Insights

02/09/2015

Toss it!

Krogerus sponsors the Design Forum Finland's Young Designer of the Year 2015 – Pyry Taanila

Krogerus served as the main sponsor for the Design Forum Finland's Young Designer of the Year 2015. The winner this year is Pyry Taanila.

Taanila, together with the team, are inventors of Catchbox, the world's first throwable microphone. Catchbox comes in two different versions, 2.4 and Pro, and in three different replaceable covers: blue, orange, and green. It is intended for use at conferences and speaking events.

"Design is an important part of the culture of our firm, as we, too, aspire to provide products and services that are of premier quality and meet a client's needs," says partner Mika Ståhlberg, who acted as a judge in a five-person panel that decided this year's winner.

"Catchbox nicely combines a functional product with a novel design, thus seamlessly weaving commerce and artwork," he adds.

Born in 1984, Taanila holds a Master of Arts degree from Aalto University. He is renowned as a design entrepreneur whose creations spawn new markets for usable objects. 

You can find out more about Catchbox by visiting http://eu.getcatchbox.com/ or you can go see the product in person from 3–19 September at Design Forum Finland's pop-up exhibit: 

Unioninkatu 25
Helsinki
Monday–Sunday, 11.00–18.00 
Admission is free
 
The exhibit is open during Helsinki Design Week.

Design Forum Finland is the promotion organisation of Finnish design. It is run by the Finnish Society of Crafts and Design. Established in 1875, Design Forum Finland is the second-oldest design-industry organisation in the world.

28/05/2015

Improving the Efficiency of Arbitration

In a study commissioned by Krogerus we examined the views of selected Finnish companies regarding the efficiency of arbitration.

The study is based on responses from 23 Finnish companies regarding the duration and costs of arbitral proceedings, methods for improving the efficiency of arbitral proceedings and experiences using expedited arbitration.

You can download the full Krogerus study here: Improving the Efficiency of Arbitration

 

14/04/2015

Not so fast!

The Finnish Supreme Court recently clarified the circumstances where an employer can add a non-competition clause into an employment agreement.

Pursuant to the Finnish Employment Contracts Act, particularly “weighty reasons” related to the operations of the employer or to the employment relationship are required for an enforceable non-competition obligation agreed in the employment agreement or otherwise in the beginning or during the employment.

In July 2014, the Finnish Supreme Court issued a precedent (KKO:2014:50) where it was assessed whether weighty reasons for a non-competition agreement existed in a case regarding an employee who was working as an automation engineer in a company providing automation and robotic systems for the food industry.

Does the employer really need the protection?

The Supreme Court ruled that the employer did not have particularly weighty reasons for the non-competition clause limiting the employee’s right to engage in new employment for four months after the termination of employment.

The Supreme Court’s principle reasoning was that only a small part of the employee’s duties was of such nature that the employer would have needed protection through a non-competition clause.

The employee did not accrue essential research knowledge or take part in confidential sales activities of the company during the employment. Nor did the employee’s position support the need for a non-compete restriction because of its low level in the employer’s organisation. Additionally, the employee’s salary level – a monthly basic salary of slightly below EUR 2,400 at the time of the termination of employment – was regarded as so low that it could not have been regarded sufficient to compensate the restriction caused to the employee.

In relation to the employee’s duties as the main user of the employer’s server, the Supreme Court assessed that the confidentiality provision, including liquidated damages of EUR 20,000, was sufficient to protect the business and trade secrets of the employer.

Moreover, the Supreme Court referred to the Finnish Criminal Code prohibiting the violation and misuse of business secrets and stated that the protection under criminal liability, in addition to the risk of liquidated damages, were sufficient to ensure the protection of the confidential information against competing actions.

Consequently, the non-competition clause was not binding and the employer was not entitled to liquidated damages for the employee’s breach of the non-competition clause.

Assessing the existence of particularly weighty reasons

Under Finnish law, an employee’s right to conclude a new employment contract with a competing employer or to engage in competing activity on his or her own account can be limited for a maximum period of six months, if particularly weighty reasons exist.

To determine if weighty reasons exist such to justify the non-competition clause, employers are required to analyse the following:

the nature of the employer’s operations and need to protect business or trade secrets;
possible special training given to the employee by the employer; and
status and duties of the employee.

Firstly, with regard to the employer’s operations, if the work consists of product development, the need for a non-competition clause is considered to be more significant in terms of the need for protection against competing companies.

Additionally, an agreement of non-competition is generally justifiable if the employee, due to his or her position, receives confidential information or if the employee accrues special knowledge as a result of his or her duties.

As a rule, it can be said that the higher the employee’s position within the employer’s organisation is, the more likely it is that particularly weighty reasons are deemed to exist.

Grounds for a non-competition clause may exist if an employee carries out his or her duties independently or otherwise with a high level of responsibility, or if the salary level is regarded as high.

Although there is no statutory requirement to pay any compensation to the employee for a non-competition obligation that is valid for less than six months after the termination of employment, a low salary level may often indicate that the employee’s position or duties do not constitute weighty grounds for a non-competition clause to be enforceable.

Field of work an important consideration

Additionally, the type of field of business of the employer may have an impact on the assessment on whether there are justified grounds for the non-competition clause at hand.

In some fields of business, in which renewal of new information and development of technologies/methods is fast and essential, correspondingly the need to protect business secrets against competitors is vital.

Also, ensuring the confidentiality of information related to customers and trade secrets (such as pricing) may support the justifications for a non-competition agreement.

Other ways to protect an employer’s vital interests

Although non-competition clauses are in many cases recommended, it is to be noted that if particularly weighty reasons are not deemed to exist, the non-competition clause is null and void.

Moreover, there are certain other limitations with respect to the enforceability of non-competition clauses. In instances where the enforceability of a non-competition clause is uncertain, you may wish to consider if there are other ways, such as through use of confidentiality clauses, that you can best protect a company’s vital interests.

14/04/2015

What is the internet of things?

Whether you consider it the latest buzzword or the beginning of a new era, the internet of things will have significant impacts across the business landscape.

The Internet of Things (IoT) refers to the interconnection of identifiable embedded computing devices.

In a nutshell, IoT is where every day physical objects are connected to the internet and can identify themselves to other devices without requiring human-to-human or human-to-computer interaction.

A related term, the “industrial internet”, coined by American super-conglomerate General Electric, refers to the integration of complex physical machinery with networked sensors and software.

IoT is still in its infancy, but a generation shift is already taking place.

So while driverless cars that seamlessly interact with road infrastructure are a leap away, many companies are embracing the opportunities offered by connected devices and data to optimise manufacturing and service in real-time.

What does the internet of things mean for my business?

The estimates are that connected devices will outnumber people in the near future. Depending on the source, the number of digital devices connected to the internet is estimated to grow from the current 3 to 7 billion, to 25 to 50 billion, by 2020.

The change creates business opportunities. Cisco Corporation, for instance, has estimated that the value of new business created as a result of IoT will total roughly USD 19 trillion over the next decade – out of which USD 14.4 trillion will be contributed by enterprises and USD 4.6 trillion by smart cities, administration and the public sector.

Both manufacturing and service industries will be affected: intelligent systems in the IoT enable rapid manufacturing of new products, dynamic response to product or service demands and real-time optimisation of manufacturing production, while allowing for more effective use of energy and other resources.

All of this is based on data gathered, analysed and communicated by machines.

How should we prepare?

The data, its creation, indexation, analysis and control over it become key issues in the emerging legal landscape. Strictly speaking, one cannot “own” data, but access to it is something businesses should want to have a say on and, as discussed below, legal considerations in the form of IP, data privacy and contracting will be on the table.

The co-existence of, and interrelationship between, relevant factors can be depicted as follows:

Dust off your IP law handbook

If data is the key in the IoT, what is the relevant legal tool in the IP toolbox?

In terms of traditional intellectual property, data, as such, is not an object of protection. Large amounts of data may, however, take forms that are granted protection; and database protection and its associated forms of IP (e.g. the so-called protection of catalogues granted under Finnish law) may see a rise in significance.

You will also need to address IP ownership issues, including the complex question of joint ownership, in more detail. Even the thus-far somewhat academic question about IP ownership of works created by machines may be revived: in the traditional “internet”, people are the main producers of content and data, whereas in the IoT, machines assume this role and become the creators.

If a machine created a database or a copyright work and, in the process of doing that, used a significant part of another database, with who will the rights vest, and has an infringement taken place?

The key, most likely, will be in the contractual stipulations, but if the underlying IP issues are not taken into account beforehand, problems may emerge. Also, issues of open data and accessibility of governmental data on the one hand, and trade secrets, on the other, are likely to raise difficult questions.

Traditional “hard IP”, patents, will also be relevant, and companies may need to start looking into new areas of technology in trying to map their patent landscape: by way of example, manufacturers of heavy machinery may find themselves faced with telecoms and computer-implemented-invention-related-patent thickets.

Another challenge will be that for the IoT to work in a truly seamless and interoperable way, it needs to use standardised technology. If, however, standardised elements of technology in this architecture are patented, third party users of the technology who have not obtained a licence may be forced to infringe those patents.

Privacy issues are paramount

Data protection law regulates how information on consumers may be collected, processed and transferred.

By definition, “personal data” means any information that – either as an isolated datum or in combination with other pieces of information available to the business – is identifiable as concerning a private individual. Controllers of such data are under a statutory duty of care, the purpose of processing this data must be specified in advance, and there has to be a legal ground for any processing.

Big data may mean big value and big benefits, but also big responsibility.

Data protection challenges related to the IoT include information on the processing of data, prerequisites for the user’s consent, exclusivity of purpose, data analytics, limitations on the possibility to remain anonymous when using services, and security risks.

You can overcome these challenges, but careful planning and a proper understanding of the applicable regulatory framework are needed.

It is highly probable that the regulatory landscape will be transformed in the not-too-distant future if and when the so-called General Data Protection Regulation (GDPR) proposed by the European Commission already in 2012 enters into force. Already approved with amendments by the European Parliament on its first reading last year, but still pending Council agreement, the GDPR would introduce new requirements to businesses, backed up with hefty fines for non-compliance.

In the proposed form, the GDPR contains extensive provisions on profiling. Now, the IoT promises to be an unmatched medium of analysing and, on that basis, predicting people’s personal characteristics and circumstances, but the data subjects’ right to object to profiling under the GDPR will need to be ruled in. The same would apply to the far-reaching principles of data protection by design and data protection by default embraced in the GDPR.

Dividing contractual rights among parties

IoT-related contractual issues may arise out of many different types of contracts. IoT-related contract clauses are not relevant only in traditional ICT contracts, but they become significant also in contract types that have traditionally not dealt with ownership of data, data protection and intellectual property rights.

Since all sorts of devices will be connected to the internet and will gather data, for example,R&D agreements, sale and purchase agreements of machinery and other devices and various rental, services and maintenance agreements need to address these issues.

Perhaps the most important issue lawyers will need to stipulate is how the rights regarding the data are divided among the parties. For instance, does one of the parties have the exclusive right to use this data, or do the parties have equal or parallel rights of use?

There is naturally an unlimited number of ways rights can be allocated. Moreover, these contract clauses resemble more traditional licensing and transfer of IP provisions.

Naturally, privacy considerations must be addressed when drafting the contracts.

The internet of things will present, in the very near future, a whole host of opportunities – and challenges. For some issues, it is sufficient to look to existing legal norms for a solution. For others, new tools are needed to work with the evolving technological landscape.

14/04/2015

Keywords are mine!

Ever type your trade mark into a search box only to get results to a competitor’s goods and services? Businesses that use someone else’s trade marks as keywords in web stores without the owner’s permission may engage in trade mark infringement, confirms a recent ruling of the Finnish Market Court.

Hijacking a trade mark

Business owners naturally expect an online search using their trade marked terms will lead to their goods and services. Problems arise when a competitor or other third party captures a trade marked term as a keyword and directs people to goods and services that do not belong to right holder’s business operations.

Is this legal?

According to the Finnish Market Court’s ruling in Wellmen Oy v SOK (MAO:516-517/14), this type of online advertising is infringing. The court’s judgement was not appealed and is now final.

In its decision, the court held the use of a keyword that was identical with a registered word trade mark “Selätin” infringed rights based on the trade mark registration. The disputed keyword was used in a web store’s product search.

Confusion regarding commercial origin

The Finnish Market Court referred to a judgment of the Court of Justice of the European Union (CJEU) in the Google AdWords case Google France and others v Louis Vuitton Malletier SA (C-236/08–C-238/08), and held the use of the keyword resulted in confusion regarding the “commercial origin” of the trade mark.

After the keyword “Selätin” was typed into a web store’s product search box, the result yielded a third party’s competing product instead of offering the product of the trade mark holder, which was not at all available. The products in question were considered identical. The webpage to a third party’s product appeared immediately after the search with the keyword was conducted. The trade mark was visible on the page after the search also.

In light of these circumstances, the court stated the average consumer was likely to be confused of the commercial origin of the product. This confusion endangered the basic function of a trade mark, which is to serve as an identification of origin. The confusion was not avoided even though the actual names of the marketed product, as well as its producer, were both available on the webpage. The trade mark owner had a right to prohibit the use of its trade mark as a keyword in connection with the other party’s product.

Revised keyword practices

The thread of the Finnish Market Court’s reasoning followed the CJEU’s decision in the Google AdWords case, where the CJEU stated the origin function of a trade mark is adversely affected by keyword advertising if the advertisement does not enable the relevant audience to ascertain (or enables them ascertain only with difficulty) whether the goods and services originate from the owner of a trade mark.

Not only giving guidance for the national courts’ decision making, the CJEU’s interpretation also had an impact on major search engine keyword practices.

Nowadays, when a trade mark owner lodges a complaint, representatives from Google and Microsoft’s Bing investigate and may enforce certain restrictions on the use of a trade mark in advertising. Other search engine organisations have also initiated the same practice. At issue is whether the use of a trade marked term as a keyword, in combination with particular advert text, is confusing as to the origin of the advertised goods and services.

Protection for owner’s investment

It appears likely that since the case assessed by the Finnish Market Court was successful based on the reasoning that the trade mark’s origin function was adversely affected by the keyword usage, the court made no further assessment of the use based on other functions of a trade mark. These functions were considered, among others, in the preliminary ruling in Interflora v Marks & Spencer (C-323/09), in which the CJEU acknowledged, in addition to the primary function (as a badge or origin), a trade mark may have a number of additional functions.

The CJEU indicated that trade mark owners may be able to take successful legal action whether or not the primary function of a mark is put at risk. This could be the case where a keyword takes unfair advantage of the distinctive character or reputation of a trade mark or where it causes damage to a distinctive character and reputation of a trade mark.

Nevertheless, it is still left for the national courts to determine these issues based on the facts and circumstances of the situation at hand. The original Interflora case is still unresolved, as the case was recently remitted to the High Court for retrial in the United Kingdom.

Plan your advertising carefully

The decision of the Finnish Market Court is a welcome clarification on the scope of trade mark protection.

For trade mark owners, the ruling gives further comfort to claims against illegitimate use of a trade mark as a keyword in those instances where the consumer cannot identify a commercial origin of the goods and services appearing in context with the used keyword.

Furthermore, recent case law suggests that businesses should plan their keyword advertising carefully. It is advisable to go through your keywords and search functions to make sure you are not unintentionally indulging in a trade mark infringement.

How to protect your trade marks and avoid keyword issues?

Here are some tips you should consider to protect your trade marks and avoid keyword issues in your business operations:

• Monitor keyword usage by your competitors, third parties and major search engines

• Consider whether your distributors and resellers are using your trade marks as keywords and provide guidelines for such use

• Go through keywords and search functions used in your own business advertising and make sure your practices are appropriate

• Consider legal actions when necessary

26/08/2014

Pregnancy and the workplace

The Finnish Labour Court issued, in the end of August 2014, its rulings based on the preliminary ruling of the Court of Justice of the European Union (CJEU) issued earlier this year in cases concerning employees’ right to salary for consecutive maternity leaves when the second pregnancy occurred during unpaid family leaves following their maternity leaves.

The Finnish Labour Court declared that provisions in collective agreements requiring employees to return to work between family leave and a new maternity leave in order to be entitled to salary during maternity leave are against the mandatory provisions of Finnish Employment Contracts Act and are, therefore, null and void.

Under Finnish law, maternity leaves are unpaid, but many Finnish collective bargaining agreements provide for salary during a part of the maternity leave on the condition that the employee returns to work between two maternity leaves in order to receive salary during the second maternity leave.

The CJEU ruled that such conditions are in breach of European Union law. This preliminary ruling significantly alters the right to salary during consecutive maternal leaves in Finnish collective bargaining agreements.

Right to salary for consecutive maternity leaves

The preliminary ruling in the joined cases C-512/11 and C-513/11 concerned two requests for a preliminary ruling by the Labour Court of Finland in two essentially similar matters concerning two women and their right to salary during their second consecutive maternity leaves.

Following initial periods of maternity leaves, the two women took unpaid parental leaves. They then got pregnant for the second time during their unpaid childcare leaves and notified their employers of their pregnancies and asked to interrupt their unpaid family leaves and consequently take a new period of maternity leave.

The employers accepted the notifications concerning the interruptions of the unpaid family leaves, but refused to pay the employees salary for the second maternity leave.

The reason for this was that the applicable collective agreements stipulated a requirement for a certain period of work in between paid maternity leaves, and the employees did not return to work between the first maternity, parental and childcare leaves and the second maternity leave.

In both cases, the employees were entitled to maternity allowance provided for by law, while the employers should normally pay the difference between that allowance and their normal salary if the employees are based on collective bargaining agreements, company policy or individual agreements entitled to salary during a certain part of their maternity leave.

Collective bargaining agreements and second maternity leave

The request for a preliminary ruling essentially concerned whether a provision in a collective bargaining agreement stipulating that salary during maternity leave is not paid to an employee if the employee does not return to work between two maternity leaves.

In its ruling, the CJEU considered Directive 96/34 on parental leave and two objectives of that directive.

Firstly, the framework agreement constitutes an undertaking by management and labour to introduce, through minimum requirements, measures to promote equal opportunities and treatment between men and women, by offering them an opportunity to reconcile their work responsibilities with family obligations.

Secondly, the framework agreement enables new parents to interrupt their professional activities to devote themselves to their family responsibilities, whilst giving them the assurance that they will be entitled to return to the same job, or, if that is not possible, an equivalent or similar post consistent with that employee’s employment contract or relationship at the end of the leave.

The CJEU found that the choice of an employee to exercise her right to unpaid parental leave should not affect the conditions on which she may exercise the right to take a different leave, in this case maternity leave. The CJEU emphasised that taking unpaid parental leave in this case inevitably means that an employee who needs to take maternity leave immediately after that parental leave loses part of her salary. The CJEU further emphasised that a pregnancy is not always foreseeable.

The CJEU concluded that provisions in collective agreements, pursuant to which a pregnant employee who interrupts a period of unpaid parental leave to take a maternity leave does not benefit from the salary to which she would be entitled had that period of maternity leave been preceded by a minimum period of resumption of work is in breach of European Union Law.

It is to be noted that the CJEU referred to the directive concerning parental leaves although the employees were on childcare leaves, which is not a right guaranteed by the directive referred to by the CJEU.

The employees were still entitled to an income, at least equivalent to the sickness allowance provided for by national social security legislation, as required by the Pregnant Workers Directive (92/85), but not the additional salary provided for in the collective bargaining agreement.

What are the consequences of the rulings?

Many Finnish collective agreements include corresponding requirements of a period of work between family leaves and also some employers not bound by any collective agreements have been applying the same principles.

However, based on the rulings of CJEU and the Finnish Labour Court such a requirement shall from now on be deemed to be in in breach of European Union law and the Finnish Employment Contracts Act, and therefore, null and void. As employees do not have a statutory right to paid family leaves, these rulings may also have an impact on future collective bargaining and on employers’ willingness to voluntary offer paid maternity leaves.

28/05/2014

Reserve your spot, now

A recent amendment to the feed-in tariff act (1396/2010) means you can reserve your spot in the feed-in tariff system today – even if your project is not yet ready for final approval.

On 30 April 2014, the Finnish parliament approved the government’s proposal on amending the feed-in tariff act (1396/2010).

The amendment makes it possible to get a binding reservation from the Finnish Energy Authority to the effect that the electric capacity of wind power plants under development have a place reserved within the overall feed-in tariff quota of 2,500 MW already before the final approval application to the feed-in tariff system.

The quota is the aggregate limit for electric capacity of wind power plants that will be accepted into the feed-in tariff system. The decision is binding for a period of two years, and the final application for approval to the feed-in tariff system must be filed within this time period.

The requirements are that the wind power developer has received building permits for the wind turbines and entered into a binding grid connection agreement with a grid operator for connecting the wind turbines to the grid.

Moreover, if the connection agreement is not directly made with Fingrid Oyj, a confirmation from Fingrid Oyj must be obtained that the electricity produced by the wind turbines may be fed to the main grid.

The reservation system took effect starting on 30 June 2014. 

Time priority to change

According to the Feed-in Tariff Act, the basic rule regarding priority of acceptance to the Feed-in Tariff Act is time priority, meaning that the electricity producer who has first submitted its approval application to the feed-in tariff system receives priority over any subsequent applicants.

When the wind power developer is ready to submit the final approval application, there is a risk that the overall feed-in tariff quota of 2,500 MW has already been reached.

In the future, the order of priority is changed to the effect that the Energy Authority must take into account also projects that have reserved a spot in the feed-in tariff system. The order of priority in respect of reservations to the feed-in tariff system is also based on date and time for submitting the reservation application.

Reservation even if final details are unknown

In the reservation application, information must be submitted regarding the electricity producer, the wind turbine type, the nominal power output of the wind turbine type, the investment time table as well as other information that may have an affect on the decision. Further requirements may be given by Finnish government decree.

However, the Energy Authority has confirmed that a decision on, for example, wind-turbine type, does not necessarily have to be final at the time when the reservation application is filed. Wind power producers have an obligation to inform the Energy Authority if the capacity of the wind power plants is reduced after the reservation decision has been granted, so that Energy Authority can free capacity to the feed-in tariff system to others.

However, the reservation decision is not binding to the extent the capacity of the wind power plants is increased afterwards.

Reservation decision process

The Energy Authority grants the reservation if all necessary information has been submitted and there is no obstacle for granting the decision pursuant to the Feed-in Tariff Act; for example, there is still capacity left in the feed-in tariff system and that the wind power plant fulfils all other requirements for being accepted to the feed-in tariff system.

On the other hand, the Energy Authority must deny the reservation application if there is significant insecurities due to the large amount of wind turbines, other reason for doubt that the wind power producer does not fulfil the requirements for being accepted to the feed-in tariff system, or if there is doubt that the wind power producer will make the final approval application in the future.

The Energy Authority must also deny the reservation application to the extent the total capacity of approved wind power projects and reserved capacity to the feed-in tariff system is exceeded.

The reservation decision is in force for two years from the date the decision received legal force. However, the decision will not be valid for longer than until 20 June 2020, meaning that if the reservation decision gained legal force less than two years before such date, the reservation decision is regardless in force only until 20 June 2020.

Transfer of the reservation decision

The reservation decision may be transferred to another wind power producer upon written application to the Energy Authority, in case the ownership of the wind power plant is transferred. However, the reservation may not be transferred from one wind power plant to another.

Cancellation of the reservation decision

The Energy Authority may cancel the reservation decision if false or erroneous information has been submitted to the Energy Authority that would have had an impact on the decision or if a wind power producer neglects to notify the Energy Authority about reduction of the nominal power output of the wind turbines.

14/05/2014

Buyer beware!

European Commission confirms private equity investors’ potential cartel liability for portfolio companies.

A recent European Commission decision found financial services giant Goldman Sachs liable for the cartel activities of a company that was part of Goldman Sachs’s investment portfolio. 

Goldman Sachs’s liability was based on the decisive influence exerted over the company through voting rights and board representation. 

The decision can be seen as a signal from the Commission that it is prepared to hold private equity investors liable for competition law infringements of portfolio companies. 

On a practical level, this means private equity companies may have to look closely at their due diligence processes before making an investment.

Members of power cable cartel fined by the European Commission

On 2 April 2014, the European Commission imposed fines totalling EUR 301.7 million on eleven producers of underground and submarine high voltage power cables. The companies had operated a global cartel from 1999 to 2009. 

According to the Commission, the companies involved had agreed on price levels, shared markets and allocated customers between themselves. In addition to the actual cartel participants, the Commission found companies exerting decisive influence over them to be jointly and severally liable for the fines.

One of the companies held liable was Goldman Sachs. A fund managed by Goldman Sachs Capital Partners owned a stake in an Italian cartel participant, Prysmian. According to the Commission, Goldman Sachs had decisive influence over Prysmian through its control of Prysmian’s board of directors. 

On these grounds, the Commission held Goldman Sachs jointly and severally liable with Prysmian for a fine of EUR 37.3 million. This is not the first Commission decision holding a private equity investor liable for the actions of its portfolio companies, but the previous cases have dealt with much smaller cartels and investors.

The Commission imposed the highest individual fine in the case, totalling EUR 104.6 million, on Prysmian. This was based on the volume of Prysmian’s sales, the length of its participation and its central role in the cartel. 

The joint and several liability of Goldman Sachs covered approximately one-third of the fine. A previous owner was held similarly liable for the rest of the fine.

Fines based on decisive influence by Goldman Sachs

According to Joaquín Almunia, the Commission member responsible for competition policy, Goldman Sachs was involved in the decision-making of Prysmian in a way that was “not [the] normal involvement of a financial investor”. 

The Commission held that Goldman Sachs essentially controlled Prysmian through its appointments in the latter’s board of directors. The Commission emphasised the fact that Goldman Sachs was updated on the business of Prysmian through monthly reports and could have replaced the board of directors at any time. 

Even though Goldman Sachs reduced its stake in Prysmian from 2005 onwards, the Commission found that it continued to exert de facto decisive influence over the company at least between 2005 and 2007.

Goldman Sachs has announced that it is considering appealing the decision.

The Commission has consistently held parent companies liable over the actions of subsidiaries in cases where the subsidiary has not been operating independently in the market and the parent company has exerted decisive influence over it. In these circumstances, the Commission does not have to prove that the parent company itself participated in the infringement. 

When assessing whether the parent had such decisive influence over the subsidiary, the Commission takes into account all economic, organisational and legal connections between companies. 

Typically, these connections include shareholdings, voting rights and rights to appoint members of the board. The Court of Justice of the European Union has confirmed that a shareholding of 100% gives rise to a rebuttable presumption of such decisive influence. 

What does this mean for private equity investors?

Holding Goldman Sachs liable does not in itself constitute a major change in the Commission’s practice. EU courts have confirmed that private equity investors may be fined for the actions of their portfolio companies. 

However, the decision makes it clear that the Commission does not see any difference between private equity investors and other owners with regard to liability for competition law infringements. 

The Commission’s decision signals that it is advisable for private equity investors to exercise caution and to carefully assess the competition law compliance culture in their target companies, both when making investment decisions and during ownership. 

A failure to do so may result in an infringement fine of up to 10% of the annual worldwide turnover of the entire group concerned. The liability remains even if the stake is later disposed. 

These issues should be taken into account in conducting due diligence reviews of potential target companies, as well as in drafting purchase agreements.

14/04/2014

Got a compliance programme?

Your company’s compliance programme may not be the easiest topic to bring up at an executive management meeting, but it probably is one of the most important.

What makes for a good compliance programme?

This topic was raised at a Krogerus Compliance Officer Roundtable that gathered a cross-section of business executives in Finland. Here is a summary of some ideas you may wish to keep in mind.

A compliance programme is a set of internal policy decisions that aims to assure a company is following all rules and regulations applicable to its business operations.

Compliance as a business function first took hold in the United States in response to several corporate scandals in the 1970s and 1980s. Over the years, it has slowly spread to Finnish shores, and has recently gained real traction.

While it is not uncommon for in-house legal counsel in Finland to take care of compliance matters, companies are increasingly hiring a compliance officer. A few Finnish companies are also considering whether to create a compliance function that is independent from the legal department.

How much are you willing to risk?

The cornerstone of a good compliance programme is articulating the risk appetite of the company and balancing it against the risk tolerance.

The risk appetite reflects the amount of risk the company is willing to take and, respectively, the risk tolerance describes the risk capacity the company is capable to carry in pursuit of its business objectives. Risk management cannot be about avoiding all potential risks, but it should be used as a mechanism helping to prioritise identified risks.

A compliance programme is meant to support your business strategy. Therefore, risk assessment and measuring the risk appetite and risk tolerance is an integral part of the strategic planning. Once this balancing exercise has been done, the compliance programme can be tailored to meet the strategic needs and requirements of your business.

Identify the inherent risks

A good compliance programme identifies the inherent risks and establishes appropriate mechanisms to control them, while it acknowledges the residual risks.

The contents of the inherent risk is influenced by the company’s regulatory environment, volume and scope of activity, including products, customers and distribution channels, as well as history of compliance problems.

The residual risk is a risk that remains after controls are taken into account. Handling the residual risks means either accepting it as a part of the agreed risk appetite or reducing it by starting over the risk analysis and adding certain control mechanisms.

Independent compliance function

The key factor for establishing an independent compliance function is to clearly define its tasks, which can be challenging.

The tasks of the compliance function are defined based on the risk assessment. Therefore, the tasks should concentrate on the regulatory regimes where non-compliance would harm the business most or those areas where non-compliance is most likely to happen.

For a compliance function to be independent, it is paramount that access to the board or a sub-organ focused on risk management is secured. Also, the compliance function should be clearly fenced from the risk audit of the company.

Employees are your best cheerleaders – but you need the right tone at the top

Although the increasing amount of regulation gives rise to certain concern, there are positive sides to a well-functioning compliance. High integrity and focus on ethical values increases the pride personnel feel for their company, which, in turn, increases the commitment and efficiency.

Once risk-oriented thinking becomes established in the company’s business operations, personnel takes ownership and responsibility for compliance and ‘doing the right thing’. Feeling an important piece in the puzzle promotes the objectives of a compliance programme.

But, most importantly, there cannot be any commitment by personnel if the management commitment goes missing. The significance of the tone from the top can also be supported by empirical evidence. Therefore, setting the right corporate culture really matters.

So, while implementing a compliance programme is not easy, if done well, the rewards are multi-fold.

09/01/2014

Sometimes an end is a new beginning

Traditionally, the estate administrator’s main duty has been to liquidate the machinery of the estate as quickly as possible. But there are alternative possibilities. Instead of seeing the bankruptcy estate as a pile of assets left behind by a company that has gone through financial hardship, smart thinking says you should see this as an opportunity to start a new business.

At its best, bankruptcy means a fresh start for a successor company without burdens of the bankrupt one. At the same time, it also allows the estate administrator to take into account the broader interests of the different stakeholder groups.

While this sounds enticing, there are important factors to keep in mind.

It is one of the most important tasks of the estate administrator to realise the assets belonging to the bankruptcy estate. The administrator has to strive to sell the assets promptly and in a cost-effective way.

The sales method you choose needs to reflect the best possible price. It is often advisable to try to sell the business in its entirety or as an operational unit of the debtor company to a successor company.

Greater sales price is possible

In general, selling an operational unit is almost always a better option than selling assets separately.

The sales price of an operational unit is usually higher because some of the assets are of substantial value to a successor company but would be of very little or without any value to an outsider when sold separately. Assets of this kind are various intangibles and items with utility value related to land, buildings and fixed assets.

In addition, selling a bankruptcy estate to a successor company saves costs.

Usually you can achieve a substantially higher overall sales price when selling the bankruptcy estate as an operational unit, even though the maintenance costs are the same when selling assets separately.

The sale of assets (such as manufacturing plant) of a bankruptcy estate to a successor company naturally has considerable beneficial impacts on society and stakeholder groups beyond just the creditors in bankruptcy.

When a new company is born from the ruins of bankruptcy, it usually has a positive impact on local employment and other companies, such as former investors, subcontractors, suppliers and distributors of the bankrupt company. Ongoing revenue from a company also increases the tax base, which has a ripple effect across society.

Sometimes, the former employees can keep their jobs and the business remains in its old location.

Challenges when selling an operational unit

Selling the assets of a bankruptcy estate as an operational unit is a challenging task. This complicated process requires mastering the daily operations of the entity and understanding both the business drivers and the legal issues that will allow it to continue well into the future.

Especially in bankruptcies of medium-sized and large companies, the estate administrator and the entire bankruptcy administration have to face and resolve complex issues dealing with the management of business operations.

By being realistic and proactive and by efficiently relaying information to the creditors, the estate administrator and the bankruptcy administration can avoid possible pitfalls that typically plague the sale of an operational unit.

The successful sale of an operational unit requires co-operation with major creditors who effectively have the supreme decision-making power in bankruptcy proceedings. Often, the estate administrator can also draw on the solid business and financial know-how of the major creditors.

A win-win for creditors and society

The successful sale of the business or an operational unit requires that the estate administrator actively pursues selling the operational unit, which is facilitated by the administrator contacting potential purchasers immediately after the declaration of bankruptcy.

Ideally, this should be done on the first day of the bankruptcy proceedings. Unfortunately, the debtor company and its business operations depreciate in value throughout the process.

It is desirable that the preparations for finding a successor have been started even prior to the declaration of bankruptcy. In such cases, there is a known purchaser upon declaration. It is possible to carry out a sale of an operational unit within weeks from the declaration of bankruptcy, but this requires timely actions from the estate administrator and carrying through the actions that have been commenced prior to the bankruptcy.

Sometimes it may be economically justified for the bankruptcy administration to continue business operations in order to sell the business or an operational unit. It is often reasonable to continue operations until the end of the terms of notice to the employees.

When considering continuing business operations for a longer period, the estate administrator and creditors must be very cautious and ground their decisions on detailed calculations.

In order to find a potential purchaser and to obtain a decent sale price, it is essential for the bankruptcy estate to ascertain that all necessary documents (for example, environmental licences) are valid and in force.

This means that several factors have to come together seamlessly.

When done correctly, selling the business or operational unit as a whole offers a win-win to both the creditors and society-at-large.

13/11/2013

Looking to hire?

When you are looking to hire someone, you may wonder what you can ask and what you cannot during the interview process. One misstep and a potential candidate might get the wrong impression about you and your company – or, worse still, accuse you of employment discrimination. In your search for the right person, you may want to keep a few things in mind.

Finnish law does not provide a list of questions that an employer can or cannot ask during a job interview. However, when assessing what kind of questions should be avoided, privacy and anti-discrimination laws play an important role. It should also be noted that using Google or other search engines on the Internet may not be allowed.

The privacy of a job applicant is protected by the Act on the Protection of Privacy in Working Life and the Personal Data Act. Additionally, in order to avoid discrimination claims, an employer should take into consideration the obligations arising from the Non-Discrimination Act and Act on Equality Between Women and Men.

Request only necessary information

The key requirement set forth in the legislation is the necessity requirement. An employer may only process information that is directly necessary for the employment relationship. Therefore, whether or not the question is deemed appropriate depends on the position and its requirements.

In addition to the necessity requirement, an employer must take into consideration the requirements regarding non-discrimination and equality – and bear in mind the extended protection against non-discrimination.

According to the Non-Discrimination Act, an employer is not allowed to discriminate based on a person’s age, ethnic or national origin, nationality, religion, belief, opinion, health, disability, sexual orientation or other similar reasons. In addition, pursuant to the Act on Equality Between Women and Men, an employer cannot discriminate based on a person’s gender, pregnancy or childbirth.

Any questions related to the above-mentioned matters may lead to the presumption of discrimination, which places the burden of proof on the employer. This presumption may be difficult to rebut. In a possible dispute, an employer must prove that there was no breach of the anti-discrimination provisions, which in practice usually means that employer must prove that there were objective grounds not to hire the candidate.

What not to ask

Allegations of discrimination may be avoided by focusing on matters that are relevant for the position. This practice also complies with the requirements set to protect the candidate’s privacy.

Although no exact list of do’s and don’ts can be made, it is a fairly safe to say that in most cases questions regarding the candidate’s marital status, ethnic background, religion or sexual orientation are not justified based on the necessity requirement. These questions may be difficult to justify, and they may often give rise to the presumption of discrimination.

Questions regarding the candidate’s health may be justified only to the extent directly relevant for the position. As also these questions may give rise to presumption of discrimination, they should only be used if the position actually imposes demands on the candidate’s health and the employer is able to demonstrate this.

Additionally, all of the candidates should be asked the same questions as oppose to requesting this information only from those candidates who seem to have lower working capacity, for example, based on their physical appearance or information submitted in their CV.

It should also be noted that if the employer later on finds out that the employee has provided untrue information during the interview when he/she was asked a question that may be interpreted discriminatory the employer may not take any legal measures due to employee’s dishonesty.

Can I Google the candidate?

Based on Finnish law, an employer is allowed to collect information on the candidate primarily from the candidate himself/herself. Information may be obtained from somewhere else only with the candidate’s consent.

Using Google or other search engines on the Internet during the recruiting process may also be problematic. Even if it is not prohibited to ‘google’, information obtained when googling cannot be collected or used during the recruiting process.

It should also be noted that the information obtained by googling may be inaccurate or concern another person with same name as the candidate. Collecting and using this information requires the consent of the candidate.

If the information has been obtained without his/her consent, the candidate should be notified prior to making any decisions and should be given the right to access the information collected by the employer to evaluate its accuracy.

Headhunting generally permitted

The restrictions regarding googling and collecting information apply to candidates that have applied for the position, but in general not to headhunting.

The Personal Data Act allows headhunters and others to find suitable candidates through the Internet, so long as the material you are searching for concerns generally available information regarding the professional status, duties or performance of a person.

However, as soon as the person becomes an applicant, the employee’s privacy is covered by the Act on the Protection of Privacy in Working Life.

Where you need to get consent

When the candidate has included referee information on the application or provides this information during the interview, it can be interpreted as consent to collect information from the named person. However, it should be noted that the consent is limited to that specific person, and the employer cannot contact anyone else form the same organisation.

The use of drug tests and personality and aptitude tests, as well as the processing of the candidate’s credit information, are also regulated by law. Drug tests, as well as personality and aptitude tests, require the candidate’s consent. If the statutory requirements for requesting credit information are fulfilled, no consent is required, but the candidate should be notified prior to obtaining the information. Additionally, the candidate must be informed of the register that is used to obtain the credit information.

Where to gather information?

The safest route to gather information is to collect information directly from the candidate and the named referees, and request consent if information is collected from other sources. Googling without the consent of the candidate is not recommended, as the employer may have difficulties to exclude any information found by googling from his/her mind prior to making any decisions.

If the requirements are met, the use of drug tests and requesting credit information may be recommended to evaluate the candidate’s reliability. Additionally, personality and aptitude tests may also add value to the recruitment decision.

Even if these methods require consent, it is unlikely that a candidate with a genuine interest in the open position would decline. If the employee does not consent, the employer may draw conclusions for the reasons behind refusing consent.

Fines and criminal sanctions are possible

If the provisions of the Non-Discrimination Act are violated in connection with the recruitment process, the candidate may claim indemnity in the amount of EUR 15,000.

If the employer is deemed to breach the obligations under the Act on Equality Between Women and Men, the candidate may be entitled to an indemnity in the minimum mount of EUR 3,240.

The maximum amount set for the indemnity (EUR 16,210) is only applicable if the employer is able to demonstrate that the candidate would not have been selected even if the choice had been made on non-discriminatory grounds. Otherwise, the Act does not provide for a maximum amount of indemnity.

If personal information is collected and processed contrary to the provisions laid down in the Act on the Protection of Privacy in Working Life and the Personal Data Act, the representatives of the employer may also face criminal liability.

21/10/2013

Move over .com!

A top-level domain (TLD) is the suffix at the end of a domain name: for example, the .com at the end of krogerus.com. TLDs can be divided into various categories, including country code TLDs (ccTLDs) and generic TLDs (gTLDs). Currently, there are only 22 gTLDs available for use by anyone, anywhere in the world – .com, .net and .org are the most prominent of these. However, the situation is about to change drastically.

Following the launch of the new gTLD programme, a total of 1,930 applications for new gTLD strings were filed with the Internet Corporation for Assigned Names and Numbers (ICANN). These included 1,409 unique strings. The most popular strings – .app, .home and .inc – were subject to about a dozen applications each. The first seven new gTLD strings* will become operative on 26 November 2013, with many more to follow in the coming months.

This insight examines the possible implications of the new gTLD programme for brand owners.

Increased freedom of choice

It can be a challenge these days to find a .com or .net domain name that is both practical and available. For example, had the krogerus.com domain name already been taken, Krogerus might have considered registering the domain name krogerusattorneys.com or krogerusfinland.com. However, neither of these would have been quite as convenient as the natural first choice.

Overcrowding of the current gTLD namespace is one of the main reasons behind the new gTLD programme. It is anticipated that the launch of an abundance of new gTLDs will bring more variety and choice to internet naming, making it easier for end users to locate the content they are interested in. In the near future, for instance, Krogerus could also opt to register such domain names as krogerus.ltd or krogerus.law.

From worldwide web to wild, wild west?

An increased freedom of choice is not necessarily purely positive. It can also increase the potential for cybersquatting and other types of online trade mark infringement. For example, gTLD strings such as .discount, .sale and .shop could become popular amongst companies selling counterfeit or look-alike products. Meanwhile, gTLD strings such as .exposed, .sucks and .wtf could be used to discredit or denigrate certain brands.

So, what can you as a brand owner do to stop second-level domain names such as yourbrand.shop and yourbrand.sucks from falling into the wrong hands?

Maintain control before the dot

The Trademark Clearinghouse (TMCH) was set up to address some of the potential problems faced by brand owners. A brand owner that has entered its trade mark into the TMCH will have the opportunity to register second-level domain names that are an exact match to that trade mark before they become generally available.

This so-called sunrise period will last for 30 days after the launch of each new gTLD. It will be followed by a trade mark claims period of at least 60 days. During this time, anyone attempting to register a second-level domain name matching a trade mark entered into the TMCH will be notified of the trade mark. Should the notified party decide to go ahead with the registration, the trade mark owner will be informed of this. It can then consider what action it wishes to take.

Some new gTLD registry operators will also offer their own rights protection mechanisms. For example, Donuts Inc., which has applied to operate 307 new gTLDs, will implement its own Domains Protected Marks List (DPML). The DPML will enable brand owners to block their trade marks from registration across all gTLDs operated by Donuts Inc. Most trade marks entered into the TMCH will also be eligible for inclusion in the DPML.

However, the DPML will provide more extensive protection than the TMCH. In addition to exact matches, it will also allow the blocking of second-level domain names fully containing an exact match. In other words, if included in the DPML, the trade mark EXAMPLE could be used to block both example.clothing (exact match) and fake-example.clothing (exact match plus).

…and also after the dot

Certain major brand owners have also opted to register their own gTLDs to distinguish authorised websites from unauthorised ones.

For example, the gTLDs .apple, .google, .mcdonalds, .microsoft and .visa have been applied for by the respective brand owners. This is a rather costly option, taking into account the technical requirements that all applicants must fulfil as well as the USD 185,000 application fee charged by ICANN. The next application round is also not likely to commence for another few years. However, especially for owners of large trade mark portfolios, registering one’s house mark as a gTLD could be worth considering. In Finland, applications have been filed by the City of Helsinki (.helsinki), Kone Corporation (.kone), Nokia Corporation (.nokia and .诺基亚) and Phenomena Group Oy (.promo).

Put a stop to infringements

In addition to new rights protection mechanisms, new dispute resolution procedures will also be introduced. These are intended to supplement, not replace, the existing Uniform Domain Name Dispute Resolution Policy (UDRP).

Most notably, the Uniform Rapid Suspension System (URS) will offer an even faster and more affordable means for dealing with infringements. The grounds for filing a complaint are essentially the same as in the UDRP. However, due to the very speedy nature of the proceedings, cancellation or transfer of the disputed domain name is not an option. Instead, if the examiner finds in favour of the complainant, the registry operator must immediately suspend the domain name for the rest of the registration period. In other words, the domain name will be prevented from directing to the original website. Instead, it will redirect to a webpage indicating that the domain name has been suspended following URS proceedings. It will not be possible to transfer, delete or modify the suspended domain name during the remainder of the registration period.

Plan of action

For brand owners, the new gTLD programme entails both a greater freedom of choice and a heightened risk of online trade mark infringement. In order to best be able to take advantage of the former and combat the latter, it is advisable to enter at least one’s most valuable trade marks into the TMCH. This is possible provided that the trade marks in question are registered or have been validated by a court of law.

In addition, the trade mark owner must prove that the trade marks are in use. This can be done by submitting a signed declaration of use as well as, for example, a screenshot of the trade mark owner’s website, copies of marketing materials or photographs of goods bearing the trade marks. Proof of use in the traditional sense is not required. Rather, a single sample is sufficient.

Nevertheless, due to the relatively short duration of the sunrise and trade mark claims periods, it will become even more important to invest in quality domain name watching services.

* .bike, .clothing, .guru, .holdings, .plumbing, .singles and .ventures

19/09/2013

3D printing comes of age

We have all read of them in the papers: 3D printed handguns, musical instruments, grandfather clocks (with full machinery), robotic insects hovering on their own – you name it. It seems that with enough time and effort almost anything can be 3D printed these days, and 3D printing has become the weapon of choice for DIYers.

But what are the legal implications of 3D printing and how will this technology impact your business? While you may not do it yet, it is possible that you will start buying and selling products using 3D printing technology at some point in your business cycle.

Who is at fault for product liability?

One area of law where 3D printing may have potentially far-reaching ramifications is product liability. A 3D printed object can prove to be defective for a whole battery of reasons, such as:

  • Faulty original object
  • Faulty model file
  • Corrupted copy of a model file
  • Faulty printer
  • Faulty printing material
  • Human error

You do not need to be a fortune teller to predict that courts will be asked to shed light on some tricky liability questions in the not-too-distant future.

Protect yourself through contract

Consumers are naturally protected by imperative provisions that sellers cannot contractually deviate from. But in the business-to-business context, it is possible to have a say on your liability position in both individual contracts and chains of contracts. As a vendor, you should negotiate a disclaimer, non-liability clause or cap – or otherwise limit your liability. You should also seek an indemnity for third-party claims. Be sure to include an arbitration clause so that any possible dispute remains confidential.

If you are the buyer, the indemnity clause should function the other way around. It is in your interest to minimise the vendor’s limitations of liability and try to achieve liability caps that still provide some comfort if liability is eventually triggered.

Attempt to get a guarantee and certain key warranties by the vendor concerning the characteristics of the products. And if in doubt, seek advice – preferably beforehand. In the long run, it is normally the most economically advantageous thing to do.

Who owns the rights to the model and end product?

3D printing also has several implications in terms of intellectual property law. The main ones are as follows:

Copyright. The digital models used for printing a three-dimensional object may constitute subject matter protected by copyright. Under the Finnish Copyright Act, descriptive drawings and graphically or three-dimensionally executed works are considered literary in nature. Future case law will show whether parallels can be drawn between such a literary work and a physical object. The physical object may be copyright-protected in and of itself, but the high threshold of originality for articles of utility mean that protection is more difficult to attain than in the area of fine art.

Designs. Anyone who has created a design may, through registration, obtain the exclusive right to it. The exclusive right to a design implies that no person other than the right holder is entitled to use the design without a licence, except for private use for non-commercial purposes. The right holder’s entitlement to prohibit usage such as 3D printing, however, is restricted by the fact a design right does not cover features of appearance of a product solely dictated by its technical function.

Trade marks. Any kind of mark that can be represented graphically, including the shape of goods or of their packaging, may be a trade mark. The effect of the rights in a trade mark is that only the proprietor may use it in business. It follows that manufacturing an object that in one form or another reproduces other proprietor’s two- or three-dimensional trade mark requires a licence, provided that the object is manufactured for business purposes. As with designs, however, the exclusive right in a trade mark does not apply to any part of the mark mainly dictated by functional considerations.

Patents and utility models. Functional considerations belong to the realm of patents and utility models. The exclusive right conferred by a patent or utility model implies that only the proprietor may exploit the protected invention for commercial purposes. Since the term “exploit” covers, among other things, the act of making a protected product, unauthorised 3D printing of such a product is a prima facie infringement. A person distributing protected model files might be liable for a secondary infringement, assuming that the files can be considered the “means” of working an invention referred to in the Finnish Patents Act.

New industrial revolution?

Last year a writer for The Economist argued that the consequences of all the changes that will be brought about by the widespread use of additive manufacturing, more commonly three-dimensional (3D) printing, will amount to a third industrial revolution.

The first revolution began with mechanisation in the late eighteenth century and the second with the introduction of the assembly line in the late twentieth. Now, goes the argument, we are on the threshold of a new era, as the digitisation of manufacturing will transform the way goods are made.

3D printing is a process of making physical objects of virtually any shape from a digital model. The final product is achieved using an additive process where an object is manufactured by depositing material layer by layer. No separate mould is required – the digital model is the virtual mould. A number of different additive processes are used, and the materials that can be printed range from various plastics and ceramics to metal alloys. (Rearden Metal still remains unavailable, but Chinese scientists have begun printing organs with living tissue.)

26/04/2013

Chambers Europe Award to Krogerus

Chambers Europe has conferred to Krogerus its Award for Excellence in Finland for 2013. This is the first time Chambers Europe has bestowed this honour in Finland.

The award was announced at a gala ceremony held at the Grosvenor House Hotel in London on 25 April. Krogerus was chosen from six law firm nominees.

“We work in a competitive international arena where clients expect the best from our practitioners,” comments Juha Pekka Katainen, managing partner.

“This award affirms the breadth and depth of the entire firm’s competence. Our clients deserve excellence in legal services, and we aim to give it to them.”

Chambers’ editors carried out extensive research from clients and other law firms to select the 2013 winner. The editors said the following about Krogerus:

“This esteemed firm continues to grow in prominence across a number of different practice areas, including real estate, energy, corporate/M&A, intellectual property and insolvency. It is a prime choice for major domestic matters, and also acts for a number of notable foreign investors, particularly from Asia and Germany. It counts major Finnish and other Nordic equity investors and construction companies among its clients, and recently advised AVIC International Investments on the Finnish law aspects of its acquisition of Deltamarin.”

Chambers Europe is a publication of Chambers and Partners. It is widely considered a leading independent organisation ranking law firms worldwide.

You can see the full list of Chambers Europe 2013 winners here: Chambers Award for Excellence

25/04/2013

Feeling the jolt

On 20 March 2013, the Finnish government issued its much-awaited proposal for a new Electricity Market Act and an amended Natural Gas Market Act. It also sent to the parliament a separate supervision act.

The proposal implements the European Union’s third Electricity and Natural gas Directives to the Finnish legislation. It also includes numerous nationally prepared amendments and changes.

The proposed acts may have significant impacts for undertakings operating in the energy sector, including operators of electricity systems and energy producers (such as entrepreneurs developing wind power). The new legislation is intended to enter into force as soon as possible, most likely during the summer or fall 2013.

Different types of electricity systems

The proposed new Electricity Market Act’s terminology is brought into line with the EU Directive 2009/72/EC on rules concerning the internal market in electricity. The regulation of transmission system derives mostly from EU legislation and includes numerous changes. Other types of electricity systems recognised by the proposed act are high-voltage distribution systems (ex regional system operators), distribution systems and a separate new sub-category of closed distribution systems. 

Operations in closed distribution systems are subject to licence and most of the obligations of a system operator apply to such operators, too. The regulation of closed distribution system brings several electricity systems within geographically confined industrial, commercial or shared services sites within the scope of application of the proposed act.

Standard of delivery reliability tightened

The proposed act requires that power outages deriving from storms and heavy snow loads may not cause interruptions exceeding six hours in town plan zones or 36 hours in other areas in distribution systems. These requirements enter into force step-by-step during the next 15 years and, while the exact measures to be taken are left to the operators, in practice it is estimated that investments in excess of EUR 3.5 billion on, for example, underground cabling and construction of looped and back-up systems are required. 

This may have impacts on the Energy Market Authority’s methodology to regulate the reasonableness of pricing. 

Electricity system operator obligations

The content of several central obligations are also clarified. Some criteria used to assess the obligation to develop the system in the Energy Market Authority’s practice are now included in the preparatory materials. The transmission and distribution system operators are required to prepare and submit a specific development plan. 

A new general principle of impartiality clarifying the requirements of equitability and non-discrimination in electricity system services is included in the proposal. The distribution system operators are also obliged to prepare for fault situations by as swift repair works and returning to normal operations as possible. They are also obligated to inform customers of outages.

Obligations to connect electricity consumption and generation sites and to transfer energy now implement in full the third-party access principle deriving from Directive 2009/72/EC and EU caselaw.

Promoting wind power

The proposal includes changes tailored specifically to promote the position of developers of wind power and other renewable energy generation. 

A single service line may now serve several power plants instead of one, making it possible to connect several wind power parks through a single service line to the electricity system. This development lowers the actual connecting costs and thus investment costs of the developers. It also clarifies that the general obligations relating to electricity system operators are not applied in service lines serving several undertakings. 

Service lines may also connect power generation plants located outside the country borders to the Finnish electricity system, thus making it possible to construct wind power parks further off-shore.

Changes to electricity generation and markets

On the retail market side, the proposed act further promotes the position of electricity consumers by, for example, making the change of seller easier, clarifying rules on billing and rising the maximum amount of standard compensation payable due to outages.

On the wholesale market side, the proposed new act on Surveillance of Electricity and Natural Gas Markets Acts includes also provisions on the Energy Market Authority’s co-operation with other national and European authorities. National provisions regarding the EU Regulation on wholesale market integrity and transparency (REMIT) on monitoring and prohibiting market manipulation and insider trading at electricity and natural gas wholesale and derivative markets will be enacted separately.

Enhanced supervision and sanctioning

The most significant change in supervisory powers relates to the Energy Market Authority’s power to propose to the Market Court that it should impose fines up to 10 per cent of the undertaking’s relevant turnover for violations or neglects of certain provisions of the new acts. The Market Court’s decision imposing fines may be appealed to the Supreme Administrative Court. 

Fines may be proposed in, for example, instances of failure to fulfil the requirements of the central system operator’s obligations. It is noteworthy that in the future market manipulation and insider trading in wholesale markets may be sanctioned by a similar fining process, as well as possible criminal sanctions for individuals.

While proposals to impose fines are expected to be low in number, this possibility underlines the importance of complying with this sector-specific regulation. To enable effective supervision of compliance with the expanding regulation, the Energy Market Authority’s resources are increased.

Read more about the recent developments in Energy Market Authority’s regulation of reasonableness of pricing: Setting the right charge in electricity distribution.

04/03/2013

Use it or lose it

A recent ruling by the Court of Justice of the European Union (CJEU) could mean trouble for many Community trade marks.

There is now a heightened risk that national courts will invalidate these trade marks if they have not been used extensively enough in the European Union.

Is broader protection better?

A Community trade mark (CTM) confers protection in all 27 EU member states. A CTM registration is granted based on a single application. Conversely, obtaining a bundle of national registrations in a group of member states generally requires filing separate applications in each jurisdiction.

As the cost of obtaining a CTM is not much higher than obtaining national trade marks in two to three member states, CTMs have become an increasingly popular choice. Many companies favour CTMs over national registrations, even when their business is limited to only one member state.

For these companies, CTM protection is sensible in instances where expansion into other EU markets is planned in the relatively near future. However, in light of the CJEU’s ruling, it may be worthwhile to consider national protection in the home market if plans for expansion are uncertain or likely to take more than five years to carry out.

The battle lines are drawn

The ruling referred to above was given by the CJEU on 19 December 2012, in case C-149/11 (Leno Merken BV AG v Hagelkruis Beheer BV). The core question in the case was how geographically widespread the use of a CTM must be in order to qualify as genuine use supporting a CTM registration.

Leno Merken had a CTM registration for the mark ONEL. The dispute arose when Hagelkruis filed an application to register the mark OMEL in the Benelux countries. Leno Merken promptly opposed the application. In response, Hagelkruis demanded that Leno Merken provide proof of use of its mark in the EU – failing which the opposition would be rejected.

Leno Merken complied. However, it could only provide proof of use regarding the Netherlands, where it was undisputed that the mark had been put to genuine use. Hagelkruis’ argued that use of a CTM in a single member state is not sufficient to prove genuine use in the EU, as required by the Community Trade Mark Regulation. The Benelux Intellectual Property Office agreed.

Finding the middle ground

The view that use in only one member state is never enough to sustain a CTM registration has been supported by the national trade mark offices of many other member states. On the other hand, the CTM registry, The Office of Harmonization for the Internal Market (OHIM), has maintained that use of a CTM in even just one member state is always sufficient.

In its ruling, the CJEU rejected both of these extremes. It held that territorial borders should be disregarded in assessing whether a trade mark has been put to genuine use in the EU. The territorial scope of the use is only one element of genuine use in the EU.

The CJEU also repeated its earlier finding in case C-40/01 (Ansul BV v Ajax Brandbeveiliging BV) that a mark is put into genuine use when it is used in accordance with its essential function to distinguish the origin of the goods and services covered by it, and for the purpose of maintaining or creating market share in the EU.

Reading between the lines

The CJEU’s ruling has been interpreted to mean that use in a single member state may suffice when the market for the goods and services concerned is limited in scope. For example, it is not necessarily justified to require that a CTM associated with a local delicacy should be used also outside of its home member state.

On the other hand, when the relevant market is more widespread – as is the case with, for example, the financial services market – it could be difficult to claim that the use of CTM in only one member state constitutes genuine use in the EU.

Winner: national trade marks

The reasoning behind the CJEU’s ruling appears to be that the use of a CTM must be extensive enough to warrant its protection in the EU as a whole.

However, the CJEU did not specifically require that a CTM should always be put to use in more than one member state. This position would have resembled the concept of interstate commerce applied in US federal trade mark law. In practice, it would have almost automatically rendered a large number of CTMs void.

The CJEU’s ruling serves as a reminder that companies should consider carefully before deciding to opt for a CTM registration instead of national protection. National trade marks certainly still have their place in the trade mark system in the EU.

03/01/2013

The tax man cometh

This is an important year on the taxation front. New rules restrict interest deductions and increase the transfer tax related to the sale of shares in housing and real estate. Additionally, two tax incentives support research and development activities, as well as innovation and growth.

Restriction on interest deduction

The Finnish legislature has restricted interest deductions applied in taxation starting in the 2014 taxation year. If your company operates on other than a calendar-year basis for financial accounting purposes, the restriction may apply already in 2013.

The limitation concerns corporations and partnerships carrying on business activities in Finland. Entities carrying on other than business activities, such as real property companies, in general, are excluded from the scope of the limitation, as well as banking, insurance and pension institutions.

According to the main rule, net interest expenses are tax deductible for income tax purposes up the amount of EUR 500,000. Net interest exceeding EUR 500,000 is deductible to the amount corresponding to 30% of adjusted profit of the entity before depreciations, interest costs, losses related to financial assets and group contribution. However, interest paid to a non-related party is tax deductible as a whole.

The restriction is not applied in instances where the ratio of equity to the total balance sheet is not below the corresponding ratio of the whole group.

Raise of transfer tax

Transfer tax on transfers of shares of housing and real estate is raised to 2% (the current amount is 1.6%). The new rate is applicable to transfers made on 1 March 2013 or later. Regarding all transactions, the tax base is extended to liabilities transferred to the transferee and benefitting the transferor. Pro rata loans of housing and real estate companies are allocated to the shares transferred and counted to the tax base.

Temporary tax on banks

While Finland has not been in favour of the EU financial transaction tax, it introduced a temporary tax for Finnish deposit banks to be applied in tax years 2013–2015. Branches of foreign banks located in Finland are excluded from the scope of the tax. The amount of tax is 0.125% of the risk weighted items, as determined for solvency accounting purposes at the end of previous year.

Incentives to spur growth

There are also incentives in the new tax package. The incentives are currently temporary, which means you can apply them for the 2013–2015 taxation years.

One of the incentives provides an additional deduction on salaries related to research and development activities, which is introduced in income taxation. You can use the deduction no matter the size of your company. The amount of additional deduction is in the range of EUR 15,000–400,000.

Additionally, individual investors (so-called business angels) are allowed to deduct half of their monetary investments in a small non-listed enterprise that employs fewer than 50 persons and whose annual turnover or annual balance sheet total does not exceed EUR 10 million. The amount of deduction is EUR 5,000–75,000, and it can be made from capital income. The deduction is considered as income to the investor, among others, when the investor disposes of the investment. Thus, the deduction is not a final benefit. There are several further conditions for the tax deduction.

This regime is conditional and needs still be approved by the EU Commission. It is applied to investments made after the notification.

Another incentive allows corporations to make double depreciations on new plant and equipment in plants taken into use in the tax years 2013–2015.

Individual taxation increases

In addition, the Finnish legislature has introduced several taxation amendments that impact individual persons and estate death-taxation. The Finnish value-added tax has also increased in all classes by 1%.

11/12/2012

Emissions for sale

European Union companies with emissions should start to consider if they want to buy emissions from auctions to meet their quotas. The first primary auctions have already been executed by the common EU auction platform European Energy Exchange AG (EEX). The time is now to gather the information you need to start buying your emissions allowances.

Generally speaking, if you are a company in the European Union that emits green house gases into the air, you may fall under the scope of the European Union’s Emission Trading Scheme (EU ETS). What this means on a practical level is that you can start buying your emissions allowances from the auctions to meet the EU’s emission quotas. The companies impacted the most by EU ETS are electricity producers, heavy industries and aviation companies. 

Why buy now?

By buying your emission allowances from the auctions early on, you ensure the best price for the quota amounts you need. If you delay, it is possible you may have to buy allowances from more-expensive secondary markets later on. Odds are the so-called “back loading” and potential “set aside” for EU emission allowances in Phase III may result in increased carbon prices.

For now, we are in what is called Phase II of the EU ETS. Fundamental changes are coming, however, in Phase III, which will take place from the years 2013–2020. 

During these years, heavy industries and, in all likelihood, some of the European aviation companies will need to buy more than 50 per cent of their allowances from the auctions, with the exception of district heating and the carbon leakage sectors. Electricity companies will need to buy 100 per cent of their allowances in the Phase III. 

As a result, emission trading and auctions will undoubtedly become more visible parts of the business for these firms. 

First full auctions in 2013

Auctions will be conducted either in the common EU auction platform used by 24 Member States or in “opt-out” auction platforms located in Germany, Poland and the United Kingdom. Following a competitive tender procedure, Member States and the European Commission appointed the EEX in Leipzig as transitional common auction platform for Phase III. Also, Germany selected EEX as an opt-out auction platform for Phase III auctions. The United Kingdom has nominated ICE Futures Europe (ICE) as its auction platform for the next trading period.

The time for preparation for the first auctions in 2013 will be very short despite the fact that the auction platforms have been made public. The primary auctions have already been executed in 2012. The first full auctions will take place in the beginning of 2013. 

Three steps to take now

It is recommended that companies start their preparations for the auctions well in advance of the beginning of the Phase III. Several essential steps are outlined below. 

Firstly, companies should evaluate their total annual emissions and the amount of allowances they need to obtain from the auctions in the Phase III (the amount they still need to buy in order to be able to comply with the EU ETS regulation). Once obtained, the total amount of allowances will then be surrendered by the end of April each year beginning in 2014. It should be noted that the auctioned allowances of Phase III may only be used to comply with Phase III emissions, not for year 2012. Only if you are an aviation company, you may use the allowances to comply with your emissions in 2012. 

Secondly, companies should decide which auctions they will attend. Even if your headquarters is in Finland, you can take part in the common EU auction platform or in the German or United Kingdom platforms. In general, the auctions will be held at least once a week. The calendars for 2013 auctions will be maintained by EEX and ICE. You should follow the auction calendars closely and prepare an auction participation strategy in advance. 

Thirdly, companies joining the auctions in 2013 should have their preparations well on their way. These practical preparations include completing an application and gaining access to the auctioning platform, negotiating and signing an agreement with a broker company, preparing financial documents and company compliance programmes, getting an overview of the auctioning products (future, forward or spot), as well as getting acquainted with the auctioning processes and practices. 

Finally, participants must comply with the European Union provisions that deal with insider dealing and market manipulation. At worst, legal consequences for neglecting auction or insider regulation may lead to criminal sanctions. Many companies have compliance programmes for insider issues, but considering the sectors participating in emissions auctions, this is not always the case.

By taking these steps, companies can get a jump start on the new auction process.

12/11/2012

Intellectual property gets a new home

With a law enacted on 17 December 2012, the Finnish parliament moved forward on the longstanding plan to house intellectual property rights disputes in the Market Court. This legislative reform has a significant impact for all companies operating in Finland. The Market Court will start to hear these disputes in the autumn of 2013.

Currently, if you think someone has infringed your intellectual property rights or has engaged in unfair business practices, you have to bring the dispute to different courts – even if the claims roughly deal with the same facts. This reform makes it possible for a plaintiff to combine these claims. 

As a result, the reform will mostly eliminate the need for simultaneous or consecutive litigation in different courts – saving litigants time and money. There is also the thinking that having a specialised intellectual property rights court will help to improve the quality and uniformity of rulings in these matters. 

At present, when the National Board of Patents and Registration (NBPR) takes a decision concerning patents, utility models, trade marks, designs, trade names or topographies of integrated circuits, you need to appeal to the NBPR Board of Appeal. If you want to enforce any of these rights, the Helsinki District Court is the venue of first instance. If you want to get a prohibition against unfair business practices, you can take the case to the Market Court. Claims for damages resulting from those practices, as well as matters related to copyright and neighbouring rights, fall under the jurisdiction of the general courts, which may mean any district court in Finland.

After the reform, the Market Court’s jurisdiction will cover all civil and petitionary intellectual property rights matters, excluding only purely contractual disputes where a plaintiff does not claim that its intellectual property rights were infringed. The Finnish judiciary will also transfer petitions for injunctions based on intellectual property rights infringement from the district courts to the Market Court. Additionally, the Market Court will decide civil matters – such as claims for damages – related to intellectual property rights or unfair business practices.

The Market Court will also become the appeal body for all intellectual-property-rights-related decisions that the NBPR has taken. These include appeals against both refusals of registrations and decisions regarding oppositions of registrations. As a result, the NBPR Board of Appeal, stripped of all of its functions, can be abolished. The Market Court will also hear appeals against decisions the Finnish Communications Regulatory Authority has taken under the Domain Name Act. 

The general courts will continue to hear criminal cases related to intellectual property rights. However, the issued amendment of law will centralise these matters in the Helsinki District Court, as the first instance.

After the reform, you will be able to appeal against the Market Court’s rulings either to the Supreme Court or the Supreme Administrative Court, depending on the nature of the matter. The Supreme Administrative Court will hear appeals against rulings in matters originating from the NBPR, and the Supreme Court will hear all other matters as a court of last instance. In all cases, you will need leave to appeal. 

The legislature intends that the reform take effect on 1 September 2013. As a transitional arrangement, however, trade mark appeals brought before the NBPR Board of Appeal on or after 1 January 2013, as well as appeals related to patents, utility models, topographies and designs brought on or after 1 May 2013 and pending before the Board of Appeal when the reform takes effect, will be transferred to the Market Court. This change will not affect actions pending before general courts.

09/10/2012

Power from the wind

Wind power offers Finland an attractive means to hit its renewable energy targets. It is estimated that by 2020 some 800 turbines will operate throughout the country, bringing 2,500 megawatts of production capacity. And there are plans for much more wind farms in the pipeline. While the Finnish wind power industry is still in its nascent stage, look for this to change in the near future.

If things go as planned, Finland will increase its share of renewable energy significantly by 2020. Currently, about 30 per cent of the country’s electricity production is from renewables. This amount is set to increase to 38 per cent in the next eight years.

Part of Finland’s package of renewables is an increase of its wind power production to around 2,500 megawatts (MW) of capacity by 2020. Projects already in the works may set this amount even higher than is planned by national targets. The growth of interest in the wind power industry in Finland is thanks to, in large part, the feed-in tariff system that came into force on 25 March 2011. 

Guaranteed revenue streams

The feed-in tariff provides wind power producers with a guaranteed production premium of wind power that is set at the difference between the target price and the three-month average spot market price. 

The current target price is EUR 105.30 for each produced megawatt. This amount is planned to drop to EUR 83.50 at the end of 2015. The total time for the feed-in tariff is a maximum of 12 years. The tariff is available for an installed capacity of 2,500 MW. After this national target is reached, any remaining project will not receive the feed-in tariff, unless the Finnish legislature increases the capacity amount.

This attractive revenue stream has piqued the interest of local energy producers, developers, and new wind power participants in the market.

Regulatory and administrative burdens

But before construction can move forward faster, Finland has regulatory and administrative hurdles. The same rules apply for wind power projects as for any other construction development. Yet, unlike for a typical building project, a whole host of other permits are needed for wind farms. As it stands, multiple governmental agencies require their own processes or permit requirements overlap, adding unnecessary delay and cost to each project.

Construction financing also requires specialised understanding. Banks may have covenants stating financing is subject to a producer getting the approvals for the feed-in tariff subsidy. However, final approval to the feed-in tariff does not come until the wind farm is ready for commercial use. If financing is needed in the build-up stages to get projects up-and-running, banks may have to bear some of the risk that the final tariff approval will, in fact, come once the wind farm is online. 

What remains unclear is how participants in Finland will work around this dilemma once wind power projects reach the tens or hundreds of million euros. To get project started, it is possible that developers will seek a greater share of equity funding, bridge financing or non-bank investment sponsorship in the pre-tariff approval stages. Banks may also look to syndicate financing to spread some of the risk.

Attractive coastal locations

Some of the biggest environmental impacts wind farms cause comes from the noise from the moving propellers and from the shadows the structure creates in neighbouring lands. A wind farm’s presence in an otherwise minimally habited area also is arguably an eye-sore.

Different stakeholders are looking into ways to compensate landowners from any impairment in the value of their property that a neighbouring wind farm brings. Locating projects alongside motorways, in industrial harbours and in other already built-environments also presents an attractive option that helps to combat the not-in-my-backyard effect that has stalled some wind farm projects.

The Finnish government has acknowledged the obstacles and recently commissioned a report that provides solutions to many of the current challenges. 

Compared to neighbouring Nordic countries, Finland’s installed capacity of wind power is currently much lower. By the end of 2011, Sweden already had 2,899 MW of installed capacity in operation, while Denmark had 3,871 MW. At the end of 2011, Finland had just 199 MW of installed capacity.

However, helped along by the Finnish government’s support for the industry’s development – combined with strong public approval (some 90 per cent of Finns are in favour of wind power production) – there are signs that what is now an industry in its early stages of growth will gather strength in the years to come.

Moving wind power forward

In August, the Finnish government allocated EUR 125 million in its 2013 budget to fund the feed-in tariff system for renewables, which is a significant increase from the EUR 97 million apportioned this year. Wind power should benefit from this enhanced funding, but, nonetheless, getting projects started remains problematic. 

In the report Tuulivoimaa edistämään (Moving Wind Power Forward), issued last April, Minister Lauri Tarasti offers 16 solutions to the Finnish government on how it can cut certain pre-construction processes to get wind-farms operating faster. Minister Tarasti updated his study in August with another report that discusses how to streamline permit processes. 

In July, the Ministry of the Environment also issued a comprehensive report that summarises the procedures needed to get a wind power plant constructed. The report does not offer solutions to the current procedural bottlenecks, but, rather, serves a guideline for how the current process works. 

As it stands, Finnish ministries and a working group are figuring out how governmental authorities can implement Minister Tarasti’s ideas on a practical level.

You can see the full report in Finnish (Tuulivoimaa edistämään) by visiting the Ministry of Employment and Environment website: http://www.tem.fi

The firm is regularly involved in leading wind power projects in Finland.

10/09/2012

Arbitration essentials

While arbitration offers an excellent means for parties to get their disputes settled faster than in traditional courts, how you draft the arbitration clause in a document is critically important for a positive outcome – should a dispute arise.

Legal agreements often have a clause indicating that parties agree to settle any disputes arising from the arrangement in arbitration. The text for this clause is frequently supplied by a local arbitration institute. Many lawyers in the jurisdiction assume that the text reflects market practice and are reluctant to alter its contents.

But while a standard arbitration clause appears complete on first blush, deeper investigation reveals its potential pitfalls. Before you agree to arbitrate when drafting a contract, there are some things you should keep in mind.

Appoint the arbitrator yourself

Rather than give the power to appoint arbitrators to an outside institute, parties are better off to keep this power. By doing so, litigants can make sure to appoint the most qualified arbitrators to hear their case. The parties themselves understand the facts better than anyone else and can pick arbitrators with the exact experience needed to settle the dispute in the most competent way.

It is often said that arbitration allows parties to have their dispute heard by arbitrators with intimate experience in their business sector and the disputed facts. Yet while arbitration institutes undertake good-faith efforts to find the most qualified arbitrators for the particular case, the institutes are also guided by other criteria – such as fair distribution of appointments to all candidates, gender equality and making sure to bring up the next generation of arbitrators.

For disputes where the interest is relatively small, say, 0.5 million euros or less, an arbitration institute may use this as a good opportunity to allow less experienced arbitrators decide the case. While from the institute’s perspective this is reasonable and sound, the litigants are likely to want the person with the maximum business background and legal knowledge – and not the person with limited experience but great potential.

Three is much better than one

Another thing to consider is the number of arbitrators that you agree to in your arbitration clause. It is a common misunderstanding that one arbitrator is sufficient and that the competence among arbitrators is equal.

The downside is that, when left alone to decide a dispute, an arbitrator’s thought processes may veer away from the relevant facts, resulting in judgments that the arbitrator may consider brilliant but the parties find irrelevant. As arbitration disputes, generally speaking, offer no right to appeal, parties may end up with a judgment that is unfair and grossly incorrect.

Parties sometimes think that appointing only one arbitrator is a good way to save money on the cost of the arbitration. But it is important to remember that the cost of the litigators far outweighs the costs of the arbitrators. In essence, a decision to have just one arbitrator is money that is misplaced.

Agreeing to appoint three arbitrators helps to ensure a more just outcome. When one arbitrator starts to process ideas that are off-track, the other two can serve to reject these concepts and get the dispute moving toward a more reasonable outcome – unanimously.

Arbitration award schedules

It is fairly common to see time limits in arbitration clauses. These clauses may state that the award should be given within, for instance, six months following the appointment of the arbitrators. Such time limits are needless, as they usually hinder sufficient usage of time for both the litigators and arbitrators. The parties could, of course, agree to dismiss the time limit, but rather often one of the parties is not willing to co-operate, as they have a contradictory interest toward the smooth continuance of the arbitration proceedings.

So, while an arbitration clause is a great thing to include in agreements, please, think the text over very carefully.

20/08/2012

What is your resale price?

Companies operating in the European Union should also take caution in setting recommended resale price for their goods.

European Union competition rules say that suppliers cannot fix resale prices or set minimum prices for goods. When a supplier breaks these rules, authorities can hold that their actions are prohibited “resale price maintenance”.

While companies generally understand that market forces should dictate the price for their goods, where they sometimes run afoul in understanding how strictly competition authorities and courts may review their business practices in light of the competition rules.

Finnish Market Court decision

In its decision issued on 20 December 2011, the Finnish Market Court found that certain practices developed by Iittala Group Oy Ab* between 2005 and 2007 constituted prohibited resale price maintenance. Iittala is a well-known Finnish design company that specialises in houseware objects.

In its proposal to the Market Court, the Finnish Competition Authority alleged that Iittala had set the minimum price level for some of its household products. Although the Market Court mainly agreed with the competition authority’s proposal and found that Iittala’s resale price recommendations had amounted to retail price maintenance, it reduced the fine originally proposed by the FCA by 25 per cent to a total of EUR 3 million, as it did not find any evidence that Iittala had benefited from its practices. Although Iittala considers the decision unfounded in its press release, it has opted not to appeal.

Flexible resale recommendations

Iittala strongly disagreed with the Finnish Competition Authority’s proposal, which it argued was based largely on circumstantial evidence consisting mainly of Iittala’s internal documents and e-mails. Iittala submitted that its resale price recommendations had been flexible and should thus be permitted. To support this, Iittala presented extensive evidence that showed the prices of its products had varied greatly during the relevant period.

Iittala also demonstrated that it had not imposed any sanctions on those distributors whose pricing had not corresponded to its recommendations. However, the Market Court did not see Iittala’s recommendations as non-binding and found that there was an agreement or a concerted practice between Iittala and some of its distributors.

Iittala also submitted that its resale price recommendations had been essential to protect its prestigious brand in a situation where it extended its distribution network to include also discount stores and supermarkets. 

According to Iittala, the wider availability of its products brought with it the risk of certain distributors free-riding on other distributors’ marketing investments, which was best combated through the use of flexible resale price recommendations. However, while the Market Court recognised that retail price maintenance, in principle, might lead to efficiencies and could thus be permitted, it noted that the burden of proof lies on the party claiming these efficiencies, a burden that was not fulfilled in this case.

Caution in setting resale prices

In light of the Market Court’s decision, companies should be extremely careful in issuing resale price recommendations. Companies should also be very cautious both in their internal and external communications, as the decision demonstrates the low threshold in the presentation of evidence required to establish an infringement.

*Krogerus, together with another law firm, represented Iittala Group Oy Ab in the Finnish Market Court proceedings described in this text.

22/07/2012

Public loan guarantees

Finnish businesses with debts backed by a public authority should consider whether the guarantee holds up to state aid rules and the guidelines given in a recent Helsinki Administrative Court decision. The risk of non-compliance could mean that your public loan guarantee is removed, your company is fined and you risk investigation by the European Commission.

It is not uncommon for a private company in Finland to have a loan that is guaranteed by a local, regional or national public authority. When this happens, an important issue to consider is whether the guarantee meets the European Union’s state aid rules.

Documentation is vital

In spring 2012, the Helsinki Administrative Court issued a decision on the application of state aid rules to a loan guarantee given to Vantaan Energia Oy (Vantaa Energy Ltd), an energy operator in Finland’s fourth largest city of Vantaa. 

The facts of the dispute date back to March 2011, when the Vantaa City Council granted Vantaa Energy a surety for a maximum amount of EUR 250 million to guarantee loans for the construction of the Långmossebergen waste-fired power plant, located along Ring Road III, in Vantaa. 

Three residents of Vantaa appealed the City Council’s decision to the Helsinki Administrative Court. They charged that the guarantee violated state aid rules. The court ruled in the plaintiffs’ favour. It held that the City of Vantaa failed to establish the market price for the guarantee limited and that this was a violation of state-aid rules. The court also annulled the City Council’s decision to establish the guarantee. 

Vantaan Energia is currently building the waste-to-energy plant (it is set for completion in 2014), but what it no longer has are the public loan guarantees in the form given by the Vantaa City Council in March 2011.

Details of the guarantee

The guarantee limit granted by the City of Vantaa covered the financial institution loans and interest. According to the City Council decision, a counter guarantee amounting to 1.5 times the amount of the loan was required from Vantaa Energy. In addition, a guarantee commission was set and Vantaa Energy was required to take a negative pledge. The estimated total cost for the waste-fired power plant was approximately EUR 270 million at the time of the City Council’s decision, out of which EUR 250 million were funded with long-term loans.

In its ruling, the Helsinki Administrative Court said that a municipality has to take into account the effect of the EU state aid rules when it gives a guarantee. If the general provisions on state aid are ignored by the municipality, an administrative court can hear the case through a municipal appeal. Therefore, the Helsinki Administrative Court confirmed that national courts have jurisdiction to supervise compliance with state aid legislation.

As for the market price of the guarantee limit, the Administrative Court stated that the documents of the City Council failed to describe the terms of the limit, the means for the amortisation of the loans, the amount of interest charged and certain other substantive loan terms. The documentation could not have enabled an adequate evaluation of the market price of the guarantee limit. Since the City Council had not evaluated the applicability of state aid rules or whether the guarantee limit was determined on market terms, the Helsinki Administrative Court declared the decision of the Vantaa City Council void.

Implications for businesses

In its decision, the Helsinki Administrative Court did not assess whether the guarantee actually involved state aid or not. The Administrative Court merely stated that it was a possibility that could not be ruled out. This was sufficient basis for annulling the City Council decision. The Vantaa City Executive Board decided, in May 2012, not to appeal to the Supreme Administrative Court.

What this means for businesses is they should ensure that their loan practices meet state aid rule requirements. While the case law in Finland on this issue is scarce, non-compliance with the rules could have unfortunate consequences.