Sustainability is a crucial asset for modern businesses, with 56% of European consumers being influenced by environmental factors to varying degrees when purchasing goods and services[1]. However, despite the emphasis on ecological considerations, misleading advertising remains a persistent concern for European consumers. This deceptive practice, known as greenwashing, involves organisations creating a false impression of ecological responsibility, often by using brand names or unsubstantiated environmental claims. Several fashion brands, including H&M[2], Nike[3], Boohoo, ASOS and Asda[4], have found themselves under the greenwashing radar in recent years. The increasing number of such cases indicate a pressing requirement for more straightforward guidelines for businesses and the legal system.

On 19 September 2023, the Council and the Parliament reached a provisional political agreement[5] on the proposal for a directive to empower consumers for a green transition. While the detailed content of this agreement is not yet available, it is anticipated the directive will enable the EU consumers to:

• Access Reliable Information: Consumers will have access to reliable information, facilitating informed decisions regarding making green choices;
• Protection Against Unfair Green Claims: Measures will be implemented to shield consumers against unfair green claims better; and
• Product Repairability Information: Consumers will receive improved information about the repairability of products before making a purchase.

Additionally, the directive will introduce a harmonised label displaying information about producers’ commercial durability guarantee.

The Council affirms that this compromise agreement seamlessly aligns with the core objectives outlined in the Commission’s initial proposal of 30 March 2022[6]. The proposal demonstrates a pivotal effort to bolster consumers’ rights by amending the unfair commercial practices directives (2005/29/CE[7]) and the consumer rights directive (2011/83/EU[8]), tailoring them to propel the green transition.

Rooted in the vision of a circular, clean, and sustainable European economy, these objectives empower consumers to make ecologically informed choices. This agreement signifies a significant stride toward cultivating a marketplace in which environmental awareness guides consumer decisions, marking a crucial advancement in pursuing an eco-conscious society.

Next steps: green consumer empowerment ahead

The Parliament and the Council must formally endorse and adopt the provisional agreement to complete the legislative process. The Parliament is anticipated to take a decision during a plenary session in November 2023. Subsequently, member states will have a two year period to transpose the directive into their national laws.

The interconnected initiatives driving sustainability

It is crucial to emphasise that this directive is not an isolated effort but is embedded within a broader framework of European initiatives. The proposal constitutes one of the initiatives outlined in the Commission’s 2020 New Consumer Agenda and 2020 Circular Economy Action Plan, building upon the principles of the European Green Deal. It operates within a comprehensive package of four proposals, complemented by the eco-design regulation[9] and the directive proposals addressing green claims[10] and the right to repair[11]. These initiatives represent a cohesive strategy to foster a sustainable, circular, and environmentally conscious European economy.

[1]European Commission, Key consumer data: The European Commission is providing new information to assess consumers’ needs in the Single Market and their response to multiple crises, 27 March 2023.

[2]https://www.thesustainablefashionforum.com/pages/hm-is-being-sued-for-misleading-sustainability-marketing-what-does-this-mean-for-the-future-of-greenwashing

[3] https://www.retaildive.com/news/nike-faces-lawsuit-greenwashing-claims/650282/

[4]https://www.gov.uk/cma-cases/asos-boohoo-and-asda-greenwashing-investigation

[5]Council of the EU, Council and Parliament reach a provisional agreement to empower consumers for the green transition, Press release, 19 September 2023.

[6]https://data.consilium.europa.eu/doc/document/ST-7808-2022-INIT/en/pdf

[7]Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005, concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) (Text with EEA relevance).

[8]Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011, on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council Text with EEA relevance.

[9]https://environment.ec.europa.eu/publications/proposal-ecodesign-sustainable-products-regulation

[10]https://environment.ec.europa.eu/publications/proposal-directive-green-claims_en

[11]https://commission.europa.eu/law/law-topic/consumer-protection-law/consumer-contract-law/rules-promoting-repair-goods_en

Article published with INPLP.

Contrary to some persisting beliefs that the AI Act and GDPR are inherently incompatible, GDPR may in fact be interpreted in a way that concords with the purposes of the AI Act. Processing personal data through an artificial intelligence (AI) system’s algorithm triggers the application of GDPR.

I systems are designed to operate with a certain level of autonomy, that is, without human involvement (Recital (6) AI Act).

They infer how to achieve a given set of objectives without being explicitly programmed to attain it, thanks to machine learning, logic-based approaches and knowledge-based methods (Article 3 AI Act).

An AI system requires the training of a computational model to perform specific tasks or to make predictions based on data that has been collected, cleaned, normalised, extracted and validated.

Some AI systems may be trained with data to:

– play a board game,

– to drive vehicles,

– to execute simple voice commands, and

– to generate text-based content.

To that end, AI systems, particularly those rooted in deep learning, rely on vast amounts of data to efficiently:

– identify patterns,

– develop probabilistic models, and

– deliver accurate results.

Data used to train AI systems or provided to them as input often includes personal data, including sensitive personal data, which presents significant privacy concerns and must therefore be compliant with GDPR.

THE QUESTION WE MIGHT ASK IS WHETHER THE AI ACT AND GDPR ARE COMPATIBLE?

The current version of the AI Act explicitly provides that GDPR principles apply to training, validation, and testing datasets of AI systems (Recital (44a) AI Act). Moreover, it underscores that the AI Act in no way affects the obligations of AI providers/users as data controllers or processors (Recital (58a) AI Act). But it is a major challenge for AI system providers to comply with GDPR principles. We will mainly focus on the principle of lawfulness as an exercise to understand whether it is possible to comply with one key GDPR principle.

The principle of lawfulness essentially provides that personal data must be processed in a lawful, fair, and transparent manner (Art. 5.1(a) GDPR). Prior to undertaking data processing, any person or organisation (company, non-profit organisation, foundation, etc.) must therefore identify a legal basis for it from the six bases provided by the GDPR (Art. 6.1 GDPR):

– consent,

– performance of a contract,

– legal obligation,

– vital interests,

– public task, and

– legitimate interests.

Establishing a legal basis for processing personal data can give rise to a complex conundrum within the realm of AI.

(i) Processing based on ‘consent’ (Art. 6.1(a) GDPR): this is only an appropriate lawful basis if the data subject is genuinely offered control and a choice with regard to accepting or declining the terms offered, without any detriment.

The individual’s consent to the processing of their personal data is naturally a highly valued legal basis because it reflects the values of a democratic society. It may indeed seem reasonable to ask the data subject whether they wish to have their personal data processed by another entity.

However, within the context of AI systems:

– ensuring ‘informed consent’ may not always be viable, especially with regards to complex machine learning algorithms whose results are often generated through processes that are not yet fully understood (e.g., the “black box” problem).

– obtaining ‘unambiguous consent’ from every single data subject may also be an impractical approach because of the large datasets, of various categories, originating from countless sources. This issue is exacerbated when data has not been directly obtained from data subjects themselves but has been scraped from websites or obtained through an intermediary instead – including data pools.

– granting data subjects the ‘right to withdraw’: Managing and implementing this right can pose technical difficulties due to the vast quantities of words, images, or sounds. This complexity extends to the fact that each word is processed in a tokenized form within an AI system, either as a single element or broken into multiple separated elements, and only becomes correlated with others when vectorized in a pre-trained machine learning model.

(ii) The ‘performance of a contract’ (Art. 6.1(b) GDPR): this lawful basis for the processing of personal data could be a solution, particularly whenever an existing contract governs the relationship between the provider of an AI system and the end user.

(iii) A legal obligation to which the controller is subject (Art. 6.1(c) GDPR): this is, to the best of our knowledge, not a valid legal basis as there is no law yet requiring the data controller to use AI to meet its legal obligation.

(iv) Alternative legal basis may not always be valid. These specific legal bases require establishing the necessity of the processing for a specific aim that often remains unmet with AI-related processing (Art. 6.1(c), (d) & (e) GDPR).

A processing based on ‘public task’ or to protect ‘vital interests’ may not be valid, particularly when using AI systems for commercial purposes, for instance.

(v) More generally, providers of AI systems could potentially rely on the ‘legitimate interests’ legal basis as a last resort (Art. 6.1(f) GDPR).

This basis would require a careful assessment and may only apply when no other basis finds application (Recital (47) GDPR).

Furthermore, opting for this legal basis demands a careful balance between the interests of providers of AI systems and the data subject’s fundamental rights and freedoms (Art. 6.1(f) GDPR; Recital (47) GDPR).

In any event, an AI system cannot be trained and be designed to operate based on data collected illegally.

Personal data collected in violation of GDPR rules, or any data type that has been indiscriminately scraped from websites, in contravention of a website’s terms of use or of protected databases (see Directive 96/9/EC), could potentially lead to the AI system being banned.

The road to determining an appropriate legal basis for AI solution may be winding and tricky but it does not seem impossible – which is good news.

Other questions are also of great importance when analysing GDPR principles for AI systems. For example, the processing of personal data for purposes other than those for which the personal data have been collected is essential to AI (in particular, for statistical analytics), due to the vast and diverse repositories of data and methodologies deployed to discover correlations and/or potential causal relationships.

In the context of AI, compliance with GDPR principles is crucial to ensure ethical and legal personal data processing. The misuse or illegal collection of data may lead to serious consequences, including a potential prohibition of AI systems. It is also essential to balance the benefits of AI with the fundamental rights of data subjects to foster responsible development of AI and maintain the privacy and freedoms of individuals in the digital era.

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We are delighted to have you as part of our dynamic team. Your diverse skills and unique experiences will undoubtedly enrich our work environment and contribute to our collective growth.

We firmly believe that teamwork is key to achieving the best outcomes and is the driving force behind our success.

Welcome aboard on this exciting journey towards excellence!

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Exhaustion of Rights: “Be Original[1]”  but Refrain from “Reworked” Our Products.

Consumers are becoming increasingly environmentally conscious and focused on sustainability, especially within the fashion industry, which accounts for nearly 10 percent of global greenhouse gas emissions[2]. The secondary market for fashion and luxury goods currently represents 3 to 5 percent of overall fashion sales, with an expected 40 percent growth in the coming years[3]. Responding to these shifts, new approaches to fashion consumerism have emerged, offering alternatives to traditional clothing and accessory purchases. In this context, we will delve into upcycling, a practice that has gained recent prominence.

Upcycling involves enhancing existing products by modifying them to attract consumer interest. It encompasses two primary approaches:

(i) disassembling original products to create new items using their components, often incorporating elements from items adorned with well-known logos into crafting new accessories; and

(ii) transforming original products into novel forms by augmenting them.

• Infrigement of Intellectual Property (IP) rights is a distinct risk when upcycled products incorporate materials bearing logos or other trademark protections.

To establish such trademark infringement, a trademark holder must demonstrate that the person responsible for producing these upcycled items uses the same or a similar trademark in a commercial activity without the holder’s permission, potentially leading to a likelihood of consumer confusion regarding the source of these products. Consequently, upcycled products may infringe IP rights by introducing the prospect of consumer confusion concerning their origin.

Unfair competition and parasitism can occur when a person intentionally associates its product with that of a famous fashion house. Parasitism can be defined[4] as a set of behaviours through which an economic agent intrudes into the sphere of influence of another to gain a profit without incurring any expenses, leveraging their efforts, reputation, and know-how[5]. It is important to note that parasitism can occur even in the absence of any likelihood of consumer confusion. However, mere slavish copying is not inherently unlawful; a parasitic wrongdoing must be proven. As a result, upcycling is not inherently considered parasitic. Instead, parasitic intent becomes evident when a company intentionally links its product with that of a renowned fashion house. In such cases, any ambiguous association that suggests a possible partnership or economic connection between the upcycled product and the esteemed fashion house may be classified as parasitic.

However, using a trademark without the rights holder’s approval may be permissible in specific cases by applying the exhaustion principle, commonly known as the first sale doctrine.

According to Article 15.1 of the European Trademarks Directive, under the exhaustion principle, a trademark proprietor cannot prohibit use of its trademark on goods introduced into the European Economic Area (“EEA”) with the proprietor’s consent or by the proprietor itself.

An exception to the exhaustion principle arises when there is a modification in the product’s quality. As stated in Article 15.2 of the European Trademark Directive, the exhaustion of rights shall not apply in situations where valid reasons exist for the trademark proprietor to challenge the continued commercialisation of the goods, especially if the condition of the goods is changed or impaired after they have been put on the market.

• Consequently, upcycled products incorporating materials featuring logos and other trademarks may potentially be regarded as trademark infringements due to their substantial divergence from the original items.

Creativity and a focus on sustainability among consumers are driving brands to strive for continuous innovation. While the theory of exhaustion of rights provides substantial protection after products are placed on the market, caution is needed to avoid overstepping boundaries when modifying and reworking products.

A recent example showcasing the practical application of the first sale doctrine has emerged from the United States. Levi’s has initiated an exciting lawsuit against Coperni, accusing them of using fabric tabs and stitching patterns strikingly similar to their own. Additionally, Levi’s contends that Coperni is offering products featuring these infringing trademarks alongside genuine Levi’s items that have been “reworked” without authorisation of the fashion brand. Our primary focus here centres on the sale of these “reworked” Levi’s products, setting aside the initial claim.

What adds intrigue to Levi’s complaint is its focus on Coperni’s modified items that prominently feature Levi’s trademarks, including the fabric tab and the iconic Arcuate stitching (typically found on Levi’s back pockets).

Levi argues that Coperni’s unauthorised alterations and resale of these items amount to trademark infringement and dilution.

The defendant’s legal counsel is anticipated to rely on the first sale doctrine to protect the brand from potential trademark liability associated with the resale of genuinely authentic Levi’s products that were procured, modified, and subsequently resold. However, when alterations are made to the core product, it becomes crucial to emphasise the significance of transparent disclosures informing consumers about the modified product’s nature.

As of the date of the complaint, based on the products currently showcased on Coperniʼs website (namely, its Hybrid Flare Denim Trousers and Denim Miniskirt), which incorporate Leviʼs products and trademarks, Coperni does not make mention of how Leviʼs trademark-bearing jeans were integrated into the products that it is reselling. It is worth highlighting that the products/images on Coperni’s website concerning these “infringing” products have been modified and no longer include Levi’s fabric tabs and Arcuate stitching.

Could this lawsuit lead to a ground-breaking court ruling explicitly addressing whether upcycled products can rely on the principle of trademark exhaustion and potentially avoid being classified as trademark infringement? It is important to note any judgment coming from the United States on the matter cannot be directly applied in Europe, but may still shed light on the situation.

Watch this space for further developments.

[1]Levi’s slogan, “Be original” in 2003, see here.

[2]UNEP’S report, Sustainability and Circularity in the Textile Value Chain: A Global Roadmap, published on May 30, 2023, available here.

[3]Boston Consulting Group, What an Accelerating Secondhand Market Means for Fashion Brands and Retailers, published on October 05, 2022, by Raphaël Estripeau, Felix Krueger, Judith Vitrani, Sarah Willersdorf, Pierre-François Marteau, Fanny Moizant, and Maëlle Gasc, available here.   

[4]The theory of parasitism has not been considered by European Union law. Different viewpoints regarding parasitism among the various European Union Member States and the extent of issues concerning unfair competition have prevented the European Union from adopting directives in this matter.

[5]French concept of parasitic competition, Y. Saint-Gal, Unfair Competition and Parasitic Competition [or Parasitic Acts]: RIPIA 1956, p. 19 et seq. Parasitism is defined in Luxembourg as “the imitation of the ideas and work of others without spending anything. It enables a company to save financial and intellectual costs when marketing its products. It can exist independently of any risk of confusion between the victim’s work and that of the parasite, as well as the originality of the parasitized good”, Court of Appeal [Commercial], March 21, 2007, Pasicrisie T.33, p. 414  

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