating EU Member States in which the Agreement on a Unified Patent Court (hereinafter, “UPCA”) , an international treaty, has taken effect at the date of registration.
Against the above background, the Unitary Patent will thus cover the territories of those participating EU Member States in which the UPCA has taken effect at the date of registration of unitary effect by the EPO. The EPO clarifies that, as it is likely that the ratification will occur successively, there will be different generations of Unitary Patents with different territorial coverage. This means that, although 26 EU Member States are currently participating in the Unitary Patent scheme, Unitary Patents registered at the outset will not cover all 26 of their territories, because some of them have not yet ratified the UPCA.
On November 20, 2017, the President of the Council of the EU published a summary of the situation in the 25 Member States which have signed the Unified Patent Court Agreement (UPCA) concerning both their ratification of the UPCA and their consent to be bound by its Protocol on Provisional Application (PPA).
While France has already ratified the UPCA and has expressed consent to be bound by the PPA, the UK and Germany have not done so yet.
In particular, what the impact of Brexit on the Unitary Patent project would be is still unclear. On December 4, 2017, the UK House of Commons formally approved the draft Unified Patent Court (Immunities and Privileges) Order 2017. The House of Lords Grand Committee also met on December 6, 2017 to consider this draft Order. The approval of such an Order by the House of Lords and its subsequent approval (along with the corresponding Scottish Order) by the Privy Council are the final steps in the UK’s ratification process that need to be completed before the UK can formally ratify the UPC Agreement.
Earlier in 2017, a constitutional complaint was lodged with the Federal Constitutional Court in Germany. The complaint is currently pending and, if upheld, is expected to likely cause delay to the German ratification of the UPCA and Germany consenting to be bound by the PPA.
 Whether the United Kingdom continues to participate in the Unitary Patent and the Unified Patent Court after its withdrawal from the EU will be a political decision for the EU, its remaining Member States and the United Kingdom and may be addressed as part of the exit negotiations. See Guide, Section 15.
 In February 2013, 25 EU Member States, i.e. all EU Member States except Spain, Poland and Croatia, signed the Agreement on a Unified Patent Court (UPCA), Date of entry into force unknown (pending notification) or not yet in force, OJ C 175, 20.6.2013, p. 1–40. The UPCA is the third component of the Unitary Patent package. The Unified Patent Court (UPC) is a common court for all the Member States party to the UPCA and therefore, it is part of their judicial system. It has exclusive competence in respect of Unitary Patents as well as in respect of classic European patents validated in one or several of those states. See: https://www.epo.org/law-practice/legal-texts/html/upg/e/uppg_a_v_3.html. In September 2015, Italy joined the Unitary Patent and became the 26th member of the enhanced cooperation on Unitary Patent protection.
 The EU regulations establishing the Unitary Patent system (No 1257/2012 and No 1260/2012) entered into force on 20 January 2013, but they will only apply as from the date of entry into force of the UPCA, namely on the first day of the fourth month following the deposit of the 13th instrument of ratification or accession (provided those of the three Member States in which the highest number of European patents had effect in the year preceding the signature of the Agreement, i.e. France, Germany and the United Kingdom, are included). See EPO, When will the Unitary Patent start: https://www.epo.org/law-practice/unitary/unitary-patent/start.html
See, for a list of the (so far) 14 Member States which have already ratified the UPCA: http://www.consilium.europa.eu/en/documents-publications/treaties-agreements/agreement/?id=2013001# (last accessed 17 December 2017)
 Note from Presidency to the Council, Unitary Patent and Unified Patent Court – Information on the State of Play, 20 November 2017.
 On December 22, 2017, a note was sent to the UK Government by the UK Law Society which had been contributed to and signed by other IP stakeholder organisations, asking the Government to provide legal certainty regarding the UPC post-Brexit.
See, for an overview: https://publications.parliament.uk/pa/cm201719/cmvote/171204v01.html
 M.Richardson, The Lords Consider the UPC: Where is it?, 12 December 2017, available at: https://ipcopy.wordpress.com/2017/12/12/the-lords-consider-the-upc-where-is-it/
Juve, UPC: Düsseldorfer Rechtsanwalt Stjerna legte Verfassungsbeschwerde ein, September 6, 2009: https://www.juve.de/nachrichten/verfahren/2017/09/upc-duesseldorfer-rechtsanwalt-stjerna-legte-verfassungsbeschwerde-ein
 For the PPA to come into effect, 13 signatory states – which have signed the UPCA (and which must include France, UK and Germany) and have ratified the UPCA or informed the depositary that they have received parliamentary approval to ratify the UPCA – must have signed and ratified, accepted or approved the Protocol or declared themselves bound by Article 1 of the Protocol. Therefore, Germany’s consent to the PPA is needed before the provisional application phase can start.
By Maria E. Sturm
On 12 July 2016, the European Commission issued its implementing decision pursuant to Directive 95/46/EC of the European Parliament and of the Council on the adequacy of the protection provided by the EU-U.S. Privacy Shield (Decision 2016/1250). It became necessary after the ECJ declared the safe harbor policy of the EU Commission concerning the USA invalid in Maximilian Schrems v Data Protection Commission (C – 362/14). The new privacy shield contained several alterations to its predecessor, as well as the commitment to an annual review to asses, if an adequate level of data protection is still ensured. The first annual report has been published on 18 October 2017. It is based on meetings between the EU Commission and all relevant U.S. authorities, as well as on input from several stakeholders (companies, NGOs, data protection authorities of the Member States, etc.).
The review covered all aspects of the privacy shield. Those are formally, its implementation, administration, supervision and enforcement and with regard to its content the commercial aspects, as well as aspects of governmental access to personal data. So far, 2400 companies have been certified under the new privacy shield. This means first, that it is used actively and second, that the review commission had sufficient data to examine, if it works and where there are possibilities for improvement and refinement.
The U.S. authorities have introduced complaint-handling and enforcement mechanisms, as well as procedures to protect individual right, including the Ombudsperson mechanism. Furthermore, the relevant safeguards concerning access to personal data by public authorities, namely Presidential Policy Directive 28 (PPD-28), are still in force. Therefore, the report states, that in general, the United States provide an adequate level of protection as required by the European Court of Justice. However, the Commission still made some recommendations for further improvement:
- Companies should not be able to publicly refer to their Privacy Shield certification before the certification is finalized by the Department of Commerce (DoC): some companies referred to their certification after their application, but before the process had been finalized. This discrepancy can lead to wrong public information and can undermine the shield’s credibility.
- The DoC should search proactively and regularly for false claims: this refers to companies who initiated, but never completed the certification process, as well as to companies who never applied for a certification but still publicly suggest they comply with the requirements.
- The DoC should monitor compliance with the Privacy Shield Principles continuously: this could be done e.g. via compliance review questionnaires and/or annual compliance reports (either self-assessment or outside compliance review). The results could be used as starting point for follow up action, in case particular deficiencies are detected.
- DoC and Data Protection Authorities (DPA) should further strengthen awareness rising: in particular, EU citizens should receive information about their rights and how to lodge complaints.
- DoC, DPAs and Federal Trade Commission (FTC) should improve their cooperation: more intensive cooperation between all involved authorities on both sides of the Atlantic can help to implement and enforce the Shield.
- Protections of PPD-28 should be enshrined in the Foreign Intelligence Surveillance Act: this could ensure stability and continuity with regard to the protections of non-US persons.
- Privacy Shield Ombudsperson should be appointed as soon as possible: although the Ombudsperson mechanism already works, the Ombudsperson itself still has not been appointed. This should be done as soon as possible to complete this tool.
- Privacy and Civil Liberties Oversight Board (PCLOB) members should be appointed swiftly: here the same argument applies as in point 7. The board itself already started its work, but is not completely manned and therefore not as efficient as it could be.
- Reports should be released timely and publicly: the U.S. administration should release publicly the PCLOB’s report on the implementation of PPD-28, due to its relevance. In addition, the U.S. authorities should provide the Commission with comprehensive reports on recent relevant developments.
Furthermore, on behalf of the Commission, a study on automated decision-making will take place to collect further information and assess the relevance of automated decision-making for transfers carried out on the basis of the Privacy Shield.
After just one year, on could not expect everything to work perfectly, but the report gives an optimistic evaluation. Thus, with some further refinement, it seems, that the United States and the EU have found a helpful and viable tool that balances the companies’ and the government’s need for data with the individuals’ right to protect their data from unauthorized access.
By Irene Ng (Huang Ying)
At the recent ChatbotConf 2017 hosted in Vienna, Austria on October 2-3, distinguished speakers from leading technology companies convened to discuss an up-and-coming tech – none other than the chatbot. The speakers discussed a range of topics, such as “Competing with character”, “turn(ing) conversations into relationships”, and “building conversational experiences”, and other topics, which is viewable at the ChatbotConf website.
If you thought that the above topics were describing human relations, the fact is, you were not exactly wrong – the focus is actually about developing a human character for chatbots. For some of us, the chatbot might be a piece of tech that we are acquainted with. We may have interacted with these bots on social media platforms such as Facebook Messenger, or used bots on Twitter to track down Pokémon to catch on the famous assisted virtual reality game, Pokémon Go. In some cases, these chatbots are designed to provide customer support or service to the target audience. In other cases, such chatbots are built to provide simple, updated information to users, such as the TyranitarBot on Twitter, or Poncho, a bot that is designed to send “fun, personalized weather forecasts every morning”.
This growing prevalence and use of chatbots by businesses or organizations on various platforms is not something to be ignored. Within the legal industry, several companies have created “legal bots” that are designed to either direct users to the right place (e.g. what kind of lawyer they should be seeking), or perform an easy, repetitive service that can be easily automated and resolved. A famous case displaying the potential of chatbots in the legal industry is that of DoNotPay, a chatbot that has reportedly helped “overturn 120,000 parking tickets in New York and London” by challenging parking tickets. Besides DoNotPay, there are other bots in the legal industry such as LegalPundits that helps to determine what kind of legal advice the potential client needs, to “match [the client] with the resources that [the client] needs”.
As users become more comfortable with interacting with chatbots and using chatbots to help them solve their customer queries, an interesting avenue to explore is the use of chatbots for institutions providing pro bono services. Institutions that provide pro bono services, in particular those that run free legal clinics, can benefit from the use of chatbots in various ways. Firstly, these institutions can use chatbots as a screening tool to filter out whether the said applicant has met the means test to qualify for the free pro bono services. Means tests usually require applicants to fulfill a fixed set of criteria, and if such criteria are generally inflexible (e.g. applicant’s income must be less than USD$1,000.00, anything above this amount will be rejected), then the chatbot can be deployed to interact with these applicants to determine whether the applicant has, at the first screening, met the basic criteria for free pro bono services.
Similarly, institutions can use these chatbots to direct applicants or callers to the right ministry or non-profit organization that may be able to assist them further in the specific legal query that they have. For example, an institution providing pro bono services may often get inquirers making simples requests, such as “where can I repeal my parking ticket”, or “how do I get a divorce”. For the latter scenario, the chatbot can be trained to provide a response, indicating that the inquirer ought to seek a divorce lawyer, point the inquirer to a set of easily digestible information on divorces, followed by a list of divorce lawyers that the inquirer may contact.
Granted, there may – or will – be pitfalls in using chatbots to deal with legal pro bono queries. Applicants or inquirers that approach institutions providing pro bono services may become emotional when discussing their legal problems, and having a human touch attending to such a person’s legal needs may seem to be preferable than a machine. Furthermore, while chatbots can be trained to fulfill certain functions such as determining whether an applicant meets the means test, borderline cases may not be adequately attended to. Using the means test example provided earlier, where applicants must have an income of less than USD $1,000.00, an applicant who declares that she earns USD $1,001.00 may be rejected by the chatbot automatically if the developer did not train the chatbot to consider such borderline cases.
However, despite these concerns, there is still much room for chatbots to grow and help serve a public service function by providing greater accessibility to law. A good chatbot can help pro bono institutions make better use of their resources. By implementing a chatbot to help with simple tasks such as diverting inquirers to the right pages, or assisting volunteers to sift out genuine applicants that fulfill the means test, these pro bono institutions can divert resources or manpower, which would otherwise be used to tackle these relatively simple and repetitive tasks, to other areas, thereby increasing efficiency with the same limited budget that such institutions providing pro bono services have.
While there has been much chatter in the chatbot scene to develop an emotional intelligence for chatbots, ultimately, providing legal aid is a form of public service – and as with all types of service, it is unavoidable that humans may still want to converse with a real human being. As we move forward to explore new avenues of providing legal aid through different platforms in a more efficient and cost-effective manner, we should never forget nor neglect to still provide a physical helping hand to those who need legal aid – and not assume that a chatbot can take our place and release us from our social duty as lawyers to help the needy.
Big Data: Italian Authorities Launch Inquiries on Competition, Consumer Protection and Data Privacy Issues
By Gabriele Accardo
On 30 May 2017, the Italian Competition Authority, the Italian Data Protection Authority and the Communications Authority opened a joint inquiry on “Big Data”.
The joint sector inquiry by the Italian Competition Authority, the Italian Data Protection Authority and the Communications Authority will focus, respectively, on potential competition and consumer protection concerns, data privacy, as well as on information pluralism within the digital ecosystem.
First, based on the assumption that the collection of information and its use through complex algorithms have a strategic role for firms, especially for those offering online platforms, which use the collected data to create new forms of value, the inquiry will thus assess whether, and under which circumstances, access to “Big Data” might constitute a barrier to entry, or in any case facilitate anticompetitive practices that could possibly hinder development and technological progress.
Secondly, the use of such large amounts of information may create specific risks for users’ privacy given that new technologies and new forms of data analysis in many cases allow companies to “re-identify” an individual through apparently anonymous data, and may even allow them to carry out new forms of discrimination, and, more generally, to possibly restrict freedom.
A further risk for the digital ecosystem is linked to how online news is now commonly accessed. In fact, digital intermediaries employ users’ information forms of profiling and the definition of algorithms, which in turn, are able to affect both the preservation of the net neutrality principle, and the plurality of the representations of facts and opinions.
It may be expected that while the inquiry will focus on certain specific businesses (typically platforms-related), the authorities may send requests for information to all businesses that collect and make significant use of customer/user data.
Relatedly, on 10 May 2016, French and German Competition Authorities published their joint report on competition law and Big Data. Separately, the French Competition Authority announced the launch of a full-blown sector inquiry into data-related markets and strategies.
In recent months, data-related issues have been at the core of specific investigations by the Italian Competition Authority (against Enel, A2A and ACEA for an alleged abuse of dominance, and against Samsung and WhatsApp for unfair commercial practices), and the Italian Data Protection Authority (against WhatsApp), showing that Italian authorities are getting ready for the challenges that the data-driven economy brings.
Enel, A2A, and ACEA, ongoing investigations on alleged abuse of dominance
On 11 May 2017, following a complaint by the association of energy wholesalers, the Italian competition Authority (“ICA”) raided the business premises of Enel, A2A and ACEA in order to ascertain whether the energy operators may have abused their dominant positions in the electricity market in order to induce their respective customers (private individuals and small businesses) to switch to their market-based electricity contracts.
In particular, according to the ICA, each energy operator may have used “privileged” commercial information (e.g., contact details and invoicing data) about customers eligible for regulated electricity tariffs (so-called Servizio di maggior tutela), which was held in the capacity as incumbent operator(s) (at national level for Enel, and in the Milan and Rome areas for A2A and ACEA, respectively), as well as its dedicated business infrastructure to sell its market-price electricity supply contracts to private individuals and small business customers.
Enel may have also misled consumers by stating that it would be able to guarantee a more secure energy supply than Green Network in order to win-back “former” customers, and thus induce them to choose its contracts.
The investigation is similar to the one recently concluded by the French Competition Authority against energy operator Engie, which resulted in a fine of Euro 100 Million.
Interestingly, both investigations in Italy and France raise issues similar to those addressed in September 2015 by the Belgian Competition Authority against the Belgian National Lottery. The Belgian Authority held that the Belgian National Lottery used personal data acquired as a public monopoly to the market its new product Scooore! on the adjacent sports betting market. The Belgian Competition Authority found that such conduct constituted an abuse of dominance insofar as the information used by the infringer could not be replicated by its competitors in a timely and cost-effective manner.
Samsung – unfair commercial practices
On 25 January 2017, the Italian Competition Authority (“ICA”) levied a 3.1 Million Euro fine on Samsung in relation to two unfair commercial practices related to the marketing of its products, one of which concerned the forced transfer of personal information for marketing purposes.
In essence, Samsung promoted the sale of its electronic products by promising prizes and bonuses (e.g. discounts, bonus on the electricity bill, and free subscription to a TV content provider) to consumers. However, contrary to what the advertising promised, consumers could not get the prize or bonus when buying the product, but could only receive it at a later stage, following a complex procedure that was not advertised, but was only made available in the Terms and Conditions and to consumers who registered on Samsung People online. Besides, consumers were repeatedly requested to provide documents over and over again.
The ICA also found the practice of making discounts conditional upon registering with the company’s digital platform and giving consent to the processing of their data unfair and aggressive, insofar as consumers could not get the promised prize or bonus without giving their consent to the commercial use of their personal data, which were used by Samsung for purposes unrelated with the promotional offer of the product itself. The ICA thus found that the data requested by Samsung were irrelevant and unrelated to the specific promotion in question.
WhatsApp – unfair commercial practices and privacy issues
This is yet another case concerning the forced transfer of personal information for marketing purposes, which followed the same lines of the Samsung case.
Preliminarily, the ICA held that data is a form of information asset, and that an economic value can be attached to it (e.g., Facebook would in fact be able to improve its advertising activity with more data). The ICA further found that a commercial relationship exists in all instances where a business offers a “free” service to consumers in order to acquire their data.
- users were not provided with adequate information on the possibility of denying consent to share with Facebook their personal data on WhatsApp account;
- the option to share the data was pre-selected (opt-in) so that, while users could in fact have chosen not to give their assent to the data sharing and still continue to use the service, such a possibility was not readily clear and in any event users should have removed the pre-selected choice;
During the investigation, WhatsApp offered a set of remedies, but this offer was rejected by the ICA, based on the fact that, as a result of the methods used by WhatsApp to obtain customers’ consent to transfer their data to Facebook, the practice could be characterized as overtly unfair and aggressive, and as such deserved a fine (in any case WhatsApp halted the practice of sharing data with Facebook in light of ongoing discussions with national data protection agencies in Europe).
Interestingly, while the ICA decision is based on consumer protection grounds, last year the German Federal Cartel (FCO) Bundeskartellamt launched an investigation into similar conducts by Facebook, WhatsApp’s mother company, based on competition law grounds. Specifcally, the investigation was based on suspicions that with its specific terms of service on the use of user data, Facebook may have abused its alleged dominant position in the market for social networks. In particular, the presence of excessive trading conditions is the underlying theory of harm for the investigation launched by the FCO. In particular, the FCO is assessing whether Facebook’s position allows it to impose contractual terms that would otherwise not be accepted by its users.
Yet, consumer, competition law, and privacy considerations appear entangled in such cases, as shown by the investigation that Italian Data Protection Authority launched against WhatsApp in parallel with the ICA.
It is understood that while the investigation is still ongoing, the Italian Data Protection Authority requested WhatsApp and Facebook to provide information in order to assess the case thoroughly. In particular, the two companies were asked detailed information on:
- data categories that WhatsApp would like to make available to Facebook;
- arrangements that are in place to obtain users’ consent to disclose their data;
- measures that have been taken to enable exercise of users’ rights under Italy’s privacy legislation, since the notice given to users on their devices would appear to only allow withdrawing consent and objecting to data disclosure for a limited period.
In addition, the Italian Data Protection Authority is seeking to clarify whether the data of WhatsApp users that do not use Facebook will be also disclosed to that company, insofar as no reference to marketing purposes was in the information notice provided initially to WhatsApp users.
Businesses are moving fast to figure out how to best harness the wealth of consumer’s data and make good commercial use of it. Authorities around the globe are putting together their toolkits to address emerging issues in the data-driven economy.
In this cops and robbers game, it appears clear that businesses are struggling to understand which set of rules may apply to their business models, either because there are multiple laws that could potentially apply or because the rules are indeed not readily foreseeable or clear. Obviously, if the same conduct can be caught from many angles, then there is something wrong that need to be addressed, if that can stifle innovation.
That said, the message for businesses sent by these mushrooming initiatives in Europe and around the world is clear: consumers’ freedom to choose whether or not to allow their data to be transferred to parties intending to use this information in order to generate a profit from it should be and will be protected. Enforcers will tackle conduct that unduly influences consumers’ ability to take informed and free decisions.
Consumers on Fyre: Influencer Marketing and Recent Reactions of the United States Federal Trade Commission
By Catalina Goanta
Social media disruptions
Silicon Valley continues to change our world. Technology-driven innovations that are disseminated with the help of the Internet have met with great success. This success translates into heaps of followers, as one can see in the case of platforms such as Facebook and Instagram. However, it is the followers themselves who continually affect the purposes of these platforms. A good example in this sense is Youtube; what started out as an alternative channel for the sharing of low-resolution home videos soon became a place where users could actually create their own content professionally. If well-received, this content leads to real Internet phenomena, and eventually become monetized, via direct or indirect advertising. Individuals around the world now have access to their own TV-stations where they can attract funders and actually make a good living out of running their channels.
Online content creation raises issues that are similar to those in the sharing economy (e.g. Uber, Airbnb, etc.). On the one hand, online platforms connect individual content providers with viewers, in the same peer-to-peer fashion that AirBnB connects an apartment owner and a tourist. Given the service-orientation of both activities, provided they are monetized, a clear issue emerges: when does an individual stop being a peer? In other words, what does it mean to be a consumer in this environment? Relatedly, what legal standards apply to the process of creating such content?
The Fyre Fiasco
The Fyre Festival was supposed to be a luxury music festival scheduled for April and May 2017 in the Bahamas, organized by rapper Ja Rule and young entrepreneur Billy McFarland. The latter has made other business models catering to the rich, such as Magnises, a members-only benefits card programme aimed at wealthy millennials. However, instead of promised luxury and exclusivity, the Fyre Festival organizers could not provide its guests even with the most basic of amenities, ranging from accommodation to food and transport. This led to a massive social media fury, with tens of thousands of reposts on Facebook, Instagram and Twitter, showcasing the disastrous conditions that were far removed from the luxury advertisements and the matching price tags (participants paid up to $ 100,000 to attend the festival). Apart from criminal allegations of mail, wire and securities fraud, Fyre Media – Ja Rule and McFarland’s company – is already faing a $ 100,000,000 class action. In its Introduction, the complaint emphasizes that “[t]he festival’s lack of adequate food, water, shelter, and medical care created a dangerous and panicked situation among attendees—suddenly finding themselves stranded on a remote island without basic provisions—that was closer to ‘The Hunger Games’ or ‘Lord of the Flies’ than Coachella.” Because of the trust-building social media campaign Fyre Media had launched promote the event, festival-goers had no suspicion of fraud before they arrived at the event. Influencers such as Kendall Jenner, Bella Hadid, and Emily Ratajkowski were involved in making Instagram posts about the festival (without any proof of concept), and thereby endorsing the event and communicating to their millions of followers their trust in the Fyre Festival.
The Federal Trade Commission takes action
Influencer marketing is a grey area of consumer advertising. It entails companies reaching out to celebrities who benefit from a faithful following of individuals who they can easily sway to buy certain products. Monetizing a Youtube channel is a process requiring sustained effort, as channel owners will have to strike a balance between keeping their followers entertained and generating enough revenue for their activity. Popularity is correlated with the amount of earnings celebrities can make out of sponsored content.
What makes this into a great marketing technique is also what may hurt consumers the most. The trust-based relation between a celebrity and its fan-base appeals to marketers; it creates a more genuine story for their products or services. But trust is a fine line, and if a celebrity only endorses material things for money, it means they are not being honest with their audience, who might go and buy those products under mistaken assumptions.
The Federal Trade Commission labels these actions as endorsements, and is very clear that since such advertising tools can persuade consumers to engage in commercial transactions, endorsements must be truthful and not misleading. For this reason, the FTA created the Guides Concerning the Use of Endorsements and Testimonials in Advertising, soft rules designed to address the application of Section 5 of the Federal Trade Commission Act on unfair or deceptive acts or practices.
In the light of its guides and the Fyre fiasco, on 19 April the FTC notified more than 90 online influencers about the need for them to disclose their relations to the brands endorsed on social media. According to the Guides, if there is a “material connection” between an influencer and an advertiser which can influence the credibility of the messages posted on social media, the endorser must make this connection clear. In practice, that means adding different hashtags such as the hashtag #ad, by which the public understands that the celebrity in question has been paid to sing the praises of specific products. Still, not many celebrities seem to be bothered by this existing guideline, as only one post relating to Fyre Festival was actually tagged in a clear and conspicuous way to reveal the commercial interest behind the post itself.
Prior to the Fyre Festival debacle, in 2016 the FTC had filed a complaint against retailer Lord & Taylor, who paid more than 50 fashion influencers up to $4,000 to post photos of themselves in Instagram styling a specific dress and using the hashtag #DesignLab, without the disclosure of the material connection. The consumer deceit charges were eventually settled.
Are the guides enough to tackle the issue of endorsement? Perhaps there might be a deterrent effect with respect to aligning celebrities with legal standards, but the problem is wider if we consider the fact that it is not only celebrities advertising products on social media.
Just like Instagram, Youtube is a huge market for reviews on products or services relating to technology, games, clothing or make-up, just to name a few. Ordinary people become channel owners and post regular videos focusing on a particular theme. With time, some of these people reach quasi-stardom and become known names on the Internet. To take an example, NikkieTutorials, a successful make-up vlogger based in the Netherlands, has gained a total of 6,998,037 followers since joining Youtube in 2008, and her videos have been viewed 537,159,106 times so far. And while that might look like a lot, these numbers really fade into oblivion when compared to one of the most famous Youtubers of all time, the Swedish game vlogger PewDiePie. With a total following of around 55,538,695 individuals, his videos have collected an overwhelming total of 15,449,755,042 views ever since he joined Youtube in 2010 and earned approximately $7,400,000 in 2014 on the basis of this following. But these are only examples of very well established Youtubers; thousands if not hundreds of thousands of people are currently turning to Youtube to make a living, and in doing so, they seek to earn money from potential collaborators.
Youtube monetization often entails two main streams of revenue: AdSense and sponsorships. AdSense is a Youtube feature that allows channel owners to play ads in various formats before their own content, and their remuneration depends on the number of views their videos will score. Sponsorships are separate from the Youtube channel, in that external companies can contact a popular Youtuber and offer to pay that Youtuber for a sponsorship agreement. These agreements are likely to entail that the Youtuber endorses specific companies or products. As one of the most important features of Youtubers is that of being relatable, namely the feeling that Youtubers are normal people, just like their followers, channel owners will likely not want to openly disclose sponsorships. This creates a conflict of interests where the channel owner’s main activity is that of generating consumer opinions and reviews, while at the same time being secretive about the products that he or she is being paid to advertise.
On the basis of Section 5 of the FTC Act, such practices could be deemed to be unfair if they “cause or [are] likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” However, this seems to be a test that is not applicable to the mundane low-value objects normally advertised online, which begs the question – should the FTC do something more to align social media advertisers with the public interests it upholds? If that is the case, it most certainly cannot do so alone and will need the willingness of the platforms enabling these new practices to properly address this growing problem.