How to Crack a Nut will be back on 20 August 2012, hopefully with renewed energies for the last quarter of this intense year. In the meantime, happy holidays to everyone!
Happy summer holidays
Any State aid implications in Ofcom's 4G auction?
Ofcom has unveiled its plans for 4G auction of the airwaves--which will be the largest ever auction of spectrum for mobile services in the UK--laying the path for next-generation 4G networks to be rolled out in 2013 and fully implemented by 2017 (see Ofcom's press release: http://tinyurl.com/Ofcom4Gauction).
The auction process seems well designed from the standpoint of a competition lawyer completely foreign to technical issues, particularly because Ofcom has reserved a lot for a relatively small player or new entrant in the UK mobile telephony market, so that consumers benefit from future competition between four credible service providers rather than the current three (see relevant documents for the planned 4G auction: http://tinyurl.com/Ofcom4Gauctdocs).
However, such a complicated regulatory scheme--whereby Ofcom is shaping future competition in the UK communications industry--must not only tackle the complex issue of the number of licenses tendered and the foreseeable sizes (and relative strengths) of tenderers, but also the matter of ensuring universal access (or a public service obligation) to the next mobile telephony networks. Ofcom has decided to do so by earmarking one of the lots (actually, a "double-sized lot", since there are four "regular" lots numbered 1 to 4 and the earmarked lot is "5 & 6") for the imposition of a coverage obligation.
In terms of the draft license for lot "5 & 6", the coverage obligation implies that the licensee shall by no later than 31 December 2017 provide, and thereafter maintain, an electronic communications network that is capable of providing, with 90% confidence, a mobile telecommunications service with a sustained downlink speed of not less than 2 megabits per second when that network is lightly loaded, to users at indoor locations in an area within which at least: a) 98% of the population of the United Kingdom lives, and b) 95% of the population of each of England, Wales, Scotland and Northern Ireland lives.
Given the undertaking of such coverage obligation by the awardee of lot "5 & 6", that licence is planned to be tendered at a significantly reduced reservation price of basically 55.56% of the reservation price for a "regular" licence (which has half the bandwith)--with an implicit "discount" of £200 million.
The relevant issue from the State aid perspective and, particularly, concerning compliance with Articles 106(2) and 107 TFEU is whether that difference in license reservation prices (rectius, of the prices finally paid by licensees as a result of the 4G auction) does not amount to an excessive compensation of the public service obligation (ie coverage obligation) attached to lot "5 & 6".
On the one hand, a formalistic approach to this issue could be simply accept that, in the absence of anomalies in the tendering process, the design of the 4G auction in open and competitive terms suffices to exclude any element of aid because the "pro-competitiveness" of the mechanism would warrant that the award reflects (competitive) market conditions (in an "inverse" reading of the fourth condition in the ECJ's Judgment in Altmark--on which see my critical considerations at http://ssrn.com/abstract=2071655).
On the other hand, a refined and materially-oriented approach would allow for the scrutiny of the difference in actual prices paid for a "regular" 4G license (double its price, actually) and the license with coverage obligation (lot "5 & 6")--to see whether it implied any potential excessive remuneration to the universal access provider. In that regard, it may be useful to take into account that Ofcom has commissioned and published a study on the "Methodologies used for the analysis of costs relating to a coverage obligation" (available at http://tinyurl.com/Ofcom4Gmethod). Nonetheless, this methodological study does not offer an aggregate total cost of the coverage obligation, which is dependent on the pre-existing infrastructure of the future licensee.
However, the study "Spectrum value of 800MHz, 1800MHz and 2.6GHz" by DotEcon and Aetha (also commissioned by Ofcom and available at http://tinyurl.com/Ofcom4Gmoneys) has estimated the impact of the coverage obligation in the (broad) bracket of between £100 to £400 million (although some operators submitted higher cost estimates). Even if the cost could be reduced by Ofcom if pre-auction mobile coverage was extended by means of additional public investments, and based on the information supplied by potential bidders in the auction, the DotEcon and Aetha study considers that:
There seems to be significant room (and difficulty) in determining the actual cost of the coverage obligation imposed upon the future licensee of lot "5 & 6" in the UK 4G auction. However, there is exacty the same room for potential overcompensation of such universal access / public service obligation--which would infringe Articles 106(2) and 107 TFEU.
Hence, special care seems to be needed on the part of Ofcom at the end of the auction and prior to the award of the licenses, whereby it may want to include a condition in the award procedure (or licence terms) that allows it to require additional payments by the initial awardee of lot "5 & 6" in case the price differential with (double) the cheapest (or more expensive, if a lenient approach is preferred, or average) "regular" 4G licence indicates that there is excessive compensation for the coverage obligation.
Be it as it may, it seems clear that there are potential State aid implications in the UK's 4G auction as designed by Ofcom, which will be an interesting case study once the final prices for "regular" and coverage obligation licenses are set.
A reasonable estimate of the cost of a 98% population coverage obligation should range from £100m to £400m as the cost estimate provided by Vodafone (and supported by O2) of £540m may not reflect the cost of meeting the coverage obligation by an operator with a well maintained, efficient network: John Cresswell of Arqiva estimated that the [98%] coverage obligation will cost around £200m to £230m, with Guy Laurence of Vodafone stating that a further £140 million in operating expenditure would be required to achieve 99% coverage (emphasis added; please note that £200 million is precisely the implicit discount in the reduced reservation price for lot "5 & 6").
Do unto others... The CJEU juggles with the presumption of control through ownership
In its Grand Chamber Judgment of 19 July 2012 in case C‑337/09 P Council v Zhejiang Xinan Chemical Industrial Group
(Xinanchem), the CJEU has analysed the potential difference between 'State control' through ownership of an undertaking with corporate form and the exercise of 'significant State interference' in the economic decisions adopted by such undertaking.
In Xinanchem, the CJEU has endorsed the antiformalistic approach taken by the GC in the appealed Judgment, and has rejected the assumption that by holding the largest number of shares and appointing the majority (actually, the entirety) of the members of the Board of Directors of a company China exercised 'significant State interference' in the market activities of that undertaking for the purposes of EU anti-dumping legislation. According to the CJEU:
State control, such as that observed in the present case [where the distribution of the shares allowed the State shareholders to control the undertaking], cannot be equated, as a matter of principle, to ‘significant State interference’ within the meaning of the first indent of Article 2(7)(c) of [Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Community, as amended by Council Regulation (EC) No 461/2004 of 8 March 2004] and cannot therefore relieve the Council and the Commission of the obligation to take into account the evidence, submitted by the producer concerned, of the real factual, legal and economic context in which it operates (Xinanchem at para. 78).
Although some parts of the (literal) reasoning of the CJEU in Xinanchem remain obscure or tautological and, therefore, open to criticism ["the use of the word ‘interference’ indicates
that it is not sufficient that a State may have a certain amount of
influence over those decisions, but implies actual interference (sic) in them" Xinanchem at para. 80]; the adoption of such antiformalistic criterion, which clearly advocates for a free(r) and holistic appraisal of all factors determining whether the company actually reacts to market signals or stimuli, must be welcome.
However, one is left scratching the back of his head when comparing this approach with the rather more formalistic presumptions of control through ownership existing in other areas of EU economic law, such as competition law (where parental liability is subjected to a much stricter and formal test, as reminded on the same date in Judgment in case C-628/10 P Alliance One International and Standard Commercial Tobacco v Commission at para. 46, regardless of the presumption being rebuttable) or public procurement (in the particular issue of the excpetion for so-called in-house provision, following the well-known Teckal criteria of its Judgment in case Case C-107/98, and its ulterior refinements).
This seems to me rather as a (broad) area of EU economic law where further consistency is necessary because, according to the current state of the case law, we face a counterintuitive (and most likely unintended) situation where foreign undertakings controlled by foreign States may have more flexibility to demonstrate lack of effective control or influence (and hence, to gain liberty in their market activities) than domestic (ie European) undertakings. Not to sound protectionist, but this inconsistency in EU economic law seems difficult to stomach, particularly in this day and age.
How precisely must evaluation rules be described in procurement documents? According to the GC, not that precisely
In yet another public procurement case derived from a complaint by the Greek company Evropaïki Dynamiki, the General Court has analysed the issue of the degree of precision required in the description of evaluation methods for contract award purposes in its Judgment of 12 July 2012 in case T-476/07 Evropaïki Dynamiki v Frontex.
Regarding the degree of precision in the publication of the award criteria and the evaluation methods to be used by the contracting authority, the GC has adopted a lenient approach that seems questionable, since it may result in leaving excessive discretion in the hands of evaluation teams. It is worth stressing that the GC in Frontex considers that:
the fact that a precise scale of the calculation of the tenders with regard to that award criterion [multiplication of efficiency by effectiveness] was not given cannot constitute a breach of the tendering specifications consisting in the introduction, by the contracting authority, of a new award criterion. The calculation used to arrive at a well defined score does not constitute an evaluation criterion of the proposed hypothetical IT solution, but rather a consequence of that evaluation (case T-476/07, at para 106, emphasis added).
This seems to me as a highly controversial finding, which may run contrary to the case law of the Court of Justice of the EU, particularly in Lianakis (C-532/06 [2008] ECR I-251), where the CJEU clearly indicated that it is settled case law that: "potential tenderers should be
aware of all the elements to be taken into account by the contracting
authority in identifying the economically most advantageous offer, and
their relative importance, when they prepare their tenders" and that "[p]otential tenderers must be in a position to ascertain the existence and scope of those elements when preparing their tenders" (paras 36 and 37, emphasis added). Even further, the CJEU stressed that "tenderers must be placed on an equal footing
throughout the procedure, which means that the criteria and conditions
governing each contract must be adequately publicised by the contracting
authorities" (para 40, emphasis added).
If evaluation methods do not include the scales to be used by evaluation teams when they assess the tenders submitted by bidders, it is hard to see how all transparency requirements will be made operational and how applicants can effectively tailor their offers to the actual (preferred) requirements of the contracting authority or entity.
Unless there is a good overriding reason to keep the evaluation methodologies and scales secret or undefined in contract notices and documents, it seems clearly desirable that evaluation methods AND scales are published and available to bidders when preparing their tenders. In the end, it is not very useful to know that your tender will be assessed under a criterion of 'efficiency' or 'effectiveness' if there is no indication whatsoever how such requirements will be operationalized by the evaluation team.
Therefore, I think that the position of the GC in Frontex clashes with the more general case law highlighted by the CJEU in Lianakis, and that Frontex reflects a too lenient approach towards unjustified restrictions in the transparency of evaluation tools and procedures in public procurement.
In this regard, it seems desirable that the current revision of the EU Directives further details the obligations of contracting authorities to specify evaluation methods and scales in contract notices (e.g. in article 66 of the proposal for a Directive replacing 2004/18).
Another step back in the definition of (public) undertakings for the purposes of EU competition law
Earlier this year, Advocate General Jääskinen issued his opinion in case C‑138/11 Compass-Datenbank GmbH v Republik Österreich, and I criticised his approach here (in Spanish). The Court of Justice of the EU issued his final Judgment last 12 July 2012 and has substantially followed AG Jääskinen's approach in deciding that
[...] the activity of a public authority consisting in the storing, in a database, of data which undertakings are obliged to report on the basis of statutory obligations, in permitting interested persons to search for that data and/or in providing them with print-outs thereof does not constitute an economic activity, and that public authority is not, therefore, to be regarded, in the course of that activity, as an undertaking, within the meaning of Article 102 TFEU. The fact that those searches and/or that provision of print-outs are carried out in consideration for remuneration provided for by law and not determined, directly or indirectly, by the entity concerned, is not such as to alter the legal classification of that activity (Compass-Datenbank at para. 51).
In my view, the position of the CJEU in Compass-Datenbank is another step in the wrong direction when it comes to applying the concept of 'undertaking' for the purposes of competition law to public bodies developing (actual) economic activities--which follows the already criticised approach in FENIN (C-205/03 P, 11 July 2006) and Selex (C-113/07-P, 26 March 2009) [see http://ssrn.com/abstract=1458949].
Just like it did in FENIN and in Selex, in Compass-Datenbank the CJEU has adopted an economically unsound approach towards the definition of 'economic activity' by finding that:
In the light of the entirety of that case-law, it must be observed that a data collection activity in relation to undertakings, on the basis of a statutory obligation on those undertakings to disclose the data and powers of enforcement related thereto, falls within the exercise of public powers. As a result, such an activity is not an economic activity.
Equally, an activity consisting in the maintenance and making available to the public of the data thus collected, whether by a simple search or by means of the supply of print-outs, in accordance with the applicable national legislation, also does not constitute an economic activity, since the maintenance of a database containing such data and making that data available to the public are activities which cannot be separated from the activity of collection of the data. The collection of the data would be rendered largely useless in the absence of the maintenance of a database which stores the data for the purpose of consultation by the public (Compass-Datenbank at paras. 40 and 41, emphasis added).
In my view, this reasoning falls again in the deffect (or misleading argument) of pegging an activity that is clearly economic (ie maintenance and exploitation of the database) to a non-economic activity (creation of the database by mandatory disclosure and reporting) and considering them non-separable despite the fact that there is no technical or economic hurdle to do so. It is quite telling that the CJEU does not provide any reasons for the finding that the creation of the database and its ulterior economic exploitation 'are activities which cannot be separated'.
Reality seems to indicate otherwise, and there are several Member States (like Spain), where private companies successfully use the databases created by public authorities or chambers of commerce as a result of the mandatory disclosure and reporting of corporate statements and accounts--and there is no clear technical or economic barrier for this market not to flourish in Austria or any other country. Some additional facts or arguments on the non-separability of the activities would have been extremely desirable in order to understand the reasoning behind the CJEU's decision in Compass-Datenbank (which, in my opinion, results exclusively from the hands-off approach the CJEU has been keeping for too long in connection with the antitrust treatment of public undertakings).
The position of the CJEU is equally criticisable when it comes to disregarding the expliotation of IP rights by public entities as an instance of 'economic activity' for the purposes of EU competition law. In its very broad terms, the position in Compass-Datenbank equates to a blank exclusion of public IP-related activities from competition scrutiny, as the Court found that:
[...] a public entity which creates a database and which then relies on intellectual property rights, and in particular the abovementioned sui generis right, with the aim of protecting the data stored therein, does not act, by reason of that fact alone, as an undertaking. Such an entity is not obliged to authorise free use of the data which it collects and make available to the public. [...] a public authority may legitimately consider that it is necessary, or even mandatory in the light of provisions of its national law, to prohibit the re-utilisation of data appearing in a database such as that at issue in the main proceedings, so as to respect the interest which companies and other legal entities which make the disclosures required by law have in ensuring that no re-use of the information concerning them is possible beyond that database (Compass-Datenbank at para. 47, emphasis added).
Once again, this does not make any functional sense. If the whole purpose of collecting and disseminating the corporate information in the first place is to guarantee that third parties dealing with the undertakings concerned have reliable access under reasonable economic conditions to information that may be crucial for their dealings and market activities, identifying a public interest in keeping the use of such information limited is simply a non sequitur. Therefore, there does not seem to be a good justification for the exclusion of IP rights' exploitation as an economic activity as such either.
Finally, the CJEU enters into a circular reasoning when it comes to appraise whether the fact that the public body obtains revenues makes any difference in the analysis:
The fact that the making available of data from a database is remunerated does not have any bearing on whether a prohibition on the re-use of such data is or not economic in nature, provided that that remuneration is not itself of such a nature as to enable the activity concerned to be classified as economic [...]. To the extent that the remuneration for the making available of data is limited and regarded as inseparable from it, reliance on intellectual property rights in order to protect that data, and in particular to prevent its re-use, cannot be considered to be an economic activity. Such reliance is, accordingly, inseparable from the making available of that data (Compass-Datenbank at para. 49, emphasis added).
Some questions spring to mind as to how to determine at which point remuneration for any services alter their classification from a non-economic (ie free?) to an economic (ie profit-making) activity. Other than that, if the generation of revenue depends on its source for the purposes of determining whether the revenue-generating activity is economic or not, then it is not a separate criterion and this type of circular reasonings should be avoided to prevent unnecessary confusion in the CJEU's case law.
In short, in my opinion, the position of the CJEU in Compass-Datenbank simply defies the economic rational underlying the functional approach towards the concept of undertaking in the previous case law--which defines it as any entity that carries out an 'economic activity', regardless of its legal nature and source of financing. If 'economic activities' are not properly identified (as in FENIN, Selex and, now, Compass-Datenbank), the concept of 'undertaking' becomes unjustifiedly narrow and leaves unscrutinised public (actually economic) activities that raise significant competition law concerns (in the Compass-Datenbank due to the existence of a legal monopoly that excludes the existence of competition in the market for company information services). One cannot avoid wondering whether the analysis of the situation under the 'essential facilities doctrine' in Microsoft (Case T-201/04, 17 September 2007) would offer the same results (ie whether similar actions by a private undertaking would qualify as 'economic activities' and, hence, trigger tough antitrust intervention).
In conclusion, simply, I consider the recent Judgment of the CJEU in Compass-Datenbank another step back in the definition of (public) undertakings for the purposes of EU competition law.
A further step towards effective free movement of corporations
In its Judgement of 12 July 2012 in case C-378/10 VALE Építési Kft. (http://tinyurl.com/CJEUVale), the Court of Justice of the EU has extended its doctrine on the applicability (and limits) of the freedom of establishment (and movement) of corporations in cases of conversion (ie the changing of the seat of a company, together with the national law applicable to it).
In my view, VALE goes further than the prior string of case law in Centros (Case C-212/97, 9 March 1999), Überseering (Case C-208/00, 5 November 2002), and Inspire Art (Case C-167/01; 30 September 2003) but follows the same logic of dismantling domestic corporate law systems based on connection points closely linked to the "real seat theory"; and pushes strongly in favour of mutual recognition of corporate forms (and, potentially, for harmonisation of the regulation of a true 'standard' EU corporation or partnership).
In VALE, the CJEU notes that, in the absence of a uniform definition of companies in EU law, companies exist only by virtue of the national legislation which determines their incorporation and functioning. Thus, in the context of cross-border company conversions, the host Member State may determine the national law applicable to such operations and apply the provisions of its national law on the conversion of national companies that govern the incorporation and functioning of companies. However, national legislation in this area cannot escape the principle of the freedom of establishment from the outset and, as a result, national provisions which prohibit companies from another Member State from converting, while authorising national companies to do so, must be examined in light of that principle (paras. 27 to 33).
In conducting that analysis, the CJEU has found that "in so far as the national legislation at issue
in the case in the main proceedings provides only for conversion of
companies which already have their seat in the Member State concerned,
that legislation treats companies differently according to whether the
conversion is domestic or of a cross‑border nature, which is likely to
deter companies which have their seat in another Member State from
exercising the freedom of establishment laid down by the Treaty and,
therefore, amounts to a restriction with the meaning of Articles 49 TFEU
and 54 TFEU" (para. 36, emphasis added). Moreover, "differences in treatment depending on
whether a domestic or cross‑border conversion is at issue cannot be
justified by the absence of rules laid down in secondary European Union
law. Even though such rules are indeed useful for facilitating
cross-border conversions, their existence cannot be made a precondition
for the implementation of the freedom of establishment" (para. 38, emphasis added).
Therefore, it seems cleat that the CJEU once again uses the principle of non-discrimination on the basis of nationality as a lever to push for new developments in EU company law (even in cases where there is limited cross-border effect because only one small company is concerned, and a matter of principle).
In the remainder of the VALE Judgment, the CJEU finds, firstly, that the application to the foreign converted company of the provisions of a national law on domestic conversions governing the incorporation and functioning of companies, such as the requirements to draw up lists of assets and liabilities and property inventories, cannot be called into question. Further than that, where a Member State requires, in the context of a domestic conversion, strict legal and economic continuity between the predecessor company which applied to be converted and the converted successor company, such a requirement may also be imposed in the context of a cross-border conversion (paras. 42 to 55).
However, the CJEU finds that EU law precludes the authorities of a Member State from refusing to record in its commercial register, in the case of cross-border conversions, the company of the Member State of origin as the predecessor in law of the converted company, if such a record is made of the predecessor company in the case of domestic conversions (paras. 55 and 56). And, finally, the CJEU finds that, when examining a company’s application for registration, the authorities of the host Member State are required to take due account of documents obtained from the authorities of the Member State of origin certifying that, when it ceased to operate, that company did in fact comply with the national legislation of that Member State (paras. 57 to 61). Therefore, the CJEU further pushes for mutual recognition of documents and mutual reliance on domestic laws concerning conversion of companies.
I think that, overall, VALE is an important Judgment in the general area of EU company law and goes further than the specifics of corporate conversion, as it seems clear that the Court remains strongly committed to spur change and harmonisation of domestic rules.
El rescate como maldición: las pérdidas de los inversores son inevitables, pero lo importante es que se distribuyan de forma sensata: reducciones de capital a cero lo primero
Después de leer con un poco de calma el “Memorándum para el rescate financiero” de España (Memorandum of Understanding on Financial-Sector Policy Conditionality, July 2012, http://tinyurl.com/memorescate), no me cabe ninguna duda de que los inversores en las entidades financieras españolas que participen (¿se beneficien?) del rescate deberán asumir significativas pérdidas.
Está absolutamente claro en algunas de las condiciones del Memorándum:
- The restructuring plans of viable banks requiring public support will detail the actions to minimise the cost on taxpayers. Banks receiving State aid will contribute to the cost of restructuring as much as possible with their own resources. Actions include the sale of participations and non-core assets, run off of non-core activities, bans on dividend payments, bans on the discretionary remuneration of hybrid capital instruments and bans on non-organic growth. Banks and their shareholders will take losses before State aid measures are granted and ensure loss absorption of equity and hybrid capital instruments to the full extent possible (15).
- Steps will be taken to minimise the cost to taxpayers of bank restructuring. After allocating losses to equity holders, the Spanish authorities will require burden sharing measures from hybrid capital holders and subordinated debt holders in banks receiving public capital, including by implementing both voluntary and, where necessary, mandatory Subordinated Liability Exercises (SLEs). Banks not in need of State aid will be outside the scope of any mandatory burden sharing exercise. The Banco de España, in liaison with the European Commission and the EBA, will monitor any operations converting hybrid and subordinated instruments into senior debt or equity (17).
- Legislation will be introduced by end-August 2012 to ensure the effectiveness of the SLEs. The Spanish authorities will adopt the necessary legislative amendments, to allow for mandatory SLEs if the required burden sharing is not achieved on a voluntary basis. These amendments should also include provisions allowing that holders of hybrid capital instruments and subordinated debt fully participate in the SLEs (18).
- Banks with capital shortfalls and needing State aid will conduct SLEs against the background of the revised legal framework and in accordance with State aid rules, by converting hybrid capital and subordinated debt into equity at the time of public capital injection or by buying it back at significant discounts (19).
El Memorándum está claramente orientado a garantizar los fondos y depósitos de los usuarios del sistema financiero español (hoy, y a medio plazo) y, al mismo tiempo, aspira a imponer a los inversores en el sistema las pérdidas derivadas de su mala gestión y de la evolución desfavorable (o catastrófica, en algunos casos) de las principales líneas de negocio que se venían desarrollando antes y durante la crisis. En el fondo, se trata de minimizar el coste del rescate para los contribuyentes.
En mi opinión, el problema más grave de esta aproximación (de libro, en términos abstractos) es que durante la crisis se han estado vendiendo productos de inversión como si lo fueran de depósito; y, en concreto, la colocación de participaciones preferentes y otros productos financieros híbridos a los clientes (generalmente, a los más vulnerables, pero esa es cuestión para otro post sobre responsabilidad penal y disciplinaria de los intermediarios financieros) ha borrado en buena medida la distinción entre usuario de la entidad e inversor / propietario de la misma.
Por tanto, en la práctica y según como se redacten las condiciones de los acuerdos de subordinación o de las operaciones de conversión de productos híbridos en capital, quienes acabarán sufriendo en realidad las consecuencias del rescate (además de todos, como contribuyentes) serán los clientes a los que se haya convertido en inversores de manera inadvertida o forzada. Habrá que estar especialmente atentos a las valoraciones de las operaciones de conversión y al respeto de los derechos de adquisición preferente de los titulares de activos que hayan perdido completamente su valor (en el caso de que les quede alguna intención y fondos que invertir en las entidades después de asumir las pérdidas). Este será un verano en el que el diseño y redacción de la legislación societaria y bancaria necesaria para instrumentar los planes del Memorándum estará, más que nunca, plagada de trampas redistributivas.
En resumen, y para no complicar el mensaje, si las pérdidas derivadas del escándalo bancario español de los últimos años se deben repartir de manera mínimamente sensata (no hablemos de justicia ni equidad), lo primero es reducir el capital (el “core”, el de verdad, el de los accionistas de control) de los bancos para absorber (todas) las pérdidas—a cero, si es necesario—y luego seguir con el resto de medidas contenidas en el Memorándum (y cualesquiera otras necesarias) para mantener el sistema financiero a flote. Pero reducciones de capital a cero, lo primero. Cualquier otra medida es simplemente una subversión (de lo poco que queda) de la distinción entre inversores, usuarios y contribuyentes y, en definitiva, una expropiación en beneficio de los de siempre.
On theatre and whisky: GC pushes further in the protection of reputed trademarks
In its Judgment of 6 July 2012 in Case T-60/10 Jackson International Trading Co. Kurt D. Brühl GbmH & Co. KG v OHIM - Royal Shakespeare, the General Court (Royal Shakespeare), the General Court analyses to what extent the reputation of the Royal Shakespeare Company in the organisation of theater productions in the United Kingdom granted a right to request the cancellation of the trade mark 'Royal Shakespeare' as a Community trade mark in respect of alcoholic beverages (including beer and Scotch Whisky) and non-alcoholic beverages (mineral water, fruit juices, etc).
In the Royal Shakespeare Judgment, the GC conducts a rather detailed analysis of the elements that are necessary for the prior repute of a trade mark to grant a cancellation request of a similar trade mark under articles 5(3) and 8(5) of Regulation No 207/2009. The GC structures the analysis around the delimitation of the relevant public for the analysis of the reputation of the earlier trade mark and the scope of that reputation, and finds that an 'exceptional' reputation in a specific type of services within one class of the Nice Agreement is sufficient to trigger protection, regardless of how different they are from the other products or services for which the similar mark is used (which analysis is reserved for the issue of the likelihood of unfair advantage in the use of the trade mark).
The GC also stresses and clarifies the requirements to be met in order to determine that there is a risk of undue advantage in the use of a trade mark similar or identical to that with ('exceptional') reputation:
47 [...] article 8(5) of Regulation No 207/2009 covers three separate and alternative types of risk, namely that the use without due cause of the mark applied for will take unfair advantage of the distinctive character or the repute of the earlier mark, or that it will be detrimental to the distinctive character of the earlier mark, or that it will be detrimental to the repute of the earlier mark.48 The unfair advantage taken of the distinctive character or the repute of the earlier trade mark consists in the fact that the image of the mark with a reputation or the characteristics which it projects will be transferred to the goods covered by the mark applied for, with the result that the marketing of those goods can be made easier by that association with the earlier mark with a reputation.49 It should, however, be emphasised that in none of those cases is it necessary that there be a likelihood of confusion between the marks at issue; it is only necessary that the relevant public is able to establish a link between them, without having necessarily to confuse them [...]56 [...] The advantage arising from the use by a third party of a sign similar to a mark with a reputation is an advantage taken unfairly by that third party of the distinctive character or the repute of the mark where that party seeks by that use to ride on the coat-tails of the mark with a reputation in order to benefit from the power of attraction, the reputation and the prestige of that mark and to exploit, without paying any financial compensation, the marketing effort expended by the proprietor of the mark in order to create and maintain the mark’s image
Following this standard refresher of the applicable law, the GC conducts the analysis under the specific circumstances of the case, and finds that the possibility that the public establishes a relatively weak link between the concerned trade marks suffices to grant protection:
59 With regard to the goods and services in the present case, those of the applicant do not appear to be directly and immediately linked to the intervener’s theatre productions. However, despite the differences in the nature of those goods and services, there is, none the less, a certain proximity and link between them. In that regard, it has already been acknowledged in case-law that there is a certain similarity between entertainment services and beer due to their complementarity (see Judgment of 4 November 2008 in Case T‑161/07 Group Lottuss v OHIM – Ugly (Coyote Ugly), not published in the ECR, paragraphs 31 to 37). It is common practice, in theatres, for bar and catering services to be offered either side of and in the interval of a performance. (emphasis added)60 Moreover, irrespective of the above, in view of the established reputation of the earlier trade mark, the relevant public, namely the public at large in the United Kingdom, would be able to make a link with the intervener when seeing a beer with the contested trade mark in a supermarket or in a bar.61 In the present case, the applicant would benefit from the power of attraction, the reputation and the prestige of the earlier trade mark for its own goods, such as beer and other beverages, and for its services. In the beverages market, those goods would attract the consumer’s attention thanks to the association with the intervener and its earlier trade mark, which would give the applicant a commercial advantage over its competitors’ goods. That economic advantage would consist of exploiting the effort expended by the intervener in order to establish the reputation and the image of its earlier trade mark, without paying any compensation in exchange. That equates to an unfair advantage taken by the applicant of the repute of the earlier trade mark within the meaning of Article 8(5) of Regulation No 207/2009.
Therefore, the GC Judgment in the Royal Shakespeare case can be seen as a broadening of the scope of protection or (‘exceptionally’) reputed trade marks under EU law through a reduced standard of risk of association by consumers.
A software licence is a contract, isn't it? A bad transfer of analogic law to the digital environment by the CJEU
The CJEU has issued its Judgment of 3 July 2012 in case C-128/11 UsedSoft GmbH v Oracle International Corp, regarding the exhaustion of the exclusive right of distribution of a copy of a computer program by the author of the software in cases where it does not produce and distribute physical copies of the programs, but sells licences for the programs to be downloaded from a centralised server directly by the user.
The CJEU has found that "the principle of exhaustion of the distribution right applies not only where the copyright holder markets copies of his software on a material medium (CD-ROM or DVD) but also where he distributes them by means of downloads from his website. Where the copyright holder makes available to his customer a copy – tangible or intangible – and at the same time concludes, in return form payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts his exclusive distribution right" (press release: http://tinyurl.com/UsedSoft).
In those general terms, the Judgment may be well received, since it represents the standard view in the analogical world and does not seem to depart from the expectations of the parties when they entered into the licence contract--particularly those of the software company.
However, the CJEU goes further and expressly indicates that "even if the licence agreement prohibits a further transfer, the rightholder can no longer oppose the resale of that copy [... since that] would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain appropriate remuneration" (C-128/11 at para 63, emphasis added).
Even if the CJEU later goes on to restrict the potential implications of this finding by preventing the division of multiple licence agreements to resell only a limited number of licences, and expressly requires that the reseller stops using the program downloaded upon the first purchase of the licence; the Judgment generates major implications and significant complications for the drafting of licence agreements, their monitoring and enforcement.
In my opinion, the CJEU has not taken due account of the fact that licences are priced ex ante by software companies, on the basis of the intended uses by the client. Where resale is expressly prohibited by the contract, that is something that the software company has surely taken into consideration in the setting of the price for the licence, particularly when the licence is for an unlimited time and includes improvements and new versions of the program. Changing the potential uses ex post, particularly allowing for a contractually accepted resale prohibition, seems to clearly unbalance the economics of the bargain and to restrict the ability of software companies to price effectively their products. And all of this in a sector where exclusive rights and the ensuing revenues tend to compensate for R&D costs and where companies face significant risks and threats (such as counterfeiting and piracy).
Therefore, the finding of the CJEU in UsedSoft may have tremendous implications in the software sector and in the ability of software developers to continue raising revenues through the sale of licenses of already existing programs--for which an effective 'second hand' market has just been created by the CJEU, even in the digital environment, where companies had been very careful in limiting the resale of existing licences.
Probably it will be easy to negotiate around this finding, and to change licensing policies (e.g. from unlimited to time-limited licences) to prevent resale or minimise its effects. However, this will come at a significant cost for software companies and their clients alike, and may further complicate deals in this industry. In my view, this is a bad extension of analogic law to the digital environment by the CJEU.
A vueltas con el nuevo código mercantil
Hoy se renuevan los ecos de aprobación del nuevo código mercantil.
Estoy completamente de acuerdo con la petición de mayor transparencia y debate (público y académico) sobre las modificaciones de fondo que la aprobación del nuevo código pueda traer, como ya ha dicho Mercantilista sin ánimo de lucro.
Ahora bien, y a riesgo de ser pesado, ¿de verdad alguien se cree que el nuevo código tiene sentido (en cuanto a documento único, con vocación sistemática y de permanencia) y que a día de hoy es posible una recodificación (mercantil, o cualquier otra)? Ya dije que no. Disculpen la insistencia...
Estoy completamente de acuerdo con la petición de mayor transparencia y debate (público y académico) sobre las modificaciones de fondo que la aprobación del nuevo código pueda traer, como ya ha dicho Mercantilista sin ánimo de lucro.
Ahora bien, y a riesgo de ser pesado, ¿de verdad alguien se cree que el nuevo código tiene sentido (en cuanto a documento único, con vocación sistemática y de permanencia) y que a día de hoy es posible una recodificación (mercantil, o cualquier otra)? Ya dije que no. Disculpen la insistencia...