Recent case law on the standing of ‘idealistic’ claim foundations shows courts’ lenient approach. Under the class action regime that entered into force in January 2020, claim foundations face stricter admissibility requirements as a counterbalance to their newly gained power to institute an opt-out damages claim. The legislator however also implemented an exemption to the requirements for ‘idealistic’ claim foundations, which do not claim damages. The courts appear willing to push the scope of the exemption and may pay particular attention to the track record of the ‘idealistic’ foundation. Moreover, a claim’s major financial consequences for the defendant do not appear to bar courts from applying the exemption. As more and more case law based on the new class action regime appears, these developments are worth noting, also in light of the recent climate-oriented actions against corporates. In this blog we discuss the recent rulings on standing in more detail.
The strict admissibility requirements under the new class action regime mainly relate to the transparency and governance of a claim foundation (e.g., a foundation should have a website that shows the articles of association and the members of the board). A foundation may invoke an exemption to those requirements on each of these three grounds:
- the foundation does not claim damages, and is bringing an ‘idealistic’ claim with minor financial interest,
- the nature of the claim justifies an exemption; or
- the nature of the persons whose interests are being defended justifies an exemption.
Recently, foundation BREIN brought an action against two server hosts, Yisp and Worldstream, who were hosting illegal content on their servers. BREIN represents the interests of major makers and publishers of content, and is supported by organisations including the Motion Picture Association and Netflix. It is a repeat player in lawsuits to stop IP infringements. BREIN demanded the court order Yisp and Worldstream to remove the content from their servers.
The district court exempted BREIN from the strict requirements and justified this by pointing out that the action aimed to stop IP infringements, represented a minor financial interest, and served the general interest of preventing the Netherlands from becoming a haven for digital pirates. It also considered that BREIN has been acting against IP infringements for years, apparently to the satisfaction of the IP rightholders supporting it.
We published a case note on this judgment in JBPr 2022/1 (only accessible with a paid subscription). We note that BREIN’s action does not represent a minor financial interest; the servers hosted over tens of thousands of movies, streamed through 283 websites with over 450.7 million visits from 108.8 million unique visitors. The legislative history specifies that the ‘idealistic’ action should concern a minor financial interest for both the claimant and the defendant and refers to a claim in which the average damage per participant in the class action does not exceed EUR 1,000. In our opinion, BREIN’s action does not meet the requirement of a minor financial interest.
Furthermore, we feel that the action’s ‘idealistic’ character (preventing the Netherlands from becoming a haven for digital pirates) is slightly far-fetched. Examples of idealistic claims in the legislative history include residents pursuing a prohibition of illegal discharges by a neighbouring factory, and a patient association fighting for the correct assessment of the effect of a medicine. BREIN’s claim is of a different type. In its writ of summons, BREIN never claimed to pursue this idealistic purpose – it seems this was entirely the court’s finding.
Moreover, we have some doubts about ‘the nature of the claim’. The legislative history mentions that a foundation bringing an action to amend general terms and conditions falls under the exemption. While the legislative history does mention that it may be “conceivable” that an organization enforcing IP rights would fall under the exemption, it does not explain why.
We believe that the nature of the persons whose interests BREIN is defending should have been decisive here. The (legal) persons on whose behalf BREIN acts mostly consists of multinationals that are perfectly capable of judging whether BREIN is properly representing their interests. They will not need the strict admissibility requirements aimed at protecting the interests of class members in, for example, consumer class actions. In our view, the court’s reasoning would have been more convincing if it had left it at that.
In a different case, this time against the Dutch state, the foundation Defence For Children demanded that families with underage children not be cut off from tap water in the event their parents do not pay the water bill. Here, the court ruled that the foundation falls under the exemption due to the action’s idealistic character and the fact that the action is in the interest of children of whom no (direct) financial interest is at stake. According to the court, the (huge) financial consequences for the defendant if the claim is awarded should not be taken into account as long as no damages are claimed.
These two judgments show leniency of the district courts towards the standing of ‘idealistic’ foundations. We do not expect a stricter approach in the future, but – as always – much hinges on the facts and circumstances of the case.
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Barthold den Hartog
All posts by Barthold den Hartog