Bite-size commercial law update

Welcome to our bite-size commercial law update.

In this update, we summarise some of the key recent developments for in-house lawyers, covering contract, consumer and IP law, as well as the EU’s Digital Single Market initiative.

If you would like to discuss any of the issues raised in this update in more detail, please get in touch with one of us, or your usual Osborne Clarke contact.

1. Contract law

Can you make a binding agreement over dinner in a restaurant?

Yes, although all of the key elements for contract formation need to be present. By way of reminder, the key elements for contractual formation are: offer, acceptance, intention to be bound, certainty of terms and consideration.

The recent case of MacInnes v Gross [2017] EWHC 46 (QB) serves as a useful reminder of the approach the courts will take to two of these elements. The High Court held that a discussion between businessmen over dinner in a restaurant was insufficient to create a binding agreement because: (i) although they discussed high level terms, the terms were unclear, so there was no certainty; and (ii) the follow up emails indicated that the parties did not consider themselves contractually bound, so there was no intention to be legally bound. It’s also a reminder to avoid uncertainty by making the status of negotiations clear and to use terms such as “subject to contract”.

Selective distribution arrangements

Brand owners might be justified in stopping their products being resold on online marketplaces. If you operate a selective distribution system, read more here.

In a separate case, the CJEU ruled that if a party breaches the prohibition on resale outside a selective distribution agreement (in this case via online platforms operating in different EU member states), the place where the harm occurred should be the place where the distributor suffered a loss of sales, which will be same territory as that of the selective distribution agreement. The location of the online websites selling the product is not relevant as regards determining the place where the harm occurred. (Concurrence SARL v Samsung Electronics France SAS and Amazon Services Europe Sàrl, Case C-618/15).

High Court considers (and possibly extends) the meaning of “consequential loss” in limitation of liability clause.

A recent high court case (Star Polaris LLC v HHIC-PHIL) has looked at the meaning of the term “consequential loss”.  Over the years, the words “consequential loss” have acquired a well-recognised meaning. The Court of Appeal has affirmed in a number of cases that the term refers to loss which is recoverable under the second limb of Hadley v Baxendale.  However, in this case, “consequential loss” was held to have a wider meaning than the second limb of Hadley v Baxendale and included some loss which would ordinarily be regarded as direct loss.  It was confirmed that each liability clause must be construed on its own wording, in the context of the particular agreement and its own particular factual background.

Following this case there is now a risk that the term “consequential loss” will not be limited to the well-recognised meaning, but may have a more cause-and-effect meaning (where consequential losses are those that follow as a result or consequence of the event).  As a result, it is more important than ever to consider and identify the losses that are most likely to be suffered in the particular agreement and, ideally, cater for them expressly.

2. Consumer law

Unfair terms 1 – CJEU provides guidance on enforcement

The recent case of Banco Primus SA v Jesús Gutiérrez García (Case C-421/14) has provided two important clarifications about the enforcement of unfair terms:

• the fact that a judicial assessment has already been carried out in respect of a consumer contract does not mean that a court cannot subsequently review the other terms and make a declaration that another term is unfair; and
• in finding a term unfair, the Spanish court held that the term would have no effect in the future (i.e. after the date of delivery of the judgment).

The CJEU pointed out that, according to the Unfair Terms in Consumer Contracts Directive, unfair terms must not bind consumers in such a way that they are deemed never to have existed. The finding of unfairness must have the effect of restoring the consumer to the situation that they would have been in if that term had not existed. In this case, consumers were due full refunds of overpayments made under the unfair clauses. This is a reminder to businesses that a finding of unfairness could have a significant business and financial impact.

Unfair terms 2 – High court considers how to assess unfair terms:

The recent case of Abbott v RCI Europe provided further guidance about whether a term that allows a trader discretion may be unfair. The case related to timeshare properties, and in particular a clause that gave property owners wide discretion as to how property weeks were traded. The High Court found that the term didn’t create a ‘significant imbalance in the parties’ rights and obligations‘ because the scheme operator was still subject to both the implied statutory requirement to use ‘reasonable care and skill’ and the common law requirement that it must not use its discretion arbitrarily, capriciously or unreasonably. The Court held there may only be a ‘significant imbalance’ if the allegedly unfair term places the consumer in a legal position less favourable than that provided for by national law.

However, the suggestion that an allegedly unfair term should be assessed on the basis that it is constrained by implied terms and common law is arguably at odds with CMA guidance on the issue. This is a reminder that a term allowing a business discretion should only ever be included, and exercised, with care.

Dividing the price of a product into several components and highlighting one of them could be both a misleading action and a misleading omission of material information.

Canal Digital launched a television and internet advertising campaign for its TV packages. The adverts prominently stated the monthly 99 DKK subscription charge. However an additional 389 DKK six monthly “card service” fee was presented much less prominently in some adverts and not mentioned at all in others.

In this case (Canal Digital Danmark A/S, Case C 611/14), the CJEU held there was a breach of the Unfair Commercial Practices Directive. Dividing the price of a product into several components and highlighting one of them could be both a misleading action and a misleading omission of material information, on the basis that it caused the average consumer to make a transactional decision that they would not have made otherwise.

Retail pricing and geo-blocking come under scrutiny from the European Commission.

Following the Commission’s investigation into the e-commerce sector,  launched in mid-2015, which showed patterns of four illegal practices, the Commission has launched three investigations which target video game publishers, tour operators and electronics makers for price manipulation and discrimination based on a shopper’s location or nationality. The full results of the e-commerce inquiry will be published in the first half of the year, and could lead to other antitrust cases focusing on price-comparison websites and restrictions from selling on certain online marketplaces. This is a warning for e-commerce companies to get their houses in order as quickly as possible.

Read more.

3. Intellectual Property

Can users of a multimedia device used to stream illegal content be held liable for copyright infringement?

Yes, if the user has knowledge that the streamed content was unlawful. According to the Advocate-General, in Stichting Brein v Wullems, acting under the name of Filmspeler, Case C-5237/15 when the content streamed is illegal (or where there is a circumvention of access restrictions) the temporary copies of the content created in the cache and on-screen memory are not covered by the temporary copies exception (Article 5 of the InfoSoc Directive).

The AG explained that these copies do not satisfy the requirement that they enable a “lawful use” of the protected work. However, he suggested that “excusable ignorance” or “reasonable lack of knowledge” on the part of the user of the illegal nature of the content should exempt the user from liability.  Rightholders must now await the CJEU decision to see whether the Advocate-General’s opinion is followed.

Can a peer-to-peer network be held liable for committing a communication to the public?

Yes, once the operator of the peer-to-peer network has knowledge that the material is infringing. According to the Advocate-General in Stichtung Brein v Ziggo BV and XS4All Internet BV, Case C-610/15, whilst a peer-to-peer network such as Pirate Bay is only an intermediary, from the moment the operator has knowledge that the material is infringing and does not take action to remove access to the work, its conduct expressly allows the continuation of the illegal act of making available by the network users.

Whilst it remains to be seen whether the CJEU will follow the AG’s opinion, if it does, this would mean peer-to-peer networks are on the hook for damages if they are notified of the presence of infringing material and fail to remove it. The AG also held that even if Pirate Bay is not liable itself, an injunction can be obtained against the ISP to block access to the site if the operator can be held under national law to be liable for copyright infringement and provided it is proportionate to the significance and seriousness of the copyright infringement committed. The UK courts had already held that an intermediary could be found liable for communicating to the public in similar circumstances (Twentieth Century Fox v Newzbin Ltd) but this is the first time that the European courts have looked at this issue.

And can watching TV in a hotel room also be a communication to the public of a broadcast for a fee?

No, according to the CJEU in Verwertungsgesellschaft Rundfunk GmbH v Hettegger Hotel Edelweiss GmbH, Case C 641/15. The CJEU ruled that, under Article 8(3) of the Rental Directive (2006/115/EC), communicating TV and radio broadcasts via TV sets in hotel rooms does not constitute a ‘communication made in a place accessible to the public against payment of an entrance fee’.

The case was originally brought by a collecting society that was also representing broadcasters, against a hotel company that provided TV sets in its rooms. The Court held the price of a hotel room was not an ‘entrance fee’, but rather payment for accommodation to which certain additional services like TV and Radio were then added and normally included in the price. This decision doesn’t change previous rulings that broadcasts via TVs can constitute a ‘communication to the public’ from a performers’ and record producers’ perspective, but now specifically clarifies it in relation to broadcasts.

4. Digital Single Market

e-Privacy regulations

The European Commission announced the publication of its draft Regulation on Privacy and Electronic Communications. The draft represents just the first key stage of the European legislative process – and it will almost certainly be subject to change before it is finally approved by the European Parliament. Nonetheless, the draft e-Privacy Regulation looks set to introduce a number of very significant reforms.

Read more.

Pay-TV investigation

European Commissioner for Competition Margrethe Vestager has confirmed that the antitrust inquiry into US movie studios and Sky’s UK arm is focussed on finding that clauses mandating technical steps to implement geoblocking are unlawful. It is not looking to change the principle that copyright is territorial.

Portability

Portability of content across the EU is one step closer to being realised after the European Parliament, Council and the Commission reached agreement on the portability regulation. The final text will be published in March or April. It is then expected to come into force in May 2017 and companies will have 9 months to comply, meaning implementation will be in early 2018.

Read more.

AVMS

There have been multiple publications from committees seeking to influence the direction of travel of the proposed amendments to the Audiovisual Media Services Directive, the most recent being the LIBE opinion: here.

Geo-blocking

Various committees have also been formally adopting their opinions on the proposed geo-blocking Regulation, the most recent being the EP Culture and Education Committee opinion here and the EP Industry, Research and Energy Committee opinion here.

5. Consultations

Ofcom publishes consultation on new regulatory fees regime for on-demand programme services

In itself this may not sound like big news, but this consultation should be coupled with: (i) the fact that fees are currently set at zero – so any change to the current regime will have a financial impact on operators; and (ii) the current proposed amendments to the Audiovisual Media Service Directive, which would bring more services within scope of this regulation, so services which may previously have avoided these charges would have to pay them in the future. The consultation closes on 29 March 2017. More here.

Product liability REFIT

The Commission has launched a public consultation on the rules of product liability as set out in the Product Liability Directive (85/374/EEC) as to whether the rules are effective and efficient, relevant and fit-for-purpose with regards to new technological developments such as the Internet of Things and autonomous systems. The consultation closes on 26 April 2017. More here.