[Guest post] Conference report: ‘The Fashion Marketplace: Law and Policy’

A few days ago, Fashion Law London held another (online) event – this time focussed on the role of online retail marketplaces. Katfriend Emily Nuttall-Wood (Deloitte Legal) has sent this report:

Conference report: ‘The Fashion Marketplace: Law and Policy’

by Emily Nuttall-Wood

Having found the insights shared at Fashion Law London’s last event on sustainability in fashion immensely useful (see previous post here), there was some determination on my part to attend the latest event on 22 October, centred on the topic of digital marketplaces. Fortunately, despite a distinct lack of space in the diary to attend the event live, I have since been able to enjoy the recording of the event.

The event was, as ever, chaired by PermaKat Prof Dr Eleonora Rosati together with Giulia Gasparin, and the calibre and range of the speakers was bound to result in lively discussion; with panellists from marketplaces such as Amazon, Zalando and Etsy engaging in discussion with brand and consumer voices as well as private practice lawyers. Topics ranged from the trends being seen in online fashion commerce post-pandemic, to counterfeiting issues and how to deal with them, through to the legal changes and updates coming up that will impact both marketplaces and the brands that use them.

IP considerations, counterfeits and upcycling

After an introduction to the legal landscape that currently applies to online marketplaces, the first panel focussed on the IP dimension of digital retail, with a recognition that the COVID-19 pandemic has pushed even more reluctant luxury fashion brands online. Some of the IP considerations discussed included: how brands preserve their cachet and luxury ‘aura’ in an online context; the legal impact of new actors intervening between brand and customer, including marketplace platforms and also influencers; and the counterfeit risk in an increasingly online world.

On counterfeiting, Manon Rieger-Jansen spoke to the combined impacts of increasingly complex or opaque supply chains, the issues consumers face in identifying counterfeits online, and the role of marketplaces in preventing counterfeits making it to the consumer. There were some startling facts: trade of fake merchandise has risen such that it makes up 3.3% of global trade; and in a recent EU IPO report, it was found that as many as 1 in 3 people have been misled into buying counterfeits.

With that background, discussion turned to what marketplaces are and should be doing, in a context where the MOU on the sale of counterfeits, which has been live for a decade, has failed to have the impact or gain the traction its founding members had aspired to. Heike Leichsenring was able to give a real-time view from within one of the world’s most well-known marketplaces, Amazon. Her description of the various ways in which Amazon is seeking to help brands battle counterfeits (via, for example, its 2017-launched Brand Registry) corroborated her expressed view that counterfeits are bad news for marketplaces too and it is in everyone’s best interests to be proactive. An interesting specific example of where Amazon is being forced to police activity even off-platform highlighted how social media is changing the game: Heike described how social media influencers have been found to be telling their followers that if they order certain on-platform non-branded items, they will in fact receive counterfeit branded goods.

But what do marketplaces like Amazon do with goods that have been earmarked as counterfeit? Largely, these are destroyed. And it was acknowledged that there are issues with this; with 2 million units of counterfeit goods having been destroyed by just Amazon, in 2020 alone. When it comes to disposal of these fashion items, consideration must be given, it was argued, to other options, e.g. dismantling products and reusing elements where possible.

Discussion turned to the ever-popular topic of trade mark exhaustion and in particular the post-Brexit position in the UK, where there is unbalanced or lopsided exhaustion as between the EU and UK. Goods placed on the market in the EU are deemed to have exhausted trade mark rights for the purposes of the UK, but not the other way round. The UK government’s consultation is understood to have concluded, but no decision is yet ‘in’ on whether the UK will adopt international or national exhaustion instead. In the meantime, the panellists agreed that the rise of online retail platforms and marketplaces has caused a rise in grey goods, with grey market vendors seeking to use the online shop window to take advantage of price differentials between different regions.

The final topic covered by the first panel was upcycling; a trend that has been on the rise for some time and has now hit mainstream brands and media. In particular, discussion focussed on the IP issues with upcycling – particularly when undertaken by a third party. With recent case law from the US indicating that re-use of a branded product, even where rights are exhausted, can result in infringement proceedings, it was concluded that upcycling is unlikely to ever be straightforward. Exclusions from exhaustion rights, coupled with other IP rights such as copyright and design right, mean that even a well-intentioned ‘upcycler’ could find themselves infringing. The question, however, will be whether the IP owner or brand is willing to risk the PR consequences of taking legal action, or whether the better route in today’s context, with its focus on sustainability, is to embrace and even ‘own’ these activities.

Competition and the DMA

The second panel, introduced by Giulia, focussed on competition law issues arising for fashion marketplaces, with speakers Gabriela da Costa, Maximilian Dorndorf, and Anselm Rodenhausen, addressing the draft revised regulation on vertical agreements (VBER). It was highlighted that fashion has in recent years been a target sector for competition authorities and that, unfortunately, law and regulation is often behind the technology curve. What this makes for is a lack of clarity in a world where retail structures and roles are constantly evolving in the online space.

The general feeling was that the updates proposed are generally good for brands and there is clearly an effort to address modern-day digital challenges. There are some welcome confirmations in the draft, such as that online and brick-and-mortar sales are not the same and have different costs: it is no longer a hardcore restriction to charge a different price online to that charged ‘in real life’. However, it was flagged that not all EU countries can be expected to follow the new rules: Germany and France, for example, were highlighted as member states that tend to be more conservative when it comes to dual pricing.

The panel also discussed the incoming Digital Markets Act (DMA) and its expected impact. The views expressed were that the DMA’s drafting means it is not going to just impact the ‘big 4’ online giants. Its reach is wider than that; and that’s not a bad thing. The clarity that should come with the DMA is welcomed – although there were concerns expressed that it would pave the way for a new wave of disputes where the law is not comprehensive enough and leaves loopholes or contradictions to be dealt with by the courts.

The Digital Services Act

The final panel session focussed on the DMA’s sister legislation, the Digital Services Act (DSA). Eleonora gave some helpful background to this forthcoming EU regulation, focussing on the 20 years-old E-commerce Directive. She expressed some optimism (that wasn’t necessarily shared!) that the DSA might be with us in 2022. The panel here comprised marketplace representative, Laura Blanco of Etsy, as well as Jaymeen Patel and Maryant Fernández Pérez approaching the discussion with brand and consumer perspectives. What is clear is that the draft DMA, whilst laying a marker for significant improvements when it comes to reducing the risks posed by counterfeits online, largely preserves a lot of the ‘safe harbours’ afforded to marketplaces. Further, it was expressed that some of the DSA’s proposed proactive obligations on intermediaries will only work if all of those obligations are included, as a package. In other words, there’s no point in requiring marketplaces to immediately take down listings identified by ‘trusted flaggers’ as counterfeit, if that isn’t coupled with a ‘stay down’ obligation. Otherwise, it will remain a ‘whack-a-mole’ task.

It was suggested that there should be extended obligations on marketplaces to communicate with consumers who have purchased counterfeit items once these have been identified as unlawful product. This is something that some brands are hoping to see in the DSA applying to all online businesses. There was however some discussion about the amount of red tape that the DMA may create, and how damaging this might be on smaller businesses or fledgling marketplaces. However, there was a strong argument that the ‘red tape’ is where the law has chosen to draw the line in terms of safety and regulation for the benefit of consumers; and it thus is appropriate that all businesses, of any size, heed the rules. What is needed, then, is help for the smaller businesses in complying. In terms, particularly, of the ‘KYBC’ obligation (know your business customer) and the need to vet supplier credentials, there was concern expressed regarding how this might put off sole traders, especially those who – like 97% of Etsy’s sellers – work from home. Privacy concerns might, it was said, be a barrier to market for such traders and suppliers.

Finally, the panel discussed where liability has fallen under the draft DSA with the concern being that liability is going to be linked to due diligence. For marketplaces where there is no relationship with the goods sold (whether via manufacture, storage or distribution), a lot of the information that might detect unsafe products is out of their control. Extremely costly due diligence would be needed if there were to be strict liability; and in some cases, such due diligence could not really practically take place, given many items are made to order.

The panel concluded that discussions regarding the DSA are at a pivotal point. There is a real drive to get agreement, within set timeframes, rather than to get in place good rules that will work. The panellists proposed that there is more merit to getting things to a workable and future-proofed state, and to be ambitious regarding the changes that can be implemented, even if that takes longer than anticipated.