Amazon, systemic risk, and the Digital Services Act: What the General Court did and did not decide

 

 

Catalin Gabriel Stanescu, Associate Professor of Private Law at the University of Southern Denmark. His research focuses on consumer law, digital regulation, financial vulnerability, and the political economy of private law.

 

Photo credit: David Dixon, via Wikimedia Commons

 

The DSA Observatory recently published a thoughtful post on the General Court’s judgment in Amazon v Commission, which rejected Amazon’s argument that it should not have been listed as a ‘very large online platform’ (VLOP) under the Digital Services Act (DSA), and, in doing so, critiqued a working paper of mine on ‘systemic risk’ under the Digital Services Act. For me, it was a valuable engagement. The judgment does influence how arguments about systemic risk under the DSA can be framed. However, it does not support the broader claim that a financial-law analogy about the definition of ‘systemic risk’ has been displaced. When read carefully, Amazon takes a narrower approach: it rejects one specific application of the financial analogy, while preserving a more structural comparison between financial supervision and the DSA’s systemic-risk regime.

My paper’s central claim was not that the DSA should be read as banking law in another guise. Nor was it that systemic risk under the DSA must be defined by interbank contagion or by the existence of a closed system of interconnected undertakings. What I proposed was that the DSA relocates into digital governance a supervisory rationality already familiar from EU financial law: a mode of regulation built around ex ante risk assessment, differentiated obligations for systemically significant actors, and a recalibrated proportionality analysis where institutions are acting under conditions of complexity, uncertainty, and potentially large-scale harm. That remains, in my view, the right level at which to compare the two regimes.    

The General Court’s judgment, however, establishes an important limitation. Amazon contended that marketplaces could not generate “systemic” risks because, unlike financial institutions, they do not form part of an interconnected system. In paragraph 69, the Court summarized Amazon’s submission that marketplaces are not interdependent, do not constitute a system, and therefore cannot give rise to systemic risks in the manner of financial institutions. The Court rejected this argument in paragraph 70. It held that the DSA is not concerned with systemic risks posed by marketplaces due to their participation in a “system” in that sense. Instead, the DSA aims to mitigate systemic risks to society as a whole, insofar as those risks may affect a significant portion of the European Union’s population. Consequently, the Court found that the independence of marketplaces from one another does not prevent them from generating some of the risks identified in Article 34(1) DSA (ie the risks which VLOPs are obliged to assess).

This is a significant point. Under the DSA, interconnectedness in the financial-law sense is not a necessary criterion for defining systemic risk. Instead, the Court places decisive emphasis on reach, scale, and disproportionate societal impact. This approach is evident not only from paragraph 70, but also from the Court’s reliance on recitals 75 and 76 DSA, which highlight the reach of very large online platforms, their role in facilitating public debate and economic transactions, and the potential for disproportionate impact once they reach a significant share of the Union’s population. The same reasoning appears later when the Court notes that marketplaces above the Article 33 DSA threshold for designating VLOPs may pose risks to society that differ in scale and impact from those posed by smaller platforms. On this point, the Observatory’s interpretation is correct: Amazon shifts the analysis away from a narrow contagion model.

What does not follow, however, is the stronger conclusion that the judgment rejects the relevance of financial systemic-risk thinking altogether. The Observatory interprets Amazon as attributing a more autonomous meaning to systemic risks under the DSA and as introducing a break with the reliance on financial systemic-risk regulation as a reference point. I believe this interpretation overstates the case. The Court rejected Amazon’s specific application of the analogy, but did not assert that the DSA lacks structural affinity with systemic-risk governance as developed in other areas of EU law.

This distinction is important because the DSA’s regime retains a recognizably systemic-risk structure.

First, the regime is actor-specific. In the present context, Articles 34 to 43 DSA apply only to platforms designated as VLOPs, while more broadly it also includes very large online search engines (VLOSEs). The Court accepts this differentiation as resting on the legislative judgement that platforms of such scale may generate risks with a disproportionate impact in the Union. In paragraphs 52 and 53, the Court summarizes the obligations imposed on VLOPs: risk assessment, potential adaptation of service design, independent audit, profiling-free recommender options, advertising repositories, data access for researchers, internal compliance functions, transparency reports, and supervisory fees. In paragraphs 63 to 65 and 77, the Court accepts the legislative premise that VLOPs may cause societal risks that differ in scope and impact from those caused by smaller platforms, and that marketplaces above the threshold may give rise to the risks listed in Article 34(1). This is not merely a semantic distinction regarding the meaning of what qualifies as “systemic.” It is a sorting mechanism that imposes heightened obligations on actors deemed systemically significant due to their scale. This feature is central to the financial-law genealogy discussed in my paper.

Second, the regime is preventive. The obligations upheld in Amazon are not limited to sanctioning completed infringements, but are intended to identify, assess, and mitigate risks before harm occurs. The Court’s summary of Articles 34 to 43 confirms this preventive orientation. This is why the financial-law comparison remains relevant at the level of supervisory logic. In both contexts, the law acts proactively rather than waiting for collapse or completed harm before intervening. My paper identified this preventive approach as a central element of systemic-risk governance in EU law, both in finance and under the DSA. Nothing in Amazon contradicts this analysis.

Third, and most importantly, Amazon strongly supports the argument that systemic-risk governance is accompanied by a relatively flexible form of proportionality review. The Court explicitly recognizes that Article 33(1), by subjecting VLOPs to Articles 34 to 43, interferes with the freedom to conduct a business under Article 16 of the Charter, as these obligations may entail significant costs, substantial organizational effects, and complex technical solutions. Nevertheless, the Court upholds this interference because the legislature possesses broad discretion when making political, economic, and social choices and undertaking complex assessments. In this context, only measures that are “manifestly inappropriate” can be deemed unlawful. The Court further emphasizes that the freedom to conduct a business is not absolute and must be balanced with the objective of ensuring a high level of consumer protection under Article 38 of the Charter. It concludes that the legislature did not commit a manifest error in treating marketplaces above the threshold as capable of generating the risks identified in Article 34(1), and that Article 33(1) DSA was not shown to be manifestly inappropriate for achieving the Regulation’s objectives.

This aspect of the judgment is at least as significant as paragraph 70. Even if one accepts that DSA systemic risk is not linked to interconnectedness in the financial sense, the Court’s reasoning still supports a model of anticipatory, differentiated, and intrusive supervision, constitutionally sustained through broad institutional discretion and limited judicial review. This is precisely the dimension of systemic-risk governance that my paper sought to highlight. EU financial-law jurisprudence exhibits the same pattern: preventive intervention, differentiated obligations for systemically significant actors, and a proportionality review tailored to technical complexity and predictive judgment. At this level, the comparison is not only valid but also illuminating.

The core disagreement with the Observatory is not whether Amazon alters the analytical landscape –it does – but rather concerns the appropriate level of abstraction for comparison. If the argument were that DSA systemic risk merely replicates bank-contagion logic, the judgment would be difficult to defend. However, that was not my position. My argument is that the DSA adopts a macroprudential style of governance: it identifies a subset of actors whose scale enables them to cause significant harm, subjects them to enhanced due diligence and supervision, and justifies these obligations through a preventive public-interest rationale. Amazon does not undermine this claim, it only refines it.

One further point should be noted. The judgment did not resolve all interpretive questions regarding Article 34 DSA. Specifically, it did not explicitly determine whether the list of risks to be assessed, set out in Article 34(1), is exhaustive. While the Observatory may reasonably infer from certain passages that this is the case, such an inference does not constitute a definitive holding. The repeated references to the risks “referred to in Article 34(1)(a) to (d)” are consistent with the narrower view that these were the risks relevant to the case at hand. On this issue, a cautious approach remains advisable.

In my view, the most accurate reading of Amazon is as follows. The judgment narrows the conceptual overlap between financial and digital systemic risk by rejecting interconnectedness as a necessary definitional criterion under the DSA. However, it reinforces the structural overlap at the level of governance. Under the DSA, systemic risk continues to justify a regime that is differentiated, preventive, supervisory, and constitutionally sustained through a broad margin of institutional discretion. Therefore, the financial analogy I proposed remains useful, provided it is applied at the appropriate level of abstraction. The DSA is not banking law for platforms, but it is law crafted in a distinctly macroprudential register.

 

EU General Court rules for the first time on financial consequences of alleged irregularities regarding a former member of the EU Court of Auditors

 

 

Alessandro Nato* and Camilla Ramotti**

 

*Associate Professor in European Union law, University of Teramo

**Postdoctoral Research Fellow in Administrative Law, Luiss Guido Carli, Rome

 

Photo credit: Cedric, via Wikimedia Commons

 

 

1.     Introduction

 

The role of EU institutions and officials in managing and protecting Union funds remains a relatively underexplored area within European legal scholarship. For this reason, the present post will address this specific issue, investigating case-law that evaluates how effectively EU institutions handle supranational public finances.

 

On September 11^th, 2024, in its Judgment in Case T-386/19, CQ v Court of Auditors, the General Court of the European Union partially annulled a decision concerning CQ, a former Member of the European Court of Auditors (ECA).

 

The dispute arose from an action brought by CQ against the ECA on June 24^th, 2019, in which the applicant requested, in essence, that the Court: (i) declare the action admissible and well-founded; (ii) annul the decision of the Secretary General of the Court of Auditors of April 11^th, 2019, which classified the sum of € 153,407.58 as an undue payment and order the recovery of that amount, plus interest at a rate of 3.5% from May 31^st, 2019.

 

CQ had served as a Member of the Court of Auditors from March 1^st, 2006 until April 30^th, 2018, completing two terms of office. Prior to his appointment, CQ had held various political roles in the Kingdom of Belgium dating back to the 1980s. During his tenure at the Court, he was assigned to the section responsible for auditing EU expenditure related to external relations, enlargement, and humanitarian aid.

 

In 2016, the Court of Auditors received information regarding several serious irregularities allegedly committed by CQ, who was informed of these allegations in July 2016, which he has consistently denied.

 

In October 2016, the Secretary-General of the Court of Auditors referred the matter to the European Anti-Fraud Office (OLAF), concerning activities by CQ that had led to potential undue expenditure being charged to the EU budget. OLAF subsequently decided to initiate an investigation and, in March 2017, the Director-General of OLAF formally notified the President of the Court of Auditors of the opening of an investigation into potential irregularities involving CQ. These included allegations of misuse of the Court's resources, breaches of applicable rules concerning official missions, and matters affecting the financial interests of the Union.

 

Following several exchanges of information and documents between OLAF and CQ, the Court of Auditors received OLAF’s final report, which concluded that CQ had misappropriated resources of the Court in connection with activities unrelated to his official duties. The report found that CQ had improperly used fuel cards, misused the insurance policy for his official vehicle, been absent from work without justification, failed to declare external activities, disclosed confidential information, and been involved in a conflict of interest.

 

Meanwhile, the Court of Auditors had sought to recover the full contested sum of over €157,000 for the irregularities attributed to CQ. CQ paid this amount but simultaneously lodged an action before the General Court of the European Union seeking the annulment of the recovery decision and compensation for non-material damage allegedly suffered.

 

 

2.              The protection of Eu’s financial interests

 

In Case T-386/19 (for further comments, see EU Law Live Blog and BETKONEXT Newsletter n. 2/2024) the General Court found that the OLAF investigation had not uncovered evidence of all the alleged irregularities. The Court also concluded that the ECA’s decision to recover the sums in question was sufficiently reasoned and well-founded.

 

On the merits, the General Court held that although five years had elapsed between the facts in question and the establishment of the financial entitlements, the majority of the claims were not time-barred, as the ECA could only have identified the relevant sums after OLAF’s investigation was concluded.

 

Moreover, in relation to the allegations concerning breaches of procedural safeguards, the Court found that it could not be excluded that the applicant had been afforded a sufficient opportunity to be heard on the relevant elements, even those he could not comment on prior to OLAF’s report. Given the absence of any new or concrete evidence to the contrary, and the applicant’s ability to raise such matters during the written stage of the proceedings, the plea was rejected as unfounded.

 

The Court further determined that a significant proportion of CQ’s meetings with politicians were unrelated to his duties as a Member of the Court of Auditors, rendering the expenses associated with those meetings irregular. However, finding that certain claims were time-barred and that certain mission and representation expenses, along with costs related to CQ’s driver, were legitimate, the Court annulled part of the recovery decision.

 

Ultimately, the General Court set aside certain aspects of the ECA’s recovery decision.

 

It ruled that several claims were indeed time-barred and that some of the mission and representation expenses, as well as driver-related costs, were valid. Consequently, the General Court partially annulled the ECA’s decision, reducing the contested amount by €19,254.20, while rejecting most of CQ’s claims.

 

Regarding CQ’s claim for compensation, the General Court held that there was insufficient evidence to establish that the ECA’s actions caused direct damage to his reputation or that it was responsible for the unauthorized disclosure of information.

 

 

3.              Damage compensation

 

In the CQ case at hand, the plaintiff sought compensation of 50,000 euros, claiming that he had suffered serious damage to his career and reputation from the dissemination of information related to an OLAF investigation. According to him, the ECA had violated the presumption of innocence by disseminating elements suggesting his responsibility before he was formally informed. He disputes that the report was forwarded to third parties (members of the Court and Parliament) before him, and that the press was able to publish its contents as early as July 11, 2018. On the same day, the Court issued an internal briefing note, according to the appellant, reinforcing the perception of guilt.

 

The criticism levelled at the Court of Auditors was thus twofold: on the one hand, there would have been an active tortious behavior - the disclosure of information not yet known to the person concerned, in a context that suggested liability; on the other hand, an omission - the failure to activate an internal investigation to identify the source of the leak. The Court responded by first raising a plea of inadmissibility on grounds of procedural defect, holding that the claim for compensation could not be brought in the context of an action for annulment (Article 263 TFEU), but only through an autonomous action based on Articles 268 and 340 TFEU.

 

However, the same Court later recognized that, in principle, it is possible to cumulate claims for annulment and compensation within the same proceeding, provided certain formal requirements are met. In this case, however, it was held that the plaintiff had not adequately substantiated, from the outset, the grounds for the Union’s non-contractual liability.

 

On the merits of the case, the Court rejected allegations of infringement of the presumption of innocence and the principle of good administration, finding that the internal communication of July 11, 2018, was after the publication of the news by the press, which occurred as a result of a leak from an anonymous source.

 

However, this reconstruction raises several questions. The fact that the Court reacted with communications directed within the institution, even after the newspaper article came out, does not rule out the possibility that these communications contributed to consolidating a negative portrayal of the plaintiff. The strongest objection relates precisely to the principle of impartiality: even in the presence of a leak that cannot be attributed to the administration, the latter remains bound to prudent and neutral management of information, particularly when the person concerned has not yet been put in a position to formally know the acts that concern him or her. The principle of good administration requires not only transparency and timeliness, but also balance in communication, especially when it affects personal rights.

 

The Court also dismissed the failure to launch an internal inquiry, citing no obligation to do so. Yet, even without a binding rule, confidentiality and administrative accountability could justify such action. In a rule-of-law framework, institutional inaction can also entail liability. Furthermore, the Court rejected the claim for failing to establish wrongful conduct — the first condition for non-contractual liability — making examination of damage and causality unnecessary. Legally consistent, this outcome nonetheless raises doubts about the actual protection of fundamental rights and principles in EU administrative action.

 

 

4.              Concluding remarks 

 

The CQ v. Court of Auditors case is a significant test in assessing the effectiveness of judicial protection with respect to the protection of the Union’s financial interests. The case highlights a latent tension between two fundamental requirements: on the one hand, the need to respect the procedural guarantees of the person involved; on the other, the imperative to effectively protect the integrity of the EU budget.

 

In this delicate balance, the ruling ends up downplaying the proactive role and responsibility that institutions should assume in preventing and dealing with irregularities. The fact that CQ’s conduct resulted in a misuse of public funds that was not contested in substance, but only partially acknowledged for procedural reasons, raises questions about the level of diligence and control exercised by the European institution.

 

However, this case law cannot be viewed in isolation. On 28 April 2025, the Official Journal of the European Union published a summary of an action for annulment brought by the European Public Prosecutor’s Office (EPPO) before the Court of Justice (case T-99/25, lodged on 10 February 2025) pursuant to Article 263(4) TFEU. In that action, the EPPO challenges the decision adopted by the European Court of Auditors on 9 December 2024, denying the authorization to hear certain staff members as witnesses in an ongoing criminal investigation into alleged wrongdoing within the same institution. The investigation, launched at the end of 2022 following a report from the European Anti-Fraud Office (OLAF), concerns facts that potentially constitute offences affecting the financial interests of the Union.

 

According to the EPPO, the repeated refusal by the Court of Auditors to cooperate—first by denying access to its electronic archives, then by refusing to lift immunity and finally by preventing witnesses from testifying—has obstructed the investigation and hindered the EPPO’s ability to determine whether the allegations should lead to prosecution. Under the EU Staff Regulations, authorization from the institution is required for staff members to testify about matters known to them in the exercise of their duties. However, as clarified by the Court of Justice, such authorization may only be withheld in cases where the Union’s “interest of considerable importance and vital to the Union” is at stake. The EPPO argues that this condition clearly does not apply in the present case.

 

Taken together, these two cases—one dealing with individual financial responsibility, the other with institutional resistance to judicial cooperation—reveal a deeper tension within the EU legal and governance system: the challenge of ensuring both personal accountability and institutional transparency in the management and protection of EU public funds. On the one hand, the EU seeks to recover unduly paid amounts from former members of its institutions; on the other, it encounters systemic obstacles when a key institution refuses to cooperate with its own prosecutorial authority.

 

This duality exposes a structural concern. When an EU institution can, in effect, block a criminal investigation by withholding key testimonies, it undermines the very logic of interinstitutional checks and the role of the EPPO as an independent prosecutorial body. Such conduct raises fundamental questions about the coherence of the EU’s system for protecting the rule of law and financial integrity. More broadly, it calls into question whether the principle of sincere cooperation—enshrined in Article 13(2) TEU—is being fully respected when institutional interests are perceived to outweigh those of justice and public accountability.

 

In conclusion, the CQ v. Court of Auditors case and the EPPO’s appeal in T-99/25 highlight the growing need for a systematic reflection on how to ensure both individual and institutional accountability within the EU legal framework. At a time when the Union is managing unprecedented levels of public expenditure—particularly through instruments such as Next Generation EU—it is essential to ensure that mechanisms for oversight, enforcement, and judicial cooperation are not only available in theory, but fully operational and unobstructed in practice. A deeper and more critical exploration of these legal and institutional dynamics—across academia, jurisprudence, and policymaking—is not merely advisable: it is imperative. In a context where EU funds are increasingly significant and politically sensitive (i.e. Next Generation EU), opaque management by officials can undermine public trust and the effectiveness of the protection of the Union’s financial interests.

 

State Immunity, Comity and the Question of Legal Standing of a Third Country before the CJEU: The Opinion of AG Hogan in Case C‑872/19 P Venezuela v Council

 

 

Eva Kassoti, Senior Researcher, CLEER academic co-ordinator, T.M.C. Asser Institute. E-mail: E.Kassoti@asser.nl

 

In his Opinion delivered on 20 February 2021, A.G. Hogan tackled an important procedural question: Does a third State have legal standing to challenge EU acts before the CJEU? The question at bar is significant not only because the Court has never addressed it directly before in the context of sanctions, but also because it involves enquiring into the principles that mediate the relationship between the EU legal system and other subjects of international law.

 

The case is an appeal against the General Court’s judgment of 20 September 2019, in which that Court was asked to rule on whether Venezuela could challenge a series of restrictive measures prohibiting the provision of arms, military as well as surveillance equipment to any natural or legal person, entity or body in, or for use in, Venezuela.

 

Answering this question necessitates examining whether the conditions of Art. 263(4) TFEU (on standing to bring direct actions for annulment of EU law, if the challenger is not a Member State or EU entity) to have been met. In casu, the answer is contingent on examining whether Venezuela is a legal person that is directly and individually concerned by the measures at hand, or, in the case that the measures are considered as regulatory acts, it is sufficient to show that these measures are of direct concern to Venezuela and do not entail implementing measures. The General Court found that Venezuela was not directly concerned by those measures, and thus, that it lacked standing under Art. 263(4) TFEU – without however addressing the question of whether Venezuela is a legal person within the meaning of the same provision.

 

In his Opinion, the AG focused on two main issues in order to answer the question of legal standing: (i) whether Venezuela is a legal person within the meaning of 263(4) TFEU; (ii) whether Venezuela is directly concerned by the measures in question within the meaning of 263(4) TFEU. The A.G. proposed that the CJEU answers both questions to the affirmative. If the Court follows the A.G.’s line, this could reinforce the image of the EU as a global actor committed to the rule of law and to effective judicial protection by recognising in essence that third States have a right to challenge EU law measures them before EU courts, provided that the conditions set out in Art. 263(4) TFEU are satisfied – even in the absence of reciprocity. This blogpost focuses on the AG’s analysis of the question of ‘legal personhood’ as the question of direct concern has been discussed elsewhere.

 

Is Venezuela a legal person within the meaning of Art. 263(4) TFEU?

 

According to the A.G., both international and EU law considerations buttress the finding that Venezuela should be considered as a legal person for the purposes of Art. 263(4) TFEU.

 

International Law Considerations

In relation to the international law arguments supporting this finding, the A.G. (correctly) rejected the Council’s assertion that Venezuela is barred from bringing a suit before the CJEU on the basis of the doctrine of State immunity.  The AG argued that the law of immunities cannot limit the legal standing of Venezuela since this action is brought by Venezuela and not against Venezuela. Indeed, State immunity under international law is aimed at facilitating the performance of public functions by the State and its representatives by preventing actions being brought against them before foreign courts. It does not however imply that third States are barred themselves from appearing as claimants before foreign courts – as Art. 8 of the 2004 UN Convention on Jurisdictional Immunities of States and their Property makes abundantly clear.

 

However, the rest of his line of argumentation on the basis of international law seems rather weak and convoluted. The A.G. argued that the international law principle of comity should inform the interpretation of what constitutes a legal person for the purposes of Art. 263(4) TFEU and that, on the basis of comity, the CJEU should be open to challenges brought by States in their sovereign capacity as international legal persons. It is interesting to note at this juncture that if the Court chooses to take up this point it would be the first that it will rule directly on the question of whether international legal personality implies that an entity is a ‘legal person’ also for the purposes of an action of annulment. This argument has been expressly made before by Front Polisario, a national liberation movement with (arguably) a measure of international legal personality, in the context of the Front Polisario v Council case, but the General Court eschewed engagement therewith and ruled on Polisario’s legal personality solely from the standpoint of EU law.

 

However, from an international law point of view, the argument made by the A.G. is rather unconvincing. In fact, there seems to be no rule of customary international law requiring one State to allow another State to bring suit in its courts. Rather, comity is a domestic law doctrine (that has been mainly employed by US courts) under which deference is afforded to foreign states to bring suits before domestic courts as plaintiffs. The practice relied on by the AG (the Banco National de Cuba v Sabbatino judgment by the US Supreme Court) as well as a survey of other relevant case-law (the Sapphire; the Hilton v Guyot; the Santissima Trinidad – all judgments by the US Supreme Court) attest to the domestic law pedigree of the principle of comity. The AG failed to show how this domestic law principle has entered the corpus of international law. Overall, great caution needs to be exercised in using domestic cases in order to make propositions about general international law. The very notion of ‘comity’ in international law is linked to practices of a discretionary character; this runs counter to the modern understanding of customary international law “as evidence of a general practice accepted as law” (Art. 38(1)(b) ICJ Statute).

 

The international law blunder aside, the question arises as to whether there are good reasons to adopt the relevant doctrine as a matter of EU law. While the principle of comity is distinct from international law, it undoubtedly remains an internationally oriented principle that is important in shaping a State’s relations with the outside world. Showing deference to third States as litigants before the CJEU would certainly be within the spirit of Art. 3(5) and 21 TEU and it would consolidate the external projection of the EU as a confident and internationally engaged polity committed to the ethos of the rule of law.

 

EU Law considerations

 

The A.G. also relied on a number of EU law precedents where the CJEU had (en passant) accepted that third States have legal standing to bring an action for annulment under Art. 263(4) TFEU – although, admittedly, the context in which these rulings were made was not that of restrictive measures as is the present one (Cambodia and CRF v Commission, para. 51; Poland v Commission, paras. 51,52; Switzerland v Commission, para. 22). In the context of restrictive measures, the A.G. found the Court’s judgment in PKK and NKK v Council of particular importance since it implies that, even in the absence of legal personality, an entity that is directly and individually affected by restrictive measures must have access to EU courts in order to protect its rights. On the basis of these EU law precedents and taking into account that respect for the rule of law and the principle of effective judicial protection are core EU law principles, the A.G. concluded that Venezuela must be regarded as a legal person within the meaning of Art. 263(4) TFEU – even in the absence of reciprocity since “respect for the rule of law and the principle of effective judicial protection is not based on any notion of reciprocity and they cannot be traded or compromised in diplomatic exchanges or made subject to reciprocal treaty obligations.”

 

This part of the A.G.’s Opinion is particularly convincing – especially in the light of the Court’s relevant case-law. In PKK and NKK v Council, the Court emphasised that the procedural rules governing the admissibility of an action for annulment must be read with a view to “avoiding excessive formalism” – something that would amount to denying to an entity against which restrictive measures have been taken the possibility of applying for annulment. One may add that it would at least raise an eyebrow if the Court denied Venezuela - a sovereign State and as such, the example par excellence of an international legal person - capacity to bring annulment proceedings, while it has recognised such capacity for entities such as the Western Saharan Front Polisario and the Sri Lankan Liberation of Tigers of Tamil Eelan.

 

While one may concede that there are good reasons to adopt the A.G.’s approach to legal personhood, the question arises as to whether there may be far-reaching implications for the conduct of the EU’s foreign relations. Would allowing third States to challenge EU law measures before the CJEU open the floodgates for a number of politically charged questions of recognition of entities (such as Kosovo and Palestine) to be decided by the Court? This fear seems to be exaggerated. As the doctrine of comity has been applied by US courts, exceptions are accepted in case of States not recognised by the US. This would ensure that, while the CJEU shows a great degree of openness to review measures affecting third States, it would not be used to make determinations regarding (often politically charged) issues of recognition.

 

Barnard & Peers: chapter 24

Photo credit: Archilider, via WikiCommons Media

Vorsprung durch Technik? Audi scores victory in trade mark appeal before the EU General Court

Alexandros Antoniou, University of Essex School of Law, a.antoniou@essex.ac.uk

On 12 July 2019, the EU General Court (GC) dismissed an appeal (Audimas v EUIPO - Audi (AUDIMAS)) from a Lithuanian sportswear company, whose trade mark was successfully opposed by the German automobile manufacturer Audi.

Background

In October 2014, the applicant, Audimas AB, obtained through the World Intellectual Property Organisation (WIPO) an international registration for the mark displayed below, designating the European Union (EU) as one of the protection territories.

The mark above represents the applicant company’s name in black font, with stylised open and closing brackets right above the word element. Registration was sought for classes 18, 25 and 35 of the Nice Agreement, covering a wide variety of leather goods, clothing, footwear and headgear as well as advertising and business management services. In June 2015, the international registration designating the EU was notified to the EU Intellectual Property Office (EUIPO), pursuant to the provisions of the Council Regulation 207/2009 on the Community Trade Mark (now replaced with Regulation 2017/1001 on the EU Trade Mark).

In August 2015, the German automotive company AUDI AG opposed the mark applied for on the basis of its previously registered EU word mark ‘AUDI’ for goods and services falling in classes 18, 25 and 35 of the Nice Agreement as well as class 12, which covers vehicles and vehicle components. Audi claimed, in particular, infringement of Article 8(1)(b) of the 2009 Regulation, i.e. invalidity based on ‘relative grounds’ which relate to conflicts with earlier trade mark rights that belong to third parties (these provisions are preserved under the new 2017 Regulation). The Opposition Division of the EUIPO upheld the opposition two years later. Audimas appealed the decision in November 2017 but the Office’s Second Board of Appeal rejected the appeal in May 2018 (‘the contested decision’).

Specifically, the Board of Appeal found that the relevant public in this case consisted of ‘professional customers' and 'end consumers', whose level of attention varied from medium to high. In addition, the signs at issue were broadly similar at least to the extent that Audi’s earlier mark was reproduced in full in the dominant element of the applied-for mark. The Board also considered that a Spanish-speaking consumer would break down the mark applied for in two verbal parts, i.e. ‘audi’ and ‘mas’, because the latter element alluded a meaning to them, namely 'more' or ‘plus’. Moreover, the figurative element of the brackets was found to be ‘purely ornamental’ and its combination with the term ‘mas’ meant that the mark in question was at best only weakly distinctive. The Board of Appeal ultimately concluded that there was a likelihood of confusion for the Spanish-speaking part of the relevant public within the meaning of Articles 8(1)(b) of the 2009 and 2017 Regulations.

The legal framework and applicable principles

Under both Regulations 2009 and 2017, an opposition must be based on rights held by the opponent in an earlier trade mark (or other form of trade sign). The grounds on which an opposition can be based are called ‘relative grounds for refusal’, the relevant provisions of which are found in Article 8 the Regulation. By contrast to ‘absolute grounds for refusal’, which are examined ex officio by the EUIPO, relative grounds for refusal are inter partes proceedings based on the likely conflict with earlier rights. This means that the burden falls on the owner of earlier rights who needs to be vigilant in checking the filing of potentially conflicting EUTM applications and oppose the registration of marks when necessary.

More specifically, under Article 8(1)(b):

upon opposition by the proprietor of an earlier trade mark, the trade mark applied for shall not to be registered if, because of its identity with or similarity to the earlier trade mark and the identity or similarity of the goods or services covered by the trade marks, there exists a likelihood of confusion on the part of the public in the territory in which the earlier trade mark is protected. The likelihood of confusion includes the likelihood of association with the earlier trade mark.

Audimas contested the Board of Appeal’s findings in relation to the comparison of the signs and the existence of a likelihood of confusion. According to the established case law of the Court of Justice on the interpretation of Article 8(1)(b), the risk that the public might believe that the goods or services in question come from the same undertaking or from economically-linked undertakings, constitutes a likelihood of confusion (see Canon [1998] EUECJ C-39/97). The likelihood of confusion on the part of the public must be appreciated globally, according to the perception of the marks in the mind of the average consumer of the goods or services concerned. It is also settled case law that the average consumer normally perceives a mark as a whole and does not proceed to examine its various details (see Sabel [1997] EUECJ C-251/95). Consequently, the visual, aural and conceptual similarities of the marks must be assessed with reference to the overall impression created by the marks bearing in mind their distinctive and dominant components. Account must be taken of all factors relevant to the circumstances of the case and, in particular, the similarity between the marks and the goods or services. A lesser degree of similarity between those goods or services may be offset by a greater degree of similarity between the marks, and vice versa (see Lloyd Schuhfabrik Meyer [1999] EUECJ C-342/97). Where the earlier trade mark has a highly distinctive character, such as Audi’s mark in the present case, either because of its intrinsic qualities or because of the use that has been made of it, the likelihood of confusion is greater.

The level of attention of the relevant public

The GC disagreed with the applicant’s claim that buyers of Audi cars would demonstrate an increased level of attention, which would in turn decrease the likelihood of confusion between the marks at issue. Indeed, the prospect of an expensive purchase, e.g. in the case of luxury products, is a good reason for the average consumer to be more circumspect in relation to the origin and the quality of the articles concerned. A high degree of attention is likely to be displayed during the purchasing process of a specific product which is generally regarded as reflecting its owner’s social status. Nevertheless, both Audi’s earlier mark and Audimas’ applied-for mark extended to clothing and footwear as well. These are mass consumption goods, which are frequently purchased and used by the average consumer who nevertheless still pays a fair degree of attention in choosing them, albeit not above average (see Esprit International v OHMI-Marc O'Polo International [2011] EUECJ T-22/10). Thus, the Board of Appeal was not wrong in assessing the relevant public’s attention in the present case as varying from medium to high.

The goods and services concerned

The goods and services covered by Audimas’ mark were deemed at least in part identical or similar to those covered by Audi’s earlier mark. This conclusion was not disputed by the applicant and was approved by the GC.

The comparison of the signs and the likelihood of confusion

The GC agreed with the Board’s ruling that the dominant element of the applied-for mark was the fanciful term ‘audi’, since the second verbal element of the applied-for mark, i.e. ‘mas’, was already well-known to Spanish speakers and had a lower distinctive character. Moreover, the figurative element of the brackets was not, in the GC’s view, ‘particularly original or elaborate’. As such, it did not add anything ‘striking’ to the overall impression created by it in the perception of the relevant public.

The visual similarity between the marks was reinforced by the fact that both shared the ‘audi’ element which constitutes the earlier mark and is found at the beginning of the applied-for mark. This is consistent with previous case law, according to which the fact that a mark consists exclusively of the earlier mark to which another word is attached is an indication of the similarity between those two marks (see Fon Wireless v EUIPO-Henniger [2016] EUECJ T-777/14). On the phonetic level, the degree of similarity between the marks was found to be essentially ‘greater than average’, notwithstanding the different pronunciation given to the contested mark by the syllable ‘mas’. It is also a settled principle that both verbally and phonetically the average consumer generally pays more attention to the beginning of the mark than its ending, since the first part of a trade mark normally has a greater impact than the final part (see L'Oréal v OHMI-SPA Monopole [2009] EUECJ T-109/07 and Gappol Marzena Porczynska v EUIPO-Gap [2017] EUECJ T-411/15). Finally, the GC noted that the absence of conceptual similarities between the two signs should not deflect attention from their substantial visual and phonetic similarities and concluded that they were ‘broadly similar’.

In the GC’s view, the Board’s conclusion that the Spanish-speaking part of the relevant public would eventually establish a link between the contested mark and Audi could not be called into question. The Board of Appeal had held, and the GC agreed, that it could not be ruled out that the applied-for mark, with its element ‘mas’ attached to the word ‘audi’, could be taken to identify an exclusive series of goods or services of the Audi family of brands. The relevant public could perceive the ‘Audimas’ mark as a ‘particular variant’ of the earlier mark for a specific type of goods with a positive quality. In light of the foregoing, the GC dismissed the applicant’s action.

Commentary

In sum, the GC upheld the original EUIPO decision, ruling that the applied-for mark by Audimas would likely be confused with Audi’s earlier trademark. The upheld contested decision is undoubtedly a victory for Audi, one of the world leaders in the automotive sector. On the other hand, Audimas has become, since its incorporation in 1931, one of the market leaders in the design and manufacture of sports and active lifestyle apparel in the Baltic States. The brand has been cooperating with the Lithuanian National Olympic Committee as an official supplier of sportswear for the Lithuanian Olympic family for more than 15 years. In 2013, Audimas also began sponsorship of the Belarus National Olympic Committee. This is certainly a displeasing for them outcome, which might be appealed to the Court of Justice of the EU.

Despite Audi’s weak connection to the clothing industry, the GC’s ruling can hardly be a surprise. It is grounded in some well-established principles relating to the comparison of signs in trade mark disputes. When assessing their similarity, the marks in question will be considered as a whole. Although it is not possible to isolate and focus exclusively on one component of a complex mark and compare it with another mark, the assessment of similarity may be made solely on the basis of the dominant component of a complex mark where all the remaining components of the mark – like the brackets and the element ‘mas’ in this case – add very little to, or are negligible in, the overall impression produced by it.

In addition, where a complex mark comprises word and figurative elements, the former would in principle be considered more distinctive than the latter, because the average consumer tends to refer to the goods or services in question by quoting the name of the mark in question, rather than by describing its figurative element (see Coca-Cola v OHMI-Mitico [2014] EUECJ T-480/12). The shared ‘audi’ element was incapable in this instance of lending the applied-for mark a distinctive character and accentuated the likelihood of confusion. Also, the presence of a few different syllables is not always enough to exclude the existence of a phonetic similarity between two signs. In the present case, the phonetic difference between the signs at issue, resulting from the addition of a second syllable ‘mas’ in the applied-for mark, was not sufficient to overcome and preclude the phonetic similarity between ‘Audi’ and ‘Audimas’ taken as a whole.

These opposition proceedings also confirm that, if a likelihood of confusion between two conflicting rights relating to the EU is established in a specific linguistic area, this is enough for the registration of the later mark to be refused. When an opposition is filed pursuant to Article 8(1)(b) and a likelihood of confusion can indeed be found on a substantial part of the public, the reasoning of the decision typically concentrates on that part of the public that is most prone to confusion, making the examination of the perception of the marks in several languages redundant. In addition, where the relevant public consists of both professional and general consumers, the finding of a likelihood of confusion in relation to just one part of the public is enough to uphold an opposition.

Finally, the outcome serves as a useful reminder of the need to conduct comprehensive trademark searches prior to filing a trade mark application, which needs to be carefully tailored to in order to maximise the chances of a successful registration. Opposition hearings can be very costly to defend. If unsuccessful, an applicant will have to pay not only their legal costs but some of the costs of the other party too – and will still not be able to achieve registration of their mark.

EU General Court rules Adidas’ three-stripe trade mark invalid

Alexandros Antoniou, University of Essex, School of Law - a.antoniou@essex.ac.uk

On 19 June 2019, the EU General Court (GC) ruled that the three-stripe EU trade mark (EUTM) owned by Adidas was invalid. It upheld the earlier decision of the EU Intellectual Property Office’s (EUIPO) Second Board of Appeal, which had found that the trade mark at issue was ‘extremely simple’ and devoid of any distinctive character, both inherent and acquired through use.

Background

The trade mark in dispute was originally registered on 21 May 2014. It covered clothing, footwear and headgear (class 25 of the Nice Classification system) and was identified as a figurative mark, i.e. a trade mark where non-standard characters, stylisation or layout, or a graphic feature or a colour are used. It corresponded to the following description and is reproduced below: ‘The mark consists of three parallel equidistant stripes of equal width applied to the product in whichever direction’.

   

In December 2014, a Belgian company named Shoe Branding Europe BVBA filed an application for declaration of invalidity of this mark pursuant to what is now known as Article 59(1)(a) of EUTM Regulation 2017/1001 (absolute grounds for invalidity) in conjunction with Article 7(1)(b) of the same (absolute grounds for refusal). In June 2016, the Cancellation Division of the EUIPO granted the application on the grounds that the mark inherently lacked distinctive character.

Adidas challenged the decision in August of the same year, claiming that, although their EUTM was devoid of inherent distinctiveness, it had nevertheless acquired a distinctive character in relation to the goods for which it was registered in consequence of the use made of it throughout the EU after registration in accordance with Articles 7(3) and 59(2) of the Regulation. After the Second Board of Appeal confirmed the Cancellation Division’s assessment in March 2017, Adidas brought the matter before the GC.

In support of its action, the Germany-based company put forward a single plea in law, which consisted of two parts: first, that the Board of Appeal wrongly dismissed several items of evidence with the justification that they related to signs ‘other than the mark at issue’; and second, that the Board of Appeal erred in holding that it was not established that the mark had acquired distinctive character following its use within the EU.

Unjustified dismissal of some of the evidence

In relation to the first part of its plea, Adidas submitted that the Board had misinterpreted the mark in question and misapplied the ‘law of permissible variations’. Specifically, the applicant argued that the Board should not have assumed that the mark was only claimed in specific dimensions, i.e. that it was represented by three vertical, parallel black stripes of equal thickness against a white background with a ratio of approximately 5:1 between the total height and width of the mark. Instead, Adidas claimed, the Board should have treated the mark as a ‘surface pattern’ the proportions of which were not fixed, i.e. that the mark was constituted of three parallel equidistant stripes that could be extended in length or cut in different ways, including cut at a slanted angle, depending on the goods on which it was applied.

The GC however rejected this claim, concluding that the mark in question could not be regarded as a pattern mark and there were no indications that it should be intended as such. Adidas’ mark had been registered as a figurative mark. Neither its registered graphic representation nor its description made it clear that it consisted exclusively of a set of elements which were repeated regularly. Importantly, Adidas’ claim was not consistent with the graphic representation of their registered mark, characterised by a rectangular configuration which was created by three stripes being cut at a right angle and of a specific ratio of height to width. In addition, the description of the mark on the register did not state that the length of the stripes could be modified or cut in different ways. The Board of Appeal’s interpretation of the mark at issue as an ‘ordinary figurative mark’ was thus not erroneous. This conclusion could not be called into question by the ruling in Apple Inc v Deutsches Patent- und Markenamt [2014] EUECJ C-421/13, which established that a design may be registered as a trade mark without indicating the size and proportions of the object it represents. This cannot be taken to suggest, however, that a mark can be registered without defining the proportions of the sign itself.

Adidas was not justified in pleading an infringement of the ‘law of permissible variations’ either. This principle, which is rooted in Article 5C(2) of the Paris Convention for the Protection of Industrial Property, allows immaterial differences between the form of the mark as it was registered and the form in which it is used by the proprietor, so long as these differences do not affect the distinctive character of that mark. The applicant had produced evidence (mainly consisting of images from catalogues and promotional materials, showing goods bearing various of their marks) which, in their opinion, related to forms of use of their three-stripe mark that did not alter the distinctive character of that mark as registered.

Confirming the Cancellation Division’s assessment, the Board of Appeal had found that the ‘vast majority’ of the evidence produced related to signs other than the mark in dispute itself. The following examples of evidence, in particular, failed to show, according to the Board, genuine use of the mark:

The GC found that the Board was entitled to dismiss this evidence for several reasons: first, the ‘extremely simple character’ of the mark – which was not disputed by the applicant – meant that minor alterations to the mark could amount to significant changes. As such, its amended form may not be regarded as broadly equivalent to its registered one. The GC emphasised that ‘the simpler the mark, the less likely it is to have a distinctive character and the more likely it is for an alteration to that mark to affect one of its essential characteristics and the perception of that mark by the relevant public’.

Second, the evidence did not show the mark at issue, but ‘other signs’ consisting of three light stripes against a dark background. The act of reversing the colour scheme, namely showing white stripes against a black background, did not conform with the initial contrast between the three black stripes against the white background, including the white spaces separating those stripes. In light of the extreme simplicity of the mark in question, the failure to respect this specific contrast resulted in a significant variation of the registered form of the mark, despite the fact that the sharp contrast between the three stripes and the background was preserved.

Third, the first nine images produced by Adidas showed signs which had only two – not three – parallel black stripes contrasting with a white background. Even if these images could be taken to show signs consisting of three white (or light) stripes against a black (or dark) background, they nevertheless presented the mark in dispute in forms where the original colour scheme was inverted. As such, they had to be dismissed for the reasons presented in the previous paragraph.

Fourth, the use of sloping stripes on the clothing of the athlete in motion shown in the tenth image above was found to have affected the distinctive character of the mark. This was not only because of the reversed colour scheme, but also because it did not meet the dimensions of the mark as registered with its vertical and parallel stripes. The applicant’s argument that their direction depended on the athlete’s movement and the way the items were folded or displayed did not seem to persuade the Court.

As regards the remaining images produced in evidence, the photographs of footwear broadly suffered the same disadvantage in that the modification to the thickness and length of the stripes, as well as their cut at a slanted angle, noticeably affected several characteristics of the mark and as such related to forms of use that differed from the form in which the mark had been registered. Finally, Adidas acknowledged at the hearing the irrelevance of the last four images showing more complex signs. Overall, the GC, siding with the Board, concluded that the signs appearing in most of the images submitted by the applicant were rightly dismissed, as they ‘differed significantly’ from the registered form of the three-stripe mark. Consequently, there was no violation of the law of permissible variations.

Assessment concerning the acquisition of distinctive character through use

The second part of Adidas’ plea was that the Board erroneously found that the applicant had failed to show that the mark in question had acquired distinctive character in consequence of the use that had been made of it within the EU. The evidence adduced by Adidas included: images (discussed in the examination of the first part of the plea above); figures concerning its turnover as well as figures showing the amount invested in promoting the mark; and market surveys.

However, the relevance of these items was questioned by the GC. It followed from the assessment of the first part of the plea that the applicant could not rely on all the evidence demonstrating a mark consisting of three parallel equidistant stripes. The GC observed from the very start that:

the relevant evidence is only that which shows the mark at issue in its registered form or, failing that, in forms which are broadly equivalent, which excludes forms of use where the colour scheme is reversed, or which fail to respect the other essential characteristics of the mark at issue.

Before reviewing the evidence submitted by Adidas, the Court also recalled well-established principles regarding acquired distinctiveness. It follows from the unitary character of the EUTM (i.e. the EUTM extends to the territory in which the EU Treaties apply and has an equal effect throughout the EU, including uniform protection, invalidity, revocation and transfers of ownership), that in order to be accepted for registration, a sign must have distinctiveness (inherent or acquired through use) throughout the EU. It is not necessary that separate proof is submitted in respect of each and every Member State. It is sufficient that the evidence submitted is capable of establishing the acquisition of distinctive character throughout the Member States of the EU. Acquired distinctiveness may be extrapolated from evidence of use in one country to another in certain, yet limited circumstances, e.g. where there is a certain degree of geographical, cultural or linguistic degree of proximity.

In the present case, it was not disputed that the mark at issue was inherently devoid of distinctive character throughout the whole of the EU and as such the Board of Appeal had rightfully examined whether the mark had acquired distinctiveness for the relevant public throughout the territory of the EU. The only evidence which was material to some extent were five market surveys carried out from 2009 to 2011 in Estonia, France, Germany, Romania and Spain. These related to the use of the mark in its registered form and measured the perception of that mark by the relevant public but covered only part of the EU and their results were not representative of the entire EU territory.

As far as the images are concerned, the GC did not seem to be moved by the nearly 12,000 pages of evidence produced during the proceedings before the EUIPO. In the Court’s view, Adidas failed to identify images which could establish use of the mark in its registered form or in forms which could be deemed broadly the same. The first three images above showing the three-stripe mark affixed to sports bags were not considered relevant, because such items were not covered by the goods at issue (clothing, footwear and headgear). Moreover, other images that did correspond to the registered mark and were capable of establishing some use did not sufficiently indicate the scale and duration of that use or its impact on how the mark is perceived by the relevant public.

‘Impressive figures’ concerning Adidas’ turnover, the amount of marketing and advertising costs and its sponsorship activities in relation to sporting events showed the ‘considerable investment’ made by the applicant in promoting its marks in an intensive and continuous manner within the EU. Nevertheless, these figures concerned the applicant’s ‘entire business […], all of the goods and all of the marks taken together’, including the promotion of irrelevant products such as sporting bags and goods bearing only signs other than the three-stripe mark in dispute. Due to the lack of a demonstrable link between the figures provided and the mark at issue as well as between the figures and the goods in question, the GC concluded that it could not be established that the mark had been used and had acquired distinctiveness as a result of the use made of it.

The GC concluded that under these circumstances:

[…] the various items of evidence adduced by the applicant, even taken as a whole: (i) do not prove use of the mark at issue throughout the territory of the European Union; and (ii) are not sufficient, in any event, to demonstrate that, by virtue of that use, the mark at issue has come, in the whole of that territory, to identify the goods for which it was registered, and thus to distinguish those goods from those of other undertakings.

On those grounds, the GC dismissed the action and ordered Adidas to pay its own costs as well as the costs incurred by the EUIPO.

Commentary

The following interesting points can be gleaned from the GC’s much-anticipated judgment. Trade mark owners must ensure that their EUTMs are properly recorded and need to use them in commerce in the form that was originally registered or in a form that can be deemed broadly equivalent to the essential characteristics of its registered form. The mark itself must be identified in a way that accurately determines the scope of the protection afforded to its proprietor. The EUIPO cannot consider characteristics of the mark applied for that are not clearly set out in the application for registration or the accompanying documents. It is also evident from this case that the GC is likely to strictly adhere to the specific dimensions, proportions and overall configuration of the submitted mark. As the Court highlighted, ‘it is for the trade mark applicant to file a graphic representation of the mark corresponding precisely to the subject matter of the protection [they] wish to secure. Once a trade mark is registered, the proprietor is not entitled to a broader protection than that afforded by that graphic representation’. The salience of filing marks correctly becomes even more pronounced in light of the acceptance of new types of marks (e.g. multimedia marks or hologram marks) by the EUIPO as and from 1 October 2017, following the key changes brought by the new EUTM Directive 2015/2436.

Care also needs to be taken with the quality and rigour of the evidence that may need to be preserved, gathered and submitted in order to establish that a mark has acquired the necessary level of distinctiveness across the entirety of the EU. In the present case, the GC challenged the multiple forms of the three-stripe mark which it found inconsistent with the mark’s essential characteristics, despite its comparatively high degree of recognition and regardless of whether its variations might be perceived by the relevant public to be corresponding to the proprietor’s goods or services.

Furthermore, the protection afforded by the law of permissible variations is not boundless and it is uncertain which forms of a mark do not alter the distinctive character of that mark as registered. A question may arise, for example, in cases where use in various colours has been made of a mark, the original representation of which is colourless on the register. Provided that the mark is still visible, it is not entirely clear when such use would affect the distinctive character of the mark in the form under which it was registered. So far as figurative marks are concerned, a different graphical representation is unlikely to diminish the protection granted to the mark, as long as it can reasonably be regarded as another form of the same subject-matter.

Finally, it cannot plausibly be maintained that the GC’s judgment sounds the death knell for all of Adidas’ marks featuring the three-stripe logo. The German corporation owns several other similar marks, like this and this, which remain valid. The impact of the present ruling is limited to the specific execution of the three-stripe mark shown earlier. It is nevertheless a disappointing for them outcome, which might be appealed to the Court of Justice of the EU.

Photo credit: Amazon.co.uk