CJEU upholds Country-of-Origin principle for online intermediaries

A involving Airbnb Ireland UC (Airbnb) and Amazon Services Europe Sàrl (Amazon) challenged measures imposed by the Italian Communications Regulatory Authority (AGCOM). Airbnb and Amazon argued that, under EU law, they should be regulated solely by the legal systems of their countries of establishment, Ireland and Luxembourg, respectively, rather than being subject to additional obligations under Italian law.

The Court of Justice of the European Union (CJEU) affirmed the 'country-of-origin' principle, confirming that Online Intermediaries are primarily governed by the laws of their home Member State. This decision provides significant relief to tech and media companies operating across the EU, as it alleviates concerns about having to comply with multiple regulatory regimes.

As a result, Online Intermediaries can operate with greater confidence, knowing that their primary regulatory obligations are tied to their country of establishment, thereby reducing the risk of conflicting national regulations. The CJEU also noted that while this principle does not apply to entities without an EU establishment, Italy could not impose its proposed restrictions on a non-EU Online Intermediary, as there was not a sufficient direct link to the regulatory objectives.

Background

Airbnb, based in Ireland, operates a well-known online platform that connects property owners with individuals seeking accommodation, handling payments and commissions as part of the service. Amazon, with its registered office in Luxembourg, runs an online platform facilitating transactions between sellers and consumers. Both companies contested the additional obligations imposed by Italian law, leading to the CJEU's significant ruling on the "country-of-origin" principle.

The Italian Government introduced new legislation which imposed certain obligations on Online Intermediaries and search engines, such as Airbnb, Google, Expedia, Vacation Rentals and Amazon.

The obligations included:

Registration: Online Intermediaries must be entered in a register (the RCO) maintained by the AGCOM if they offer services in Italy, even if they are not established in Italy.

Reporting: To be entered into the RCO, the Online Intermediaries must share various information that should be updated annually, including information relating to their share capital, the names of their shareholders and their respective shareholdings and voting rights, the composition and term of office of the administrative body and the identity of legal representatives and directors.

Financial Contribution: 

Online Intermediaries must pay a financial contribution to cover AGCOM’s administrative costs. Non-compliance with these new obligations could result in financial penalties ranging from 2 to 5 percent of the concerned entity’s turnover in the last financial year.Airbnb, Google, Expedia, Vacation Rentals and Amazon contested the relevant Italian laws; however, this article concentrates on the joint case brought by Airbnb and Amazon before the Tribunale amministrativo regionale per il Lazio (the TAR), being the first in the series of cases to be handed down.

Questions referred to the CJEU

Given the complexities of considering and applying various EU laws, the TAR paused the proceedings and sought clarification from the CJEU. The TAR referred several key questions for a preliminary ruling:

Regulation Compliance

Does the P2B Regulation, which seeks to ensure fairness and transparency in the relationship between online platforms and business users, prevent national laws from requiring Online Intermediaries to register, provide organisational information, and pay a financial contribution, with penalties for non-compliance?

Notification Requirement

Does the TRIS Directive, aimed at preventing regulatory barriers in the single market for products and information society services, require Member States to notify the European Commission about measures that mandate Online Intermediaries to register, provide organisational information, and pay a financial contribution? If such measures are not notified, can their enforceability be challenged?

Additional Administrative and Financial Obligations

Does Article 3 of the e-Commerce Directive prevent national authorities from imposing additional administrative and financial obligations on service providers established in another Member State, such as registration and financial contributions, to promote fairness and transparency for business users of Online Intermediaries?

Freedom to Provide Services

Do the principles of freedom to provide services, as laid out in the Treaty on the Functioning of the European Union (TFEU), which outlines the organisational and functional details of the EU, and the Services Directive, which seeks to remove barriers to cross-border trade in services within the EU, prevent national authorities from imposing additional administrative and financial obligations on service providers from other Member States?

Notification of Measures

Does Article 3(4)(b) of the Services Directive require Member States to notify the European Commission about measures that require Online Intermediaries to register, provide organisational information, and pay a financial contribution? If such measures are not notified, can individuals challenge their enforceability?

CJEU’s Examination

The CJEU examined the first, third, and fourth questions together, as they all addressed whether certain national measures imposed by a Member State on Online Intermediaries from other Member States are compatible with EU law. The CJEU noted that both the e-Commerce Directive and the Services Directive aim to implement the freedom to provide services within the EU, as specified in the TFEU. Given that Article 3(1) of the Services Directive states that in case of conflict with other EU legislation, the other legislation prevails, the CJEU determined that it would focus on Article 3 of the e-Commerce Directive and concluded that if the Italian measures were prohibited by this article, the remaining questions would be unnecessary to address.

Country-of-Origin principle

Article 3(1) of the e-Commerce Directive mandates that Member States ensure Online Intermediaries comply with national provisions within the ‘coordinated field.’ Article 3(2) prohibits Member States from restricting the freedom to provide these services for reasons within the coordinated field.

The e-Commerce Directive’s core principle is home Member State control and mutual recognition by other Member States, meaning services are regulated solely where they are established. This is referred to as the ‘country-of-origin’ principle and is a cornerstone of the EU’s legal framework for Online Intermediaries. The CJEU emphasised that Member States must protect general interest objectives without imposing additional obligations within the coordinated field, respecting the principle of mutual recognition.

The Italian Government argued that the obligations under their proposed legislation did not fall within the “coordinated field” because: (a) service providers could still operate without registering in the RCO; and (b) the obligations to provide information and pay a financial contribution were for AGCOM’s supervisory functions, not affecting service access or exercise.

The CJEU rejected these arguments, stating that the ability to operate at the risk of a fine did not negate the registration requirement for lawful service provision. Similarly, the supervisory purpose of the information and financial contribution obligations did not change their nature. The CJEU emphasised that these obligations, regardless of their intent, still imposed additional administrative and financial burdens on service providers from other Member States. This imposition effectively regulated the exercise of their activities, thereby falling within the 'coordinated field.' Consequently, such measures could not be justified unless they met the strict conditions outlined in Article 3(4) of the e-Commerce Directive, which allows for derogations only under specific circumstances related to public policy, public security, public health, or consumer protection. The court concluded that the obligations under the proposed Italian legislation related to the exercise of Online Intermediaries, falling within the 'coordinated field' and thus precluded by Article 3(1) of the e-commerce Directive, unless they met the conditions in Article 3(4).

Derogation from the Country-of-Origin principle

Article 3(4) of the e-Commerce Directive allows Member States to deviate from Article 3(1) under specific conditions. For example, where the measures are necessary for public policy, public health, public security, or consumer protection; are targeted at a specific information society service that prejudices or poses a serious risk to the aforementioned objectives; are proportionate to the objectives; and follow procedural requirements, including requesting action from the Member State of establishment and notifying the European Commission and the Member State of their intention to take such measures.

The CJEU examined whether the proposed Italian legislation fell within Article 3(4)(b) as necessary for implementing the P2B Regulation. However, the CJEU noted that recitals 7 and 51 of the P2B Regulation indicate its purpose is to establish a targeted set of mandatory rules at the EU level to create a fair, predictable, sustainable and trusted online business environment within the internal market. There was no direct connection between this objective and those listed in Article 3(4)(a) of the E-commerce Directive. It was agreed that the P2B Regulation’s objective did not concern public policy, public health, or public security, and it focused on protecting businesses rather than consumers.

Additionally, any exception to the 'country-of-origin' principle must be interpreted strictly. Therefore, such exceptions cannot apply to measures with only an indirect link to the objectives in Article 3(4)(b).

Ultimately, the CJEU concluded that Italy could not impose additional obligations on Online Intermediaries established in other Member States that are not required in their Member State of establishment, as per Article 3 of the e-commerce Directive. Therefore, it was unnecessary to address the questions about notifying the European Commission.