-
Италия
Punitive damages – The Court of Cassation opens the door in Italy
25.11.2017
- Коллизия законов
- Контракты
- Взыскание кредитов
- Международная торговля
- Судебная практика
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Вьетнам 
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Саудовская Аравия 
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Бельгия 
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Австралия 
Португалия Scrivi a Roberto
Doing Business in Iran
06.10.2017
-
Иран
- Контракты
- Корпоративный
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Scrivi a Encyeh
France — Abrupt termination of contract
26.09.2017
-
Франция
- Контракты
- Распространение
- Судебная практика
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Scrivi a Marika
To infinity and beyond — Perpetual contracts under Québec law
09.08.2017
-
Канада
- Контракты
- Судебная практика
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Foreign currency regulations and price controls in Venezuela
05.04.2017
-
Венесуэла
- Контракты
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Enforcement of foreign decisions and arbitral awards in Venezuela
21.03.2017
-
Венесуэла
- Арбитраж
- Контракты
- Судебная практика
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Null contract of international sale of goods. Which Jurisdiction?
11.07.2016
-
Италия
- Коллизия законов
- Контракты
- Международная торговля
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
China Contract — Jurisdiction, Arbitration and applicable law
10.05.2016
-
Китай
- Коллизия законов
- Контракты
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Scrivi a Roberto
China — Sales contract
11.04.2016
-
Китай
- Контракты
“Influencer Marketing” is a very well known topic to the jurists and operators of the advertising sector dealing with commercial communication.
There is a core principle in communication law: any form of commercial communication shall be clearly recognizable as such.
Before the diffusion of digital communication and, along with it, the proliferation of the so-called «Influencer Marketing», the issue of recognizability of commercial communication was generally discussed when evaluating whether an advertising content was clearly distinguishable from a journalistic or an informative content (such is the longstanding issue regarding the advertorial).
For a short period of time there was a debate regarding the so-called subliminal advertising, which eventually fell into oblivion.
The necessity to point out to the consumer whether the appreciation for a product or a service shown by a well-known person – precisely an “Influencer” – (i.e. the endorsement) is genuine or not has become a much encountered and controversial topic.
It shall not be considered as spontaneous when an individual receives remuneration for wearing a fashion item, for using a smartphone, or simply when he/she receives as a gift the products that he/she promotes or other valuable products.
It is clear and proven that the spontaneous choice of an “idol” by the public has a bigger impact on these same people rather than any traditional way of advertising. Hence the abuse of surreptitious advertising on the less easily monitored channel: the web, precisely.
What measures should be taken to ensure that the consumers can understand clearly whether a post is subject of a contract or not?
The answer would be very simple.
It would be enough to require the sponsored post to contain, in clearly visible characters, terms as “Advertisement”, “Sponsored by”, “Commercial agreement” or similar notices.
In Italy, in absence of a law regulating specifically the matter, both the Istituto della Pubblicità (Italy’s Advertising Self-Regulatory Institute) and the Autorità Garante della Concorrenza e del Mercato (the Competition Authority) have expressed their opinion on this subject.
In the Italian Advertising Self-Regulatory Institute’s digital chart it is written: “in order to make the promotional nature of content posted on social media and content sharing sites recognizable, celebrities/influencers/bloggers must at the top of their post state in a clearly distinguishable manner the words: “Pubblicità/Advertising”, or “Promosso da … brand/Promoted by…brand” or “Sponsorizzato da…brand/Sponsored by…brand” or “in collaborazione con …brand” or “in partnership with the …brand”; and/or within the first three hashtags (#) use one of the following terms: “#Pubblicità/#Advertising”, or “#Sponsorizzato da … brand/#Sponsored by the … brand “ or “#ad” along with “#brand”.
In a press release of 2017 the Italian Competition Authority has required the addressees the use of the following warnings to be placed below the post together with the others hashtags (#), such as “#sponsored, #advertising, #paidad”, or, in the case of products given for free to the celebrity, “#productsuppliedby”; in particular, all these wordings should be followed by the name of the specific brand being advertised.
However, browsing the Instagram’s pages of various Influencers, it is noticeable that only a few of them are actually using the indications provided by the authorities.
And when it happens to came across Instagram’s profiles that use such indications, it is noticeable that the hashtag that is most commonly used is “#ad”, whose effectiveness (especially in Italy where terms such as “advertising”, “Adv” and, even more so, “ad” are not easily decipherable by the average consumer) raises many concerns.
So far the Italian Competition Authority intervened sending moral suasion letters to some of the main influencers and companies producing the branded goods displayed in the posts, but still no self-regulatory, administrative or state measures have been taken.
The same situation of uncertainty is likely to be found in other countries (here you can find a previous Legalmondo post on this topic in Germany: https://www.legalmondo.com/2017/11/germany-product-placement-influencer-marketing/), with the consequence that international companies are operating in an unclear context, in which it is difficult to identify what are the risks arising from behaviours considered as unlawful.
I have therefore decided to write this article in order to assess the state of Influencer Marketing in Italy and in other countries and get a better understanding of the regulations in force, the measures/judgments issued by the competent Authorities, the international trends and the best practices that could be adopted by international companies.
Since I am one of the founders of the Digital Adv Lab – an interdisciplinary observatory that studies the legal implications of marketing and digital communication initiatives – I am interested in getting in touch with all the readers involved in this topic: please feel free to enter a comment and/or contact me.
The author of this post is Elena Carpani.
Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.
However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:
- Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
- Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
- When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write «specify it in the IP clause» it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
- Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
- Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
- Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
- Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.
Based on our experience in many years advising and representing companies in the commercial distribution (in Spanish jurisdiction but with foreign manufacturers or distributors), the following are the six key essential elements for manufacturers (suppliers) and retailers (distributors) when establishing a distribution relationship.
These ideas are relevant when companies intend to start their commercial relationship but they should not be neglected and verified even when there are already existing contacts.
The signature of the contract
Although it could seem obvious, the signature of a distribution agreement is less common than it might seem. It often happens that along the extended relationship, the corporate structures change and what once was signed with an entity, has not been renewed, adapted, modified or replaced when the situation has been transformed. It is very convenient to have well documented the relationship at every moment of its existence and to be sure that what has been covered legally is also enforceable y the day-to-day commercial relationship. It is advisable this work to be carried out by legal specialists closely with the commercial department of the company. Perfectly drafted clauses from a legal standpoint will be useless if overtaken or not understood by the day-to-day activity. And, of course, no contract is signed as a “mere formality” and then modified by verbal agreements or practices.
The proper choice of contract
If the signature of the distribution contract is important, the choice of the correct type is essential. Many of the conflicts that occur, especially in long-term relationships, begin with the interpretation of the type of relationship that has been signed. Even with a written text (and with an express title), the intention of the parties remains often unclear (and so the agreement). Is the “distributor” really so? Does he buy and resell or there are only sporadic supply relationships? Is there just a representative activity (ie, the distributor is actually an “agent“)? Is there a mixed relationship (sometimes represents, sometimes buys and resells)? The list could continue indefinitely. Even in many of the relationships that currently exist I am sure that the interpretation given by the Supplier and the Distributor could be different.
Monitoring of legal and business relations
If it is quite frequent not to have a clear written contract, it happens in almost all the distribution relationships than once the agreement has been signed, the day-to-day commercial activity modifies what has been agreed. Why commercial relations seem to neglect what has been written in an agreement? It is quite frequent contracts in which certain obligations for distributors are included (reporting on the market, customers, minimum purchases), but which in practice are not respected (it seems complicated, there is a good relationship between the parties, and nobody remembers what was agreed by people no longer working at the company…). However, it is also quite frequent to try to use these (real?) defaults later on when the relationship starts having problems. At that moment, parties try to hide behind these violations to terminate the contracts although these practices were, in a sort of way, accepted as a new procedure. Of course no agreement can last forever and for that reason is highly recommendable a joint and periodical monitoring between the legal adviser (preferably an independent one with the support of the general managers) and the commercial department to take into account new practices and to have a provision in the contractual documents.
Evidences about customers
In distribution contracts, evidences about customers will be essential in case of termination. Parties (mainly the supplier) are quite interested in showing evidences on who (supplier or distributor) procured the customers. Are they a result of the distributor activity or are they obtained as a consequence of the reputation of the trademark? Evidences on customers could simplify or even avoid future conflicts. The importance of the clientele and its possible future activity will be a key element to define the compensation to which the distributor will pretend to be eligible.
Evidences on purchases and sales
Another essential element and quite often forgotten is the justification of purchases to the supplier and subsequent sales by distributors. In any distribution agreement distributors acquire the products and resell them to the final customers. A future compensation to the distributor will consider the difference between the purchase prices and resale prices (the margin). It is therefore advisable to be able to establish the correspondent evidence on such information in order to better prepare a possible claim.
Damages in case of termination of contracts
Similarly, it would be convenient to justify what damages have been suffered as a result of the termination of a contract: has the distributor made investments by indication of the supplier that are still to be amortized? Has the distributor hired new employees for a line of business that have to be dismissed because of the termination of the contract (costs of compensation)? Has the distributor rented new premises signing long-term contracts due to the expectations on the agreement? Please, take into account that the Distributor is an independent trader and, as such, he assumes the risks of his activity. But to the extent he is acting on a distribution network he shall be subject to the directions, suggestions and expectations created by the supplier. These may be relevant to later determine the damages caused by the termination of the contract.
Influencer marketing is the trend in today’s world of advertising. Even though it is obvious that influencer marketing must observe the framework of applicable statutory provisions, the market has long been uncertain about how influencer posts are to be drafted in order to be legally compliant. The current decision of Celle Higher Regional Court (June 08, 2017 – Case 13 U 53/17) offers at least some clarity.
The judgment was issued in relation to an action for injunction by the German Association for Social Competition (Verband Sozialer Wettbewerb) against a German drugstore chain. A 20-year-old Instagram star with 1.3 million followers had advertised the drugstore chain in one of her posts. The post was only marked as advertisement at the bottom with the hashtag “#ad,” which additionally only came second in a list of six hashtags.
Celle Higher Regional Court adjudged that this type of marking was insufficient. The court requested that the commercial purpose of an Instagram post would have to be apparent at first sight. It did not consider use of the hashtag “#ad” in a “hashtag cloud” to be sufficient to mark the post as advertising.
The court left expressly open, however, whether the use of the hashtag “#ad” is generally suitable to mark advertising posts.
The state media authorities (Landesmedienanstalten) already reacted to the judgment, however, and revised their joint guide on advertising issues in social media. It now reads: “When marking a post as PROMOTION (Werbung) or ADVERTISING (Anzeige), you will be on the safe side – that much is certain. […] At the current time, we cannot recommend marking posts as #ad, #sponsored by, or #powered by.” In the future, Instagram itself intends to provide for more transparency on the platform by comprehensibly identifying advertising posts. It is currently testing the introduction of a branded content tool in Germany to make it easier for users to recognize posts as paid advertising.
Practical tip
Advertising posts in social media should always be marked as “promotion” or “advertising” at the beginning of the posts unless their commercial purpose arises directly from the circumstances. Advertisers are also advised to obligate influencers contractually to such legally compliant marking of posts, since the influencers’ behavior may be attributed to the company, as is clearly shown by the recent judgment of Celle Higher Regional Court against the drugstore chain.
The author of this post is Ilja Czernik.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
In this clip I briefly introduce the main options to consider when doing business in Iran.
You can read more on this topic in my articles An introduction to Iran Corporations and Obtaining a Foreign Investment License and browse Legalmondo’s blog for some other posts on doing business in the region.
If your business is related to France or you wish to develop your business in this direction, you need to be aware of one very specific provision with regards to the termination of a business relationship.
Article L. 442-6, I, 5° of the French Commercial Code protects a party to a contract who considers that the other party has terminated the existing business relationship in a sudden and abrupt way, thus causing her a damage.
This is a ‘public policy’ provision and therefore any contractual provision to the contrary will be unenforceable.
Initially, the lawmaker aimed to protect any business relationship between suppliers and major large-scale retailers delisting (ie, removing a supplier’s products that were referenced by a distributor) at the moment of contracts renegotiations or renewals.
Eventually, the article has been drafted in order to extend its scope to any business relationship, regardless of the status of the professionals involved and the nature of the commercial relationship.
The party who wishes to terminate the business relationship does not need to provide any justification for her actions but must send a sufficient prior notice to the other party.
The purpose is to allow the parties, and in particular the abandoned party, to anticipate the discharge of the contract, in particular in cases of economic dependency.
It is an accentuated obligation of loyalty.
There are only two cases strictly interpreted by case law in which the partner is exempted from sending a prior notice:
- an aggravated breach of a contractual obligation;
- a frustration or a force majeure.
There are two main requirements to be fulfilled in order to be able to invoke this provision in front of a judge — an established business relationship and an abrupt termination.
The judge will assess whether the requirements have been fulfilled on a case by case basis.
What does the term ‘established business relationship’ mean?
The most important criterion is the duration, whether a written contract exists or not.
A relationship may be considered as long-term whether there is a single contract or a few consecutive contracts.
If there is no contract in place, the judge will take into account the following criteria:
- the existence of a long-term established business relationship;
- the good faith of the parties;
- the frequency of the transactions and the importance and evolving of the turnover;
- any agreement on the prices applied and/or the discounts granted to the other party;
- any correspondence exchanged between the parties.
What does the term ‘abrupt termination’ mean?
The Courts consider the application of Article L442-6-I 5° if the termination is “unforeseeable, sudden and harsh”.
The termination must comply with the following three conditions in order to be considered as abrupt:
- with no prior notice or with insufficient prior notice;
- sudden;
- unpredictable.
To consider whether a prior notice is sufficient, a judge may consider the following criteria:
- the investments made by the victim of the termination;
- the business involved (eg seasonal fashion collections);
- a constant increase in turnover;
- the market recognition of the products sold by the victim and the difficulty of finding replacement products;
- the existence of a post-contractual non-compete undertaking ;
- the existence of exclusivity between the parties;
- the time period required for the victim to find other openings or refocus the business activity;
- the existence of any economic dependency for the victim.
The courts have decided that a partial termination may also be considered as abrupt in the following cases:
- an organisational change in the distribution structure of the supplier;
- a substantial decrease in trade flows;
- a change in pricing terms or an increase in prices without any prior notice sent by a supplier granting special prices to the buyers, or in general any unilateral and substantial change in the contract terms.
Whatever the justification for the termination, it is necessary to send a registered letter with an acknowledgment of receipt and ensure that the prior notice is sent sufficienlty in advance (some businesses have specific time periods applicable to them by law).
Compensation for a damage
The French Commercial Code provides for the award of damages in order to compensate a party for an abrupt termination of a business relationship.
The damages are calculated by multiplying the notice period which should have been applied by the average profit achieved prior to the termination. Such profit is evaluated based on the pre-tax gross margin that would have been achieved during the required notice period, had sufficient notice been given.
The courts may also award damages for incidental and consequential losses such as redundancy costs, losses of scheduled stocks, operational costs, certain unamortised investments and restructuring costs, indemnities paid to third parties or even image or reputational damage.
International law
The French supreme court competent in civil law (‘Cour de cassation’) considers that in cases where the decision to terminate the business relationship and the resulting damage take place in two different countries, it is a matter of torts and the applicable law will be the one of the country where the triggering event the most closely connected with the tort took place. Therefore the abrupt termination will be subject to French law if the business of the supplier is located in France.
However, the Court of Justice of the European Union (CJEU) has issued a preliminary ruling dated 14 July 2016 answering two questions submitted by the Paris Court of Appeal in a judgment dated 17 April 2015. A French company had been distributing in France the food products of an Italian company for the last 25 years, with no framework agreement or any exclusivity provision in place. The Italian company had terminated the business relationship with no prior notice. The French company issued proceedings against the Italian company in front of the French courts and invoked the abrupt termination of an established business relationship.
The Italian company opposed both the jurisdiction of the French courts and the legal ground for the action arguing that the Italian courts had jurisdiction as the action involved contract law and was therefore subject to the laws of the country where the commodities had been or should have been delivered, in this case Incoterm Ex-works departing from the plant in Italy.
The CJEU has considered that in case of a tacit contractual relationship and pursuant to European law, the liability will be based on contract law (in the same case, pursuant to French law, the liability will be based on torts). As a consequence, Article 5, 3° of the Regulation (EC) 44/2001, also known as Brussels I (which has been replaced by Regulation (EC) 1215/2012, also known as Brussels I bis) will not apply. Therefore, the competent judge will not be the one of the country where the damage occurred but the one of the country where the contractual obligation was being performed.
In addition and answering the second question submitted to it, the CJEU has considered that the contract is:
- a contract for the sale of goods if its purpose is the delivery of goods, in which case the competent jurisdiction will be the one of the country where the goods have been or should have been delivered; and
- a contract for services if its purpose is the provision of services, in which case the competent jurisdiction will be the one of the country where the services have been or should have been provided.
In this case, the Paris Court of Appeal will have to recharacherise the contractual relationship either as consecutive contracts for the sale of goods and deduct the jurisdiction of the Italian courts, or as a contract for services implying the participation of the distributor in the development and the distribution of the supplier’s goods and business strategy and deduct the jurisdiction of the French courts.
In summary, in case of an intra-Community dispute, the distributor who is the victim of an abrupt termination of an established business relationship cannot issue proceedings based on torts in front of a court in the country where the damage occurred if there is a tacit contractual relationship with the supplier. In order to determine the competent jurisdiction in such case, it is necessary to determine whether such tacit contractual relationship consists of a supply of goods or a provision of services.
The next judgment of the Paris Court of Appeal and those of the Cour de cassation to come need to be followed very closely.
When negotiating contracts, parties typically focus on the key commercial terms of their agreement. The clauses that govern the term of the agreement (i.e., the duration, or how long the contract remains in force), the renewal of the term, and how the agreement can be terminated, however, merit careful consideration.
Under Québec law, contracts typically have terms that are either fixed (e.g., 5 years, 10 years etc.), or are for an indeterminate period of time (i.e., no specific term is provided for). Contracts with fixed terms may also contain automatic renewal clauses. In the case of an indeterminate term contract, a party to the contract can generally, absent specific terms or a notice provision to the contrary in the contract, terminate it, without cause, by providing reasonable notice of termination (what constitutes «reasonable notice» depends on a number of factors and is decided on the facts of each case). A third category of contracts are contracts with a potentially perpetual term. An example of a potentially perpetual contract is a contract that contains a renewal clause that is entirely under the control of only one of the parties who can, effectively, unilaterally decide whether the contract will go on indefinitely. In such a contract, the other contracting party does not have a right to terminate the contract by providing reasonable notice of termination. The validity of perpetual term contracts was precisely the issue before the Supreme Court of Canada in its July 28, 2017 decision in Uniprix inc. v. Gestion Gosselin et Bérubé inc. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16746/index.do («Uniprix«).
In Uniprix, the pharmacy chain entered into an affiliation agreement with various members of a pharmacists’ group pursuant to which said members operated a pharmacy under the Uniprix banner. The term of the contract was for a fixed term of 5 years and the renewal clause allowed members to provide a notice within a certain period of time, failing which the contract would automatically be renewed for an additional 5 years:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[Translation]
The Uniprix agreement did not provide any say to Uniprix in connection with its renewal and there were no limits on the number of times that the members could renew the agreement. As such, the contract could remain in force perpetually based entirely on the members’ decision. After the contract had been renewed twice, Uniprix sent the members a notice of non-renewal and purported to terminate the agreement. The members contested Uniprix’s decision based on the fact that under the affiliation agreement, the renewal clause could only be exercised by the members and, unless the members gave notice to the contrary, the contract was automatically renewed. Uniprix argued that the effect of the members’ position, which would bind the parties in perpetuity, was contrary to public order (i.e., it violated a fundamental societal value) and unlawful and, as such, the term of the agreement should be considered to be for an indeterminate period, which would allow either party to terminate it on reasonable notice.
In a 6-3 decision, the Supreme Court of Canada held (in upholding the decisions of the majority of the Québec Court of Appeal and of the Superior Court of Québec) that there was nothing under Québec law that prohibited a contract of affiliation from having a perpetual term and that this did not, in and of itself and in the context of corporate and commercial agreements, offend any fundamental societal values. The Court’s holding would equally apply to many other types of contracts such as, for example, franchise agreements and licensing agreements. The Court held, accordingly, that the affiliation agreement was not for an indeterminate term and, therefore, could be not be terminated by Uniprix by providing reasonable notice.
With respect to the holding in Uniprix , the following points should be kept in mind:
- The Supreme Court of Canada expressly noted that in certain circumstances, such as where an individual’sperson and freedom are affected (e.g., a contract of employment), a perpetual obligation could offend public order.
- In certain specific cases set out in the Civil Code of Québec, the legislator has provided maximum terms for certain types of contracts (e.g., a commercial lease cannot exceed 100 years, the duration of payment of an annuity is 100 years).
- In the case of a contract of adhesion (which is generally defined as a contract where one of the parties was unable to negotiate its terms), the adhering or vulnerable party can argue that a perpetual term is abusive and, therefore, null.
- The Court’s decision in Uniprixapplied to Uniprix’s ability to terminate the contract without cause. A party always retains the right to terminate a contract for cause. What constitutes «cause» is decided on a case by case basis and may also be governed by the terms of the contract.
When drafting contracts, parties are generally, subject to limitations imposed by the legislator or public order, permitted to structure their relationship as they see fit. Parties should carefully consider whether they truly intend the duration of their agreement to be entirely under the control of one of the parties to the agreement for an indefinite period of time because, as is made clear in Uniprix, perpetual commercial contracts are enforceable under Québec law.
The author of this post is David Stolow.
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
- Судебная практика
-
Испания
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
- Конфиденциальность - Защита данных
-
Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
- Распространение
- Франчайзинг
-
Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
- Распространение
-
Италия
Corporate Sustainability in Practice – How Contracts Shape Responsibility
- Контракты
- Распространение
-
Finland
Rising Oil Prices and International Contracts: How to Manage Hardship in Global Supply Chains
- Контракты
- Распространение
-
Италия
Why the African Continental Free Trade Agreement has not yet turned into Reality — and What That Means for Egypt
- Распространение
- Иностранные инвестиции
-
Египет
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
-
Германия
Italy — How Covid19 impacts on Private Equity and Venture Capital transactions
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
-
Италия
France — New rules applicable to digital assets services providers (DASP)
- Финансирование и ценные бумаги
-
Франция
Tutte le categorie