Use of Internet by members of sales network: the risks and possible remedies

1. Use of Internet by members of sales network: the risks and possible remedies Souichirou Kozuka Professor of Law Sophia University (Tokyo)

2. General observation • To put it in the most general way: uniform marketing strategy of the network vs. independence of distributors • However, more specific issues need to be examined.

3. Use of the supplier’s mark – what is special with Internet? • Need to prevent misleading use of the mark • Need to prevent the distributor from claiming a right in the mark • Need to minimise the risk of being held liable against consumer/customer … … • What is unique with the Internet?

4. Accessibility from anywhere on the globe • Sometimes the marks are localised. • Customers in the target country may access the website of another country. • The website may be accessed by customers from other countries than the target country. • Risk of being involved in disputes!

5. Territory issue - situation Distributor in region A Distributor in region B localised mark Customer in region A

6. Possible measures to be taken • “Joint recommendation” by the Paris Union & WIPO (2001) • The use of a mark on the Internet is considered as use in a State if it has a “commercial effect” in that State. • No legislator followed, but case law of major countries have developed in the same direction.

7. Price differentiation • Supplier may put different prices for the same goods, depending on the country of customer. • If the local dealer has a website and displays the price, customer can easily compare the price with that in other country. • Parallel import could be induced…

8. Solution (insufficient?) • Comparison of prices cannot be prevented. • Supplier can require the customer to be resident in the country where the price on the website applies. • Enforcement – if it is the sale of goods, delivery must be made anyway. • In the case of sale of digital contents (eg music), it is problematic.

9. Case study – convenience stores in Japan • Internet sales is reserved by the franchisor. • Franchisees are not allowed to have their own websites. • When an order is accepted, the delivery is consigned to the local franchisee. (Customer comes to the local store and pick up.)

10. Use of blog, SNS etc by the distributor • Distributor might have a blog/join SNS, with or without disclosing its status. • It may be prohibited (by distribution agreement) to write in a blog/SNS with disclosure of its status. • Purely personal activities cannot be prohibited. (Even a Constitutional problem may arise.)

11. Disclosure of secret information • Can the distributor disclose significant information, such as the wholesale price, in its blog/SNS? • Drugstore case (DC Tokyo, 5 Feb. 2002; CA Tokyo, 29 Sept. 2004) • Wholesale price is NOT trade secret because the distributor knows it as a buyer ab initio. • Covenant not to disclose the whosale price could be valid (DC Tokyo).

12. Conclusion • Internet is a useful tool for distribution network. • However, it makes it difficult to differentiate among customers according to the resident place. • Agreements must be devised to address the problems as much as possible.