Hello and welcome back to the Pinsent Masons podcast with me, Matthew Magee.
We’re here to make sure you’re up on the very latest news and analysis about the legal opportunities and challenges your business faces. Is there something you’d like to cover? Do let us know.
This week we’ll look at how Germany is modernising its arbitration rules and the controversy some of the changes is generating, and we’ll analyse how a ruling about Aldi’s cider illustrates weakening brand protection in the UK, and divergence from the approach still taken in the EU.
But first, some business law news from our Out-Law reporting team.
EU reduces the scope of supply chain accountability law
Singapore raises retirement age,
and
Just 12% of European financial firms comply with outsourcing rules
Fewer businesses than previously thought will be bound by a new EU law making companies more responsible for human and environmental rights abuses by their suppliers.
The Corporate Sustainability Due Diligence Directive has been the subject of wrangling between EU countries and according to recent reports only passed a crucial committee stage when it was amended to apply to fewer companies.
Originally it was going to apply to companies with 500 employees and a turnover of €150 million but it will now only apply to companies with 1,000 employees and a turnover of €450 million. Companies will have between three and five years before the rules apply to them, depending on their size.
Supply chain expert Laura Ayre said: “Despite the relaxation for smaller businesses, those caught up in the supply chain of bigger businesses will still need to comply with the requirements as if they were subject to the rules directly, as the obligations will flow down through the supply chains.”
Singapore employers should review their workforce carefully to understand the impact of changes to the retirement age, an expert has said.
Singapore is raising its retirement age to 64 and the until which people have the right to be re-employed to 68 from 2026.
Employment expert Mayumi Soh said "employers should review the current composition of their workforces to understand how many employees will be impacted by the changes."
Just 12% of financial firms' regulated outsourcing agreements comply with EU regulations, according to the European Central Bank.
Banks increasingly use third-party providers to support their critical functions. According to the ECB newsletter, of noncompliant contracts, 20% have not been subject to a proper risk assessment, and 60% have not been audited. This lack of oversight and compliance poses a significant risk to the stability of the financial system as well as posing risks to customers, the ECB warned.
Technology law expert Mhairi Mival said: “Financial firms who are subject to supervision from the ECB should be checking that their material outsourcing contracts have been reviewed and are compliant with European Banking Authority outsourcing guidelines and amending them if not."
Germany is changing the way it does arbitration, seeking to become a bit more modern, streamlined and flexible.
Going to court can be unpredictable, expensive and time-consuming and is not actually how that many disputes between businesses are sorted out. Companies will more often try to settle things another way, in a private, commercial realm of law involving negotiation, mediation and arbitration.
Arbitration is towards the formal end – there are hearings and a panel of arbitrators issue a binding ruling that governs what happens next. But unlike courts, whose hearings and rulings are public and set precedents for future judgements, arbitration is completely private.
The German Ministry of Justice has proposed lots of changes, and Munich-based litigation and arbitration expert Sandra Gröschel picked out the most important ones: that agreeing to arbitrate will become less of a formal process; that the outcome of arbitration can be published if everyone agrees; that court challenges can just use existing documents in English without lots of costly translation, and that arbitrators can publish their dissenting opinions.
The plan to make the process of agreeing arbitration much less formal is controversial because things used to be informal, then it was made more formal, so this is a return to something that had previously been tried and was shelved.
Sandra Gröshel: Today, German arbitration law has stipulated certain formal requirements and in future it would be possible to conclude arbitration agreements without such formal requirements, at least for in commercial transactions. This, of course, would give the parties even more flexibility when concluding the arbitration agreement. What's interesting is that we already have this less formal way of agreeing to an arbitration proceeding. This is really why this proposal, I think is so controversial. Different stakeholders already presented their view on this promoted suggested changes. For example, the German Bar Association, I think they remember the good old days and pointed out that with dispensing any kind of formal requirement, this of course in turn creates uncertainties and any additional potential for disputes even. So this really in the end might not be the bargain it looks like. However, other institutions such as the German Arbitration Institute, they think it's a great idea. So really we have to just wait out and see how the Ministry of Justice will decide on this in the end.
Matthew: One of the main reasons companies use arbitration is because it's private law, so you can keep it completely confidential if you want. These changes suggest that arbitral awards can be published for the first time. Why would that be a good thing? What would be the benefits of doing that.
Sandra: Well, the benefits that would bring is that we as legal practitioners in the end would have some kind of database because currently for state proceedings we have huge databases we can refer to when doing our arguments and working out our briefs and here our courts really will listen to what other courts already said to this. So, of course, in the end that would be a huge benefit for us as legal practitioners if we already have this kind of additional database for arbitration cases. Maybe know what kind of arbitrators were involved in these kind of cases where we can also give our clients a bit of an idea, how a certain person would be an added value to our tribunal or not.
Matthew: So, the public law is kept stable and consistent because each case looks at previous cases like that and tries to behave, the court tries to behave in the same way, and it sounds like an arbitration that's not possible because you don't know how arbitration panels have ruled in other ways. So, is the aim here to make it more stable, more predictable?
Sandra: Yeah, I think I would definitely agree because in this way, by gaining more transparency of decisions for commercial arbitration, this would also be strengthening arbitration in general and also further the cause of the development of the law in general.
Matthew: Now, companies that choose arbitration partly choose it because it's private and this provision says everybody has to agree for it to be public before it's made public. Are any rulings going to be made public? Is everybody not just going to say yeah, no, I want to keep this private.
Sandra: I think in the end it will be going that way, but one of the main points why many parties opt for arbitration is their confidentiality. So many practitioners assume already that the parties will just simply exercise their right of fatal. Maybe even in the beginning of the arbitration proceedings saying, hey, I know in the end there will be this question and from the beginning we're saying no to it.
Matthew: The biggest court cases often have a panel of judges rule on them rather than a single one. The eventual ruling is the one that the majority of judges back, but those who disagree can publish what are called dissenting opinions. This hasn't been a feature of German arbitration, but Sandra thinks if this change is introduced, it has the potential to improve the quality of arbitration rulings.
Sandra: In contrast to common law, the publication of a dissenting opinion is really something entirely foreign to our legal system. So this is really just reserved for exceptional cases before the highest courts here in Germany. In principle, of course, there's the idea that there should be one uniform decision. In reality, you often have tribunal’s out of three persons and of course these three persons will at some point have other opinions on certain aspects of the case. Where this is an opportunity to improve the quality of an award in the end because it would be showing to the parties what different kind of arguments the arbitrators took into account and how they prioritised it and maybe why a decision was made in that certain way.
Matthew: It will be 2025 at least before these changes take effect, and not all of them will make the cut. Companies, people and other experts have the chance to tell the government what they think in a consultation and not all of the proposals will make it into law. But Sandra is confident that some of these rules will change and that it could have quite an impact on the world of German arbitration.
Sandra: Well, at the end I would say they're trying to achieve to make Germany more attractive as a as an arbitration hub. Really they're trying to increase flexibility and efficiency for arbitration procedures. They're hoping I think really to just attract more options to in Germany for resolving disputes via arbitration.
You probably know that food and drink companies spend huge sums every year creating a distinctive look for their products, including packaging that helps them stand out. But sometimes – and increasingly often on the shelves of budget supermarkets – products appear which look very like those famous brands.
Companies have traditionally relied on passing off or unfair competition laws to see off the lookalikes. These laws are designed to stop consumers being confused or companies taking advantage of the investment of other companies.
If you’re in the UK you might remember a couple of years ago the tussle when retailer Marks and Spencer defended its Colin The Caterpillar cake, suing supermarket Aldi over what it said was a copycat, Cuthbert The Caterpillar.
Thatcher’s Cider found that the UK courts may be offering less protection than before when it lost its court case seeking to stop supermarket Aldi selling cider in packaging based in part on Thatcher’s designs. So is the tide turning against brand holders?
London-based Emily Swithenbank laid out the basics of the case.
Emily Swithenbank: Thatcher’s pursued Aldi for trademark infringement and passing off to try and stop their what they considered infringing activities and they failed. They failed to establish that the product infringed on Thatcher's trademark rights, both in terms of confusing consumers as well as taking unfair advantage in Thatcher's reputation that they have in the appearance of their product. Similarly, were considered not to have been referred to in the UK, passing off Thatcher's rights.
Matthew: This isn't a new problem, but clashes are becoming more frequent.
Emily: So I mean, look alike’s have been on the market for years, decades even to 1 extent or another. Supermarkets in particular have sort of commonly adopted own brand versions of the leading products in a category to tell consumers that the type of product is the same or similar to the leading brand and so they will push the boundaries as to as to how they can adopt similar packaging and how far they can go. The rise of the likes of Aldi and Lidl and their popularity in the UK has certainly had an impact on the prevalence of look alike products. Linked to that, consumers are also now used to seeing look alikes on the shelves, but not just they're used to seeing it, they are more accepting of them and they don't necessarily see them as an inferior product.
Matthew: Brand holders have had it their way for a while in the EU and also in the UK, back when EU rulings were followed by UK courts.
Emily: In the EU, I'd say traditionally the Court of Justice of the European Union has been, I'd say, generally favourable to brand owners and where it seems though the third party is, you know, taking advantage of the reputation that a brand has, even where arguably consumers fully understand that the product is not the brand owner product, the EU courts have generally recognised that there is nevertheless taking advantage of that brand and the brands reputation and so therefore we'll support and protect those brand rights. In the UK, I'd say that had traditionally also been the case to an extent, there's always this sort of balancing as to whether the line is set, but certainly this recent case has suggested that there is a slight move against the interest of the brand owners. Brand owners are adopting different IP rights to protect their interests and the market share of their products. So registered designs have been invoked to protect the appearance of a product and we've seen that recently in the case that M&S also brought against Aldi in respect of their light up gin bottle. But trademark rights are also being used more broadly to protect rights, so trademarks can be obtained for brand names, and that's what people traditionally think of when they think of trademarks. But that will often give little protection against look alikes who are actually adopting a completely different name. But you can also obtain trademark registrations for 3D shapes of products, as well as distinctive logos, emblems, imagery and product labels.
Matthew: The Thatcher case looked at the process of consciously copying another brand known as benchmarking, something the case established that Aldi had done. There was, Emily says, a crucial change in approach in this case, that brand owners and supermarkets should be aware of.
Emily: The Court recognised that Aldi were benchmarking against and it was accepted that by Aldi that they were benchmarking against Thatcher’s and in fact that they were seeking to copy elements of Thatcher’s as product and the court went even further than that in in determining that consumers would, you know, as a result, link the two products and normally when the courts determine that there has been this sort of link between consumers, it's not much of a step for them to say there's therefore being this, you know, unfair advantage taken and infringement. But actually in this instance, the court found that notwithstanding the deliberate copying of certain elements and benchmarking and in effect wanting consumers to recognise the similarity between their products and Thatcher's product, they were avoiding from sailing too close to the wind and that there were some sufficient differences in the packaging. You know, I think it's sort of reinforcing this attitude of the UK courts that benchmarking and copying other products on the market and adopting sort of the elements which have made those products a success is permissible and that the line is being drawn slightly more favourably to the lookalike manufacturers.
Matthew: So what should brand holders do to protect themselves from copycats in light of this ruling?
Emily: They can consider adopting slightly more distinct packaging. You will stand a greater chance of protecting your market if you adopt at least certain elements of distinctive branding. You can and should increase registered rights so that you are not having to rely upon consumer confusion to bring a claim, or in the UK in particular the law of passing off. Brand owners should obviously monitor the market as they as they will inevitably do but enforce quickly as soon as they get wind of a look alike and the longer the product is on the market the harder it will be to persuade the copycat to change their product or remove it from the shelves, and so is much more likely the litigation will ensue if it's been around for a longer time.
Matthew: Well, that's all for this week. Thank you so much for listening. We know there's lots out there for you to read and listen to, and we really appreciate it when you spend your time with us. If you think this podcast would be interesting or useful to a friend, a colleague, or a contact, please do share it and do subscribe so that you don't miss out. And remember, you can get up-to-the-minute business loan news and analysis from our team of journalists at pinsentmasons.com and you can make sure you get the news as it happens by signing up for updates at www.pinsentmasons.com/newsletter. Well, thanks for joining us again and we'll see you next time.
The Pinsent Masons podcast was produced and presented by Matthew Magee for international professional services firm, Pinsent Masons.
