Implementationoftheprincipleof countryoforigininGermany

16 September 2003

Micaela Schork

The free flow of market information is essential for the efficient operation of any economy and is, in principle, guaranteed by the application of Article 59 of the Treaty of Rome. However, differences in national legislation can sometimes inhibit the free flow of such information particularly where there is a simultaneous circulation of product and message, for example, in the advertising arena. It is feasible that two laws could apply to any infringement by the advertisement in question: the law of the country where it produces its effects, its so-called “country of destination”, and the law of the country where the advertisement was produced, its so-called “country of origin”. Since the law of an advertisement’s “country of origin” may be considerably less or more strict than the law of its “country of destination”, or vice-versa, it is easy to see how problems could develop.

To overcome this, the European Legislator has established Directive 2000/31/EC, commonly referred to as the E-Commerce Directive. The Directive has been implemented in Germany by the Act on a Legal Framework for Electronic Commerce (“the Act”), which has amended existing German legislation relating to teleservices.

The Act has implemented, into German national law, the principle of the “country of origin”. Under this principle, in certain cases, internet service providers established in a Member State of the European Union cannot be subject to law stricter than the law of the country of their establishment, that is their “country of origin”. In the case of internet advertisements, one would expect the country in which the consumer takes up the information, i.e. the advertisement’s “country of destination”, to apply its law. However, under the principle of the “country of origin”, the law of the “country of destination” may not be stricter than the law of the “country of origin”, the curious result being that an internet advertisement may be unlawful pursuant to the law of the “country of destination” but, since it is lawful pursuant to the law of “country of origin”, the “country of destination” will not be entitled to ban it. One will have to wait and see the extent to which service providers will move to those Member States with less stringent laws.

This principle could provoke a “race to the bottom”, i.e. moves by Member States to relax any laws which could imply domestic discrimination. The German legislator has abolished the laws governing discounts and bonuses. The law of discounts (which placed restrictions on discounts to consumers) had been unique to Germany. The obvious difficulty was that German service providers were bound to the stringent German law of discounts whereas service providers from other Member States were able to apply the law pertaining to their home country, which, in most cases, was less stringent. This resulted in a competitive disadvantage to German service providers.

The German legislator has taken significant steps towards harmonisation, but differences between national legislation still exist and consequently, so does the risk of domestic discrimination. The principle does not apply without exception. If the activity threatens to seriously prejudice consumer interests, then the Act against Unfair Competition will still have to be observed. Hence, the application of national law depends on how seriously consumer interests are affected which is sure to cause uncertainty as each case will involve a consideration of whether consumer interests have been affected and how seriously.

Under the draft of the revised version of the German Unfair Competition Act, adopted on May 7, 2003 (not yet decided by the parliament), though omitting the regulation on seasonal, jubilee and clearance sales, these special events will be subject to a ban on misleading advertising. Any advertisement will therefore still be subject to these stricter requirements.

Furthermore, the principle of “country of origin” does not apply if the parties have validly agreed that a particular law, other than the law of the “country of origin” is to apply, therefore careful consideration ought to be given to the principle when contracts are being negotiated. The same holds true in respect of real estate contracts subject to certain formal requirements and industrial property rights (trade marks, patents etc). The same advertising - infringing unfair trade and trade mark law - could therefore be subject to two different laws: whereas the trade mark infringement would have to be sued in Germany, the infringement of unfair trade would have to conform to the respective law of country of origin.

It is also important to note that the principle is only applicable to on-line commerce and not traditional commerce. Hence, the legal evaluation of unfair trade could be separated though referring to the same facts.

It is clear that the European market has not yet been fully harmonised and many gaps still exist. However, harmonisation should not come at the expense of lower standards of protection. On the contrary, it may be that those jurisdictions with a more liberal view may have to accept that they need to adopt more stringent measures not only to support the economy’s competitiveness but also to sustain consumer interests.