New technologies and business models routinely offer a combination of opportunities and challenges to Intellectual Property (IP) owners. The normalization of e-commerce in consumption habits and the enormous growth of artificial intelligence (AI) in more recent times have enabled brand owners to reach new markets, deliver innovative services and cut costs, but they have also created hard-to-counter vehicles for counterfeiters, pirates and imitators.
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Enforcing IP rights in online marketplaces effectively means navigating a range of different platforms, providers and policies across jurisdictions, wading through potentially thousands of cases and struggling to identify the wrongdoer.
The rapid growth of AI tools is likely to exacerbate this problem. In addition to the likelihood that AI will be used to create convincing copies and confuse consumers with deepfakes, there is genuine concern about the use of copyrighted content in the training of generative AI systems – an issue that has already led to lawsuits being filed by writers and artists on both sides of the Atlantic.
Recognizing the difficulties these new technologies pose, the European Union is introducing a raft of legislation to regulate technology companies, including the Digital Services Act (DSA) and, lately, the Artificial Intelligence Act (AI Act), which passed its final vote on May 21, 2024.
These laws relate broadly to the use of digital technologies, and both include IP-relevant provisions that affect businesses, consumers and online platforms.
The Digital Services Act
According to Forbes Advisor, e-commerce sales are expected to grow 8.8% in 2024, reaching $6.3 trillion USD globally. However, this sea change in shopping habits makes it easier for pirated and counterfeit goods to slip through enforcement cracks and gives fraudulent marketing practices international reach.
Compared to brick-and-mortar stores, fake goods can much more easily be featured alongside genuine articles on the largest online shopping platforms. When all marketing material is identical, a suspiciously low price could be the only signof a counterfeit product.
Since February 17, 2024, the DSA, which complements the EU Digital Markets Act, imposes new obligations upon all online platforms and search engines in the EU. In addition to specific rules for very large entities (defined as those with more than 45 million users per month in the EU), it contains measures concerning unlawful material, such as items that violate IP rights.
These measures include:
- Designating and publicizing a single point of contact for users to communicate with. Users should also be able to choose the means of communication, which should not rely solely upon automated tools (Article 12)
- Designating and empowering legal representatives – if they do not have an establishment in the EU (Article 13)
- For providers of hosting services: putting accessible and user-friendly mechanisms in place to allow reporting of illegal content (Article 16)
- For online platforms: taking steps to prioritize notices submitted by "trusted flaggers" as designated by the Digital Services Coordinators of EU member states (Article 22)
These measures could be powerful weapons for IP rights owners affected by infringing content on online marketplaces. For example, they should make it easier to report and track suspected counterfeit goods and expedite enforcement. As the Act only recently came into force, it is still early to assess its effectiveness in this respect.
The scope and relevance of the DSA are likely to become more evident this year due to concerns about fake news and deepfakes in election campaigns. In March 2024, the European Commission published guidelines on recommended measures to mitigate systemic online risks for elections. The guidelines apply to Very Large Online Platforms and Search Engines throughout these democratic cycles, with specific actions laid out for the EU Parliament elections of June 6-9, 2024.
Concerns about the use of digital technology to manipulate public perceptions have shifted quickly from content alteration to total fabrication. Bad actors can falsify highly convincing text, images and audio with alarming ease, prompting lawmakers to take action.
The EU Artificial Intelligence Act
In a separate development, EU legislators have progressed the world's first comprehensive law on AI, known as the AI Act. This was approved by the European Parliament and then by the Council of the EU after it was agreed by member states last December. The AI Act was published in the Official Journal of the EU on July 12 and will come into effect 20 days thereafter, with its provisions gradually becoming applicable over the 24 months from its entry into force.
The AI Act bans applications of AI technology that threaten citizens' rights, such as biometric categorization systems based on sensitive characteristics, whilst providing certain narrow exceptions for law enforcement. It also imposes strict obligations upon high-risk AI systems (such as those relating to education, employment, healthcare, banking and policing) to ensure accurate logs and human oversight.
From an IP perspective, Article 53 of the AI Act provides transparency requirements for general-purpose AI systems, namely publishing summaries of the content used for training models and complying with EU copyright law.
Thinking outside the "black box"
Protecting and enforcing IP rights in today's digital world is a complex mission. In-house counsel and IP managers enjoy a wide range of tools to carry it out, including traditional IP rights, domain names, social media handles and notice-and-takedown procedures, besides legislation framing unfair competition, tax, data protection and privacy.
To this toolkit, we can now add the DSA and – once it is implemented – the AI Act. Both statutes have a much wider ambit than IP rights, but IP practitioners should familiarise themselves with their respective provisions and how these may be implemented. According to a joint report by the EUIPO and the OECD published in 2021, more than 50% of counterfeit goods seized at EU borders stem from online commerce, with perfumery and cosmetics, pharmaceutical products and sunglasses among the most counterfeited products.
Though counterfeit consumer products can pose health risks by ignoring rigorous industry standards, fake medications represent an acute double threat to human life. Not only may the expected active agents be absent, but they could also contain harmful products.
The report stated:
"Counterfeit sellers have flourished on e-commerce markets, as it is relatively easy to set up sites that sell counterfeit items. Moreover, they continue to find new ways to infiltrate trusted platforms with their counterfeit products. Law enforcement is actively engaged in identifying and closing down fraudulent sites and working with major platform operators and brand owners to target sales of counterfeits, but the problem remains significant and is growing."
Brand owners operating in the EU should expect this latest legislation to help counter such adversity still further. Specifically, the DSA aims to facilitate the reporting of infringements and to secure takedowns and suspensions. Meanwhile, the AI Act seeks to mitigate the misuse of AI in targeting consumers unfairly, for example, with deceptive advertisements and endorsements.
The next few years will show whether these legislative initiatives, aiming to neutralize the most egregious uses of rapid technological progress in the public interest, prove fit for purpose and accordingly set a useful precedent to inspire other jurisdictions.
A version of this article was originally published in CITMA Review magazine, July - August 2024 issue.
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