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05 Mar 2019

Stephenson Harwood's commercial and tech update - February 2019

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Welcome to this month's edition of our commercial and tech update, covering a wide range of topics from Facebook's lacklustre approach in dealing with IP infringement to further confirmation on the Courts' approach to liquidated damages. 

(Mis)Adventures in advertising

The Competition and Markets Authority (CMA) has been busy investigating consumer protection law breaches and malpractices across a number of sectors over the past few months, including ticket resale websites and social media influencers. This month the CMA has obtained undertakings from hotel booking websites to improve their selling practices, which follows our July report, where we discussed the CMA's launch of enforcement action against hotel booking websites.

The CMA's investigation into hotel booking websites was announced following concerns that common selling practices might be breaching consumer law by misleading customers and pressurising them into making uninformed purchasing decisions. The CMA reported this month that each of the six websites under investigation cooperated with the CMA and have voluntarily agreed to:

  • provide clear information about how hotels are ranked in search results, e.g. informing consumers about whether the amount of commission paid to the website affects rankings;
  • avoid giving false impressions about the popularity of a certain hotel, e.g. if the website highlights that a certain number of people are looking at the same hotel, the website should make clear to consumers that these people might be searching for different dates, etc;
  • be clearer about discounts, e.g. by offering a fair basis for comparison, and only display offers which are relevant to the consumer's search criteria; and
  • display the total cost of the booking upfront (although websites may still offer a breakdown of how that total price has been calculated).

Further details of the undertakings given by the 6 websites are available on the CMA's investigation page. The CMA has stated that it will now monitor compliance with the commitments, and also inform other hotel booking sites, online travel agents and hotel chains of their expectations, with changes to be made by 1 September 2019. If these organisations fail to comply with consumer protection laws, the CMA may consider taking further enforcement action.

It will be interesting to see whether the CMA will take similar action in other sectors and against other merchants who engage in similar practices during the coming months, but for now it serves as an important lesson to be transparent when promoting goods and services to consumers.

Court issues further authority on liquidated damages

Further proof that it is becoming harder for a party to argue that a liquidated damages clause constitutes an unenforceable penalty was seen in the High Court in GPP Big Field LLP (GPP) v Solar EPC Solutions SL (Solar) [2018] EWHC 2866 (Comm).

This case serves as useful reminder that the Courts will be more inclined to uphold liquidated damages clauses in modern commercial contracts following the Supreme Court's decisions in Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis.

In terms of relevant background, the parties entered into five EPC contracts relating to solar power generation plants in the UK. The terms of the five EPC contracts were materially the same, but not identical. Each contract contained a provision for "Delay Damages". Solar was the parent company of the contractor providing services under the agreements and was sued as guarantor and/or indemnifier of the contractor's obligations.

The contractor failed to achieve a commissioning date and, as such, GPP's primary claim under each of the EPC contracts was for liquidated damages for the contractor's failure to commission the plant by the date specified in the relevant contract. The contractor became insolvent in March 2014. As a result, GPP claimed against Solar for damages as guarantor and/or indemnifier under four of the EPC Contracts.

The decision was that the relevant provisions did not constitute a penalty on the basis that the daily sums agreed did not exceed a "genuine attempt to estimate in advance" the employer's loss, and were not in any way extravagant or in comparison with the legitimate interest of the claimant.

The reasons cited for the clauses not being an unenforceable penalty included:

  • clauses of this nature are common in construction contracts. GPP and the contractor were commercial parties with significant commercial experience and of equal bargaining power;
  • the specified sum did not exceed a genuine attempt to estimate in advance the loss which the employer would be likely to suffer from a breach, and that sum was not in any way extravagant or unconscionable in comparison with the legitimate interest of GPP in ensuring timely performance;
  • the sum was payable only on a single type of breach;
  • the loss resulting from that breach was likely to vary in amount depending on the actual circumstances at the time.

It is also important to note that the fact that clause referred to "the penalty" was "an equivocal indication". It was the substance of the matter that was important.

Protecting children and the young from gambling adverts

The Committees of Advertising Practice has published new gambling guidance for advertisers aimed at protecting under-18s. The guidance results from the Department for Digital, Culture, Media and Sports' review of existing evidence of advertising's impact on under-18s. It found that, whilst the regulatory framework for controlling advertising is effective, the risks to children and young people of irresponsible gambling advertising remain such that the enhanced guidance is necessary.

Marketers must ensure that gambling adverts that appear on, or after, 1 April 2019 have regard to the guidance in supporting their compliance with the underlying advertising rules. Generally, the guidance reaffirms that under-18s must not be addressed by gambling advertising, they should not be targeted through media placement or ad content and ads intended for adult audiences must not contain content of particular appeal to under-18s. In particular, the enhanced guidance:

  • prohibits online adverts for gambling products being targeted at individuals likely to be under-18 based on their online interests and browsing behaviour;
  • lists unacceptable content (which will include, for example, adverts making reference to youth culture and adverts including animated characters or licensed characters from movies or TV that are likely to appeal to children or young people);
  • prohibits the use in gambling adverts of sportspersons or celebrities who are, or appear to be, under-25; and
  • provides additional guidance on targeting adverts responsibly (including on social networks and online platforms).

The enhanced standards apply from 1 April 2019, from which date the Advertising Standards Agency will have regard to it when it investigates complaints about gambling adverts.

Notice and takedown… in your own time

In a judgment that may have implications across the UK and EU (Brexit considered), the Italian courts have considered two issues concerning whether Facebook was liable for IP infringement in respect of content uploaded by users.

An Italian broadcaster and a singer brought a claim against Facebook, alleging that Facebook was liable for infringing content, and links to further infringing content, that had been uploaded to a Facebook profile. Facebook claimed the 'safe harbour' from IP infringement claims deriving from the E-commerce Directive, which provides that a 'service provider' is not liable for information stored by a service user, provided that:

  • it has no actual knowledge of illegal activity or information; and
  • when made aware of illegal activity or information, acts 'expeditiously' in removing that information.

This 'safe harbour' protection has been used, many believe, more widely than initially intended, and effectively gives information hosting providers such as Facebook and YouTube a defence against IP infringement claims where infringing content is uploaded by users and the platform is unaware of this.  There is no requirement for the platform to undertake active investigations as to whether uploaded content infringes IP rights, but most platforms operate systems whereby rights holders are able to alert them to infringing material to enable them to take that material down.  The Directive doesn't give any time limit for the take down of material (other than that it must be done 'expeditiously'), and the CJEU has issued no guidance.  In this case, Facebook did not remove offending material until the claimant had requested it to do so five times over a total of two years and the court found that this took Facebook outside the 'expeditious' timeframe set out in the safe harbour provision.  Facebook had actual knowledge of the infringing nature of the material and failed to act.

The court also held that the jurisdiction clause set out in Facebook's terms of service was not relevant to the action, because it applied only to contractual disputes and could not apply to tortious claims.  The correct jurisdiction in which to hear the claim that in which the damage was felt, i.e. the jurisdiction in which the IP rights were infringed.

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