Recently the Court of Justice of the European Union (CJEU) has delivered a number of decisions, which result of significant relevance to the advertising industry. The short summary below aims at providing marketers an idea about the legal implications of such decisions and about their impact on their businesses.
(a) What falls into the definition of 'advertising'?
In a case referred in 2011 (C-657/11) by a Belgian (Civil) Highest Instance Court the CJEU was called to assess whether certain commercial practices could be considered as falling within the definition of 'advertising' under the provisions of EU Directives nos. 84/450/EEC (concerning misleading advertising), 2005/29/EC (aimed at preventing unfair business-to-consumer commercial practices) and 2006/114/EC (governing misleading and comparative advertising).
Specifically the referring Belgian Court asked the CJEU to clarify whether registration and use of a domain name as well as placement of meta-tags in a website's metadata could result in an illicit commercial practice and in incorrect commercial communication.
On July 11th, 2013, the CJEU (Third Chamber) delivered its judgment and answered the submitted questions. To the purpose the Court felt necessary defining 'advertising' and then assessing whether the questioned practices would result suitable to meet such definition. On the first aspect the CJEU reminded that according to the Directives currently in force 'advertising' referred to "the making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations" (so e. g. Directive no. 2006/114, Article 2/a), where such definition had to be intended as 'broad' and therefore "not limited to traditional forms of advertising"(so Section 35 of the judgment), but as including also very varied forms of promotional messages.
Based on such premise the Court then went on to considering the three questioned practices.
- With respect to the registration of a domain name, identical to a third party's trademark, the Court felt (so Section 42) that such practice basically resulted in nothing else ".. than a formal act by which the body designated to manage domain names is asked to enter, in exchange for payment, that domain name into its database and link internet users who type in that domain name only to the IP address specified by the domain name holder"; therefore "the mere registration of a domain name does not automatically mean, however, that it will then actually be used to create a website and that, consequently, it will be possible for internet users to become aware of that domain name", coming to the conclusion that "such a purely formal act which, in itself, does not necessarily imply that potential consumers can become aware of the domain name and which is therefore not capable of influencing the choice of those potential consumers, cannot be considered to constitute a representation made in order to promote the supply of goods or services of the domain name holder .." within the meaning of the definition of 'advertising' as laid down in the Directives.
- As to the use of such domain name, the Court considered that it, when making ".. reference to certain goods or services or to the trade name of a company, constitutes a form of representation that is made to potential consumers and suggests to them that they will find, under that name, a website relating to those goods or services, or relating to that company. A domain name may, moreover, be composed, partially or entirely, of laudatory terms or be perceived, as such, as promoting the goods and service which that name refers to" (judgment, Section 48), therefore meeting the definition of 'advertising'.
- Finally, the CJEU considered that key word meta-tags determine site rankings in relation to submitted search terms and are capable of impacting on surfers' on-line behavior as well as of diverting the natural display results to the advantage of meta-tag users. Accordingly, it held that "when links to sites offering the goods of a competitor of that company are displayed, in the list of natural results, the internet user may perceive those links as offering an alternative to the goods of that company or think that they lead to sites offering its goods.." (judgment, Section 56) and found that "in so far as the use of metatags corresponding to the names of a competitor's goods and its trade name in the programming code of a website has .... the consequence that it is suggested to the internet user who enters one of those names or that trade name as a search term that that site is related to his search, such use must be considered as a form of representation...." (so Section 57), therefore concluding that "there is, moreover, no doubt that such use of metatags is a promotion strategy in that it aims to encourage the internet user to visit the site of the metatag user and to take an interest in its goods or services" (Section 59).
- The summarizing take away of the CJEU's decision: "Article 2(1) of Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising, as amended by Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 and Article 2(a) of Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising, must be interpreted as meaning that the term 'advertising', as defined by those provisions, covers, in a situation such as that at issue in the main proceedings, the use of a domain name and that of metatags in a website's metadata. By contrast, the registration of a domain name, as such, is not encompassed by that term."
(b) Sponsors' exclusive broadcasting rights and events of 'particular and general interest'.
A week later – on July 18th, 2013 - the Court of Justice (Third Chamber) offered its guidance with respect to a dispute (case C-201/11 P) between the Union of European Football Associations (UEFA) and the European Commission. The CJEU was called into action by an appeal filed against judgment February 11th, 2011 (issued in first instance on cases T-385/07, T-65/08 and T-68/08, FIFA and UEFA vs. Commission).
The issue at stake was whether UEFA as the organizer of international football events (such as the European Championship) and as the holder of the commercial rights relating to those events could legitimately oppose member states (of the EU) from individuating a number of events (and among them the final phase of the European Championship) and from qualifying them 'of particular relevance and of general interest' therefore open to free broadcasting.
The legal background for such dispute is to be found in the provisions of Directive 89/552/EEC (the so-called "television without frontiers directive"), which, in Article 3j/1 of its current text, sets: "Each Member State may take measures in accordance with Community law to ensure that broadcasters under its jurisdiction do not broadcast on an exclusive basis events which are regarded by that Member State as being of major importance for society in such a way as to deprive a substantial proportion of the public in that Member State of the possibility of following such events by live coverage or deferred coverage on free television. If it does so, the Member State concerned shall draw up a list of designated events, national or non-national, which it considers to be of major importance for society. It shall do so in a clear and transparent manner in due time. In so doing the Member State concerned shall also determine whether these events should be available by whole or partial live coverage, or where necessary or appropriate for objective reasons in the public interest, whole or partial deferred coverage." The reasoning behind this provision is the intent to grant a proper 'right of information' to the general public with respect to these kind of events, leaving it to the discretion of the single member states individuating the specific events suitable for benefitting from the usual (sponsor) exclusivity exemption.
UEFA challenged the practical application of such provision as performed by national UK law for a broad range of legal issues, such as: lack of transparency in the individuation procedure of the 'events of general interest', undue extension of such list to events not featuring the national team, assignment of 'privileged rights' to public broadcasting and TV stations (entitled, via the exclusivity exemption, to airing the event without any compensation) resulting in unfair competition towards the position of competitors (disadvantaged by being forced to paying significant fees in order to achieve a broadcasting right for the event), violation of the freedom to provide services and the principle of proportionality (as the system was likely to result discriminatory towards broadcasters established in other member states) and inacceptable interference into UEFA's property rights (by extending the exclusivity exemption granted to single events of major interest to the entire final phase of the tournament).
The Court disagreed on all of UEFA's arguments and therefore dismissed the appeal "in its entirety as being partly inadmissible and partly unfounded".
Without dwelling into all the details of the Court's findings, it's to be noted that on the argument of undue interference into UEFA's property rights the CJEU held that such rights "... were affected already by Article 3a of Directive 85/552 and that that effect may, in principle, be justified by the objective of protecting the right to information and ensuring wide access by the public to television coverage of events of major importance" (so judgment, Section 102).
Therefore, organizer of events characterized by significant media coverage and huge audiences will have to live with this particular exclusivity exemption rule and will have to consider its impact properly in their contractual agreements with main sponsors.
(c) Exclusive broadcasting rights and third parties' right to free short extracts for informational purposes.
Earlier this year (on January 22nd, 2013), the CJEU had already to deal with a related issue (case C-283/11).
The local subsidiary of an international Media Company got into clinch with an Austrian public broadcaster (ORF) in relation to a provision (set by Article 15 of Directive no. 2010/13/EU, i. e. the 'Audiovisual Media Services Directive') requiring that "Member States shall ensure that for the purpose of short news reports, any broadcaster established in the Union has access on a fair, reasonable and non-discriminatory basis to events of high interest to the public which are transmitted on an exclusive basis by a broadcaster under their jurisdiction"where such access has to be "... guaranteed by allowing broadcasters to freely choose short extracts from the transmitting broadcaster's signal with, unless impossible for reasons of practicality, at least the identification of their source"and where it must also be assured that "... the modalities and conditions regarding the provision of such short extracts are defined, in particular, with respect to any compensation arrangements, the maximum length of short extracts and time limits regarding their transmission. Where compensation is provided for, it shall not exceed the additional costs directly incurred in providing access."
The Media Company argued that every year it did face significant license fees and production costs for broadcasting the football matches of the Europe League. Short extracts freely chosen by third parties – under the above mentioned exemption rule – from the signal of the holder of exclusive broadcasting rights assigned by the event organizer should therefore be subject to adequate cost compensation over the mere direct cost occurred for making its signal accessible to third parties (a consideration denied by the Communications Regulator KommAustria). In the context of the dispute the question arose whether the interference into the licensee's exclusivity rights - deriving from a third party claim to produce short news reports free of a compensation charge - did infringe on the 'right to property' benefitting of protection on a constitutional level in many European countries and also granted by Article 1 of Additional Protocol No. 1 to the European Convention for the Protection of Human Rights and Fundamental Freedoms (signed in Paris on 20 March 1952) as well as by the Charter of Fundamental Rights of the European Union.
The CJEU was therefore asked to assess whether the criteria laid down in Article 15 of the Directive could be considered as compatible with the provision or Article 17 of the Charter of Fundamental Rights, according to which "everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest" (judgment, Section 31).
While the Court agreed that "it is true that exclusive broadcasting rights are granted, on a contractual basis, to broadcasters for consideration, enabling the latter to broadcast certain events on an exclusive basis, thereby precluding other broadcasters from transmitting those events in any way. Thus, those rights must not be regarded as constituting mere commercial interests or opportunities, but as having asset value" (so Section 35), it reminded that "...since the entry into force of Directive 2007/65 ....Member States" must "guarantee the right of broadcasters to make short news reports on events of high interest to the public which are subject to exclusive broadcasting rights, without the holders of such a right being able to demand compensation exceeding the additional costs directly incurred in providing access to the signal." Therefore "an economic operator, ... which, after the entry into force of Directive 2007/65 ... has acquired exclusive broadcasting rights by means of a contract ... cannot, in the light of European Union law, rely on an acquired legal position, protected by Article 17(1) of the Charter ..." (so Section 37).
As to potential infringement of Article 16 of the Charter (granting "the freedom to conduct a business in accordance with European Union law and national laws and practices ...") the Court found that according to its established case-law "the freedom to conduct a business is not absolute, but must be viewed in relation to its social function" (Section 45) and accordingly held that "the freedom to conduct a business may be subject to a broad range of interventions on the part of public authorities which may limit the exercise of economic activity in the public interest" (so Section 46) and concluded "that Article 15(6) of Directive 2010/13 does not affect the core content of the freedom to conduct a business" (Section 49).
The Media Company resulted therefore not successful with its arguments and the dispute pending before an Austrian Court will have to take into account the findings of the CJEU.
(d) Air time limits versus pluralism in the media sector and freedom of expression.
Finally – again on July 18th, 2013 – the CJEU defined another issue brought to its attention by an Italian First Instance Administrative Court. The issue originated from the already mentioned Audio Visual Media Directive (no. 2010/13/EU) and specifically from the provisions (contained in Article 23) setting a 20% per hour limit for broadcasting commercials and teleshopping spots, but allowing (so Article 26) member states to adopt stricter restrictions for TV broadcasts "intended solely for the national territory which cannot be received directly or indirectly by the public in one or more other Member States".
The Italian national provisions (as contained in Legislative Decree no. 44 of 2010) implementing the Directive provide that "1. The transmission of advertisements by the holder of the general public broadcasting service concession may not exceed 4% of weekly programming time and 12% of any one hour; any advertising in excess thereof, by a maximum of 2% in any hour, must be offset by a reduction in the preceding or following hour. 2. The transmission of television advertising spots by free-to-air broadcasters, including analogue broadcasters, at national level, other than the holder of the general public broadcasting service concession, may not exceed 15% of daily programming time and 18% of a given clock hour; any advertising in excess thereof, by a maximum of 2% in any hour, must be offset by a reduction in the preceding or following hour. ...5. The transmission of television advertising spots by pay-TV broadcasters, including analogue broadcasters, may not, for the years 2010, 2011 and 2012, exceed 16%, 14% and 12%, respectively, of a given clock hour; any advertising in excess thereof, by a maximum of 2% in any hour, must be offset by a reduction in the preceding or following hour".
The local pay-TV station of the same Media Company mentioned in the preceding case had infringed on such limits and was therefore sanctioned by the Italian Communications Regulator (AGCOM) with a fine of Euro 10.329. The AGCOM intervention was challenged before a First Instance Administrative Court, which decided to stay the proceeding and to access the CJEU in order to clarify whether:
- a national law laying down shorter hourly advertising limits for pay-TV broadcasters than those set for free-to-air broadcasters could be considered as compliant both, with the requirement of equal treatment as well as with the principles of EU Law 'relating to the free movement of services, the right of establishment and the free movement of capital',
- such more restrictive national provisions would clash with the principles established both, by the European Convention for the Protection of Human Rights and Fundamental Freedoms as well as by the case-law of the European Court of Human Rights and specifically with the 'principle of pluralism in the media, or – on the contrary – whether such national restrictions would result suitable to distorting competition and creating – or rather strengthening – dominant positions in the television advertising market'.
On the first question the CJEU dismissed the doubts of the Italian Court and reminded that according to its established case-law "the protection of consumers, as television viewers, from excessive advertising is an essential aspect of the objective of the directives on the provision of audiovisual media services" (judgment, Section 17) and that the rules of such Directive "are intended to establish a balanced protection, on the one hand, of the financial interests of television broadcasters and advertisers, and, on the other hand, of the interests of rights holders, namely writers and producers, in addition to consumers as television viewers" (Section 18). On such premise the Court continued to argue that, on one hand, "the financial interests of pay-TV broadcasters are different from those of free-to-air broadcasters", while, on the other hand, also "the situation of viewers is objectively different depending on whether they use the services of a pay-TV broadcaster, to which they subscribe, or those of a free-to-air broadcaster" and therefore concluded that differing factual premises allowed a national lawmaker, "seeking a balanced protection of the financial interests of television broadcasters and of the interests of viewers in the field of television advertising"... "to set different hourly broadcasting limits on television advertising for pay-TV broadcasters and free-to-air broadcasters ... without infringing the principle of equal treatment" (Section 23).
As to the compatibility with the fundamental principle of 'freedom to provide services', the Court agreed on the fact that the "national rule at issue in the main proceedings is capable of constituting a restriction of that freedom", but then reminded ".. that the protection of consumers against abuses of advertising constitutes an overriding reason relating to the general interest which may justify restrictions on the freedom to provide services" (Section 24).
With respect to the problem of whether such stricter national regulation could result capable of infringing "the fundamental principle of the freedom of expression and, in particular, the freedom and pluralism of the media" the CJEU, even though agreeing on the fact that the questioned Italian provisions appeared theoretically "capable of distorting competition and of creating or strengthening dominant positions on the market for television advertising" (Section 29), found that in the specific case the referring Court had failed in providing information crucial for the decision (such as: "the definition of the relevant market, the calculation of market shares held by the different undertakings operating on that market and the abuse of a dominant position"). The CJEU therefore considered the question as inadmissible.
(e) A few final thoughts: 'Freedom of expression' versus 'Freedom of commercial speech'.
The cases reported - once more - eloquently show the significant differences to be found in the European perception of 'advertising'. In other geographic regions and countries – and specifically in the US - such activity is considered as falling into the area covered by the principle of "freedom of expression" and in its connotation as "freedom of commercial speech" benefits from strong protection at the highest legislative (that's to say, constitutional) level.
On the contrary in many countries on this side of the Atlantic Ocean the perception is that the freedom of expression principle relates primarily to an individual's right to freely express views and opinions through speech, in writing or via other means of communication and to subsequently exercise freedom of thought, conscience and religion.
Advertising is considered as pertaining to the area covered by the principle of 'freedom of economic initiative', an area where limitations and restrictions are admitted for superior reasons of public interest. In a (not exactly recent) judgment dated February 24th, 1994 (case Casado Coca vs. Spain, application no. 15450/89) the European Court of Human Rights clearly stated that article 10 of the Convention (freedom of expression principle) "... does not apply solely to certain types of information or ideas or forms of expression .... , in particular those of a political nature; it also encompasses artistic expression... , information of a commercial nature .... and even light music and commercials transmitted by cable" (judgment, Section 35) and by doing so apparently was showing consideration to a 'freedom of commercial speech' approach. Then the ECHR also added (in Section 51): "for the citizen, advertising is a means of discovering the characteristics of services and goods offered to him. Nevertheless, it may sometimes be restricted, especially to prevent unfair competition and untruthful or misleading advertising. In some contexts, the publication of even objective, truthful advertisements might be restricted in order to ensure respect for the rights of others or owing to the special circumstances of particular business activities and professions. Any such restrictions must, however, be closely scrutinized by the Court, which must weigh the requirements of those particular features against the advertising in question ... " and returned to a more traditional position, even though leaving some space for a case-by-case approach.
(As per August 2013)
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