Online marketplaces: Part 1 - Obligations and Liabilities of Platform Providers
In light of the recent Louboutin v. Amazon case, to what extent can online marketplace providers face liability under the the upcoming Digital Services Act?
Can online marketplace providers be held liable for the advertising and trade of counterfeit goods on their platforms? Does the fact that an advertisement serving to promote counterfeit goods presents a heading with the online marketplace provider’s service mark, have any bearing on the answer to the previous question? And does the fact that an online marketplace provider does more than just stocking and shipping counterfeit products – that is to say, the provider plays an ‘active role’ in the trade and delivery of the contentious products - have any impact on the foregoing assessment?
These are the thorny questions to which the CJEU has recently been invited to respond, as part of the preliminary reference procedure submitted by a Luxembourgian Tribunal d’Arrondissement in the case opposing Louboutin, the French luxury shoe maker, and a number of EU-based Amazon entities. The dispute centers around a number of advertisements, promoting counterfeit shoes and displayed on the Amazon marketplace, on behalf of third-party trademark infringers. At issue is also the stocking and delivery of these counterfeit goods by Amazon, by way of its ‘Fulfilment by Amazon’ delivery service.
In the first article of this series, we take a look at the liability of online marketplace providers in this new era of e-commerce under the incoming Digital Services Act, and also we look at the specific case of counterfeit goods in our follow-up article on this topic.
The issue of online marketplace providers’ liability is one that has been written about extensively in the past. It is also one of the issues that the Digital Services Act, the EU Commission’s most recent proposal for a regulation on a Single Market for Digital Services specifically aims to address. The difficulty being that the Digital Services act - hereafter DSA and details of which were unveiled this past 15th December - does not provide an unequivocal answer to the difficult questions which have served as an opening for this article.
As is often the case in with EU law – where the CJEU’s caselaw is often called-upon to help clarify the EU’s primary and secondary statutory law - the Louboutin-Amazon case therefore represents a welcome opportunity to clarify the EU’s position on the matter. As such, IP Law experts have called Case C-148/21 ‘one to watch’. In the following article, we delve deeper into the matter of online market place liability; we examine what the DSA could (or could not) hold in store for online marketplace providers; and we discuss why the Louboutin-Amazon case is so important.
WHAT LIABILITY REGIME FOR ONLINE MARKETPLACES PRE-DSA?
We’re used to working with online marketplace providers over at Gerrish Legal - with clients hailing from sectors as diverse as luxury fashion, to skateboarding equipment through to independent brewers of alcoholic drinks.
Online marketplaces are not just of interest to the economists trying to make sense of the many different ways in which the Internet has revolutionised the way we do business: they are also an eminently challenging and captivating topic for the jurists amongst us.
This is because online marketplaces don’t fit nicely into existing legal categories.
Online marketplaces are distinctly different from traditional, single-vendor e-commerce websites. Online marketplace providers effectively connect a multitude of third-party suppliers with a multitude of end-consumers, through the creation and operation of a multitude of new sales channels and supply chains. As such, online marketplaces raise a number of theoretical difficulties for the law: one such difficulty concerns the level of liability these online marketplaces should face for the advertising, stocking and shipping of counterfeit goods.
In the pre-DSA world, online marketplace providers have mostly enjoyed a limited, bordering on inexistent, liability with regards to what took place on their platforms: the relevant provision here being article 14 of the 2000/31/EC E-Commerce Directive. This is the provision which helped institute the EU’s famous ‘horizontal liability exemption regime’ and ‘safe harbor’: that is, hosting services (the larger family which online marketplaces are included in) have, so far, been able to escape liability so long as they (a) do not have actual knowledge of illegal activity or information hosted on their services and (b) act swiftly once made aware of such activity and information.
Despite its marked popularity and success, the horizontal liability exemption regime has not been shielded from criticisms. Some of these critiques have come from intermediary services providers themselves and centered around the legal uncertainty generated by article 14 (a)’s so-called ‘knowledge standard’. Other critiques have arisen from outside the intermediary service provider community and focused on what is seen as a widespread, rubber-stamped shirking of responsibilities on the part of online service providers.
The Digital Services Act: clarification or obfuscation?
It is in part – but not solely – because of the uncertainties and frustrations created by the ECD’s horizontal liability exemption regime that the EU Commission set itself the mission of overhauling the current regulatory regime for digital services, in the shape of the upcoming DSA.
The DSA introduces a number of new obligations on hosting services and, more specifically, on online marketplace providers. The difficulty is that these new provisions do not help answer the questions raised at the onset of this article and pertaining to the liability of online marketplace providers for counterfeit goods, in a definite manner.
On the one hand, the DSA seems to maintain a liability regime which remains largely favorable to intermediary service providers, including online marketplaces. For example, the DSA will maintain a horizontal ‘no general obligation to monitor’, in the shape of article 7 of the DSA (previously article 15 of the E-commerce directive). This means that under the DSA, no intermediary service provider – and this includes marketplace providers – will have an obligation to monitor the information, seek facts or circumstances indicating illegal activity on their platforms. Similarly, the DSA will maintain the knowledge standard, previously found at article 14 of the E-Commerce Directive and now located at article 5 of the DSA.
On the other hand, the DSA seems more nuanced in its approach to intermediary service providers’ exemption from liability in all circumstances. For instance, it is specified that the article 5 exemption shall not apply in the event where such an online platform presents “the specific transaction at issue in a way that would lead an average and reasonably well-informed consumer to believe (...) the product or service that is the object of the transaction, is provided either by the online platform itself”.
This would seem to suggest that online marketplace providers could be held liable for the selling of counterfeit goods displayed in advertisements which also present the online marketplace provider’s service mark, if a reasonable well-informed consumer might be brought to believe that the good in question has received the online marketplace providers’ seal of approval.
At the same time, a closer look at the EU Commission’s DSA Q&A, published at the same time as the DSA proposal on December 15th 2020, suggests that the Commission may intend for the DSA to address the issue of counterfeit goods, mainly via the following two provisions:
a new KYC (Know Your Customer) obligation; and
a new ‘Trusted Flagger’ system.
The former is specified at article 22 of the DSA and will require online marketplaces to ensure that traders can only use their platforms if a certain amount of pre-required information has been obtained by the marketplace provider (such as the trader’s name and address, telephone number and electronic mail address; or where the trader is registered); the latter can be found at article 19 of the DSA and will require online marketplaces to “take the necessary technical and organisational measures to ensure that notices submitted by trusted flaggers” – some of whom will be brand owners fighting counterfeit goods - to be processed and decided upon with priority and without delay.
All in all, the liability landscape which online marketplace providers will face in a post-DSA landscape remains ambiguous. As is often the case in the area of EU law, it is the CJEU’s caselaw which will most certainly have to clarify the scope which is to be given to the EU’s secondary law. Which is why case C-148/21 - between French shoemaker Louboutin and the online marketplace provider Amazon - comes at the right time and deserves all our attention.
Online marketplace providers’ liability is a complex topic, with many moving parts. While one of the objectives of the DSA is to clarify the liability regime, and as always, should you have any questions or queries regarding this topic or your latest business undertakings, please do not hesitate to contact us!
Article by Leila Saidi @ Gerrish Legal, May 2021