Antwerp Commercial Court on Admissibility of Company as Liquidator

In a judgment dated 16 February 2010, the Antwerp Commercial Court held that, for a company to be appointed as liquidator (vereffenaar/liquidateur), its corporate purpose (maatschappelijk doel/objet social) should contain an explicit reference to the activity of a liquidator.

Facts

In a decision of the general shareholders' meeting to liquidate the company, a company was appointed as liquidator. The stated corporate purposes of the company liquidator included the management of other companies, advice and consultancy services, advertising and development services.

Position of the Antwerp Commercial Court

The Antwerp Commercial Court first referred to a previous decision of the Antwerp Court of Appeal dated 23 November 2006. This decision confirmed that, for a company to be appointed as liquidator, its corporate purpose should allow for this. While this statement remains rather general, the Antwerp Commercial Court now goes one step further by stating that the corporate purpose should contain an explicit reference to the possibility of exercising the activity of liquidator. The management of other companies, advice and consultancy services, advertising and development services would not be sufficient, since such activities aim at the continuity of a company. In contrast, a liquidation seeks to discontinue the company. As a result of this interpretation, the corporate purpose should contain an explicit reference to the activity of liquidator.

Legal Analysis

The judgment of the Antwerp Commercial Court seems far-fetched. The requirement that the activity of liquidator, which is not a regulated profession, should be mentioned explicitly in the corporate purpose of the company, is without any legal basis. Also, the justification of the Court (continuity versus discontinuity) seems rather arbitrary. In our view, any activities that are reasonably necessary or useful for the fulfilment of a company's corporate purpose, fall within the scope of that purpose. In particular in the case at hand, the management of other companies could, in our view, also include the liquidation of a company, even if that activity is not expressly mentioned in the liquidating company's articles of association.

New Bill on Exercise of Certain Rights of Shareholders in Listed Companies

On 20 October 2010, the Federal Government submitted a bill on the exercise of certain rights of shareholders in listed companies (the "Bill"). The Bill seeks to implement Directive 2007/36/EC of the European Parliament and the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies (See, this Newsletter, Volume 2007, No 6 and Volume 2010, No 3).

The text of the Bill has been discussed and was adopted on 22 November 2010 by the Committee of the Chamber of Representatives which deals with commercial and economic law. The Bill is expected to become law in the coming weeks.

The Bill will strengthen shareholders' rights, in particular through (i) the option of participating in shareholders' meetings via electronic means; (ii) the obligation for listed companies to make available specific information and documents relevant to shareholders' meetings on their website; (iii) the definition of the minimum content of the convocation to the shareholders' meeting; and (iv) the possibility for shareholders to put items on the agenda of the shareholders' meeting and to table draft resolutions for items on the agenda provided that these shareholders represent at least 3% of the share capital.

The Bill imposes the obligation on listed companies to amend their articles of association to make these new rights operational by 1 January 2012.

BFIC Becomes FSMA

One of the Belgian responses to the financial crisis and the call for more and better supervision was to reorganise the architecture of supervising bodies. This reorganisation was set out in the Law of 2 July 2010 adapting the existing law on the supervision of the financial sector and the financial institutions (the "Law"). Published at the end of September 2010, the Law has only recently started to have an impact.

After a transitional period, a so called "twin peaks" model of supervision will be introduced. In Spring 2011, the supervision of financial institutions will become the competence of the Belgian National Bank, whereas the Belgian Banking, Finance and Insurance Commission (Commissie voor Bank-, Financie- en Assurantiewezen/Commission Bancaire, Financière et des Assurances – the "BFIC") will remain responsible for the supervision of the financial markets and the rules of behaviour of the institutions.

From 2011 onwards, the BFIC will become the Financial Services and Markets Authority (Autoriteit Financiële Diensten en Markten/Autorité des Services et des Marchés Financiers – the "FSMA"). The English abbreviation FSMA will be used as the official acronym, both in Dutch and French.

DATA PROTECTION

European Commission Announces Data Protection Directive Reform Strategy

On 4 November 2010, the European Commission published a communication on "a comprehensive approach on personal data protection in the European Union" (the "Communication"). The long-awaited Communication features the European Commission's strategy for the reform of EU Directive 95/46 of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (the "Data Protection Directive").

The rules of the 1995 Data Protection Directive have become obsolete due to the advent of new technologies and new ways of processing personal data. In addition, personal data are now being transferred around the globe. Furthermore, the Treaty of Lisbon, which entered into force on 1 December 2009, provided the European Commission with the means for a comprehensive reform, covering all aspects and policies of the EU, including police cooperation and judicial cooperation in criminal matters.

In the Communication, the European Commission explains that it wishes to maintain the main principles of the Data Protection Directive and a high level of protection for personal data. To this end, the European Commission sets out five key objectives: (i) strengthening individuals' rights; (ii) enhancing the internal market dimension; (iii) revising the data protection rules in the area of police and judicial cooperation in criminal matters; (iv) ensuring a high level of protection for international data transfers; and (v) enforcing the data protection rules more efficiently. At the same time, the European Commission aims to harmonise and simplify the data protection rules and hopes to reduce the administrative burden on companies. Nevertheless, it appears that a number of new obligations will be imposed on companies which control personal data.

Strengthening individuals' rights

According to the European Commission, the new legislative framework should provide more legal certainty by taking new technologies into account. In addition, it should create more harmonised data protection rules throughout the EU by clarifying key concepts. For instance, the Communication proposes to harmonise the definition of consent and suggests extending the definition of sensitive data to include, for instance, genetic data.

In addition, the transparency requirement in the Data Protection Directive may be further elaborated and harmonised. The revised Data Protection Directive could determine in more detail what information needs to be provided to data subjects and how. The European Commission even considers adopting standard forms for providing information to data subjects.

In addition, the Communication proposes to increase transparency on data breaches by introducing a general framework for a data breach notification, independent of EU Directive 2002/58 of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (the "ePrivacy Directive" – revised in 2009, See, this Newsletter, Volume 2009, No. 12, p. 8). The ePrivacy Directive introduced such a notification obligation to notify data breaches for providers of publicly available electronic communications services and internet service providers. The European Commission considers extending the obligation to notify personal data breaches to the financial industry, amongst other sectors.

The European Commission furthermore plans to improve the terms for data subjects to exercise their rights. In general, data subjects would receive more control over their own personal data. For instance, the Communication discusses the principle of "data portability", a right for data subjects to withdraw their own data, including pictures, from an application or service, such as a social networking site, and to transfer these data to another application or service. In addition, the European Commission suggests strengthening the principle of "data minimisation", which obliges data controllers to limit the personal data processed in relation to its purposes.

The European Commission also plans to introduce a "right to be forgotten", i.e., a "right of individuals to have their data no longer processed and deleted when they are no longer needed for legitimate purposes".

Enhancing internal market dimension

To reduce the administrative burden for data controllers, the European Commission's strategy wants to simplify and harmonise the registration formalities in EU Member States. The European Commission is even considering the introduction of a uniform EU-wide registration form.

In addition, the new legislative framework may introduce a so-called "principle of accountability" (See, this Newsletter, Volume 2010, No. 8, p. 3 for a discussion of the Article 29 Working Party Opinion 3/2010 (WP 173) on the accountability principle). The principle of accountability requires data controllers to implement appropriate and effective measures to show compliance with the data protection rules. The measures mentioned in the Communication include the mandatory appointment of a data protection officer and the obligation to carry out "privacy impact assessments" in order to determine the data protection implications of a particular processing operation, such as the processing of sensitive data, prior to the start of the processing.

The European Commission also considers adopting the principle of "privacy by design". This implies that privacy and data protection would be embedded in products and services throughout the life cycle of technologies, from the early design stage to their deployment, use and ultimate disposal (See, this Newsletter, Volume 2010, No. 3, p. 4). Furthermore, the reviewed Data Protection Directive would offer more possibilities for self-regulation of companies. These are currently provided for in Article 27 of the Data Protection Directive.

Revision of data protection rules in areas of police and judicial cooperation in criminal matters

The European Commission will consider the extension of the application of the Data Protection Directive to the areas of police and judicial cooperation in criminal matters. These were excluded from the scope of the Data Protection Directive and regulated in a fragmented manner. The adoption of the Lisbon Treaty has now made it possible to adopt a comprehensive legal framework that would also cover police and judicial cooperation in criminal matters.

Global dimension of data protection

The European Commission's strategy for the reform of the Data Protection Directive also addresses international data transfers. The present rules on international data transfers frequently cause problems, especially for multinationals transferring personal data outside the European Economic Area (EEA). The European Commission plans to streamline, clarify and simplify the procedures for international data transfers.

Under the Data Protection Directive, personal data can flow freely in the EEA and other countries that have been recognised as providing an "adequate level of protection" for personal data. However, Member States diverge in their interpretation of this "adequacy" requirement. The review of the Data Protection Directive should cure this lack of harmonisation.

Increased enforcement

Finally, the European Commission's strategy will seek a more effective enforcement of the data protection rules. It proposes a two-pronged approach. First, the Communication underlines the need to strengthen and harmonise the role of national data protection authorities and improve cooperation between them. In this regard, the European Commission considers assigning a coordinating role to the Article 29 Working Party, the independent EU Advisory Body on Data Protection and Privacy. Second, the Commission will make remedies and sanctions more effective, for instance, by extending the power to bring an action in court to national data protection authorities and other associations representing data subjects' interests. The Commission also considers strengthening the sanctions included in the Data Protection Directive.

In a press release of 15 November 2010, the European Data Protection Supervisor, the European watchdog for data protection, backed the Communication and called for an ambitious proposal addressing the issues identified in the Communication.

The next step towards a new legislative framework is expected to materialise in the course of 2011, when the European Commission will publish a legislative proposal. Interested parties can submit comments on the Communication until 15 January 2011.

The Communication can be found at http://ec.europa.eu/justice/news/consulting_public/0006/com_2010_609_en.pdf

EMPLOYMENT LAW

Flexibility in Employment Contracts for Executives

The modification of an essential employment condition by the employer, such as e.g. salary, function, working hours or place of work, requires the consent of the employee. It is therefore important to provide for some flexibility in the employment contract. Otherwise, any significant unilateral modification of an essential employment condition by the employer will be regarded as a form of constructive dismissal and will lead to the immediate termination of the employment contract. The employee will then be entitled to severance indemnity.

In today's economic climate, companies are often faced with economic circumstances that require flexibility on the part of the employees. This reality is also recognized by the Belgian courts, as reflected by a judgment of the Supreme Court (Hof van Cassatie/Cour de Cassation) of 11 October 2010.

In this case the employer had unilaterally modified the function of an executive as his existing function had become moot due to the evolution of the production process. However, the executive had the required capabilities, experience and expertise to fill another position. His salary and working hours did not change, but on the organization chart, he saw himself placed beside three colleagues who were formerly under his authority. On those grounds he invoked constructive dismissal and claimed a protection indemnity of 4 years' salary (as he had been a candidate at the 2008 social elections).

The Liège Labour Court of Appeal rejected the employee's claim for the following reasons:

  • the employment contract did not stipulate a precise and unchangeable function;
  • the modifications were based on the changing demands of the market and sought to ensure the economic viability of the company;
  • an executive should be aware that his function can change when the production process is reorganised.

The executive lodged a further appeal to the Supreme Court arguing that the above reasons do not justify a unilateral modification of his function. However, the Supreme Court sided with the Liège Labour Court of Appeal and held that the new function of the executive in the framework of the reorganization for economic reasons and in line with the executive's capabilities, experience and expertise, did not amount to a demotion. The Supreme Court therefore upheld the appeal judgment.

INTELLECTUAL PROPERTY

Suspended Invalidation Does not Affect Prima Facie Validity of Patent for Obtaining Interim Injunction

In a judgment of 26 October 2010 involving Novartis AG ("Novartis") and Mylan BVBA ("Mylan"), the Brussels Court of Appeal (the "Court of Appeal") reversed a judgment of the Commercial Court of Brussels (the "Commercial Court") regarding the intended marketing of a generic medicinal product by Mylan.

The generic medicinal product in question was a sustained release formulation of fluvastatin. Fluvastatin is a statin used to treat excess cholesterol in the blood and prevent cardiovascular disease. Pharmaceutical compositions of sustained release formulations of fluvastatin form the subject matter of Novartis' European Patent EP 948 320, marketed under the brand name Lescol Exel®.

In a judgment of 18 May 2010, the Commercial Court had rejected a claim brought by Novartis for a preliminary injunction ordering Mylan to refrain from manufacturing, selling, having in stock or importing any sustained release pharmaceutical composition that falls under any of the claims of Novartis' patent or committing any other direct or indirect infringement of Novartis' patent. Following an appeal lodged by Novartis against this decision, the Court of Appeal has now reversed the judgment of the Commercial Court.

In so doing, the Court of Appeal held that a granted patent (i.e., a patent granted by the European Patent Organisation ("EPO")) is presumed to be prima facie valid. This prima facie validity forms a necessary, but sufficient basis for the purpose of obtaining an interim injunction.

The Court of Appeal held that it is irrelevant that the Opposition Division of the EPO had revoked the patent, if this decision was suspended at the time when the interim injunction is requested. In the case at hand, the Court of Appeal found that Article 106(1) of the European Patent Convention ("EPC") clearly states that the appeal against the Opposition Division's decision suspends the decision invalidating the patent.

The Court of Appeal's reasoning shows that a patent holder can rely on its patent for obtaining an interim injunction until the decision to invalidate the patent has become final.

No Objective Liability for Counterfeit Seizure if EPO Later Limits Scope of Patent

On 3 November 2010, the Commercial Court of Brussels (the "Court") handed down its judgment in joined cases AR/1188/09 and AR/7427/09 following an action brought by GlaxoSmithKline Biologicals ("GSK") against Novartis Vaccines and Diagnostics and Novartis AG (jointly "Novartis").In its decision, the Court addressed a party's possible liability for counterfeit seizure measures (beslag inzake namaak/saisie-contrefaçon).

Novartis is the owner of European Patent EP 1401489 for "capsular polysaccharides solubilisation and combination vaccines". On 3 March 2009, in the context of a claim brought by Novartis, the President of the Court granted permission to Novartis to carry out a counterfeit seizure at the premises of GSK in Belgium against a number of vaccines produced by GSK which allegedly infringed Novartis' patent.

The counterfeit seizure procedure described in Articles 1369bis/1 to 1369bis/10 of the Judicial Code allows an intellectual property right holder to obtain prompt and effective provisional measures to preserve relevant evidence in respect of the alleged infringement or possible infringement of its intellectual property rights, subject to the protection of confidential information. Such prompt and effective provisional measures include the detailed description, with or without taking samples, of the allegedly infringing goods, and the materials and implements used in the production and/or distribution of these goods and the documents relating thereto.

Concurrent with the counterfeit seizure procedure, GSK challenged the validity of Novartis' patent before the European Patent Office ("EPO"). In a decision of 23 December 2009, the Technical Board of Appeal of the EPO limited the scope of protection of Novartis' European Patent EP 1401489. As a result of this limitation, GSK's vaccines no longer infringed Novartis' patent. GSK subsequently claimed damages from Novartis arguing that the latter was liable for the alleged prejudice that GSK had suffered as a result of the counterfeit seizure carried out by Novartis at the premises of GSK.

The claim brought by GSK was based on Article 1369bis/3, §2 of the Judicial Code, which implemented Article 7(4) of Directive 2004/48 of 29 April 2004 on the enforcement of intellectual property rights into Belgian law. It states that "[w]here the counterfeit seizure measures are revoked, or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the court shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures".

The Court rejected GSK's claim, holding that the counterfeit seizure cannot be considered unlawful merely because the invoked patent has later been limited or revoked. The Court furthermore decided that Novartis had not committed any fault by carrying out the counterfeit seizure and rejected GSK's allegations that Novartis made illegal use of the information which it had obtained through the counterfeit seizure procedure.

Bill for Protection of Plant Varieties

As indicated in the previous issue of this Newsletter (See this Newsletter, Volume 2010, No. 10, p.10), the Belgian government submitted a draft Bill for the protection of plant varieties rights (Wetsontwerp tot bescherming van kweekproducten/Projet de loi sur la protection des obtentions végétales - the "Bill") to the House of Respesentatives on 15 October 2010. The Bill has now been made publicly available on the website of the House of Representatives.

The Bill repeals the Law of 20 May 1975 on the protection of plant varieties (Wet tot bescherming van kweekproducten/Loi sur la protection des obtentions végétales) and replaces it with a new law implementing the Convention for the Protection of New Varieties of Plants ("UPOV-Convention") of 2 December 1961.

Under the Law on protection of plant varieties, the breeder (i.e., the person who cultivated, discovered or developed a plant variety) of a protected plant variety is granted the exclusive right to produce, sell, import, export or stock that plant variety.

The Bill's most important features are the following:

  1. the scope of protection is expanded to include all plants, including vascular plants as well as mushrooms and algae (Article 3 of the Bill);
  2. Derivatives of protected plant varieties can be protected through an expansion of the protection accorded to the initial plant variety (Article 13 of the Bill);
  3. Article 14 of the Bill adopts the "farmer's privilege". The farmer's privilege consists of an exception to the breeder's exclusive right to plant and commercialise his protected plant variety. Farmers are allowed to sow protected varieties without the consent of the breeder provided they use the varieties and the resulting harvest exclusively on their own farm; and
  4. The duration of the plant variety right is extended by an additional 5 years, bringing the term of protection to 25 years and 30 years for trees, potatoes and vines (Article 19 of the Bill).

The Bill is currently under review by the House of Representatives and is expected to be signed and made law in the first half of 2011.

Supreme Court Rules on Descriptive Trade Marks

On 21 October 2010, the Supreme Court (Hof van Cassatie/Cour de Cassation) handed down two judgments (C.09.0294.F/1, Organisation Benelux de la Propriété Intelectuelle v. P.F. Dermo Cosmétique ("Dermo Cosmétique"), and C.08.0541.F/1, Organisation Benelux de la Propriété Intelectuelle v. Blueplanet LLC ("Blueplanet")) clarifying the concept of 'descriptive trade marks' as an absolute ground for refusal of registration of a trade mark set forth in article 6bis, §1, c) of the Uniform Benelux law on trade marks (Eenvormige Beneluxwet op de merken/Loi uniforme Benelux sur les marques – the "UBTM Law").

The cases were brought before the Brussels Court of Appeal (the "Court of Appeal"), after the Benelux Intellectual Property Organisation (Benelux-Organisatie voor Intellectuele Eigendom/Organisation Benelux de la Propriété Intellectuelle – the "BIPO") had refused to register the signs for which registration was sought on the grounds that the signs were purely descriptive. In the first case, Dermo Cosmétique sought registration as a Benelux trade mark for the sign "Aquaclean" for compounds designed for the biodegradation of organic waste. In the second case, Blueplanet sought to register as a Benelux trade mark the sign "Derm'intim" for toilet soaps and cosmetic and dermocosmetic products.

In both cases, the Court of Appeal rejected the BIPO's arguments for refusing registration and ordered the BIPO to register the signs as Benelux trade marks. BIPO lodged an appeal against both decisions of the Court of Appeal before the Supreme Court.

The Supreme Court pointed out that the provision in the UBTM Law prohibiting the registration of a descriptive sign as a trade mark should be interpreted and applied in accordance with the European Directive on which the provision is based, i.e., Article 3, §1, c) of the First Council Directive 89/104/EEC to approximate the laws of the Member States relating to trade marks.

Consequently, the Supreme Court applied the available guidance from the Court of Justice of the European Union (the "ECJ"). In the case Koninklijke KPN Nederland NV v. Benelux-Merkenbureau (judgment of 12 February 2004 in case C-363/99), the ECJ held that if a word consists of different elements, each of which is descriptive of features of the goods or services in respect of which registration is sought, the word is descriptive of those features, unless there is a noticeable difference between the word and the mere sum of its parts.

This led the Supreme Court to confirm the Court of Appeal's judgment in the case regarding the "Derm'intim" trade mark. It needs to be borne in mind that the Supreme Court cannot assess the facts of the case at hand. The Supreme Court merely held that, as a matter of law, the Court of Appeal gave sufficient reasons for its decision when stating that the relevant public does not consider the word "Derm'intim" as referring to cosmetics, due to the unusual combination of the two components of the word and by deciding that "Derm'intim" is a neologism without a proper meaning and without an immediate link to cosmetic products and/or their characteristics.

By contrast, in the "Aquaclean" case, the Supreme Court quashed the Court of Appeal's judgment. The Supreme Court held that the Court of Appeal had failed to affirm that the word "Aquaclean" creates an impression which is sufficiently far removed from that produced by the mere combination of "aqua" and "clean". As a consequence, the Court of Appeal did not specify that the word "Aquaclean" is more than the sum of its parts. As a result, its decision to permit registration for this sign fell foul of the applicable legal requirements.

The Derm'intim and Aquaclean cases show that Belgian courts, like European courts, require a noticeable difference between the new word and the descriptive elements of which it is composed, for the new word to qualify for trade mark protection. Indeed, both judgments of the Supreme Court appear to be in line with existing case law of the ECJ. In particular, the Derm'intim case is reminiscent of the ECJ's decision in BABY-DRY (judgment of 20 September 2001 in case C-383/99 P), where the ECJ held that the combination of the words "baby" and "dry" was a "lexical invention bestowing distinctive power on the mark so formed". On the other hand, the Aquaclean decision prompts a reference to the ECJ judgment in DOUBLEMINT (judgment of 23 October 2003, in Case C-191/01 P), where the ECJ held that the mere combination of the words "Double" and "mint" would be perceived as a purely descriptive term to refer to the flavour of the products.

INSOLVENCY

Constitutional Court on Guarantors in Law on Bankruptcies

Article 82 of the Law of 8 August 1997 on bankruptcies (Faillissementswet/Loi sur les faillites) provides for the possibility of declaring someone "excused" (verschoonbaar/excusable) allowing for the cancellation of outstanding debts after that party has been declared bankrupt. This cancellation of debts is extended to the spouse who, acting as guarantor, would have been held personally liable for those debts.

The Constitutional Court held in its judgment of 18 November 2010 that the fact that this rule does not apply to legal cohabitants is a difference in treatment that can not be justified. The Court hence declared that this provision violates the Constitution in so far as it does not apply to legal cohabitants. Consequently, creditors should bear in mind that a personal guarantee by the partner of their debtor shall be without value in case of bankruptcy when they are legally living together and the excusability rules apply.

TELECOMMUNICATIONS

Parliament Adopts Statutory Framework Placing Electronic Registered Mail and Paper Registered Mail on Same Footing

On 25 November 2010, the Senate approved a bill which had been tabled by the Chamber of Representatives in late September 2010 and which aims to create a regulatory framework for registered electronic mail (Wetsontwerp tot wijziging van de Wet van 9 juli 2001 houdende vaststelling van bepaalde regels in verband met het juridisch kader voor elektronische handtekeningen en certificatiediensten / Projet de Loi modifiant la Loi du 9 juillet 2001 fixant certaines règles relatives au cadre juridique pour les signatures électroniques et les services de certification – the "Bill"). Provided certain technical conditions are met, the Bill places electronic registered mail and paper registered mail on the same footing.

Electronic registered mail

The Bill defines "electronic registered mail" as "any service of electronic data transmission providing a guarantee against loss, theft or deterioration of data and which grants the sender a proof of delivery of the data to the adressee". A "service of electronic data transmission" is to be understood as a service of electonic data transmission which is provided by an accredited certification service provider.

Accredited certification service providers

The Bill sets forth that only electronic mail which is sent through an accredited certification service provider will have the same legal status as paper registered mail. In order to obtain accredited status, a certification services provider must satisfy all the conditions of Annex V to the Bill. These conditions include: (i) the ability to provide the sender, at the time of the transmittal of the mail to the addressee, with a proof of delivery which carries an advanced electronic signature and specifies the identity of the certification service provider, the name of the addressee as reported by the sender, the date and time at which the message was processed by the provider's system and the post operator which - if required - physically delivers the mail; (ii) the ability to guarantee the integrity of the data by means of adequate security techniques; (iii) the ability to identify correctly the sender of the mail and to report the correct timing of transmission of the mail; and (iv) the ability to verify in an appropriate manner the identity of the adressee of the mail.

Hybrid electronic registered mail

The Bill also provides for the possibility to send "hybrid electronic registered mail" whereby the sender can request the accredited certification service provider to provide a hard copy of the electronic registered mail and put it in an envelope. In this case, the accredited certification servide provider must hand the hard copy of the mail to the postal service at the latest on the working day following the day of deposit of the mail on the electronic platform of the certification service provider.

Entry into force

The Bill was submitted to the caretaker government for signature and will enter into force on 31 December 2010.

TAX

Constitutional Court to Rule on Taxation of Abnormal or Gratuitous Advantages Granted by Resident Company

The Constitutional Court (Grondwettelijk Hof/Cour constitutionnelle) published on its website a preliminary ruling request from the Court of Appeal of Ghent of 5 October 2010. The case pits NV Vergo Technics against the Belgian State on the constitutionality of the taxation of abnormal or gratuitous advantages granted by a resident company on the basis of Articles 26(1) and/or 49 of the Income Tax Code ("ITC").

According to Article 49 ITC, the taxpayer can deduct business expenses which are incurred with a view to obtaining or retaining taxable business income. Article 26(1) of the same Code provides an obligation for resident companies to add granted abnormal or gratuitous advantages to the income of the company, except in cases where the advantage is taken into account in determining the taxable income of the beneficiary.

The issue at stake in this preliminary request concerns the "nature" of the advantage that is to be taken into consideration. Indeed, at the level of the granting company, the advantage granted can either be a loss (e.g., a waiver of debt) or an excessive cost (e.g., payment of an excessive price for goods or services supplied).

The Court of Appeal of Ghent asks the Constitutional Court whether the obligation to take an advantage into account in the determination of the taxable income of the beneficiary only applies when the advantage consists in a loss for the granting resident company, but not in the case of an excessive cost.

If the advantage would only need to be included in the taxable income of the beneficiary when the advantage results in a loss at the level of the granting company but not when the advantage is granted in the form of an excessive cost, this would imply that double taxation would arise in the latter case but not in the former case. The Court of Appeal poses essentially the question whether such a difference in treatment would be compatible with the principle of equality and the prohibition of the granting of privileges, provided for in Articles 10, 11 and 172 of the Constitution.

TRADE PRACTICES

EU Court of Justice Issues Judgment on Misleading Comparative Advertising Relating to Food Products

On 18 November 2010, the Court of Justice of the European Union ("ECJ") issued a judgment in response to a reference for a preliminary ruling lodged by the Commercial Court of Bourges in France with regard to the conditions under which comparative advertising is allowed pursuant to Article 3a of Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising ("Directive 84/450/EEC").

The question had risen in a dispute between Lidl SNC ("Lidl") and Vierzon Distribution SA ("Vierzon"). Vierzon sells everyday consumer goods in a store located near one of Lidl's French supermarkets. In September 2006, Vierzon placed an advertisement in a local newspaper reproducing till receipts which listed 34 food products purchased from the neighbouring Vierzon and Lidl stores. The products were identified by generic names and accompanied, as appropriate, by their weight or volume. The till receipts showed a total cost of EUR 46.30 for the Vierzon products as against EUR 51.40 for those of Lidl. Further, the advertisement also included slogans of a general nature proclaiming that the Vierzon store was cheaper than Lidl.

Lidl filed an infringement action with the Commercial Court of Bourges, claiming violation of Article L.121-8 of the French Consumer Code, which prohibits misleading advertising. Its core arguments before the Commercial Court were the following: (i) Vierzon selected only products which are cheaper; (ii) the products were not comparable as they did not meet the same needs; and (iii) the mere reproduction of till receipts in an advertisement does not enable consumers to perceive the different characteristics of the products and understand the reasons for the price differences.

First, the ECJ examined to what extent the food products being compared should be capable of meeting the same needs (See, Art. 3a(1)(b) of Directive 84/450). Referring to its landmark Lidl Belgium v. Colruyt judgment of 19 September 2006 (See, this Newsletter, Volume 2006, No. 9, p. 5), which also involved the advertising of food products, the ECJ reiterated that the goods under comparison must display a sufficient degree of interchangeability. The ECJ added that the assessment as to whether or not this is the case falls within the jurisdiction of the national courts. However, it mentioned that the fact alone that food products differ in terms of the extent to which consumers would like to eat them and the pleasure derived from consuming them, according to the conditions and place of production, their ingredients and the identity of their producer, cannot in itself prevent these products from being sufficiently interchangeable.

Second, the ECJ examined whether the advertisement at issue could be misleading (See, Art. 3a(1)(a) of Directive 84/450). Again the ECJ relied extensively on the Lidl Belgium v. Colruyt judgment. According to the ECJ, the advertisement could be misleading if the referring court were to find that, having regard to all factual circumstances of the case, consumer choice is based on a mistaken belief that the selection of goods displayed in the advertisement is representative of the general level of the advertiser's prices as compared to those charged by its competitor, or in the mistaken belief that all of the advertiser's products are cheaper than those of its competitor. In addition, in the ECJ's view, the advertisement could equally be misleading if, for the purposes of a comparison based solely on price, the national court were to find that the food products selected are in fact objectively different and that the different features are capable of significantly affecting the average buyer's choice, without such differences being apparent from the advertisement.

Finally, the ECJ ruled on the question of the requirement of verifiability as set forth by Article 3a(1)(c) of Directive 84/450. It held that, as far as advertisements which compare the prices of 2 selections of goods are concerned, this requirement is only satisfied if the description of the products compared is sufficiently clear to enable the consumer to identify precisely the products being compared for the purpose of checking the accuracy of the prices shown in the advertisement. The national court should assess whether or not this is the case. However, the ECJ emphasised that this could not be the case if, for instance, the supermarkets referred to in the advertisement at issue were to market a range of food products which might correspond with the descriptions given on the till receipts reproduced on the advertisement. The reason is that this may make it impossible for the consumer to identify precisely the products being compared.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.