Internet service providers (ISPs) and operators of marketplaces have for several years enjoyed a somewhat unique privilege in Europe (and also in other parts of the world), i.e. not to be held liable for the contents and offerings on such platforms based on their prime (defense) argument that the sheer multitude of business transactions and traffic on the World Wide Web would render it literally impossible for them to exercise any efficient control. A recent judgement by the European Court of Justice seems to reconfirm this comfort zone, but the writing is already on the wall that the ISPs privileged position could be considerably weakened. It may even become obsolete, at least from a mid-term perspective.
On April 2, 2020, the European Court of Justice (ECJ) held in its judgement (case C-567/18) that Amazon is not liable for the storage of counterfeit goods as such.
At first glance this may sound as bad news for any manufacturer/distributor of genuine branded products and for legitimate IP rights holders in general. Yet one should bear in mind that the ECJ solely responded to a very narrow question and scenario, where Amazon remained so to say “passive” in its commercial conduct by just storing the products for third-party sellers. In many other cases, however, such as in the course of fulfillment program services, Amazon’s role (same as that of other comparable online service providers) is not confined to the storage of counterfeit products, but also involves active contributions by the Seattle ISP giant in assisting its customers to sell those products. Consequently, the Advocate General (AG) at the ECJ distinguished between two scenarios:
- where Amazon merely stocks goods on behalf of a third-party seller, in which case Amazon cannot be held responsible (these were the facts the ECJ was dealing with)
- where Amazon plays an active role in the selling and commercialization process. In this case, a suspicion of liability could indeed arise: e.g. if sellers on the platform opt for the “Fulfilment by Amazon” program, in which Amazon companies undertake significant tasks that are typical of a seller (such as advertising and promotional activities, refunds for defective products, assistance in preparing such goods for delivery, etc.).
The ECJ did not deal with scenario 2 in its April 2020 verdict, and consequently it is quite likely that the Court may well rule upon the liability issue quite differently if an ISP’s role is not limited to mere warehousing services, as was the case in the foregoing judgement.
In this context, we may question the actual efficiency of the whole brand and product protection program of Amazon. Readers of this contribution who have German language skills and want to obtain more details on this topic are recommended to read the chapter on Amazon’s product and brand protection issue that I covered in a very recently published book, Amazon für Entscheider (Amazon for Decision-Makers; ISBN-10:3658274263).
Yet the winds of change are blowing – into Amazon’s face in particular, though not exclusively – from various other directions.
The top European competition authority, the EU Commission’s DG Competition, announced on June 11 that it has opened formal investigations into Amazon and other Silicon Valley giants (such as Google) to determine whether these ISPs misuse their dominant market position. The EU’s top anti-trust watchdog is planning to file charges against Amazon over its treatment of third-party sellers. These investigations will focus primarily on Amazon’s dual role as a direct seller while being at the same time the operator of its marketplace, where Amazon is suspected to unusually favor its own seller role by widely using a vast array of data it collects from third-party sellers. Already in 2018 already, Margrethe Vestager, vice-president of the European Commission and head of its DG Comp, launched a preliminary investigation into Amazon’s practices in dealing with the use of third-party merchants’ data. The Commission contacted third-party sellers and asked them detailed questions on their relationships with Amazon to find out whether the ISP misused its access to such data in an unlawful manner. Somewhat parallel to the EU competition authority’s activities, investigations are also being carried out by the Federal Trade Commission in the U.S. Furthermore, it is also known to me based on verbal statements made by leading representatives of the German Cartel Office (Bundeskartellamt) that it considers this dual role of Amazon – acting as a kind of online department store and direct seller of branded products, while at the same time acting as a marketplace platform for third-party sellers offering the very same products – as misuse of a dominant position. Consequently, such conduct could serve as lawful justification for brands to ban or restrict the presence of their retail customers on the Amazon marketplace as part of a selective distribution scheme (provided that the manufacturer/brand is not itself doing direct business with Amazon).
All these developments clearly demonstrate that global online traders and service providers of online platform services are not exempted from national and European competition laws, or at least that their time of holding a sort of carte blanche for their activities is definitely over. Recent developments prove that legislators and competition authorities in Europe and elsewhere tend to view the role and commercial conduct of these global players much more critically now than in the past.
New EU wide regulations such as the Digital Services Act (where the consultation phase at the EU Commission’s level is still open until Sept. 8) are in the pipeline, and the Federation of the European Sporting Goods Industry (Fesi), which I represent as its legal counsel, has strongly articulated its position primarily by addressing in particular the liability issue of ISPs in its continuous communication with European lawmakers and high-level EU Commission representatives.
Certainly, the limitation and redefinition of the role of global ISPs will not happen overnight. Amazon as well as other online operators of marketplaces are lobbying intensively in Brussels and at the national level in the EU member states with the obvious objective to prevent major adverse changes for them. Yet the clock is ticking, and the issue has even become more important since turbulent Covid-19 began not only accelerating the commercial online activities at B2B and B2C level of brands and physical retailers, but also further increased the market shares and dominant position of Amazon and other Silicon Valley giants in numerous sectors. This will inevitably lead to a higher degree of scrutiny and monitoring by competition authorities in Europe and elsewhere – and potentially to a maximum fine of 10 percent of a commercial operator’s annual global turnover, imposable by Europe’s top competition-law watchdog in case of proven misuse of a dominant market position. This would not be pocket change, even for a company the size of Amazon.
Dr. Jochen M. Schaefer is a lawyer with his own practice in the Munich region. For many years, he has been the Legal Counsel of the World Federation of the Sporting Goods Industry (WFSGI) and of the European Sporting Goods Industry Federation (Fesi). He provides legal advice to numerous reputable clients within and beyond the sporting goods sector by focusing on the areas of national and international distribution, IP and risk management, and on other operational issues. Dr. Schaefer can be reached at email@example.com.
Photo: Bryan Angelo, Unsplash