French Court of Audit on counterfeiting: towards an enhanced obligation of vigilance for e-commerce platforms
On October 31, 2018, the President of the French Parliament had entrusted the French Court of Audit (Cour des comptes) with carrying out an investigation relating to “the fight against counterfeiting” (Lettre du Président de l’Assemblée Nationale au Premier président de la Cour des comptes, du 31 octobre 2018, Cour des comptes, La lutte contre les contrefaçons. Une organisation et des outils pour mieux protéger les consommateurs et les droits de propriété industrielle, Février 2020, Annexe 1, p. 107). On March 3, 2020, the Court of Audit published its study (Cour des comptes, La lutte contre les contrefaçons, Février 2020). In 2014, the latter had already submitted a short document to the French Prime Minister on public policy to combat counterfeiting (Cour des comptes, 30 mai 2014). The court then made the following recommendations:
“1. Regularly carry out, in collaboration with professional organizations and the Comité national anti-contrefaçon (CNAC), an objective analysis of the economic, national and sectoral consequences of counterfeiting practices.
2. Create, at the inter-ministerial level, a strategic reflection and operational management of the fight against counterfeiting.
3. Strengthening the role of the National Anti-Counterfeiting Committee (CNAC).
4. Have the texts adopted at the European Union level to re-establish customs controls on goods in transit and transhipment and to better combat cyber-counterfeiting.
5. Ensure that none of the areas which may be centers for the manufacture or distribution of counterfeit products is beyond the competence of the public actors responsible for monitoring, controls and law enforcement at the domestic level.
6. Give the courts the means to punish counterfeiting crimes more often and more severely:
Meanwhile, the estimated volume of counterfeit trade worldwide has exceeded that of global trade.
These figures are the result of many parameters. The court insisted on the following ones:
— Globalization (multiplication of free trade treaties) and development of free trade areas;
— E-commerce, “via poorly regulated platforms” (Cour des comptes, La lutte contre les contrefaçons, Février 2020, p. 42);
— Means of transport and in particular the use of small parcels;
— The “new silk roads” (freight);
— The assembly of counterfeits on European territory. On this point, the Court recalls that the number of elements such as labels, logos, and markings is continuously increasing.
The court also recalls the risks to the economy and the consumer safety (pp. 29-38). In this regard, it specifies that the “number of products in categories presenting a risk to the health and safety of consumers seized within the EU (at borders and in the internal market) “is continually increasing (p . 35).
In this context, the court recommends “Making the protection of intellectual property rights a priority axis in world trade negotiations” (pp. 43 to 48). In summary, the Agreement on Trade-Related Aspects of Intellectual Property Rights or “TRIPS” (which is a branch of the Treaty on the World Trade Organization, or WTO) is not enough. Established in 1994, it did not anticipate the emergence of e-commerce. The Anti-Counterfeiting Trade Agreement or “ACTA” presented an opportunity to make up for these shortcomings, but it was largely rejected by the European Parliament, which the Court of Audit seems to regret:
“The European Parliament finally refused to ratify the ACTA, permanently handicapping any attempt at a multilateral normative approach, in a context of great differences between proponents of IPR protection in industrialized countries, and promoters of free trade without constraints of the side of emerging countries” (p. 45).
The Court of Audit welcomes the cooperation and protection agreement on geographical indications between the European Union and China of November 6, 2019 (p. 46), but it must be admitted that the scope of this agreement is certainly insufficient. The court, therefore, proposes to make the issue of counterfeiting a priority in international trade negotiations, based on the G7, the G20, and the European Council. For example, a concrete and essential measure is due in particular to close collaboration between INTERPOL and the World Customs Organization (WCO) (p. 48).
At European level, the court recommends, if not a revision of Directive 2004/48/EC of the European Parliament and of the Council of April 29, 2004, on the enforcement of intellectual property rights, at least better harmonization of its implementation, in particular with regard to procedural and criminal aspects (p. 51).
Above all, the court recommends strengthening “the legal obligations of digital platforms to encourage them to be more vigilant” (pp. 56-64). For the Court of Audit, the revision of Directive 2000/31/EC on e-commerce was already required in 2014 ( Court of Auditors, May 30, 2014 ). It is even more necessary in 2020:
“The insufficient diligence of the platforms resulting from this regime of limited liability is today considered by rights holders as one of the main obstacles to an effective fight against the development of the online counterfeit trade. The revision of the e-commerce directive, therefore, appears essential and constitutes an opportunity to strengthen the legal obligations of platforms in the fight against counterfeiting” (p. 56).
The Court of Audit disapproves the limited liability regime that benefits to the Internet intermediaries, and the resulting European case law, based on the active/passive criterion, deemed “unpredictable” (p. 57) and incapable of inciting “platforms to a proactive vigilance that could cause them to lose the benefit of their hosting status” (ibid.).
Besides, the “best practices” issued by the European Commission in 2017, by their nature of simple recommendations (Communication from the Commission to the European Parliament, the Council and the European Economic and Social Commitee. A balanced IP enforcement system responding to today’s societal challenges COM/2017/0707 final), are considered inadequate. It should be added that following this communication, the European Economic and Social Committee had proposed to resort to alternative dispute resolution mechanisms, inspired by the arbitration and mediation center of the unitary patent system (Point 6.2 of the Opinion of the European Economic and Social Committee on the: Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee — A balanced IP enforcement system responding to today’s societal challenges (COM(2017) 707 final) — Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee — 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 final) — Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee — Setting out the EU approach to standard essential patents (COM(2017) 712 final) EESC 2017/06184). This is, in our view, the most effective path, not only mediation, but also arbitration, and not only at the European level, but also at the international level. Arbitral awards would benefit from the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, ratified by almost all States (the list is available on the website of the United Nations: uncitral.un.org). In the absence of a comprehensive legal instrument on the recognition and enforcement of judicial decisions in tort matters, this solution seems the only possible one to fight effectively against online counterfeiting. It would, however, require a certain harmonization of the criteria of arbitrability to ensure that all online commercial acts qualify for arbitration. At a minimum, such criterion could be the abuse of intellectual property rights, regardless of the nature of the party, whether a natural person or a legal person. In any event, the principle of transparency should apply and arbitral awards should be published.
In any case, no improvement is conceivable without strengthening the identification of counterfeits and counterfeiters (p. 60), which necessarily refers to the obligations of the platforms. This is also the path that the American legislator is taking with the Shop Safe Act (see iptwins.com, 2020-03-03).
For its part, the French Court of Audit recommends:
“To impose the following best endeavors obligations to the platforms:
— to verify the identity of sellers and communicate this information to consumers;
— to make the best efforts to trace the flows to identify the stages of the distribution chain;
— to set up a notification procedure for infringing content, with a uniform and rapid withdrawal period (“notice and take down”), and also aiming to prevent content already reported from being put online (“stay down”) via the implementation of suitable technical tools;
— to inform the consumer that the advertisement of the good he or she bought was withdrawn after the sale on the grounds that it concerned a counterfeit;
— to communicate to consumers and beneficiaries the vigilance measures implemented by the platform concerned, in order to allow a transparent assessment of the level of confidence in the transactions on the site concerned, and also to the beneficiaries to work with the platforms improving the effectiveness of the measures” (p. 63).
According to the court, this approach would be favored by associations of intellectual property rights holders. The obligations being known, it would remain to determine the sanctions applicable to the breaches of the operator, a point which is not discussed in this study.