Navigating the new terrain: the impact of the NIS 2 Directive on online trademark enforcement

The revised Directive on Security of Network and Information Systems (EU) 2022/2555, dated 14 December 2022, sets out measures for a high common level of cybersecurity across the European Union (NIS 2 Directive). This analysis examines the potential significant changes introduced by the directive, particularly focusing on the challenges and opportunities it presents for online trademark enforcement in a landscape marked by an alarming increase in sophisticated phishing attacks. According to the Interisle Consulting Group’s Phishing Landscape Report (9 August 2023), online incidents have tripled since May 2020, emphasising the heightened risk environment for trademark owners online. Particularly, the use of generic Top-Level Domains (gTLDs) and country code Top-Level Domains (ccTLDs) in phishing exploits has underscored the urgent need for enhanced vigilance and proactive trademark protection measures.

An intentionally broad scope of application

The original NIS Directive aimed to enhance the overall level of cybersecurity across key sectors within the European Union. With the evolving cyber threat landscape, there was a recognised need for stricter measures, leading to the development and implementation of the NIS 2 Directive. This revision not only increases security requirements but also broadens the scope to include a wider array of sectors and digital services, encompassing various sectors from digital services such as social networking to digital service providers, including online marketplaces, search engines and social networks. 

It significantly expands the range of entities subject to its regulations, now encompassing all medium and large companies in crucial sectors such as energy, transport, banking and health. The directive mandates these entities to adopt risk management practices, report major cybersecurity incidents and ensure that their supply chains are secure, aiming to create a unified level of security across the European Union.

A significant advancement is highlighted by Article 26 of the NIS 2 Directive, whereby not only all companies offering services or activities in the European Union fall under the scope of the said Directive, but also companies based in the European Union or those providing services to European citizens, including those based abroad if they operate in the targeted sectors.

Article 21 of the NIS 2 Directive: technical and organisational measures

Recital 137 and Article 21 of the NIS 2 Directive require essential and important entities to adopt appropriate and proportionate technical, operational and organisational measures to manage security risks and to mitigate the impact of incidents on service recipients and other services. This transfers responsibility to the company’s top management and underscores the directive’s comprehensive approach to enhancing cybersecurity across a broad spectrum of critical and significant sectors within the EU. These measures are designed to address various aspects of cybersecurity management, including risk assessment, system security, incident response and business continuity planning.

The measures include risk and information systems analysis, network security, business continuity plans in the event of incidents, cyber risks training and best practices, incident management teams and securing the supply chain, including the security of relations between each entity and its suppliers or direct service providers.

Enhancing online brand enforcement

In line with Article 21, the primary objective in terms of online brand enforcement is to reduce risks caused by cybersquatting, notably phishing. The required measures include risk and information systems analysis, network security, business continuity plans in the event of incidents, cyber risks training and best practices, incident management teams and securing the supply chain. 

The consequences for online brand enforcement are significant, necessitating proactive actions against domains identified as dangerous. The legal department is pivotal in coordinating the fight against cyber incidents and managing incident reporting. 

Moreover, Article 23 imposes a duty to inform, mandating incident reporting to national bodies like the French Cybersecurity Agency (ANSSI) in France. More precisely, Article 23 of NIS 2 Directive provides that essential and important entities shall “notify, without undue delay, its CSIRT [Cyber Security Incident Response Team] or, where applicable, its competent authority (…) of any incident that has a significant impact on the provision of their services”.

The notification process involves three steps: an initial notification to the relevant authority (ANSSI in France or CSIRT) within 24 hours of becoming aware of the significant incident, a detailed impact assessment within 72 hours and a final report within one month after the submission of the second notification, including a detailed description of the incident, notably its severity and impact, the type of threat or root cause that is likely to have triggered the incident, applied and ongoing mitigation measures and, where applicable, the cross-border impact of the incident.

Online frauds involving cybersquatted domain names are subject to this duty to inform, especially if they cause significant operational disruption or financial loss.

Indeed, the incident will be considered significant if “it has caused or is capable of causing severe operational disruption of the services or financial loss for the entity concerned”. Such incidents relate, for instance, to phishing aimed at company employees or partners, fraud against the President, or introduction into an email chain using typosquatted names (where domains have been registered deliberately using misspelled names of well-known websites).

The incident will also be qualified as significant under Article 23 if “it has affected or is capable of affecting other natural or legal persons by causing considerable material or non-material damage”. This category includes notably loss of value such as market capitalisation, damage to company image and/or reputation, marketing of products that do not comply with regulations or are dangerous, or cryptocurrency scams — which often involve very large amounts.

Article 28: a possible game-changer for trademark owners

The obligations imposed by Article 28 on top-level domain name registries and entities providing domain name registration services could be a game-changer for trademark owners and their legal representatives. It demands that domain name registration data, which are not classified as personal data — such as the name of a company, its registration number and email address — be made publicly available. This enhances the ability of trademark owners to monitor and protect their intellectual property effectively.

Recital 112 suggests that the access procedure could include an interface, portal or other technical tool to provide an efficient system for requesting and accessing registration data. These procedures for verifying domain name registration data were eagerly awaited by trademark owners, enabling them to act more effectively against fraudsters.

Under Article 28 of the NIS 2 Directive, the “database of domain name registration data [must] contain the necessary information to identify and contact the holders of the domain names and the points of contact administering the domain names under the TLDs”. Such information shall include the domain name, the registration date, the owner’s name, email address and telephone number (enabling them to be contacted), and also the email address and telephone number for contacting whoever manages the domain name, if these details are different from those of the registrant.

The impact Article 28 of the NIS 2 Directive might have on defence strategies is non-negligible. It allows additional and more effective means to act against fraudsters, by applying to the entire chain of Domain Name System (DNS) players, imposing an obligation on them to verify registrants’ identities and facilitate the access to verified Whois data within a reasonable timeframe (72 hours).

Additionally, the consequences for Online Brand Enforcement could be tremendous. By imposing an obligation to disclose the identity of fraudsters, Article 28 of the NIS 2 Directive holds a deterrent effect (will it be the end of anonymisation?) and allows trademark owners to initiate direct actions against actors who had not previously been immediately concerned, since they were not identified.

Conclusion

The European Union’s latest regulatory developments in cybersecurity present a complex new landscape for online brand enforcement. While the challenges are significant, these developments also offer an opportunity for trademark owners to strengthen their defences against online fraud and abuse. By adopting a comprehensive and proactive approach to compliance, monitoring and the use of innovative tools, entities can navigate these challenges effectively, safeguarding their online presence and, ultimately, protecting the company, its directors and clients in the digital age.

Trademark law v. NFT practice

NFTs are special types of cryptographic tokens that use blockchain technology to securely record and transfer information without needing a central authority. They provide a unique, secure digital title for various digital contents like images, sounds or texts. This title is recorded on a blockchain and includes the token’s details and code that manages transactions, known as a “smart contract”.

In essence, NFTs link a digital or physical asset to a blockchain token, verifying ownership through a digital wallet. Unlike regular cryptocurrencies which can be exchanged on equal value, NFTs are unique and cannot be duplicated or exchanged equally. They have broadened beyond art, influencing sectors like sports, gaming and branding, especially after becoming more popular during the COVID-19 pandemic.

For instance, luxury companies are increasingly offering products in digital form within the metaverse. The primary goal for brands is to gain popularity by reaching targets that differ from the physical world. For example, Gucci created the “Gucci Vault” space where players, creators and the brand come together for a unique experience in the Sandbox metaverse. This space includes an NFT treasure hunt, digital clothing items and fashion accessories available for purchase.

The use of NFTs offers brands a means to guarantee the authenticity and traceability of their products, thus effectively combating counterfeiting. Companies like the French Arianee are at the forefront, offering digital certificates based on blockchain technology.

Therefore, does the growing development of non-fungible token technology jeopardise the effectiveness of legal protection for trademarks?

Absence of legal definition of NFTs by French or European legislators

Although the creation and use of non-fungible token technology are increasingly common, neither the French nor European legislators have legally defined NFTs. As a result, the Higher Council for Literary and Artistic Property (CSPLA) issued a mission report in July 2022 on NFTs, attempting to provide a legal definition of what an NFT is and isn’t, to reduce confusion about this new and complex technology and alleviate legal uncertainty. 

The report initially highlights that NFTs aren’t entirely foreign to French law, as certain articles of the Monetary and Financial Code and the Commercial Code mention non-fungible tokens. However, these articles make it clear that non-fungible tokens aren’t considered currency under the Monetary and Financial Code. 

NFTs are generally defined as digital intangible assets that guarantee rights to their owners. The Commercial Code goes further by indirectly classifying them as “intangible personal property”. Nonetheless, these broad and unharmonised definitions don’t eliminate the legal uncertainty due to the lack of a specific legal framework for NFTs.

The report continues its qualification attempt through a negative approach. NFTs are neither works of art nor supports for artworks, nor even certificates of authenticity. Ultimately, the CSPLA proposes a relatively broad definition of non-fungible tokens. An NFT would be “a title of rights over a token but also over a file, whose purpose, nature, and extent vary depending on the will of its issuer, as expressed by the technical and possibly legal choices associated with the smart contract”. The report stops short of associating NFTs with contracts or simple technical protection measures.

The complexity of this still-new technology reveals the difficulties of linking it to an existing domestic legal framework. However, these legal issues are especially significant, since digitisation and dematerialisation facilitate the massive reproduction of works protected by intellectual property rights.

The growing development of NFTs poses increasing legal uncertainty in copyright, design rights and trademark law. Although NFTs are commonly used to promote brands in the digital world (e.g. the metaverse) or certify brand authenticity, this authenticity doesn’t extend to the NFT’s content. A plausible scenario is an NFT reproducing an existing brand without authorisation.

Thus, the growing development of non-fungible token technology raises concerns about the effectiveness of trademark legal protection.

A borderless technology challenging the principle of trademark territoriality

In the age of the internet and digital technologies like NFTs, traditional concepts of territoriality in trademark law are increasingly under pressure. Traditionally, trademark protection is territorial; a trademark is only protected in the jurisdictions where it has been registered. This principle aligns with the basic rule that the jurisdiction for litigation generally depends on where the infringement occurs or where the infringing party conducts business.

However, the global nature of the internet, and specifically the use of NFTs which are distributed on decentralised networks, challenges these traditional boundaries.

Therefore, how does a trademark, registered in a limited territory, protect itself against the worldwide dissemination of an NFT?

For instance, a French judge can rule on disputes involving foreign trademarks targeting a French public. In fact, the doctrine has defined the “French public” not by language but by the French territory. However, a website merely being accessible in France doesn’t mean it “targets” the French public. Simply broadcasting or displaying the trademark globally, including to French audiences via digital platforms or NFTs, does not necessarily constitute commercialisation in France. Thus, without direct commercial activities taking place within French territory, French judges might not have jurisdiction to rule on such a case of trademark infringement.

While some doctrine contests that the jurisprudential solution refusing to consider the accessibility of a website fulfils the “French public” condition, the solution is justified by the territoriality principle.

Nevertheless, rights holders seek to bypass this principle by expanding the notion of the “French public” because territoriality in the digital age no longer makes much sense.

Class 9 registration limiting the protection of registered trademarks under the principle of specialty

Trademark law’s specialty principle grants a monopoly over the trademark’s use only for the goods and services it was registered for.

There are 45 different classes of products and services listed in the Nice Agreement, grouping the international classification of products and services for trademark registration.

Concerning NFTs, the question arose as to which category of products and services they belong to. Until January 2023, the Nice Classification contained no official entry related to virtual products and NFTs.

NFTs are lines of code on the blockchain, notably containing, within the smart contract, a link to the underlying digital file. These files can be images, sound or texts. Often, NFTs are perceived by the public as virtual images representing works of art or products (such as clothing or leather goods). 

Therefore, should the classification of an NFT within the Nice Arrangement be based on the aesthetic function; that is, the digital reproduction of the product it represents? Or should it be based on purely material considerations related to the nature of the NFT as such; that is, lines of code on the blockchain?

The European Union Intellectual Property Office (EUIPO) addressed this question in its 12th edition of the Nice Classification, effective 1 January 2023. It now expressly allows for the registration of trademarks in class 9 for virtual products and NFTs, insofar as they are treated as digital contents and images. However, the EUIPO specifies that “the term ‘virtual products’ itself lacks clarity and precision, it is therefore necessary to further specify the content to which the virtual products relate” (for example, downloadable virtual products, namely, virtual clothing). NFTs authenticate digital elements but are distinct from them. Similarly, the National Institute of Industrial Property (INPI) has confirmed the classification of NFTs in Class 9.

Clearly, in practical terms, NFTs frequently embody virtual goods linked to apparel (class 25) and handbags (class 18). Given the novelty of this technology and the recent update of the Nice Classification, most owners of trademarks protected under classes 18 and 25 have yet to fully acknowledge the burgeoning presence of NFTs. Their trademarks not being protected by class 9, they cannot, in principle, contest infringements of trademark rights made by NFT developers on their products and services.

Relative weakening of trademark protection due to the global assessment of likelihood of confusion in infringement by imitation

The global assessment of the risk of confusion allows for an appreciation of the similarities of the signs in question on an overall basis, with regard to visual, phonetic, verbal or conceptual similarities.

If NFTs are lines of code, they visually represent products and services thanks to the digital files encoded within these codes. It is crucial to examine the NFT as a whole, which includes not only its computer code but also the digital content it contains. Indeed, the use of an existing brand by an NFT can compromise the main function of that brand: to assure consumers that the products or services come from a specific and reliable source.

Put simply, the comparison must be made between two products or services inherently connected by their function, regardless of whether they fall under different classes. Viewing the NFT in its entirety — accounting for both its technical composition and the digital content it embodies — and by conducting a thorough assessment of confusion risks, the barrier presented by trademark law’s specificity principle can be effectively overcome.

The judge’s decision in the Hermès v. Birkin case clearly illustrates this reasoning: it implicitly suggests that the purchase of an NFT, representing a digital version of a bag, is not motivated by the practical utility of this bag but rather by its symbolic or artistic value. Judges tend to protect trademark rights through the consumer standard without strictly considering the principles of territoriality and specialty, to prevent unfavourable jurisprudence for rights holders who haven’t fully grasped the issues related to NFTs.

Therefore, it is not important that the traditional functions of a bag, such as holding items, cannot be achieved by a digital representation of this bag. What matters is the image that this NFT can represent for purchasers: a digital Birkin bag. The vision shifts from the physical bag to its digital counterpart, capturing the essence of the item in a virtual form.

By considering the NFT as a whole (both its nature and what it represents) and through the global assessment of the likelihood of confusion, the obstacle posed by the principle of specialty in trademark law is legitimately circumvented. 

Conclusion: NFTs, an opportunity for trademark law?

In conclusion, the advent of NFTs presents both challenges and opportunities for trademark law. Recent legal cases, like that of Hermès against Birkin, demonstrate that the legal framework can adapt to protect trademarks while recognising the value of digital goods. NFTs encourage fresh thinking about ownership and authenticity in the digital age, thereby enriching the legal landscape and offering new avenues for brand strategies.

Upcycling and French trademark law: risks and defences

Upcycling can be defined as the process of creating products of higher value from discarded objects or materials. This practice thus extends the life of products and reduces waste production by transforming them, leading to a reduction in the extraction of new resources and CO2 emissions.

Local communities and corporations have been concerned about incorporating safe and appropriate methods for the redesigning and remodelling of unused materials and products, such as upcycling, into modern living, notably since French Law No. 2020-105 dated 10 February 2020 on the fight against waste and the circular economy. Article L. 541-15-8 I of the French Environmental Code now establishes a principle of prohibition against the disposal of new inedible products intended for sale: producers, importers and distributors of these products are subject to an obligation to reuse, repurpose or recycle their unsold goods in accordance with the hierarchy of treatment modes established by the legislator, in France.

Today, the fashion sector is thus forced to evolve. Luxury giants have already signed partnerships with startups specialising in fibre recovery to create new spools, and other companies have developed projects to recycle their unsold items into new raw materials. It is in this specific context that the practice of upcycling is now developing.

However, although many companies specialise in upcycling by reusing materials and fabrics from fashion houses without using authentic trademarks, the current trend is towards the upcycling of branded goods.

Therefore, despite a positive environmental impact, when a third party engages in upcycling using branded products, they risk infringing the rights of the trademark holder, provided that the conditions for such infringement are met.

Nonetheless, most of the trademarks used are well-known, so their holders might also be able to defend themselves by invoking the special regime applicable to them.

Legal risks associated with upcycling

In light of the principle of territoriality, a holder of a trademark protected in France can only restrict third-party use of their mark if their actions are localised within French territory, and if the audience targeted by the contentious act is the French public.

Article L. 713-2 of the French Intellectual Property Code distinguishes between the unauthorised use of a sign identical to the trademark and used for products or services identical to those for which the trademark is registered, from the use of a sign that is identical or similar to the trademark and used for goods or services that are identical or similar to those for which the trademark is registered. Only the latter scenario requires demonstrating a risk of confusion in the public’s mind, including the risk of associating the sign with the trademark.

The risk of confusion is irrefutably presumed in cases of the use of an identical sign for identical products or services. A sign is identical to a registered trademark when it reproduces without modification or addition all elements of the trademark.

In the context of upcycling branded products, the scenario of “double identity” is generally applicable: companies customise existing products without needing to reproduce the trademark since it is already affixed. The final upcycled product retains all elements of the trademark, without modification or addition.

According to Article L. 713-2 of the French Intellectual Property Code, an infringement of a trademark right is characterised when, without the authorisation of the trademark holder, the upcycler uses the trademark in business life as a trademark, infringing one of the essential functions of the protected trademark.

On one hand, the third-party upcycler must have an interest in presenting externally marked products, particularly in the signs they display. On the other hand, they must demonstrate “active behaviour and direct or indirect control over the act constituting the use”. For example, modifying a product originally manufactured and marketed by the trademark holder constitutes a positive act of use.

Regarding the condition of use in the course of trade, the Court of Justice of the European Union considers an act to be performed in the course of trade “when it occurs within the context of a commercial activity aimed at economic advantage and not in the private sphere”. Generally, it is plausible to assert that any company selling a large volume of upcycled products displaying protected marks is engaged in the course of trade. Here, it is not about sanctioning individuals who, for personal consumption, craft one or two upcycled prototypes at home using protected signs or sell their marked product resulting from their upcycling operation without it being part of a commercial activity, i.e., if the sales do not exceed, notably due to their volume or frequency, the realm of the private domain.

An upcycling operation of marked products can only be considered counterfeiting if it infringes one of the functions of the trademark used. Therefore, determining the functions of a trademark is crucial in qualifying an act as counterfeiting. The mark must guarantee to consumers the commercial origin of the product. Furthermore, the Court has also considered among these functions those consisting of “guaranteeing the quality of that product or service, or those of communication, investment, or advertising”.

It is likely that, without permission from trademark holders, upcycling constitutes an act of counterfeiting. It is an act of use in the course of trade. Only the conditions related to use as a trademark and infringement of one of the essential functions could be lacking, depending on the specific circumstances: everything will depend on the perception of the upcycled product in the specific context in which the sign is used by the relevant public.

Defences and limits

While upcycling of branded products without the trademark holders’ authorisation may constitute an infringing practice, the exclusive right conferred by the trademark does not allow its holder to prohibit its use when the exhaustion of rights rule applies.

Article L. 713-4 of the French Intellectual Property Code establishes the principle of exhaustion of rights, according to which the holder of a trademark cannot prohibit its use for products placed on the market in the European Union or the European Economic Area, provided that they have consented to it. The rule is initially based on Article 36 of the Treaty on the Functioning of the European Union (TFEU), which allows Member States to restrict the principle of free movement of goods, and the notion of specific subject matter developed by the Court of Justice.

The application of the principle of exhaustion is subject to the fulfilment of two conditions: the branded product must have been placed on the market in the European Union or the European Economic Area with the trademark holder’s consent. Branded products will not be considered to have been placed on the market when the holder has “imported them into the European Economic Area with a view to selling them there, or when he has offered them for sale to consumers in the European Economic Area, in his own stores or in those of a related company, but has failed to sell them”: placing a branded product on the market therefore involves a first transfer of ownership, which alone enables the new owner of the goods to dispose of them.

The concept of upcycling is to give a second life to products that, by hypothesis, have already been sold or even subjected to multiple successive sales: upcycling of branded products involves modifying products already existing on the market. If upcyclers are sued for infringement by trademark holders, they could invoke the principal of exhaustion of the trademark holders’ rights as a defence.

Since the principle of exhaustion is a defence that can be invoked by upcyclers, the conditions of this exhaustion must, in principle, be proven by them. However, proving these conditions can be difficult, especially if branded products are subject to successive resales or if the third-party upcycler does not have access to this type of information; for example, if the trademark holder markets their products through an exclusive distribution system.

That is why the Court of Justice considers that if the third-party upcycler manages to demonstrate a “real risk of partitioning of national markets if they bear the burden of proof”, the burden of proof regarding the initial and consented marketing of the products outside the European Economic Area will lie with the holder of the upcycled mark. And once this proof is provided, it will then be incumbent on the upcycler to prove the existence of the trademark holder’s consent to the subsequent marketing of their products in the European Economic Area.

However, despite the fact that the principle of exhaustion is generally conducive to upcycling practices, the trademark holder of the used trademark has the option to object to the subsequent marketing of their marked products if they justify a legitimate reason.

Indeed, paragraph 2 of Article L. 713-4 of the French Intellectual Property Code sets a limit on the application of the principle of exhaustion and states that the trademark holder may object to any new act of marketing if they justify a legitimate reason.

Legitimate reasons include, “in particular”, the subsequent modification or alteration of the products’ condition. The presence of the word “particularly” indicates that the list is not exhaustive and that legitimate reasons can therefore cover many cases. Among those recognised by the Court of Justice, alteration of the original condition of the product as well as harm to the reputation of the trademark or its holder are two legitimate reasons that can be invoked by the holder of upcycled branded products.

Regarding the alteration of the original condition of the upcycled product: The Court of Justice has specified that respecting the function of guaranteeing the identity of origin of a trademark implies that the final consumer can be certain that a branded product they wish to purchase has not been subject, at a previous stage of its commercialisation, to “an intervention carried out by a third party without the consent of the trademark holder, which has affected the product in its original state”.

The risk of altering the authentic product resulting from the upcycling operation justifies that trademark holders whose marks have been used without their consent may object to their commercialisation. Assessing this legitimate reason requires taking into account the nature of the upcycled product and the upcycling process, to determine whether the mark remains capable of fulfilling its essential function of guaranteeing origin, despite the upcycling operation, which could be an infringement of the integrity of the authentic product.

Regarding harm to the reputation of the trademark or its holder, the Court of Justice requires that, following the upcycling operation, “the presentation of the refurbished product is not such as to harm the reputation of the trademark or its holder”. Such a legitimate reason will be recognised if the presentation of the authentic product is likely to affect the “value of the brand by damaging the image of seriousness and quality associated” with the authentic product and the “confidence it is likely to inspire in the relevant public”. When assessing this legitimate reason, the nature of the product and the market to which it is intended are taken into account.

The holder of the authentic product can rely on these different legitimate reasons if, following the upcycling operation, their trademark is no longer capable of fulfilling its function of guaranteeing identity of origin: if any legitimate reason is recognised, the upcycler cannot rely on the principle of exhaustion and will effectively become a counterfeiter.

Thus, while the exhaustion of rights rule is a defence generally available to upcyclers, this rule has limited application if the original condition of the product is substantially affected or if harm is caused to the reputation of the trademark or its holder.

Upcycling is a “trendy” operation, which fits into a movement of circular economy and reuse of already used products. The practice extends the life of existing materials, and as a result, the need to create new clothing gradually diminishes, allowing the conservation of some of our natural resources. But despite a popular attempt to legitimise the practice, it can become an infringing practice, contrary to trademark law. It all depends on the use made of the authentic sign affixed to the initial product by the third party, as well as the infringement of one of the functions of this mark that may result from it.

The legal battleground against greenwashing: analysing recent EU regulations

In the current global landscape, environmental awareness has profoundly reshaped consumer behaviour and market trends. As the reality of climate change and its impacts become increasingly undeniable, a significant shift in consumer consciousness has emerged. Individuals are now more informed and concerned about the ecological footprint of their consumption patterns, driving a demand for sustainable and environmentally friendly products.

This shift is not merely a trend but a transformation in the way consumers evaluate and make purchasing decisions. The modern consumer is not only looking at price and quality but also considering the environmental impact of their purchases. This includes factors such as the sourcing of raw materials, energy efficiency during production and the recyclability of the product.

As a result, companies are facing a dual challenge and opportunity: to innovate their practices to meet the new environmental standards demanded by consumers and to transparently communicate their genuine commitment to sustainability. This evolving consumer landscape is setting the stage for significant changes in business strategies, marketing approaches and corporate policies aimed at environmental sustainability.

Therefore, how do trademarks influence and shape eco-conscious business strategies within the evolving landscape of consumer sustainability preferences?

Trademarks at the forefront: key drivers in eco-conscious business strategies 

Trademarks play a significant role in the context of environmental awareness, particularly as companies seek to distinguish their products and services in a crowded market. 

Increasingly, brands are incorporating text, words and graphic elements related to the environment or ecology into their trademarks. This strategic inclusion is aimed at attracting consumers who prioritise sustainability and environmental responsibility in their purchasing decisions.

Companies are recognising that consumers are more likely to support brands that demonstrate a commitment to ecological values. By integrating green symbols, eco-friendly slogans and nature-themed imagery into their trademarks, brands communicate their environmental commitments at a glance. For instance, trademarks that feature leaf motifs, the earth or terms like “eco”, “green” or “sustainable” immediately convey a message of environmental stewardship. These elements make it easier for consumers to identify products and services that align with their values.

However, this trend has led to a proliferation of greenwashing. 

Understanding greenwashing

Greenwashing refers to the practice where trademarks use misleading environmental claims in their marketing and branding efforts. Specifically, the European Council defines greenwashing as any voluntary message or representation (which can be in any form, including text, images, graphics or symbols, such as labels, brand names, company names or product names used in commercial communications) that is not required by Union or national law, that claims or implies without substantiation that a product, product category or trademark has a positive or neutral environmental impact, is less harmful to the environment compared to others, or that it has improved its environmental impact over time. This deceptive practice not only misleads consumers, who rely on such information to make environmentally responsible choices, but also undermines the credibility of genuinely sustainable trademarks, creating an uneven playing field in the market.

Therefore, trademarks that engage in greenwashing seek to capitalise on the growing market for eco-friendly products without genuinely investing in environmentally friendly practices. However, it has become difficult for the public to distinguish between brands genuinely committed to environmental efforts and those merely using environmental claims to deceive consumers.

Thus, how has greenwashing influenced the development and enforcement of environmental regulations within the European Union?

The European legislative response to greenwashing

In response to the pervasive issue of greenwashing, the European legislator has taken decisive action with Directive 2024/825, issued on 28 February 2024. This Directive amends earlier legislation, specifically Directives 2005/29/EC concerning unfair commercial practices and 2011/83/EU regarding consumer rights. Its introduction aligns seamlessly with the broader objectives of the European Green Deal and the European Circular Economy Action Plan. The Directive’s primary goal is to empower consumers to make more informed decisions that favour sustainable consumption. It seeks to eradicate practices that detrimentally affect the sustainable economy and prevent consumers from making environmentally sound choices.

The amendments and their implications

Directive EU 2024/825 significantly strengthens the provisions of Article 6(1) of Directive 2005/29/EC by integrating environmental and social characteristics, as well as circularity aspects, into the criteria for determining misleading practices by traders. This pivotal amendment mandates a thorough, case-by-case evaluation to verify that the sustainability claims about a product authentically reflect its environmental impact. This enhancement fortifies the legal framework against misleading environmental claims, substantially bolstering consumer trust in eco-labelled products.

To further ensure the fairness and credibility of environmental claims, especially those related to future climate-related performance like carbon neutrality or similar objectives by a predetermined date, Directive 2024/825 introduces essential amendments to Article 6(2) of Directive 2005/29/EC. It addresses the challenge of unsubstantiated future-oriented environmental claims by requiring that such claims be rigorously evaluated on a case-by-case basis and are backed by clear, objective, publicly available and verifiable commitments.

According to recital 4 of the Directive, the required implementation plan for these claims must include all relevant elements necessary to fulfil these environmental commitments, such as budgetary allocations and technological advancements. Furthermore, the plan must be verified by an independent third-party expert with substantial experience and expertise in environmental matters. This stringent verification ensures that claims about future environmental performance are not only ambitious but also realistically grounded in feasible and concrete plans, thus safeguarding consumer trust and reinforcing the Directive’s objective to combat greenwashing by ensuring transparency and accountability in environmental advertising.

Directive 2024/825 also strengthens the integrity of sustainability labels by including a specific provision in Annex I of Directive 2005/29/EC, which lists commercial practices which are considered unfair under all circumstances. This provision targets sustainability labels that lack certified backing or are not established by governmental authorities, aiming to prevent misleading practices in environmental advertising. This measure ensures that any sustainability label displayed on products, processes or company communications is founded on verifiable standards, protecting consumers from potentially deceptive claims.

Moreover, Directive 2024/825 sets out a comprehensive action plan to facilitate the green transition and rigorously combat greenwashing. The Directive enforces three fundamental principles: firstly, requiring brands to substantiate all environmental claims with concrete evidence; secondly, mandating that these claims undergo validation by an independent, authoritative body to confirm their accuracy and reliability; and thirdly, ensuring that the information provided to consumers is clear, transparent and dependable, thereby enabling them to make informed decisions based on reliable environmental data.

To implement these stringent new regulations, Member States are afforded a 24-month window, starting from 6 March 2024, to transpose the Directive into their national legislation. This period is designated for the necessary adjustments within national legal frameworks to align with the Directive’s rigorous standards, thus reinforcing efforts across the EU to maintain integrity in environmental marketing and to support effective sustainable consumption practices.

National efforts and the French example 

France has demonstrated a robust commitment to curbing greenwashing by implementing specific legislative measures through Decrees No. 2022-538 and 2022-539, which were enacted on 13 April 2022, and came into effect on 1 January 2023. These decrees establish stringent requirements for advertisements that declare a product or service to be carbon-neutral. They mandate the regular publication and annual update of a comprehensive report that meticulously outlines the methods employed to achieve carbon neutrality. This stringent regulation ensures that such claims are well-substantiated and transparent, thereby preventing any misleading representations regarding the environmental impact of products or services.

Building upon the groundwork set by Law no. 2021-1104, enacted on 22 August 2021, which pertains to climate and resilience, France has integrated an environmental dimension into the legal definition of misleading commercial practices. This law significantly broadens the scope of what is considered unfair competition, directly addressing greenwashing by requiring that all environmental claims be precise and verifiable.

Moreover, starting in 2023, France has further incentivised manufacturers to improve their environmental sustainability practices through a revised eco-contribution system. This system rewards manufacturers who are affiliated with mandated eco-organisations, such as ReFashion for the fashion industry, with reductions in their eco-contribution fees. These reductions are based on a performance evaluation system that assesses the manufacturers’ efforts in three key areas: the durability of the product, the acquisition of relevant environmental certifications and the use of recycled materials in their production processes. This incentivisation scheme not only motivates manufacturers to adopt greener practices but also harmonises economic incentives with environmental stewardship, fostering a more sustainable industrial landscape.

These comprehensive measures reflect France’s proactive approach in integrating environmental accountability into the corporate sector, significantly contributing to the broader fight against greenwashing and promoting a sustainable future.

Conclusion: the future of legal interventions in greenwashing 

The recent legislative changes across the European Union necessitate a heightened level of diligence from companies when making environmental claims. The implications of these legal standards mean that businesses must meticulously ensure that their environmental assertions are not only compliant with the latest regulations but also robustly substantiated in order to withstand scrutiny. This precision in claim formulation is critical to avoid the pitfalls of greenwashing, which can lead to severe penalties, including fines, reputational damage and consumer distrust.

For legal professionals specialising in environmental law or corporate compliance, these evolving regulations demand continuous education and adaptation. Lawyers must stay abreast of these changes to provide sound legal advice that encompasses not just the avoidance of legal infractions but also the strategic management of reputational risks and the complexities of potential litigation. This involves a deep understanding of both the letter and the spirit of the law, ensuring that client practices are transparent, sustainable and aligned with public and regulatory expectations.

The broader fight against greenwashing is pivotal in maintaining public confidence in environmentally-friendly products and the sustainability claims made by companies. In this context, it is imperative for brands to adopt a strategy of transparency. By aligning marketing practices with genuine environmental standards, companies can fortify their credibility and sustain consumer trust. This approach is not merely about compliance but about leading by example in the transition towards a more sustainable and environmentally responsible business landscape.