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# 52013DC0209

**REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the functioning of the Memorandum of Understanding on the Sale of Counterfeit Goods via the Internet /\* COM/2013/0209 final \*/**

  

REPORT FROM THE COMMISSION TO THE
EUROPEAN PARLIAMENT AND THE COUNCIL

on the functioning
of the Memorandum of Understanding on the Sale of Counterfeit Goods via the Internet

(Text with EEA relevance)

TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 4

2........... The MoU....................................................................................................................... 5

2.1........ A novel cooperative approach........................................................................................ 5

2.2........ Scope and architecture of the MoU................................................................................. 5

2.3........ Self-regulation on the basis of
the MoU........................................................................... 7

3........... The Functioning and Impact of
the MoU......................................................................... 8

3.1........ Making the MoU work................................................................................................... 8

3.2........ Notice and Take Down procedures —
a cornerstone of the MoU................................... 9

3.3........ Pro-active and Preventive
Measures — a critical measure for effectively fighting counterfeiting 10

3.4........ Repeat Infringers.......................................................................................................... 11

3.5........ Cooperation, including sharing of
information................................................................. 13

3.6........ Consumer trust, information and
protection.................................................................... 13

3.7........ External communication and
awareness raising............................................................... 14

3.8........ Benchmarking the effects of the
MoU............................................................................ 15

4........... The way forward.......................................................................................................... 16

Annex: List of sites and brand names covered
by the MoU.......................................................... 19

Brands covered by the MoU....................................................................................................... 19

Sites covered by the MoU.......................................................................................................... 21

1.           Introduction

This report evaluates the functioning of
the Memorandum of Understanding on the Sale of Counterfeit Goods via the
Internet (May 2011), hereinafter referred to as ‘the MoU’[1].

The sale of counterfeit goods over the
internet is damaging and harmful to all legitimate stakeholders, including
Internet Platforms and intellectual property Rights Owners and, most
importantly, consumers. Online counterfeiting is a dynamic phenomenon, which
is constantly changing and adapts to break into new business models.
Illicit counterfeiting businesses are sophisticated; they react to
anti-counterfeiting protection strategies.

The purpose of the MoU is to establish a
code of practice in the fight against the sale of counterfeit goods over the
internet and to enhance collaboration among its Signatories, so that they can
effectively respond to this constant threat. There
is collective recognition that cooperation is much better than litigation,
which neither enhances market efficiency nor fosters consumer trust. The key
aim is to instil trust in the market. The MoU promotes trust in the online
marketplace by providing detailed measures against online offers of
counterfeit goods as well as enhanced protection for consumers who
unintentionally buy a fake.

The MoU covers leading e-commerce platforms
as well as major brands in the field of fast-moving consumer goods, consumer
electronics, fashion, luxury goods, sports goods, film, software, games and
toys, all operating at both global and regional level[2].

During the assessment period[3], Signatories met regularly.
Summaries of these meetings have been published on the website of DG Internal
Market and Services[4].

This report analyses the progress,
implementation and functioning of the MoU and takes stock of Signatories’ evaluation
of its effectiveness in reducing the online sale of counterfeit goods within
the EU. It is strictly limited to the MoU, and does not cover associated general
policy issues.

It shows that the approach adopted by the
MoU works, but also highlights the need for Internet Platforms and Rights
Owners to remain alert and vigilant. The report concludes that the MoU
should continue for another two years and that its membership should be
extended. The Commission is considering further action to deal with the fight
against counterfeiting more broadly and may propose an initiative later this
year.

2.           The
MoU

2.1.        A
novel cooperative approach

In both its 2009 Communication on enhancing
the enforcement of intellectual property rights in the internal market[5] and its 2011 Communication on a
single market for intellectual property rights[6],
the Commission highlighted the importance of voluntary and collaborative
approaches by intellectual property Rights Owners and other stakeholders such
as Internet Platforms, wholesalers, retailers and consumers as well as trade
associations, to combat counterfeiting.

The 2009 Communication considered that cooperation
rather than litigation should become the prevailing approach among
stakeholders operating in a rapidly-evolving technological and commercial
environment. Stakeholder Dialogues were proposed as a working method
towards possible voluntary agreements, i.e. constructive dialogues focusing on
concrete problems and workable and practical solutions that must be realistic,
balanced, proportionate and fair for all concerned. Such a joint, inclusive and
participative approach fits well with the Commission’s Better Regulation
agenda.

In the context of this MoU, the European
Commission took on a novel function as facilitator of such Dialogues by
providing administrative and logistic support and by safeguarding, where
necessary, a fair balance among the different interests at stake, notably the
legitimate rights and expectations of EU citizens.

The European Commission’s facilitator role
also ensures that such Stakeholders’ Dialogues and possible subsequent
agreements are transparent and fully compliant with the existing legal
framework, scrupulously respecting fundamental rights and freedoms.

Both the European Parliament[7] and the Council[8] supported the Commission in
this approach.

As a first example of the cooperative
approach, the Commission launched a Stakeholders’ Dialogue on the online sale
of counterfeit goods, which resulted in a MoU involving 33 companies and trade
associations, covering 39 different internet sites.

2.2.        Scope
and architecture of the MoU

Online trading offers unprecedented
opportunities to businesses and consumers to buy and sell goods, nationally,
across the internal borders of the internal market, and internationally. Within
the internal market, the internet reduces cross-border barriers to trade.

Unfortunately, the internet has also become
one of the major channels for counterfeits. Most e-commerce via Internet
Platforms is completely legitimate. However, illicit or fraudulent commercial
traders in counterfeits are also exploiting the advantages of e-commerce to
offer counterfeit products directly to consumers. For example, Signatories
point to a new generation of (small-scale) counterfeit sellers who acquire counterfeits
cheaply from online sites or via more traditional distribution channels in
modest quantities and subsequently offer them for sale on internet sites.
Neither the initial seller of the goods nor the counterfeit goods are
necessarily located on EU territory. Legitimate internet platforms and rights
owners offering services to sellers and buyers can thus fall victim to
counterfeit dealers, to the detriment of consumers, Rights Owners, e-commerce
service providers, the economy and society.

Prior to the MoU, Internet Platforms and Rights
Owners were already taking action against online offers of counterfeit goods,
but as a result of the Stakeholders’ Dialogue starting up, a general awareness
emerged that more could be achieved.

The MoU focuses on disrupting and
deterring the supply side of the counterfeit market, i.e. it seeks to
eliminate the online offer of counterfeit goods as quickly as possible. It
provides for proportionate, dissuasive action against those who repeatedly try
to sell counterfeits. In addition, it seeks to achieve better protection for
consumers who unintentionally buy a fake, or for legitimate sellers of goods
who may feel they are unduly restricted/delayed in presenting a product to sell
online.

The MoU promotes a strategy based on three
lines of defence. These seek to ensure that illicit offers do not appear online;
and that if they do, they are taken down as quickly as possible, and, in any
event, rapidly enough to prevent further transactions from taking place. The
measures all operate simultaneously and in real-time.

First, it is
very important that customers, i.e. sellers and buyers, understand the
counterfeiting phenomenon, its inherent risks for consumers and the detrimental
effects on Rights Owners. Customers can be active parties in the fight
against counterfeiting. To this end, Internet Platforms are committed to making
appropriate information available to potential sellers and buyers, in an
easily accessible way and, where appropriate, in cooperation with the Rights
Owners. They should explain that offering counterfeit goods is illegal, and suggest
precautions that buyers should take to avoid buying them. Well-informed sellers
on Internet Platforms should make a commitment not to offer such goods.
Well-informed consumers should be aware of tools and procedures to follow if
they have bought counterfeit goods. The MoU is fully in line with the
Commission’s recent Consumer Agenda, which encourages intermediaries and
traders to move beyond mere compliance with legislation and to develop
self-regulatory measures to enhance consumer protection[9].

The second line of defence involves ‘Pro-Active
and Preventive Measures’ (PPMs) as a timely and adequate response to
attempts to sell counterfeits, either before the offer being made available to
the public or shortly after. By taking such measures, Rights Owners and
Internet Platforms try to reduce online offers of fake goods. Such measures may
be technical and/or procedural, and often require human intervention. They are
often specific to the respective business models and the organisation of the
Rights Owners and/or the Internet Platforms. One example of a PPM is the
vetting of sellers prior to allowing them to sell on an Internet Platform and,
in certain instances, the continual assessment of their performance. Effective
PPMs are often sophisticated, requiring substantial resources and effective
cooperation between rights owners and internet platforms. PPMs seek to
ensure that offers of counterfeit goods do not appear online.

Third,
despite customer information and PPMs, offers of counterfeit goods may still
become available to the public on an Internet Platform. In such instances, rights
owners and consumers can notify the Internet Platform concerned of the
existence of such offers. This allows the Platform to take appropriate action,
including taking down the offer from the site concerned. Notice and Take
Down procedures (NTD) seek to offer a simple, fair and expeditious procedure to
remove online offers of counterfeit goods.

The MoU complements these measures by
providing better consumer protection, including the possibility of receiving
a replacement product or a refund under certain conditions. The MoU also
includes dissuasive actions against repeat infringers.The Signatories of
the MoU have committed themselves to cooperate in the detection of repeat
infringers. The Internet Platforms undertake to implement and enforce deterrents
according to their internal guidelines. Repeat infringer policies have to be
objective and proportionate and take full account of the circumstances. Information-sharing
on repeat infringers under the MoU fully respects data protection laws.

Consumers should use all available information
when purchasing on-line to avoid buying counterfeits, but may nevertheless suffer
damage. They may have been misled and unintentionally bought counterfeit goods,
resulting in economic or other harm. The MoU includes a minimum set of consumer
protection provisions. Compensation for economic or other harm depends on the
policies of the individual Signatories concerned. A consumer may also have made
an offer to sell an alleged counterfeit good which was taken down, and may have
suffered harm if such a take-down was proven to be unjustified.

Finally, the MoU ensures that, during the
assessment period, Signatories do not initiate new litigation against each
other concerning matters covered by the MoU. This moratorium on litigation
is an important provision that emphasises the mutual commitment of Signatories
to work together in good faith.

2.3.        Self-regulation
on the basis of the MoU

Voluntary cooperation by a large number of
stakeholders with different interests and business models is often difficult to
achieve. It takes time to build the trust necessary for such cooperation to
work.

The process towards signing of the MoU as
well as the signing itself have proven to be essential steps towards building a
climate of mutual trust and confidence among Signatories. The structured
dialogue enabled stakeholders to gain a better understanding of their
respective concerns as well as technical, organisational and commercial
limitations. Mutual trust and confidence is the unifying factor. Without
it, voluntary cooperation is doomed to fail.

Other critical factors for success have
been:

· A clear incentive for each Signatory resulting from the voluntary
agreement;

· Safeguards in the agreement to protect the essential interests of
each Signatory, to cater for different business models and commercial policies,
and to ensure legal certainty to overcome resistance within the respective
organisations;

· A clearly-focused voluntary agreement including a well-defined
objective, combined with clearly formulated, realistic obligations,
proportionately allocated to parties (smart enforcement);

· A high level of consent and commitment within the companies signing
up to the agreement;

· Sufficient built-in flexibility to allow for adaptations due to
changing circumstances, without having to renegotiate the agreement.

In addition, the involvement of the European
Commission’s ‘facilitating’ services has structured and driven the
dialogues and negotiations, as well as encouraging stakeholders to overcome
obstacles. Political support from national authorities and parliaments may also
be instrumental.

External transparency increases credibility and ensures accountability and responsibility
towards stakeholders, national authorities and Parliaments as well as to
society as a whole. It may also encourage new stakeholders to sign up to the
voluntary agreement and the best practice it promotes.

3.           The
Functioning and Impact of the MoU

3.1.        Making
the MoU work

The MoU is limited to Signatories that
provide services and goods in the EU/EEA. To clarify the scope of application
of the MoU, Signatories identified the web sites and the brands covered by it (see
Annex).

A list of contact points was drawn
up to facilitate communication between the Signatories on policy matters
related to the MoU as well as to enable direct operational contacts between the
brand protection staff of Rights Owners in different Member States and the
sites operated by the Internet Platforms.

The availability of this basic information
in a readily available and regularly updated form has helped Signatories to
apply the MoU under operational circumstances. It also made the local
organisations of the Signatories aware of the MoU and its potential and
capabilities.

Internet Platforms and Rights Owners took
part in bilateral meetings to establish contact, exchange information
and discuss operational issues. These meetings, combined with consistent use of
the respective rights protection programmes of the Internet Platforms, enabled Signatories
to pool knowledge, identify trends and, as a result, expedite take-down of
suspicious offers, thus enhancing prevention.

In general, the parties to the MoU have
signalled that it has significantly improved communication among Signatories,
which has facilitated collaboration. In specific cases, there have been concerted
actions, such as rapid reactions to cases of sudden increases in specific
counterfeits.

3.2.        Notice
and Take Down procedures — a cornerstone of the MoU

All Signatories hold that notice and take-down
procedures (NTD) are indispensable measures in the fight against the online
sale of counterfeits. In the context of this MoU, NTD rules provide for:

(i) a mechanism to remove individual offers
of alleged counterfeit items from the sites of the Internet Platforms
and

(ii) a mechanism to notify Internet
Platforms about counterfeit selling users (seller-based notifications).

This is the principal tool to apply when
allegedly illicit offers have become available online. Further, Signatories noted
that the MoU has shown it to be useful; NTD rules should not be too
prescriptive and must include certain mechanisms to deal with abuses of the
system. Companies have come up with their own tailor-made methods to address
infringements on their online sites.

Signatories reported that Internet
Platforms receive thousands of NTD requests per year, based on all kinds of
grounds. In the context of the MoU, in line with the EU acquis[10], the purpose of NTD procedures
is to remove offers of alleged counterfeit goods from the sites of the Internet
Platforms in a timely, efficient and effective way.

All Internet Platforms already had some NTD
mechanism in place prior to the MoU, to enable/ allow Rights Owners and other
persons and organisations affected to notify alleged counterfeits. While some
were easy to find on the web sites, many other NTD systems were considered not
to be functioning satisfactorily. Moreover, not all Rights Owners were even
using the available NTD. Notifications were incomplete, not specific enough,
difficult to process, sometimes targeting individual items, but also whole
catalogues of products. Follow-up of notices varied across the Internet
Platforms and were not always considered satisfactory by the notifying Rights
Owners. Offers were not taken down at all, took too long to be taken down or
re-emerged quickly after take down.

Since the introduction of the MoU, some
Internet Platforms have reported that it takes them up to 24 hours to remove an
online offer (also known as a listing), but occasionally up to 48 hours; for
others, it takes 2 – 5 hours. Others say contested offers are removed the same
day or early the following day. However, Rights Owners have reported differences
in processing speed by the same Internet Platform across different Member
States.

Further, the Internet Platforms have
pointed out that they have recorded a wide variation in the average monthly
number of notifications of counterfeit offers (ranging between one and several
hundred) by given Rights Owners. Since the MoU entered into force, they very
seldom reject removal requests and seldom need to ask for additional
information to process a notification: requests for additional information
usually relate to notifications from Rights Owners who are new to the NTD
process. Some Rights Owners felt that unnecessary detail was required in
certain cases. Once an allegedly illicit offer has been
taken off-line, the Internet Platform inter alia informs the seller
concerned, including the reasons for the take down.

Notifications about counterfeit selling
users — as opposed to notifications about specific offers — have been
relatively rare. Generally, seller-based notifications are seen as cumbersome,
as they almost always require additional offer-by-offer investigation before a
decision can be taken. As repeat infringers (identified bad faith sellers) will
be sanctioned in any event (following offer-based notifications), seller-based
notifications are not seen as offering significant benefits. By contrast, a
Rights Owner reported that while the cooperation in NTD processes is working
efficiently for item-based NTD, the extent to which Internet Platforms are
taking measures in response to notifications on sellers involved in the sale of
counterfeit goods is unclear.

The Terms and Conditions used by the
various Internet Platforms clearly prohibit the sale of items that infringe
third party rights. They also make it clear that infringing items are subject
to deletion. Some Internet Platforms provide Rights Owners with forms to use
for notifications, though these are basic and primarily designed for Rights
Owners who are not members of the MoU. Although the actual processing of
notices is an internal process, the larger Internet Platforms offer online
explanations about the NTD procedure. These serve as a point of reference,
especially for non-MoU Rights Owners. These explanations may also be part of
the specific Internet Platform’s rights protection programme or site’s ‘help’
section.

Since the entry into force of the MoU, all Signatories
have reported improvements in all of these NTD fields. Several Internet
Platforms have reviewed and often streamlined their NTD tools and procedures.
One Internet Platform re-engineered its NTD process and implemented a common
procedure on all its European sites[11].

Rights Owners reported that by and large
NTD is now working well on the sites of the Internet Platforms covered by the
MoU[12]. However, for Rights Owners, maintaining a monitoring programme is
often expensive.

3.3.        Pro-active
and Preventive Measures — a critical measure for effectively fighting
counterfeiting

Pro-active and Preventive Measures (PPMs)
are the measures and procedures enabling Internet Platforms and Rights Owners
to prevent illicit offers from becoming available online or limiting that
availability to only a short period. These measures and procedures varied not
only among Signatories, but sometimes even between the different sites of a
particular Internet Platform.

According to the Signatories, reactive
NTD on its own appears to be insufficient to address the issue of
counterfeit sales on online marketplaces. Adequate proactive safeguards to
prevent counterfeit goods from being offered for sale on online marketplaces
are equally important in the fight against online counterfeiting.

PPMs are strongly linked to the individual
business models and practices of the Internet Platforms and Rights Owners
concerned. They are one of the ways Internet Platforms can differentiate
themselves from their competitors on the market. They may significantly
influence customer satisfaction and consumer trust in the offers available on a
particular site. Several Internet Platforms are relatively transparent about
their PPMs. Internet Platforms also indicated that, to remain effective, PPMs
often have to be sophisticated and able to adapt rapidly to changing
circumstances. Therefore, PPMs are often expensive to implement. For the Rights
Owners, PPMs are part of their brand protection measures and are closely
related to their brand protection strategies and operations.

All Signatories repeatedly emphasised that
the sharing of information between Rights Owners and Internet Platforms is
critical to the effectiveness of PPMs. Several Signatories noticed that the
efficiency of PPMs seemed to fluctuate over time and over the different sites
of the Internet Platforms, which is not surprising, given the agile and
adaptive nature of those who try to sell counterfeits. It shows that
Signatories have to stay permanently alert and highlights the need for
continued cooperation.

One signatory reported that due to the
signing of the MoU, investment in PPMs both increased and led to tangible
results. One Internet Platform pointed out that it now voluntarily and
proactively removes more potentially problematic listings than are removed
reactively[13].

PPMs range from technical measures, such as
the ability for an Internet Platform to detect the use of certain keywords or on
offers of pre-release content, to information-sharing with Internet Platforms
on counterfeit product indicators and the modus operandi of counterfeit
sellers. Some Internet Platforms reported that they use certain detection
technologies and pre-emptive takedowns.

By taking proactive measures to prevent the
sale of counterfeit goods, some Signatories were concerned that they could be
held to have actual knowledge of the illegal activities that would put them
outside the liability protection regime of the E-commerce Directive.

3.4.        Repeat
Infringers

Pursuant to paragraph 35 of the MoU,
Internet Platforms are to take notifications on repeat infringers into
consideration and implement and enforce deterrent repeat infringer policies.

The repeat infringers’ policies of the
various Internet Platforms generally envisage dissuasive action (for example, a
temporary account suspension) targeted against the seller (and not simply the
relevant offer) after the second infringement. More severe dissuasive action
can be applied if a seller is found to be offering counterfeit goods again. All
Internet Platforms have measures in place to prevent re-registration of banned
sellers.

While dissuasive action is important and
even essential, the Internet Platforms maintain that there are ways to remedy
repeat infringements other than just the suspension of a user account, such as,
for example, education, safety measures, disincentives, or restrictions.

The dissuasive action policy is outlined by
the Internet Platform’s terms and conditions on the website concerned. Some
Internet Platforms additionally summarise the scheme in other sections of their
websites, such as in the rights protection programme or ‘help’ sections.

Internet Platforms do not exercise their
dissuasive action policy in an automatic fashion. Individual corrections are
sometimes necessary and undertaken as seen fit. A seller obviously acting in
bad faith may be banned right away, while a repeat infringer whose first
low-scale infringement occurred long ago may be warned again before the account
is suspended. Some Internet Platforms handle sanctions purely on a case-by-case
basis, albeit with similar results and efficiency. When it comes to deciding
what dissuasive action to apply, several aspects are taken into consideration,
such as the severity of the policy violation, the number of alleged
infringements, repeat infringement, period of time since prior infringement,
seller feedback, language that indicates clear intent, scale of legitimate
business as well as other more suspicious behaviour, such as efforts to avoid
detection. As a result, it has not been possible to adopt a single uniform
definition of dissuasive action.

Communication between the Rights Owners and
the Internet Platforms is again key in implementing effective repeat infringer
policies. Internet Platforms need information from the Rights Owners concerned;
otherwise, their repeat infringer policies are less effective. Several Internet
Platforms have developed specialised reporting tools and made these available
to Rights Owners to facilitate the mutual exchange of information, including
feedback to the notifying Rights Owner, while respecting the legitimate
interest of the persons involved.

Dissuasive action has an immediate impact
on sellers, be they justified or not: loss of sales opportunity for the
particular item, time investment in mandatory training or additional security
measures; loss of special trust status, leading to lowered consumer trust and,
thus, to lower average selling prices; sales restrictions limiting business
could lead to surplus stocks, lost investments, economic losses; permanent
suspensions might put whole businesses (and therefore their employees and
business partners) at risk. Consequently, Internet Platforms apply
dissuasive action reluctantly and with due care.

Repeat infringer policies are very
important for Rights Owners because repeat infringers are those that harm them
most, particularly if they are able, by deceptive practices, to continue to
trade in counterfeits. Rights Owners continue to claim that there are repeat
infringers that have been selling counterfeits on different Internet Platforms
under a variety of names for quite some time. Rights Owners do notify the
Internet Platforms of repeat infringers on the basis of their own
investigations, including the re-appearance of offers previously taken down.
However, it is not always possible for Rights Owners to detect, and
subsequently identify, repeat infringers, for example, because the site
concerned does not provide search facilities on sellers’ data.

Internet Platforms are considered to be
taking more vigorous action than before against repeat infringers, either on their own initiative or at the instigation of the Rights
Owner(s) concerned, but they apply their own judgment and take account of all
the specific circumstances of the case[14].
Therefore, not all notifications of repeat infringers are followed by an
account suspension or termination. Since the entry into force of the MoU,
Internet Platforms have become more transparent towards Rights Owners on their
dissuasive actions policy and its application. On a bilateral basis, some
Internet Platforms and Rights Owners exchange information on individual cases,
but this does not seem to be the general practice.

All Internet Platforms have introduced
technical and procedural measures to detect repeat infringers and to prevent
banned repeat infringers from re-registering on their sites. Such efforts can
only be successful to a certain extent due to the covert tactics of bad-faith
sellers. Only more mutual information exchange and direct cooperation between
Internet Platforms and Rights Owners can improve the situation.

Signatories are investing in tools and
practices to combat repeat infringers. Over the last year, these joint efforts
are progressively showing better results. In some instances, remarkable
successes have been achieved[15].
Nevertheless, more effort to clarify practical implementation may be useful to
improve operational performance of measures against repeat infringers.

3.5.        Cooperation,
including sharing of information

Cooperation and sharing of information is
crucial to the effectiveness of PPMs. All Internet Platforms have adopted
and published their IPR policy on their respective sites. All of them
clearly communicate the details of their policies. These policies are also
clearly reflected in the Terms and Conditions for the use of the sites
concerned, as well in the contracts with sellers. All Internet Platforms
enforce their IPR policy.

Several Internet Platforms have
developed special rights protection cooperation programmes, which are often the basis for enhanced cooperation between the
Internet Platform concerned and brand owners in general. Participation in these
programmes by Rights Owners varies per site. Since the entry into force of
the MoU, several Rights Owners have joined these programmes, depending on their
specific needs[16].

The MoU does not prevent Signatories from exchanging
other or more detailed information, for example, on a bilateral basis and subject
to additional conditions. Some Internet Platforms have disclosed statistical
analyses of offers removed (both proactively and on receipt of a NTD request)
and this information has proved useful. Internet Platforms agreed to disclose,
upon request, the identity and contact details of alleged infringers, as
permitted by the applicable data protection laws. In only one case have issues
been reported by Signatories regarding this aspect of the MoU[17].

3.6.        Consumer
trust, information and protection

Consumer trust is a critical success
factor for all Signatories. Consequently, all
Signatories seek to protect consumers adequately against counterfeits and find
ways to compensate bone fide consumers who unintentionally bought counterfeit
goods.

All Internet Platforms inform consumers of
best practice on how to use their services safely and to be aware of suspicious
offers.

All major Internet Platforms have
compensation schemes for damages. However, these
Buyer Protection Schemes are all very different in terms of scope and
procedures. For example, one Internet Platform offers a full
Anti-Counterfeiting Guarantee and keeps the money in escrow until the
transaction has been completed to the full satisfaction of the buyer. Other
than reimbursement via the online payment scheme, Internet Platforms compensate
consumers via their own buyer’s protection programme or a comprehensive return
policy. Several Internet Platforms assist consumers in getting a refund from
the seller concerned. In this context, it should be noted that EU legislation includes
minimum rules protecting consumers who purchase counterfeit goods from
professional sellers. In instances where an Internet Platform acts as a
professional seller, Directive 1999/44/EC on consumer sale of goods and
associated guarantees gives the consumer the right to have the goods replaced
by a genuine item or, if this is not possible, to obtain a refund.

Rights Owners not involved in a particular
sale are often contacted by disappointed consumers who have bought counterfeit
goods[18].
Clearly, Rights Owners do not have a general obligation to offer compensation or
to assist the consumer to seek redress. However, several Rights Owners
undertake special efforts.

Several Internet Platforms systematically
encourage consumers to report counterfeits to the local law enforcement
authorities. Some national authorities, such as competition surveillance and
consumer protection agencies, also tend to report alleged consumer protection
violations, including misleading advertising, unfair commercial practices and
violation of labelling rules.

All Signatories agreed that one of the
principal objectives of the MoU is to improve consumer protection. No negative
feedback from consumers has been reported by the Signatories[19]. One Internet Platform even
reported that the number of negative feedback reports on sellers and claims
from dissatisfied buyers had dropped by 30 % since early 2011.

3.7.        External
communication and awareness raising

Trade associations play an important role in achieving the objectives of the MoU.
Several trade associations have been instrumental in building constructive
relationships between Rights Owners and Internet Platforms. While some trade
associations actually enforce rights on behalf of their members and all of them
also represent the interests of their members and coordinate the joint
positions to be taken on behalf of their members in relation to the MoU, trade
associations play a pivotal role in disseminating the concepts underlying the
MoU and in encouraging their members to respect its principles. Most of the
trade associations have been advertising the progress of the MoU and promoting
its benefits in updates via their website, e-circulars to members and
informative sessions during their conferences.

Signatories recognised the importance of
keeping national authorities involved in combating online counterfeiting
and IPR agencies, as well as the Members of the European Parliament, fully
informed about the MoU and associated developments. They all highlighted the
benefit of stepping up such awareness-raising subsequent to the adoption of the
current report.

At EU level, the MoU has been referenced in
relevant policy communications[20].
Also at the level of the Member States, similar initiatives have emerged[21]. At international level, the
MoU is promoted in international fora such as WIPO[22] and the WTO, as well as in
discussions with the EU’s main trading partners.

3.8.        Benchmarking
the effects of the MoU

Signatories have provided the Commission
with a substantial amount of data demonstrating the functioning of the MoU and
its impact on their business for this report. Most of the data are considered
confidential due to their commercially sensitive nature and cannot therefore be
directly quoted.

Despite all efforts, all Internet Platforms
still have offers of counterfeit goods on their sites. Sellers of
counterfeit goods have become more adept at presenting their offers in such a
way that it is not always possible to tell from the online offer whether the
product is fake or genuine. Given this, PPMs based on keywords or pictures as
well as prices have shown their limitations.

Many Signatories have invested in
developing appropriate indicators (so-called Key Performance Indicators)
in an attempt to measure progress, implementation and functioning of the MoU in
a reliable and transparent way. While such indicators have to take account of
the particular characteristics of different business models, as well as the
goods and sectors involved, it was not possible to use a single set of indicators
for measurements by the different Signatories. Consequently, it has not yet
been possible to generate headline figures as a quantitative vector for
assessing and communicating the effects of the MoU.

To monitor trends in offers of counterfeit
goods on the respective sites of the Internet Platforms, several Rights Owners
have undertaken systematic test purchase programmes, which have been
repeated several times under comparable circumstances. These have been valuable
in identifying trends.

One Internet Platform said that since
mid-2011, it had observed a noticeable decrease (20 %) in the number of NTD
reports being filed by Rights Owners, which probably corresponds to a
decrease in the number of suspicious listings visible on the Platform. Over the
same period, it noticed that proactive removals of suspicious items by its PPMs
had almost doubled. One Rights Owner reported that last year, its brands sent
out nearly 120 000 notifications of infringing content to internet
intermediaries, of which only 0.005 % were unjustified.

Another major Internet Platform reported
that in the third quarter of 2012, over 8 600 sellers saw their accounts
blocked or severely restricted after they were found to have posted
suspicious listings of goods bearing MoU Signatories’ brands. Though specific
MoU signatory-related statistics for the same periods in previous years are not
available, conservative extrapolation of these figures suggests an increase
compared to previous years. One Rights Owner reported that since the start of
the MoU, on a quarterly basis, the number of repeat infringers has halved. Another
Rights Owner also mentioned a significant decrease in repeat infringers still
active on the same Internet Platforms. In May 2012, 15.7 % repeat
infringers had been active, and by August 2012, only 5 % of repeat
infringers were recorded.

The effect of the MoU on the actual
presence of counterfeit offers on the sites of the Internet Platforms has been
variable according to Signatories’ reports. One Rights Owner reported a decline
from 40 % counterfeits for a specific product category to a consistent 0 %
on a major Internet Platform. The same Rights Owner reported a general
decrease in counterfeits on the sites of another major Internet Platform.
Another Rights Owner reported a 50 % reduction in numbers of fraudulent
sellers and a 30 % reduction in illicit offers on the same Internet
Platform. Yet another identified about 12 000 unique sellers of goods carrying
its brand name being active on a particular Internet Platform during one week
in Autumn 2012, of which an overall 9 % were trading in counterfeits
across five major EU markets. These results show that the sale of counterfeits
tends to shift to Internet Platforms with a less strict enforcement policy
(mostly not covered by the MoU), which may suggest that the MoU promotes good
practice and needs to be extended to new Signatories to remain effective as a
voluntary measure.

Only one Internet Platform communicated
figures on bad buyer experience reports (30 % decrease since early
2011).

Reports from the Signatories show that
companies vary in the priority they attach to actively fighting counterfeits.
The assigned financial and human resources reflect those priorities.
Brand protection is expensive. A Rights Owner reported that it spends more than
3 million EUR per year on brand protection measures, including the monitoring
of online services and the notification of infringing offers. An Internet
Platform reported total human resource costs for its anti-counterfeiting
programme of the same order of magnitude. Another major Rights Owner claimed an
annual cost of 1 million EUR. At the other end of the spectrum, a Rights Owner said
it only spent a few thousand euro a year on brand protection measures. Internet
Platforms seem to invest a substantial amount of resources in
anti-counterfeiting measures. More than one Internet Platform reported that
about 40 staff members are involved in one way or another in
anti-counterfeiting measures. One Platform has set up a dedicated Anti-Counterfeiting
Operations team, which provides operational support to the Rights Owner
relations team. All Internet Platforms continue to invest in additional
computer functionalities in areas such as NTD reporting, PPMs, monitoring of
and reporting on repeat infringers, and customer support. Obviously, the
amounts spent are proportionate to the size and geographical coverage of the
Platform. This applies mutatis mutandis to individual Rights Owners.

Several Platforms mentioned quite a
substantial investment in awareness raising activities, such as
anti-counterfeiting campaigns in cooperation with designers, educational
workshops for small and medium size enterprises as well as an annual
anti-counterfeiting conference. Trade Associations are also actively raising awareness
among their members. Some individual Rights Owners have spoken about the MoU at
public conferences.

4.           The
way forward

Online counterfeiting is a moving target.
The technology and business models used by counterfeiters are constantly changing.
Consequently, Internet Platforms and Rights Owners have to stay alert and
vigilant to be ready to take immediate and appropriate action, whenever
necessary.

The MoU has passed its probation period. It
is operating satisfactorily due to the commitment of the Signatories to make it
work. To date, there is no apparent need to amend the text of the MoU.
The current provisions have been formulated in such a way as to accommodate
swift actions against new phenomena. Nevertheless, improvements are still
possible with regard to operational implementation if it is to become the
recognised ‘best practice’ standard.

It appears that progress against the sale
of counterfeits can best be achieved by consolidating achievements so far and
making the MoU work even better. Consequently, Signatories envisage the
following work streams:

Prolong the MoU and review it after a
further two years

Based on the current version of the MoU, Signatories
are committed to continue applying it for another two years[23]. During this period, Signatories
wish to meet twice a year under the auspices of the European Commission.
During the spring, a plenary meeting would review general policy issues. At the
autumn meeting, the emphasis would be on more operational issues[24].

MoU Signatories and the European Commission
agree they should periodically review whether the MoU is still adequate
to combat online offers of counterfeit goods. The Commission will therefore
plan a second review on the lines of this one at the end of 2014. By that time,
a common framework on key performance indicators should be fixed,
which would measure the commitment of the Signatories.

The current assessment has shown there is
still room for improvement in implementing the MoU. Bilateral meetings
between Signatories should continue so that they can inform each other on
specific issues and jointly seek practical solutions. In addition, and if the
need arises, it could be effective to extend the role of the Commission as facilitator
and let it evolve into a more remedial mediation function on
specific issues. This might be useful on sensitive issues relevant for a
limited group of Signatories.

Signatories and the European Commission
will jointly develop an enhanced communication strategy that should help
in reaping the full benefits of the MoU as an effort towards best practice for
Rights Owners and Internet Platforms to curb online counterfeits.

Extend membership of the MoU

On the basis of their experiences so far,
the Signatories agreed that it would be useful to extend membership of the
MoU to include new Internet Platforms, distributors, Rights Owners and
trade associations. Broadening the MoU by accepting new Signatories,
particularly from additional sectors or territories willing and able to comply
with its provisions is seen as an essential next step in making it more effective.
The focus should be on companies and trade associations that are potentially
instrumental for achieving the objectives of the MoU and that would add value
to it.

To spread best practice and facilitate
adherence to the MoU, Signatories and the European Commission will endeavour
to assist non-signatory Internet Platforms and Rights Owners to adapt their
business processes and support tools, where appropriate. The EU Observatory on
the Infringement of IPR should also play a useful role in this.

To continue improving the
consumer protection dimension of the MoU and to ensure that its use rigorously
protects fundamental rights, the Commission will continue to seek the
involvement, and preferably full participation, of representative consumer
organisations and civil rights groups. Internet Platforms and Rights Owners
should also seek new ways to improve consumer protection over and above what
has already been agreed in the MoU.

Annex: List of
sites and brand names covered by the MoU

Brands
covered by the MoU

Adidas group

1.           Adidas 2.           Y-3 3.           Reebok 4.           Rockport 5.           Taylor Made 6.           CCM

Allianz Amer Sports group

1.           ARC’TERYX 2.           MAVIC 3.           SALOMON 4.           SUUNTO 5.           PRECOR 6.           ATOMIC 7.           WILSON 8.           BONFIRE

Burberry

1.           Burberry

Gant

1.           GANT 2.           GANT RUGGER

Lacoste

1.           Lacoste

Lego group

1.           Lego

LVMH group

1.           Louis Vuitton 2.           Dior Couture

Mattel, Inc.

1.           Barbie 2.           Hot Wheels 3.           Fisher-Price 4.           Matchbox 5.           Corolle 6.           UNO 7.           Scrabble 8.           Monster High

Microsoft

1.           Microsoft 2.           XBOX 3.           Microsoft Windows 4.           Microsoft Office 5.           Microsoft Windows Server

Nike 1.           NIKE 2.           CONVERSE 3.           UMBRO

Nokia 1.           NOKIA 2.           CONNECTING PEOPLE 3.           VERTU 4.           V

Procter & Gamble 1.           Gillette 2.           OralB 3.           Olay

Richemont 1.           Alfred Dunhill 2.           Azzedine Alaia 3.           Baume Mercier 4.           Cartier 5.           Chloe 6.           IWC 7.           Jaeger LeCoultre 8.           Lancel 9.           Lange & Sohne 10.         Montblanc 11.         Panerai 12.         Piaget 13.         Purdey 14.         Roger Dubuis 15.         Shanghai Tang 16.         Vacheron Constantin 17.         Van Cleef & Arpels

Unilever 1.           Dove 2.           Axe/Lynx 3.           Sure/Rexona 4.           Vaseline 5.           Pond’s 6.           Radox 7.           Duschdas 8.           St Ives 9.           Persil (UK, Ireland, France only; owned by Henkel elsewhere) 10.         Surf 11.         Omo 12.         Comfort 13.         Cif 14.         Sunsilk 15.         VO5 16.         TRESemmé 17.         Nexxus 18.         Brylcreem 19.         Knorr 20.         Lipton 21.         PG Tips 22.         Slimfast 23.         Signal 24.         Close Up 25.         Prodent 26.         Mentadent 27.         Pepsodent 28.         Zwitsal 29.         Fissan

Sites covered by the MoU

MIH group

1.           allegro.pl 2.           aukro.bg 3.           aukro.cz 4.           aukro.sk 5.           osta.ee 6.           qxl.dk 7.           qxl.no 8.           ricardo.ch 9.           ricardo.gr 10.         teszvesz.hu 11.         tuktuk.lt 12.         vatera.hu

eBay 1.           ebay.at 2.           ebay.be 3.           ebay.ch 4.           ebay.cz 5.           ebay.de 6.           eim.ebay.dk 7.           eim.ebay.fi 8.           ebay.fr (excl. Petites Annonces) 9.           eim.ebay.gr 10.         eim.ebay.hu 11.         ebay.ie 12.         ebay.it/classico (excl. classified ads) 13.         ebay.nl 14.         eim.ebay.no 15.         ebay.pl 16.         eim.ebay.pt 17.         ebay.es/classico (excl. classified ads) 18.         eim.eBay.se 19.         ebay.co.uk

Price Minister/ Rakuten

1.           http://www.priceminister.com 2.           http://www.priceminister.fr 3.           http://www.priceminister.es Amazon

1.           amazon.co.uk 2.           amazon.fr 3.           amazon.de 4.           amazon.it 5.           Amazon.es.

[1]               As provided for under Article 41 of the MoU, http://ec.europa.eu/internal\_market/iprenforcement/docs/memorandum\_04052011\_en.pdf.

[2]               Signatories to the MoU are: the Adidas group, AIM
(European Brands Association), the Allianz Deutscher Produzenten — Film &
Fernsehen e.V, the Amer Sports group, the Anti-Counterfeiting Group (ACG),
Amazon, the International Bureau of Societies Managing Recording and Mechanical
Reproduction Rights (BIEM), Burberry, Business Action to Stop Counterfeiting
and Piracy (BASCAP), eBay, the European Textile and Clothing Confederation
(EURATEX), the Federation of Sports and Play Associations (FSPA), the
Federazione Moda Italia, the Federation of the European Sporting Goods Industry
(FESI), Gant AB, the Bundesverband der Schuhindustrie e.V., the Interactive
Software Federation (ISFE), the International Video Federation (IVF), the
Italian Association of Foreign Trade (AICE), Lacoste, the Lego group, the LVMH
group, Mattel Inc, Microsoft, the MIH group, the Motion Picture Association
(MPA) EMEA, Nike, Nokia, Price-Minister — Rakuten group, Procter & Gamble,
Richemont, the Swedish Anti-Counterfeiting Group (SACG) and Unilever.

[3]               Article 40 of the MoU provides that the signature of
the MoU (4 May 2011) will be followed by an assessment period of twelve months.
While the initial assessment period had been fixed at twelve months,
Signatories unanimously concluded to extend this period by an additional six
months in order to allow for comprehensive testing of all the measures provided
for in the MoU.

[4]               http://ec.europa.eu/internal\_market/iprenforcement/stakeholders/index\_en.htm.

[5]               COM(2009) 467final of 11.9.2009: enhancing the
enforcement of intellectual property rights in the internal market.

[6]               COM(2011) 287final of 24.5.2011: a single market
for intellectual property rights — Boosting creativity and innovation to
provide economic growth, high quality jobs and first class products and
services in Europe.

[7]               European
Parliament Resolution of 22 September 2010 on enforcement of intellectual
property rights in the internal market;
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2010-0340.

[8]               Council Resolution of 1 March 2010 on the enforcement
of intellectual property rights in the internal market, OJ C56 of 6.3.2010, p.
1.

[9]               Communication from the Commission ‘A European
Consumer Agenda. Boosting confidence and growth’ COM(2012 225 final.

[10]             Directive 2000/31/EC, Chapter II, section 4; OJ L178 of
17.7.2000, p. 1.

[11]             This common procedure enabled this Internet Platform to
bring additional sites under the umbrella of the MoU.

[12]             This conclusion is exclusively valid for NTD in the
context of this MoU and is without prejudice to the functioning of NTD
procedures for other fields of illegal content or for non-signatories of the
MoU. In particular, it is without prejudice to the conclusions of the
Commission in the context of the initiative on notice-and-action procedures (http://ec.europa.eu/internal\_market/e-commerce/notice-and-action/index\_en.htm).

[13]             Q3 2011:
65/35, i.e. 65 % of suspicious listings related to MoU Signatory brands
removed proactively versus 35 % removed reactively.
Q3 2012: 80/20, i.e. 80 % of suspicious listings relating to MoU
Signatory brands removed proactively versus 20 % removed reactively.

[14]             An Internet Platform indicated in its Annual Report on
its fight against counterfeiting that in 2011 it closed 1715 accounts, which in
terms of numbers is an increase of 14 % compared to 2010. Another Internet
Platform closed or severely restricted several thousand sellers of goods of MoU
Signatories during the third Quarter of 2012, also suggesting an increase
compared to the same period the year before.

[15]             Several Rights Owners found a decrease of repeat
infringers on a number of Internet Platforms. One Rights Owner even indicated
that on a major Internet Platform the number of repeat infringers of its brands
has been reduced by 50 %.

[16]             For one Internet Platform, all Rights Owners have now
joined the rights protection programme. For another Internet Platform, several
Rights Owners seriously affected by counterfeits have joined since the entry
into force of the MoU; others are using the NTD procedures without formally
adhering to the rights protection programme itself; a minority is neither
adhering to the programme nor using the NTD procedure.

[17]             For more background, see also the EDPS comments of 13
September 2012 on DG MARKT’s public consultation on procedures for
notifying and acting on illegal content hosted by online intermediaries;
http://www.edps.europa.eu/EDPSWEB/webdav/site/mySite/shared/Documents/Consultation/Comments/2012/12-09-13\_Comments\_DG\_MARKT\_EN.pdf.

[18]             Typical examples are failing consumer electronic
devices or badly tailored sport shirts for which the buyer complains to the
alleged manufacturer. After inspection, it shows that the product concerned has
not been produced by the manufacturer, but is fake.

[19]             No consumer protection
organisation signed up to the MoU.

[20]             COM(2012) 537final
of 26.9.2012: Promoting cultural and creative sectors for growth and jobs in
the EU
SWD(2012)286final of 26.9.2012: Competitiveness of the European High End Industries;
COM(2012) 582final of 10.10.2012: Industrial Policy Communication Update —
A Stronger European Industry for Growth and Economic Recovery;
COM(2012) 784final of 18.12.2012: The Digital Agenda for Europe — Driving
European growth digitally;
European Parliament Resolution on 11 December 2012 on
completing the Digital Single Market . P7-TA(2012)0468, point 56.

[21]             For example, the French Charter on the fight against
counterfeiting on the internet (2009), complemented by special Charters
covering small adds sites and postal operators (2012).

[22]             http://www.wipo.int/meetings/en/2012/sct\_info\_net\_ge\_12/index.html.

[23]             Pursuant to Article 44 of the MoU, each Signatory may
at any time terminate its participation in the MoU by notification to the other
Signatories and the European Commission.

[24]             Article 42 of the MoU envisages a prolongation of the
MoU, after the assessment period, for an indefinite period, combined with
biannual meetings and a periodic Commission Report.

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