Blog Archive:

Brexit: what happens now with EU contracts, EU trademarks and EU designs? – Part II

Read here three of Brexit’s main impacts on EU contracts and EU trademarks/designs

Photo: Rocco Dipoppa via Unsplash

An EU trademark and an EU design give the holder rights for all countries of the European Union. With such a trademark or design, one can prohibit others from using a similar trademark or design in all EU countries. Even if the holder does not use that trademark or design in a certain EU country. Existing EU trademark and design registrations automatically extend to new acceding countries. Never before have we had a situation where a country leaves the EU.

When it became clear more than 4 years ago that the United Kingdom (‘UK’) would be leaving the EU, it seemed like a very remote situation, but one with many uncertainties and ambiguities. See the previous (Dutch) blog on the impact of Brexit on EU trademarks and designs and key questions. Negotiations on a trade agreement are still ongoing, but the deadline of January 1, 2021 – the end of the transition period: until then, the British are still bound by EU rules – is rapidly approaching. Whether there will be a hard, no-deal Brexit or not, a lot will change in many areas, including EU trademark and design law.

What is the impact of Brexit on EU contracts and EU trademarks and designs? I will discuss the most important consequences below:

 

  1. EU trademark/EU design → automatic division
    EU trademarks and EU designs registered before January 1, 2021 will automatically be split into an EU trademark/design and a UK trademark/design. Thus, trademark and design owners do not have to apply for a new trademark or design registration in the UK if they want protection there. However, if the registration is not yet final, this division will not be automatic. In that case, the trademark must also be applied for in the UK separately. This can be done until September 1, 2021 (with additional costs). Are you the owner of an EU trademark or an EU design registration? Then determine (in time) whether your rights extend to the UK and take the necessary measures.

    Incidentally, licenses registered in the EU register will not be automatically converted into an EU license and a UK license. Registration for the UK will therefore have to be reapplied at the Intellectual Property Office in the UK. This also applies to other (security) rights such as rights of pledge.

  2. EU contracts → check/amend
    For many companies, it is very important that contracts with English contract partners and/or that contain EU-wide provisions and/or cover an EU trademark or design, will be checked, renegotiated and amended where necessary. For example, in the case of license contracts, where a license has been granted for the use of an EU trademark, the situation after January 1, 2021 must be checked and, if necessary, renegotiated: will that license still apply to the UK or is the UK not included?
  1. Will an EU injunction still be valid in the UK?
    EU trademark owners and EU design owners that started proceedings before an EU court and obtained a decision before January 1, 2021, will be able to execute the judgment, also in the UK. Proceedings initiated before January 1, 2021, that did not yet lead to a judgment, will no longer be enforceable in the UK. In line with this, UK courts will no longer be able to take a decision in cases where an EU trademark or EU design is involved. Decisions of UK courts taken before January 1, 2021 can still be enforced in the EU.

Important consequences for all holders of EU trademarks and EU designs and in general for all companies dealing with contracts extending to ‘the EU’: as from January 1, 2021 the scope may be different/limited (also read this information). So check those contracts carefully.

Do you have any questions about this?

Feel free to call or email us.

2020-11-10 Driessen - Four Seasons- Hotel of tuincentrum?

Trade names: Four Seasons – hotel or garden center?

The importance of proper trade name protection, (also) as a trademark

Photograph: Chris McGrath/Getty Images/Twitter.

It was a historic weekend; Joe Biden beating President Trump in the U.S. presidential election on November 7, 2020. Of course, an endless amount of Tweets was published. For example, about the fact that at the time the media declared Biden President-elect, Trump appeared to be on the golf course. But the most remarkable story was that Trump’s campaign team had booked the Four Seasons (the famous luxury hotel chain, well known to everyone) for a press conference. Or at least, that’s what they thought.

The Guardian wrote an article about it and the Four Seasons Hotel in Philadelphia posted the following Tweet:

2020-11-10 Driessen - Four Seasons- Hotel of tuincentrum?

It turned out that the press conference was not booked at the luxurious hotel, but at a landscaping company with the same name – Four Seasons Total Landscaping. That led to confusion and many, many jokes. This location was in fact a parking lot located between a crematorium and a dildo store. Comedian Zack Bornstein, for example, twittered about the countless jokes he could make about this mistake:

2020-11-10 Driessen - Four Seasons- Hotel of tuincentrum?

Of course, the landscaping company itself reacted as well (see answer Tweet). Apparently, the company did not see any problem in accepting the reservation and receiving Trump’s campaign team for a press conference. The company is on the map at once and is now even selling all kinds of merchandise referring to the event, such as ‘MAKE AMERICA RAKE AGAIN’-stickers and ‘LAWN AND ORDER’-masks.

But how can it be that two companies use exactly the same name? Is that allowed from a legal perspective? Before being able to answer that question, we must first have a closer look at the protection one obtains with the use of a trade name.

Trade name

The trade name is ‘the name used for running a company’. This definition (free translation) comes from the (Dutch) Trade Name Act (Article 1). The right to a trade name therefore arises from the use of that name. Many entrepreneurs and companies mistakenly think that the right to a trade name already arises when the name is registered in the trade register of the Chamber of Commerce. This thought is not that odd, but it is not correct. The mere registration in the trade register does not confer any rights whatsoever. See also this earlier blog post (in Dutch).

Confusion?

It is not in itself forbidden to choose a trade name that is already being used by someone else. But there are limits. Article 5 of the (Dutch) Trade Name Act states:

‘It is forbidden to use a trade name which, prior to the company being run under that name, was already lawfully run by another party, or which deviates only slightly from that party’s trade name, in so far as, in view of the nature of the two companies and the location where they are established, confusion between the companies is deemed to take place at the public.’

Whether the use of a trade name infringes a prior used trade name thus depends on various factors. First of all, it must be checked whether the names are the same/similar, in addition to whether they are used for the same type of activities and, if so, whether the locations in which they are used overlap. If these three questions can be answered with ‘yes’, a fourth requirement must still be met: there must be a risk of confusion.

A risk of confusion is generally assumed if the first three requirements are met, but there are conceivable circumstances in which this is not the case, for example when entirely descriptive trade names are involved. As it stands now (November 2020), in the case of descriptive trade names, additional circumstances are required for concluding that infringement takes place. Whether this will continue to be the case is currently being examined by the Dutch Supreme Court. In any case, it helps in a legal conflict if you can show that there actual confusion takes place in practice. In case, for example, customers ask themselves whether the two companies bearing the same/a similar name are related to each other (indirect confusion) or if they think that one company is the other and vice versa (direct confusion).

In the Four Seasons case, something clearly went wrong and someone made a mistake because of the name.[1] Although both companies are ofcourse not active in the same industry (hotel vs. landscaping company), confusion can still arise because of the name. That will have to do with the fact that the Four Seasons Hotel Resorts is such a well-known name/chain and in fact a well-known brand.

Protection as a trademark

As a company you can rely on your trade name and the rights you build up with it, but that is not always enough. It is difficult to prove that there is a risk of confusion with another company bearing the same name if that company is active in a completely different industry, or in a completely different part of the country. Trade name protection only extends to those areas where a trade name has actually been used.

This is not the case where it concerns trademarks. As a general rule, trademark protection does not arise through use (with a few exceptions), but through the registration of a trademark. A trademark can be registered in certain countries/regions, such as the Benelux or the EU. It does not matter whether you also use your trademark in that entire area. In the first 5 years after registration of the trademark you don’t even have an obligation to use it: after those 5 years have expired, you must use the trademark for the products/services for which you have registered it, at least in part of the claimed area, otherwise you run the risk that your trademark will be declared lapsed. The protection itself extends to the entire area in which the trademark is registered though, despite the use in part of the territory.

With a registered trademark, one can prevent other companies from using an identical or similar trademark, both for the same products/services and for similar products/services. In the case of well-known trademarks, this protection is even broader. On the basis of a trademark with a reputation, the trademark owner will be able to act against identical and similar trademarks for similar and non-similar products or services, if the use takes unfair advantage of or is detrimental to the distinctive character or the reputation of the trademark. There must be a certain degree of similarity between the trademark with a reputation and the trademark under attack so that the relevant public establishes a link. The owner of a well-known trademark therefore enjoys a broader protection than the owner of a ‘regular’ trademark. See my previous blogpost for more information.

So it seems likely that the (well-known) Four Seasons hotel chain will be able to take action against other Four Seasons companies – hotel chains or not – especially if the name is (also) registered as a trademark.

However, companies should not only rely on the protection of a trade name under trade name law only, but also register the name as a trademark. This will lead to a much stronger position in case of a conflict.

[1] Unless, of course, it turns out to be a joke or fake news

 


In the practical handbooks for entrepreneurs ‘IE in Bedrijf’ (IP in Business) one can read all about brands and infringement, with numerous practical examples. Part 1, IP in Business – Trademarks and trad names and part 6, IP in Business – Infringement of IP rights, handle the infringing use of trademarks and what trademark owners van do against it, but also what options there are to defend yourself against claims. The series is for sale at regular and online bookshops (for example: managementboek.nl) both in hard cover and eBook. For a (free) downloadable copy, please visit IP in Business. 

 

Trademark law: Citroën blocks Polestar

The power of (well-known) trademarks, the reputation of a French brand and its advantage in a French court

Foto: Steven Binotto (Unsplash)

Various newspapers and websites (e.g. here, here and herehave reported on the legal battle between the French company Automobiles Citroën and the Swedish Polestar (a Volvo brand). The first model of the relatively new Polestar brand – the Polestar 1 – was introduced in 2019, a hybrid sports car (see image below / source images: L’AutomobileMagazine). The Polestar 2 has now been introduced as well. Unlike the Polestar 1, this is a fully electric (family) car. The cars have been introduced and delivered in the Netherlands since August/September 2020. The reviews are promising and the Polestar 2 is generally rated even better than its major competitor and pioneer in the field of electric driving, Tesla.

In France, however, Polestar is forced to have its sales ceased, albeit temporarily. The French car company Citroën appears to have initiated legal proceedings because of the Polestar logo (see: logo on the right-hand side next to the Polestar car), which – in Citroën’s view – resembles its own logos too much (both logos below).

Top right: Polestar logo
Both logos below: Citroën-logos

Trademark rights Citroën

Citroën brought the case before Tribunal Judiciaire de Paris on the basis of its three French trademark registrations for the following logos, registered for (inter alia) cars:

Remarkably, Citroën has only registered these logos in France, not throughout the EU. A missed opportunity, because now Citroën can only take action against the use of infringing logos in France. With an EU registration, the car brand could obtain injunctions in all EU countries (even at the same time, through one court).

Consequently, Citroën’s trademark registrations can prevent the use by competitors in France of identical logos and of logos which are similar, provided that they are used for identical and/or similar products. The latter is not difficult to prove in this particular case: Polestar uses its logo for cars, i.e. identical products. That leaves the comparison of the logos themselves. Like Citroën, Polestar has registered its logo as well, not only in France, but in all EU countries: 

Citroën launched a nullity action against these two registrations because of the alleged confusion with its own logos. Citroën’s claim has been denied by the EU Trademarks Office (for the second logo see the decision here). An appeal is currently (November 2020) still pending.

French legal proceedings

Before the French court, Citroën had more luck. Citroën argued that the Polestar logos are very similar to its own. Visually, but also conceptually, the logos are very similar. The Citroën logo consists of two chevrons that fit together, while the two parts of the so-called chevron of the Polestar logo are placed on top of each other. The products offered with both competing logos – cars – are of course identical. Use of corresponding logos for identical products means that there is a risk of confusion among the relevant public. That public might think that Citroën and Polestar are economically linked, according to Citroën. Polestar – of course – does not agree. The logos do not resemble at all; Polestar’s logo reflects the ‘polestar’ while the relevant public, the car buying consumer and car salesman, is attentive enough not to link the brands.

Famous brand? Greater protection

On the basis of a trademark with a reputation, the proprietor of that trademark may take action against identical and similar marks for similar and non-similar products or services if use thereof takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark with the reputation. Being the proprietor of a trademark with a reputation, one has broader protection than the proprietor of an ‘ordinary’ trademark.

In determining whether a trademark is well-known, account must be taken of all the relevant circumstances, such as, in particular, the market share of the trademark, the intensity, geographical extent and duration of its use, and the extent of the investment made by the undertaking to publicise it, in accordance with the 1999 standard judgment of the EU Court of Justice in this field: The stronger the earlier mark’s distinctive character and reputation, the easier it will be to accept that detriment has been caused to it. There must be a certain degree of similarity between the trademark with the reputation and the trademark that is under attack, so that the relevant public establishes a link. This will more easily be the case than with the condition of likelihood of confusion, which is the criterion in the case of regular (not well-known) trademarks. Infringement will thus, in general, be accepted more easily in cases involving a trademark with a reputation than in cases involving a genuine trademark. And that is also what Polestar faced in the conflict with Citroën.

French company, French reputation, French protection

According to the court in Paris, the resemblance between the Citroën and Polestar logos is rather weak. However, the logos of the company Citroën, which exists for more than 100 years, are well-known in France. The 2CV is one of the best-selling cars. The Citroën cars are praised by the French court for their “advanced technology”. Citroëns have been widely used in films and every President of the French Republic since René Coty (French President from 1954 – 1959) has driven a Citroën (in the more expensive segment). In short: Citroën is part of the French history and culture. The French car brand is qualified as “exceptionelle” (still, according to the French court). Of course, a Swedish newcomer cannot compete with that.

The French Citroën logo has become very distinctive due to its longstanding and frequent use. In addition, the products of both car brands are identical (cars) and Polestar unmistakably also uses a chevron logo (although the two parts are positioned differently), according to the Court. Several websites refer to this and apparently link the Polestar logo to Citroën’s chevron, for example:” j’aime bien les chevrons Citroën du logo Polestar” (translation: “I really like the chevrons of Citroën in the Polestar logo”) (website: www.leblogauto.com). According to the French court, Polestar takes unfair advantage of the well-known Citroën logo and that is not permitted. In the French court decision of 4 June 2020 [1] Polestar has been ordered to pay a compensation of EUR 150,000 and has temporarily been banned from using the Polestar logo in France, which will take effect three months after the ruling and will remain in force for six months. Until the beginning of March 2021, Polestar will therefore not be allowed to sell cars under the Polestar logo in France, whereas the cars were due to be delivered there at the beginning of 2021. In the meantime, access to the Polestar website has been blocked for French visitors.

Á la fin

A fair verdict? In my opinion, no. Like Polestar, I really do not think that the logos are sufficiently similar and at no point did I make the link with Citroën. But, of course, I do not belong to the French people who grew up with the Citroën ‘chevrons’ either. I am curious to see how large Polestar’s market share in France will be once the ban has expired. The Polestar brand has a reputation already. In any case, I look forward to the end of the year, when I will be one of the lucky (Dutch) Polestar owners. Who knows, maybe I will take it for a ride to France…

[1] The pronunciation can be consulted in French, via Darts-ip: darts-362-138-J-fr.

In the practical handbooks for entrepreneurs ‘IE in Bedrijf’ (IP in Business) one can read all about brands and infringement, with numerous practical examples. Part 1, IP in Business – Trademarks and trad names and part 6, IP in Business – Infringement of IP rights, handle the infringing use of trademarks and what trademark owners van do against it, but also what options there are to defend yourself against claims. The series is for sale at regular and online bookshops (for example: managementboek.nl) both in hard cover and eBook. For a (free) downloadable copy, please visit IP in Business. 

Brexit: three months and counting

Following Brexit on 1 February 2020, the end of the transition period on 31 December 2020 is rapidly approaching. At this stage it is still uncertain if an agreement between the EU and the UK will be reached on the period thereafter so the risk of a hard or no deal Brexit is increasing and mitigating action may be advisable, especially by investment firms who may not be able to rely on an exemption anymore.

Transition period

The Withdrawal Agreement agreed upon between the EU and the UK provided for a transition period that will end on 31 December 2020. At present, only three months of this period are left. However, as there is still no agreement between the EU and the UK on the period following the transition period, the risk of a hard Brexit remains and increases as time lapses.

In case of a hard Brexit, certain EU and Dutch rules and regulations will apply in order to assist UK financial institutions to continue to do business in the Netherlands. Apart from that, certain EU rules and regulations provide for mitigating effects.

Dutch statutory regimes for investment firms and AIFMs

Earlier, two particular Dutch regimes were suggested to mitigate the effects a hard Brexit:

  • UK investment firms would be able to (temporarily) continue to actively service Dutch professional clients on the basis of a proposed amendment of the existing exemption for certain foreign investment firms, thereby allowing UK investment firms to temporarily continue to provide services in the Netherlands. This regime would be similar to the temporary permissions regime in the UK and was expected to last for (at least) two years.
  • UK AIFMs may (temporarily) continue to market their AIFs to qualified investors in the Netherlands on the basis of the existing Dutch national private placement regime under the AIFMD. The AIFMD provided for an end to this regime (originally already in 2018) so also this regime is likely to be of a temporary nature.

However, recently the Minister of Foreign Affairs and the AFM have indicated that the temporary exemption for UK investment firms will not be entering into force upon a hard Brexit. The main reason apparantely being that due to the esarlier postponement of Brexit and the transitition period now ending on 31 December 2020, ample time has been available to UK investment firms and their Dutch client to take the necessary action, thereby taking away the necessity for this temporary exemption.

Private placement to qualified investors will remain possible for UK AIFMs upon a hard Brexit. This requires a registration with the Dutch regulator AFM which is free of charge. In addition, certain ongoing requirements must be met by the UK AIFMs s registered.

Action required?

Now that the end of the transition period is rapdily approaching and there is still no agreement on a soft Brexit, it is advisable to take any further mitigation action required. For UK AIFMs this can be a simple registration with the AFM. UK investment firms actively servicing Dutch clients will now have to consider how they may be able to continue their services. This may require a license in the EU or altogether ceasing actively servicing Dutch clients.

Regulation on Markets in Crypto-assets (MiCA)

Foto: Thought Catalog

A first introduction

On 12 September 2020, a draft Regulation on Markets in Crypto-assets (MiCA) was leaked to the press. While this is only a draft which hasn’t been adopted yet and it is only expected to apply from 18 months after its entering into force (so not before 2022), the draft MiCA Regulation gives material insight in how the EU aims to regulate crypto-assets, thereby using familiar EU banking and financial services regimes.

General view

The draft MiCA Regulation includes many familiar concepts from the existing banking and financial services directives and regulations. To mention a few, the whitepaper requirement is like the prospectus requirement applicable under the Prospectus Regulation whereas the authorization for issuers of asset-referenced tokens and providers of crypto-asset services has similarities with the MiFID II authorization regime. Together with the fact that the draft MiCA Regulation includes a ‘light touch’ market abuse regime that is no doubt derived from the MAR, just like custody and payment requirements that seem to come from the AIFMD and the PSD2, the draft MiCA Regulation also refers to the CRD and the EMD for the authorization of issuers of e-money tokens. All in all, the draft MiCA Regulation seems to be a collection of (parts of) these banking and financial services regimes. A further analysis will have to show to what extent the same level of granularity is aimed for.

It is consequently beyond doubt that the issuance of crypto-assets and the provision of services relating to crypto assets, will become (heavily) regulated just like the provision of banking and financial services in the EU. Even though one of the purposes of the draft MiCA Regulation is to support innovation, this will have a considerable impact on the industry, which at present is largely unregulated. The change by this new regime will therefore be a major one to prepare for in time.

Crypto-assets: definitions

The purpose of the draft MiCA Regulation is to capture all possible crypto-assets that are not already covered by existing EU banking and financial services regimes (financial instruments, (structured) deposits, e-money, or securitisations). As a result, the definition of crypto-assets is deliberately wide and is further divided into three subcategories of utility tokens, asset-referenced tokens, and e-money tokens:

  1. Crypto-assets are “a digital representation of value or rights, which may be transferred and stored electronically, using distributed ledger or similar technology”. This definition aims to correspond with the FATF definition of virtual assets. Examples include crypto-currencies like Bitcoin and Litecoin.
  2. Utility tokens are “intended to provide access digitally to an application, services or resources available on a distributed ledger and that are accepted only by the issuer of that token to grant access to such application, services or resources available”. They often have a non-financial purpose, for example access to a platform or services such as OmiseGo or OMG (trading, payments) and Filecoin (storage, payments).
  3. Asset referenced tokens have as “main purpose to be used as means of exchange thereby maintaining a stable value by referring to the value of fiat currencies, commodities or crypto-assets, or a combination thereof”. They are aimed to be used as means of payment. Examples include DAI (backed by crypto-currencies) and PAX Gold (backed by gold).
  4. E-money tokens have as “main purpose to be used as a means of exchange thereby maintaining a stable value by being denominated in (units of) a fiat currency”. As such they can also be considered as a subcategory of asset referenced tokens. As they refer to one fiat currency only, they are very much similar to e-money. Examples include USD Tether and Libra (to the extent backed by one currency only).

Apart from this, the draft MiCA Regulation includes a definition of crypto-asset services that includes custody and administration, operation of a trading platform, exchange services, brokerage and placement services, advice and execution of payment transactions, all relating to crypto-assets.

Main elements of draft MiCA Regulation

The draft MiCA Regulation is a sizeable document including 114 (sometimes lengthy) articles and includes rules for the offering and marketing of crypto-assets applicable to all types of crypto-assets and additional rules and restrictions on the issuance of asset-referenced tokens and e-money tokens. Apart from this, the draft MiCA Regulation includes rules on the authorization and operating conditions for crypto-asset service providers as well as rules on prevention of market abuse.

As with almost all EU legislation, further rules will be laid down in delegated and implementing acts. The contents thereof are unknown at present. In addition, also the Annexes 1, 2 and 3 to the draft MiCA Regulation including the requirements for the various whitepapers to be published, are still missing. At this stage it is therefore still impossible to make a full assessment of the impact of the MiCA Regulation when in force. However, based on the general requirements mentioned in the draft MiCA Regulation itself it can be safely concluded that the impact will be considerable (crypto-assets), far-reaching (asset-referenced tokens, crypto-asset services) and severe (e-money tokens).

The core of the draft MiCA Regulation consists of rules and requirements for the offering and issuing of crypto-assets (utility tokens, asset referenced tokens and e-money tokens) and the providing of the various services relating to crypto-assets.

Highlights

Highlights of the new MiCA regime seem to be that:

  1. a whitepaper must be made public for the offering of crypto-assets (that must be approved by the regulator in case of asset-referenced tokens)
  2. issuers of asset-referenced tokens must be authorized
  3. e-money tokens may only be issued by authorized credit institutions or e-money institutions
  4. providers of services relating to crypto-assets must be authorized.

An overview of the main aspects of the draft MiCA Regulation is presented in this table.

Dutch decision on Hague Service Convention: award creditors must play by the book or suffer delays (but there is potential for procedural time gains)

Earlier this week an interim decision of the The Hague Court of Appeal of 8 September 2020 was published, issued in enforcement proceedings between a Dutch ConocoPhillips entity as applicant and the Venezuelan state oil and gas company and one of its subsidiaries as respondents. The decision is perhaps unremarkable insofar as the court refused to hear the petition ex-parte until the requirements of the Hague Service Convention (1965) (“Convention”) on completion of service are fully complied with. However, the decision also shows that there is room to optimise the proceedings before the Dutch courts and gain time in cases where obtaining proof of service on the award debtor is likely to be very difficult.

Procedural background

The Dutch proceedings were initiated by ConocoPhillips Gulf of Paria B.V. on 3 December 2019, when it filed a petition with the Court for recognition and leave to enforce a USD 31.5m ICC award issued against Petróleos de Venezuela S.A. and Corporación Venezolana de Petróleo S.A. Following receipt of the petition, the Court scheduled a hearing for 2 July 2020 and instructed ConocoPhillips to serve the hearing date on the respondents at least four months prior thereto. Neither Petróleos de Venezuela nor Corporación Venezolana de Petróleo appeared at the hearing. ConocoPhillips  had submitted service documents prior to the hearing, which evidenced that service had been initiated timely and correctly out of the Dutch jurisdiction, but was unable to submit the certificate of service and delivery to be issued under the Convention in the prerequisite form by the designated Venezuelan “central authority”. In this case the certificate was the only document with which ConocoPhillips could substantiate that service had been completed in accordance with the Convention. Transmission via postal channels was unavailable by virtue of the formal objection made thereto by Venezuela.

Decision on article 15 (2nd paragraph)

The Court was thus presented with the question whether it could proceed to hear the petition in the absence of the respondents under article 15 (2nd paragraph) of the Convention, which is applied by the Dutch courts pursuant to a formal declaration made by the Dutch State under the Convention. Article 15 (2nd paragraph) provides for an exception to the rule that service must be completed in accordance with the Convention before a Dutch court may proceed on an ex-parte basis. A three-limb test is to be performed: a) the document was transmitted by one of the methods provided for in the Convention; b) a period of time of at least six months, considered adequate by the judge in the particular case, has lapsed since the date of the transmission of the document; and c) no certificate of any kind has been received, even though every reasonable effort has been made to obtain it through the competent authorities of the State addressed.

With reference to a 2019 interim decision of the Amsterdam Court of Appeal on article 15 (2nd paragraph) in enforcement proceedings between state energy companies Naftogaz of Ukraine and Gazprom of the Russian Federation[1], the court held that ConocoPhillips was in any case not able to meet the second limb of the test i.e. that a period of at least six months has lapsed since the date of the transmission of the service documents and the hearing. The time period between the date of service out of the Netherlands (28 February 2020) and the hearing (2 July 2020) was four months and two days. The court dismissed an alternative interpretation of the Convention provided by ConocoPhillips, being that the six month period provided for in article 15 (2nd paragraph) would extend beyond the date of the hearing to the (expected) date of issuance of the court’s decision. The court went on to reschedule the case for a further hearing in seven months’ time (19 April 2021) so as to allow ConocoPhillips to serve the hearing date on the respondents while observing a service term of at least six months.

Observations on the decision and on how optimise Dutch procedure

The decision highlights that Dutch courts can be expected to require award creditors to submit proof of service that is complete and fully compliant with the Hague Service Convention, even if the political or economical situation in the state addressed makes it near impossible to deliver and serve the documents on the counterparty. This may seem a bit harsh on award creditors who are entirely dependent on the proper functioning of the central authority in a foreign State and who may suffer considerable delays – as this decision goes to show – if service documents are not returned timely by the central authority.

A counterbalance to the strict application of service requirements under the Convention is provided for in article 15 (2nd paragraph) of the Convention, which the Dutch courts are known to apply liberally if at least the required six months have lapsed since the date of service out of the Dutch jurisdiction and the applicant can show that reasonable efforts have been made by the process server to obtain the certificate of service and delivery. Clearly however, this alternative to proof of completion of service is less useful in practice if the six month-period is added to the initial service term for a hearing date, because that date was set at less than six months from the date of initiation of service out of the Netherlands. It is here that Dutch procedural law holds promise for optimisation and time gains.

Recognition and leave to enforce a foreign arbitral award in the Netherlands is applied for in ‘petition proceedings’ (verzoekschriftprocedure), which have as a distinct procedural feature that the hearing date and the minimum period for service of the hearing date on the respondent are set by the court and confirmed to the applicant following receipt of the petition. These procedural instructions are given sua sponte by the court. However, the relevant court regulations (procesreglementen) for the Dutch appellate courts specify – in summary – that a party in petition proceedings may apply to the court to (re)schedule a hearing in accordance with that party’s availability and that the court will strive to adjust its planning accordingly. Thus, one may assume the court to entertain an ancillary request made by an award creditor in the petition for recognition and leave to enforce to schedule the hearing at a specific minimum period after the envisaged date of service out of the Dutch jurisdiction.

On that basis and taking into account that article 15 (1st paragraph) of the Convention stipulates in general terms that article 15 (2nd paragraph) may be applied as soon as “the defendant has not appeared”, there seems to be nothing against an applicant proactively requesting a hearing to be scheduled in at least six months’ time, in order to account for a scenario where the service documents are not returned timely and article 15 (2nd paragraph) of the Convention may have to be relied on. In that way, the court may decide already at the first hearing, by way of an oral procedural instruction, to hear the petition ex-parte, rather than having to reschedule for a second hearing, only to be able to observe a six month service term. This approach may yield significant time gains for the award creditor, taking into account also that Dutch petition proceedings are in principle heard in a single hearing, following which the final decision on the petition for recognition and leave to enforce the foreign arbitral award may be issued.

[1] The author was a member of the Dutch counsel team for Gazprom in that case.

Brexit: it is finally there (but it is still unclear)

At 00:00 hrs on 1 February 2020, Brexit is finally a reality and the United Kingdom is no longer part of the European Union. However, now that the UK Parliament and the EU Parliament ratified the Withdrawal Agreement on 23 and 29 January 2020, there will be no hard (or no deal) Brexit, at least not for the moment.

Transition period

The Withdrawal Agreement provides for a transition period that will end on 31 December 2020. On the basis of the Withdrawal Agreement, basically all EU law will continue to apply to and in the UK during the transition period. This means that until 31 December 2020, little will change in comparison with the period prior to Brexit. One may say that, as long as no permanent deal on transition has been reached, a soft Brexit applies. During 2020 UK financial institutions will continue to have access to the EU as before. The same goes for EU financial institutions and access to the UK.

As a result, the statutory arrangements made by EU and national legislators and regulators with a view to a hard Brexit, do not need to be enacted in 2020. These arrangements may however still be necessary if no agreement is reached between the UK and the EU on their future relationship. In other words, a hard Brexit is still possible, in which case the statutory arrangements may be enacted after all. Whether this will be the case will become clear in the course of 2020 or even thereafter, should the transition period be extended.

Dutch statutory arrangements for investment firms and AIFMs

As indicated in previous Brexit updates, arrangements have already been made in the Netherlands, or are already in place, to accommodate investment firms and AIFMs from the UK when dealing with professional clients or qualified investors within the Netherlands. This is primarily done with a view to protecting Dutch institutional investors, enabling them to continue to deal with UK investment firms and AIFMs. As a result of the transition period, the new Dutch exemption for UK investment firms that was announced earlier will not be enacted for the moment due to the lack of a hard Brexit.

Action required?

Even though the existing EU regime will continue to apply to and in the UK in 2020, the most important conclusion to be drawn is that for the moment a soft Brexit is now truly a fact, but for the moment only for 2020. This means that parties that have postponed their mitigating actions must still take action to address the consequences of Brexit. While the negotiations between the UK and the EU may still result in an agreement on continued access by UK financial institutions to the EU, success should not be taken for granted. Should such negotiatons fail and in the end result in a hard Brexit, measures will have to be taken to secure continued access to (clients in) the EU.

AFM report on deficiences in MiFID II compliance

AFM report on deficiences in MiFID II compliance by investment firms that provide investment services to professionals

On 10 December 2019 the AFM published a report with its findings following from an investigation into MiFID II compliance by ten investment firms that provide investment services to professional clients and eligible counterparties in the Netherlands. The report focuses on three main areas: (i) cost transparency, (ii) product governance and (iii) inducements. For a copy of the report (available in Dutch only) see AFM report on MiFID II compliance.

The AFM report provides important information on non-compliance and also on misunderstanding by investment firms on (the scope of) the requirements investigated. It may be expected that this investigation will be followed-up by AFM action and that is why investment firms, that provide investment services to professional clients and eligible counterparties, should pay attention to the AFM findings and take action to the extent necessary. This also goes for foreign investment firms active on the basis of a European passport and investment firms from the U.S., Switzerland and Australia acting on the basis of exemption, as the requirements addressed by the AFM largely also apply to these investment firms.

Some key findings

Without aiming to be complete, the following findings may be highlighted:

Cost transparancy

  • Ex ante information on costs by phone only is insufficient as it must be in writing, also in case time is of the essence.
  • In line with ESMA Q&A and contrary to what some investment firms suggest, for the purpose of annual ex-post cost transparency the mere holding of a trading account for execution only transactions suffices for the existence of an ongoing relationship and transactions do not need to be related for that purpose.
  • Cost transparency requirements cannot be applied on a proportional basis. In a limited number of circumstances it is however allowed to explicitly agree with the client that certain information will not be provided. This is not possible in case of portfolio management or investment advice to professional clients or in case derivatives are involved. Implicit consent or a clause on consent in general terms is not sufficiently explicit.
  • Reporting obligations in respect of portfolio management do not replace or make it unnecessary to provide annual ex-post transparency. Both periodic reports need to be provided to the client (but may be provided together).

Product governance

  • Reception and transmission of orders, execution of orders, portfolio management and even investment advice are all included in the concept of a ‘distributor’ and consequently, investment firms that provide any of these investment services to professional clients must meet the respective product governance requirements for distributors.
  • The suitability test does not replace or make it unnncessary to comply with the product governance requirements for distributors including the five target market categories that follow from the ESMA Guidelines on MiFID II product governance requirements (type of client, knowledge and experience, financial situation, risk tolerance and client’s objectives and needs).
  • The target market has to be identified at the level of the financial instrument and not at the level of the client portfolio, even with portfolio management and investment advice. Identifying a target market may take place on the basis of a cluster of financial instruments provided that the financial instruments have sufficient similar aspects. Clusters like hedge funds or derivatives are normally not acceptable as they may include different types of strategies or products.

Inducements

  • Minor non-monetary benefits are limited to those set out in the Commission Delegated Directive 2017/593. This is a limitative list and investment firms are not at liberty to independently determine what qualifies as a minor non-monetary benefit, thereby expanding this list. As a result, anything outside the scope of this limitative list (e.g. promotional gifts) qualifies as a prohibited inducement. The old de minimis threshold of €100 no longer applies.
  • In case an investment firm is not able to pinpoint the inducement to a specific investment service, the most stringent inducement regime applicable to the investment services and clients of the investment firm applies. This is for example the case if more than one investment service is provided and it is impossbile to determine to which investment service an inducement relates.
  • The concept of investment research has to be interpreted broadly also if a more narrow definition is used in policies and procedures of investment firms.

For all AFM findings and explantions please see the report.

What next?

The AFM report shows that steps have to be taken by the investment firms investigated to comply in full with the requirements discussed. The AFM concludes the report by stating that it expects all investment firms providing investment services to professional clients and eligible counterparties to make the necessary changes. The AFM also notes that this is not limited to the areas investigated, but it also relates to all MiFID II requirements. For an overview of the relevant changes focused at investor protection the AFM refers to AFM overview of MiFID II changes on investor protection.

As a result, it is advisable to revisit your policies and procedures as well as your client materials in order to assess whether the respective requirements are met, notably the ones investigated by the AFM but preferably also those other changes that follow from MiFID II.

Brexit update

With the postponed Brexit date of 31 October 2019 rapidly approaching, this is a short update of relevant Dutch rules and regulations for the financial services industry to mitigate the negative consequences of a hard Brexit. This update does not cover EU-wide arrangements such as those on clearing and trading at regulated markets.

Coming to the Netherlands

In September the Netherlands Instute of International Relations “Clingendael” has published a database of companies that have moved or are in the process of moving, (part of) their business to the Netherlands with a view to a Brexit. Where the Netherlands Foreign Investment Agency mentioned earlier that in August 2019 some 98 companies had opted for the Netherlands, the “Clingendael” institute now counts 56 companies moving 32 of which are financial sector companies. This group consists of trading venues, boutique trading firms and more traditional financials. No doubt depending on further Brexit developments more financials may follow. If they do, they may however benefit from the following regulations and may avoid moving for the purpose of market access.

UK investment firms

Investment firms domiciled in the UK providing services to professional clients in the Netherlands or dealing on own account in the Netherlands, may benefit from a new exemption from the Dutch licensing requirements for investment firms under MiFID II. Similar to the existing exemption for investment firms domiciled in the U.S., Switzerland and Australia, also UK investment firms may benefit from this exemption but only in case of a hard Brexit. In case of a deal on Brexit, this exemption will not enter into force. This exemption may be of a temporary nature only.

To benefit from this exemption the investment firm involved may only provide investment services to professional clients (such as Dutch institutional investors), must be subject to supervision by a competent supervisor (the FCA), and must register itself with the Netherlands Authority for the Financial Markets (AFM). This registration is of an administrative nature and can already be made prior to and conditional upon a hard Brexit. A registration fee of € 4,400 will be charged by the AFM in case registration will actually take place upon a hard Brexit.

A limited number of ongoing requirements applicable to Dutch licensed investment firms will apply upon registration. These requirements should not be burdensome for UK investment firms nowadays meeting the MiFID II requirements.

UK AIFMs

AIFMs domiciled in the UK may benefit from the existing Dutch private placement regime under AIFMD in case of a hard Brexit. In order to do so, marketing must be limited to qualified investors (such as Dutch institutional investors), the competent regulator (the FCA) has to confirm that it will be able to meet the obligations under the cooperation agreement with the AFM as recently agreed upon, and registration with the AFM has to take place by the AIFM. This registration is of an administrative nature and is free of charge.

Further to AIFMD, a limited number of ongoing requirements applicable to AIFMs will apply upon registration. These requirements should not be burdensome for UK AIFMs nowadays meeting the AIFMD requirements.

Other financial services sectors

Other than the EU-wide arrangements to mitigate the negative effects of a hard Brexit, there are no particular Dutch mitigation measures for other financial services sectors. As a result, other types of UK financial institutions will still have to take into account what part of their business in the Netherlands may be impacted by a hard Brexit. As a positive note it can be mentioned that in the meantime the Dutch regulators DNB and AFM have ample experience in handling authorization requests by UK financial institutions to set up a regulated Dutch business. As a result, while authorization remains to be a timeconsuming and expensive process, the benefit of an application at this stage is a smoother process than the initial applicants have gone through.

Corporate liability for human rights: the UN Guiding Principles on Business and Human Rights

If a corporation abuses employees, is accused of labour trafficking, complicit in gross human rights abuses by local governments, complicit in human rights violations while installing pipelines through villages or complicit in pollution, it should be held responsible. The question is whether human rights laws also apply to these companies.

Some argue that international law only applies between states, or that human rights obligations apply only to states, and that the UN Principles cannot create legal obligations for companies. However, this view can no longer be credibly maintained. There is a growing acceptance that international human rights treaties create obligations – at least indirectly – on companies and that the UN Guiding Principles on Business and Human Rights can be used as a standard.

The UN Guiding Principles on Business and Human Rights are the work of John Ruggie, former UN Secretary-General’s Special Representative for Business and Human Rights. The principles are non-legally binding, but aim to establish a global standard for addressing the adverse human rights impact of corporate activity. Ruggie has built a frame-work of three pillars: ‘ Protect, Respect and Remedy’. These are:

  1. The state’s duty to protect human rights;
  2. the corporate responsibility to respect human rights;
  3. the need for greater access to remedy – both judicial and non-judicial – for victims of business-related abuse.

The UN principles were endorsed by the UN Human Rights Council in June 2011. See also unglobalcompact.org and the American Bar Association in February 2012. They have also been incorporated into the OECD Guidelines for Multinational Enterprises, the International Organisation for Standardisation (ISO) 26000 guidance on social responsibility for companies, the sustainability policy of the International Finance Corporations and the European Commission’s new corporate social responsibility strategy.     

The UN Principles are applicable to all governments and to all businesses in all situations. It sets forth basic, minimal business obligations regarding human rights. They reaffirm that states still bear the primary responsibility for promoting and protecting human rights, but recognize that transnational corporations and other businesses, as organs of society (and collections of individuals), carry responsibilities as well. It is understood that the human rights are – at a minimum – those expressed in the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work.

The responsibility to respect human rights requires that business enterprises:

  • Avoid causing or contributing to adverse human rights impact through their own activities, and address such impact when it occurs.

  • Seek to prevent or mitigate adverse human rights violations that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those violations.

  • In order to meet their responsibility to respect human rights, business enterprises should have in place policies and processes appropriate to their size and circumstances.