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European legal issues for US enterprise
1. US Webinar Series
European Legal Issues for US Businesses
An Introduction
David Naylor
Partner
Robert Blamires
Senior Associate
6 July 2011
2. European legal issues for US businesses
1. Introduction
2. European Law – A Quick Guide
3. Entering the European Market
4. Contracting in Europe
• Business to business
• Business to consumer
5. European Privacy and Data Protection
6. European Regulators
7. Multi-territory European Roll-outs
4. European Law – A Quick Guide
European Union:
• 27 Member States
• 5 Candidate Countries
• (17 other European
Countries)
Motto: “United in diversity”
5. European Law – A Quick Guide
Article 2 – The Treaty on European Union
The Union shall set itself the following objectives:
• to promote economic and social progress and a high level of employment and to achieve
balanced and sustainable development, in particular through the creation of an area without
internal frontiers, through the strengthening of economic and social cohesion and through
the establishment of economic and monetary union, ultimately including a single currency in
accordance with the provisions of this Treaty,
• to assert its identity on the international scene, in particular through the implementation of a
common foreign and security policy including the progressive framing of a common defence
policy, which might lead to a common defence, in accordance with the provisions of Article
17,
• to strengthen the protection of the rights and interests of the nationals of its Member States
through the introduction of a citizenship of the Union,
• to maintain and develop the Union as an area of freedom, security and justice, in which the
free movement of persons is assured in conjunction with appropriate measures with respect
to external border controls, asylum, immigration and the prevention and combating of crime,
• to maintain in full the acquis communautaire and build on it with a view to considering to
what extent the policies and forms of cooperation introduced by this Treaty may need to be
revised with the aim of ensuring the effectiveness of the mechanisms and the institutions of
the Community.
The objectives of the Union shall be achieved as provided in this Treaty and in accordance with
the conditions and the timetable set out therein while respecting the principle of subsidiarity as
defined in Article 5 of the Treaty establishing the European Community.
6. European Law – A Quick Guide
Article 2 – The Treaty on European Union
The Union shall set itself the following objectives:
• to promote economic and social progress and a high level of employment and to
achieve balanced and sustainable development, in particular through the
creation of an area without internal frontiers, through the strengthening of
economic and social cohesion and through the establishment of economic and
monetary union, ultimately including a single currency in accordance with the
provisions of this Treaty,
• The objectives of the Union shall be achieved as provided in this Treaty and in
accordance with the conditions and the timetable set out therein while
respecting the principle of subsidiarity as defined in Article 5 of the Treaty
establishing the European Community.
7. European Law – A Quick Guide
Policy areas of the European Union:
Agriculture External trade
Audiovisual and media Fight against fraud
Budget Food safety
Competition Foreign and security policy
Consumers Humanitarian aid
Culture Human rights
Customs Information society
Development and Cooperation Institutional affairs
Economic and monetary affairs Internal market
Education, training, youth Justice, freedom and security
Employment and social affairs Maritime affairs and fisheries
Energy Public health
Enlargement Regional policy
Enterprise Research and innovation
Environment Taxation
External relations Transport
8. European Law – A Quick Guide
European Institutions:
• European Parliament
• European Council
• European Commission
• European Court of Justice
Law-making:
• New Legislation - Parliament, Council and Commission
• Cases - Court of Justice
9. European Law – A Quick Guide
“United in diversity”?
Practical implications:
• Member States’ interpretation and implementation
• Choice of form and method for implementation
• Minimum and maximum harmonization
• Inconsistencies across Europe
• Legal questions - mixture of European and national legislation
10. Entering the European Market
• Establishment in Europe will give rise to
exposure to local law
• Even without physical establishment, there
may be exposure:
• Reputational
• Legal
• Beware risk of ‘inadvertent’ establishment…
11. Entering the European Market
Key legal compliance areas (but out of scope today):
• Business organization / establishment
• Employment / pensions / immigration
• Real estate / environment / planning
• Marketing / advertising regulation
• Agency / distribution arrangements
• Competition (antitrust)
• Taxation
12. Entering the European Market
Key legal compliance areas (in scope today):
• B2B contracting and unfair contract terms
• General consumer protection legislation and
regulation
• Electronic commerce / distance selling
• Privacy and data protection
13. Entering the European Market
Country of origin principle:
• Applies to cross-border trade in a number of areas,
including audiovisual broadcasting and e-commerce
• Applicable law = law of European Member State in
which the provider is established (other Member
States must allow provider’s services without further
regulation)
• BUT, in consumer contracts, the consumer still has
the benefit of mandatory rules of his home country
14. Unfair Contract Terms
• Deals with:
• Exclusions and limitations of liability in all contracts
(business and consumer)
• Terms claiming to enable a supplier to render substantially
different contractual performace or no contractual
performance at all
• Indemnities given by consumers
• Reverses the burden of proof with regard to
establishing reasonableness
16. Unfair Contract Terms
• If one party deals as a consumer or on the other party’s “written
standard terms of business”
• The other party cannot exclude or restrict liability…
• …or claim to be entitled to render a performance substantially
different from that reasonably expected of him…
• …save to the extent that a term is reasonable
• Standard terms not a standard contract
(Pegler v Wang)
17. Unfair Contract Terms
• Cannot exclude or limit liability for implied terms
including:
• Title – at all
• Satisfactory quality / fitness for purpose, unless
“reasonable”
18. Unfair Contract Terms
B2B Contracts
Liability cannot be excluded or Subject to reasonableness test:
limited for: • Always:
• Death / personal injury caused by • Exclusion / limitation of liability for loss /
damage, other than death / personal injury,
negligence caused by negligence
• Breach of implied terms in goods • Exclusion/limitation of liability for breach of
contracts re title implied terms in goods contracts re conformity
of goods with description or sample, or as to
their quality or fitness for a particular purpose
• Exclusion/limitation of liability for pre-
contractual misrepresentation
• When dealing on the other party’s standard
terms of business:
• Exclusion/limitation of liability for breach of
contract
• Terms claiming to render a substantially
different contractual performace or no
contractual performance at all
19. Unfair Contract Terms
B2C Contracts
Liability cannot be excluded or Subject to reasonableness test:
limited for: • Exclusion / limitation of liability for
loss / damage, other than death /
• Death / personal injury caused by personal injury, caused by
negligence negligence
• Loss caused by goods ordinarily • Exclusion / limitation of liability for
supplied for private use or
consumption which prove defective breach of contract
while in consumer use or which results • Terms claiming to render a
from the manufacturer’s / distributor’s substantially different contractual
negligence performace or no contractual
• Breach of implied terms in goods performance at all
contracts re title • Indemnities given by consumers for
• Breach of implied terms in goods negligence or breach of contract
contracts re conformity of goods with
description or sample, or as to their • Exclusion/limitation of liability for
quality or fitness for a particular pre-contractual misrepresentation
purpose (business to consumer
contracts).
20. Unfair Contract Terms
Important exemptions:
• UCTA prohibition on the exclusion or limitation of liability and the
requirement of reasonableness do not apply to international contracts
for the sale of goods or under which or in furtherance of which the title
in goods passes
• Where applicable law is UK law only by choice of the parties (and UK
law would not otherwise apply) UCTA does not apply.
• However, UCTA applies notwithstanding any choice of foreign law
clause if:
• the choice was imposed wholly or mainly for the purpose of avoiding the
application of UCTA, or
• in the making of the contract one of the parties dealt as a consumer, and
was then habitually a resident in the UK, and the essential steps necessary
for the making of the contract were taken in the UK
21. B2C Contracting and Consumer Protection in Europe
• General contract law
• General consumer protection law / regulation
• Law / regulation governing online
transactions
22. B2C Contracting and Consumer Protection in Europe
AOL (French subsidiary) v UFC
• Court ruled illegal provisions dealing with:
• Contract acceptance by • Disclaimers of liability for AOL
performance (use of website) content, third party content,
service interruptions, service
• Cross-border transfer and performance, results from the
disclosure of personal data use of the service and
• Modifications to / negligence
discontinuance of service • AOL rights of termination
• Modifications to payment terms • Customer rights of termination
• Late payments • Limitation of customer
• Billing disputes remedies and AOL liability
• Connection fees • Customer indemnities
• Per-minute billing • License of customer content to
AOL
23. B2C Contracting and Consumer Protection in Europe
AOL v UFC - Outcome
• Fine €30,000
• Offending terms to be revised within a month
• Extra €1,000 per day if deadline missed
• AOL to notify its customers of the revisions in the
terms
• Publication of the court’s findings on AOL’s
website and in three national newspapers (at
AOL’s cost)
24. B2C Contracting and Consumer Protection in Europe
Unfair Terms in Consumer Contracts
• Standard terms which unfairly imbalance the parties’
rights to the consumer’s detriment
• Indicative list of terms which may be regarded as unfair
(UK Unfair Contract Terms Act)
• Unfairly excluding / limiting liability
25. B2C Contracting and Consumer Protection in Europe
Unfair Commercial Practices
• Misleading actions/omissions
• Aggressive practices
• Banned practices
• bait advertising
• bait and switch
• advertorials
• presenting legal rights as part of the offer
• ‘closing down’ promotions
• pyramid schemes
26. B2C Contracting and Consumer Protection in Europe
Distance Selling / Electronic Commerce
• Information obligations
• Mandatory cancellation rights – few exceptions
• Prescriptive procedures / formalities for returning goods
• Prohibition on charging for return of faulty goods
• Requirement to provide a refund within 30 days
28. European Privacy and Data Protection
• Comprehensive European and individual
Member State privacy regimes
• Applies to all personal data, not just certain
types of data
• Applies to all businesses, not just consumer-
facing businesses
29. European Privacy and Data Protection
Key Principles:
• Fair and lawful processing
• Limited purposes
• Adequate, relevant and not excessive
• Accurate
• Kept no longer than necessary
• Processing in accordance with the data subject's rights
• Secure
• No transfer to countries without adequate protection
30. European Privacy and Data Protection
• Data Controllers and Data Processors
• Registration
• Privacy Policies
• Subject Access Request Policy
• Data Processing Agreements
• Data Transfer
• Training for Employees
• Data Security
31. European Privacy and Data Protection
Consequences of compliance failures:
• Fines – now up to £500,000 in the UK and may be
more in other EU jurisdictions
• Disruption to business critical data processing
• Complaints from customers, employees, suppliers etc.
• “Naming and shaming” – brand damage
• Loss of business!
32. European Privacy and Data Protection
‘Cookie consent’ rule:
Article 5(3) of revised e-privacy directive
Member States shall ensure that the storing of information, or the
gaining of access to information already stored, in the terminal
equipment of a subscriber or user is only allowed on condition that
the subscriber or user concerned has given his or her consent,
having been provided with clear and comprehensive
information, in accordance with Directive 95/46/EC, inter alia about
the purposes of the processing.
This shall not prevent any technical storage or access for the sole
purpose of carrying out the transmission of a communication
over an electronic communications network, or as strictly necessary
in order for the provider of an information society service explicitly
requested by the subscriber or user to provide the service.
33. European Regulators
In most Member States, there will be one (or more) regulatory
authorities or bodies responsible for:
• Competition / antitrust
• Consumer protection
• Privacy and data protection
• Communications and broadcasting
• Financial services
• Gambling
• Utilities
Broad scope of regulation in Europe arguably results in:
• Compliance achieved more through regulatory action than litigation
• Potentially different imperatives and styles in terms of effective
regulatory engagement
34. European Regulators
Like regulators around the world
• Created by Statute:
• Limited Remit
• Limited Powers
• Typical Powers:
• Information Gathering
• Injunctive Action
• Fines
• Formal / Informal Publicity
36. B2C Contracting and Consumer Protection in Europe
DELL (UK Subsidiary):
• Excluded liability for oral representations not confirmed in writing
• Required immediate notification of mistakes in order confirmation in
writing
• Allowed to change the products at any time at any time without
informing the consumer of this variation, and without conveying the cost
of returning the substitute goods
• Allowed to increase the price after conclusion of contract
• Allowed to delay delivery of goods without liability
• Allowed to deliver goods by instalments
• Transferred unfair risks: required consumers to insure goods not paid
for, and store them separately
• Transferred unfair risks: required consumers to indemnify the supplier
against action by third party for infringement of third party IP
37. B2C Contracting and Consumer Protection in Europe
DELL (cont.)
• Unclear references to 'electrical environment'
• Hidden warranty terms of third party product suppliers
• Limited liability for death or injury in so far as it was caused by supplier's,
its service provider's, and employees' negligence or deliberate
misconduct
• Limited liability for financial consequential losses to the lesser of
£250,000 or the price of goods
• Excluded liability for indirect or consequential losses
• Excluded liability for defective goods that were excluded from warranty
• Excluded liability for delay in delivering goods in the event of strikes
• Excluded liability for non-performance of contract in the event of strikes
• Onerous enforcement: reserved the right to enter the consumer's
property to recover goods
38. B2C Contracting and Consumer Protection in Europe
DELL (cont.)
• Limited liability for defective goods by requiring the consumer to
meet the cost of carriage for returning faulty parts
• Warranty term excluded liability for defective goods
• Mislead as to length of cancellation period under the DSRs, and
had the effect of shortening this period by 1 day
• Required consumers to give notice of cancellation solely in writing
• Required consumers to return goods in stock condition and in the
original packaging
• Supplier finally determined whether goods were faulty
• Unclear references to exclusion of implied warranties
39. B2C Contracting and Consumer Protection in Europe
DELL – Outcome
• Undertakings given by Dell to the OFT (which, if breached,
enable the OFT to bring injunctive proceedings)
• Terms revised as agreed with the OFT
• OFT publication of terms complained of and revised terms
40. European Regulators
Proactive engagement:
• Specific duties typically include:
• To consider complaints
• To take enforcement action
• To publish reasons for action / inaction
41. Multi-territory European Roll-outs
• Important to recognise these can • Develop templates
be substantial projects • Achieve buy-in – then roll-out
• Determine overall approach – • Manage the process
impacted by:
• Keep under review
• Risk tolerance
• Working in practice?
• Emphasis on:
• maximum uniformity? Or • Developments – changes in model /
• maximum local operational freedom?
changes in law
• Do homework – for example:
• B2B / B2C?
• Offlline / online?
• How is data used / where is it held /
how is it shared / where is it
transferred to?
