Wangzhihe goes to Germany: How to enforce IP rights in one of the world’s biggest economies

2008-2-1By Dr. Henning Hartwig & Verena Wintergerst,[Trademark]

Protection of intellectual property rights in Germany has a long-standing tradi-tion, dating back to the second half of the 19th Century.  Today Germany is heading the statistics among European countries in applications for patents, trademarks, and designs.  The courts are certainly among the best in the enforcement of IP rights, in particular trademark and design issues.  The attractiveness of German courts is the result of their specialization and high qualifications of their judges, speed with which infringement cases are resolved, relatively low costs of infringement litigation, and the presence of qualified legal and technical advisors and attorneys.

In line with China's fascinating economic development, it was only a matter of time before Chinese companies home and abroad would have to enforce their IP rights.  Chinese enterprises have successfully invested in industries such as electron-ics (IBM/Lenovo), automotive (MG Rover/Nanjing Automobile), building materials (SGSB), textile (Dürkopp Adler/Grosse Jac/Qingdao Hisun Garment) or tools (Lutz/ZQ Tools).  Additionally, they also started to place their own distinctive products from different industrial sectors and regions on the German market.  In light of this, the most recent judgment rendered by the Munich District Court on November 14, 2007 by way of main proceedings is an excellent example of how Chinese IP rights may be protected and enforced under German law (Case No. 21 O 21512/06).

Munich District Court ruling of November 14, 2007 against Okai Import Export GmbH for using "Wangzhihe"

The Beijing Wangzhihe Foodstuff Group Co. Ltd. against its own German im-porter, the Okai Import Export GmbH which has its seat in Berlin, initiated the case.  Beijing Wangzhihe sued Okai for having used the claimant's trademark "Wangzhihe" and for having applied for a corresponding German trademark registration at the German Patent and Trademark Office (GPTO) without their consent.  The Munich District Court followed the claimant's arguments in large part and Okai was ordered to cease-and-desist the use of the following sign-in-suit.

In addition, Okai was ordered to proceed with the cancellation of the corre-sponding German trademark registration "Wangzhihe".  The decision not only en-joined Okai but also the Managing Director directly liable for Okai's infringements.  Although the claimant's arguments were mainly based on domestic law against unfair competition (and alternatively on trademark, company and copyright law), the basic issues of German infringement proceedings as they generally occur in "classic" trademark or design cases can be learned from the case at hand.

Court's jurisdiction

Initially, the Munich District Court correctly stated its international and national jurisdiction for the case at bar.  In principle, the organization of the courts is a matter for the 16 German federal states.  Consequently, the degree of specialization of the courts differs greatly from Land to Land.  In many infringement cases the claimant has the choice of the court because of the forum delicti commissi principle. Three separate instances hear infringement cases: first the District Court, second the Ap-peal Court and third the Federal Supreme Court.

Most German states have concentrated the jurisdiction for patent, trademark, design or copyright infringement matters in only one court in each state.  However, there is no such specialization for unfair competition cases.  Claimants show a ten-dency to file actions with courts known for handling a large number of IP cases, such as the District Courts of Düsseldorf, Hamburg, Cologne, Frankfurt/Main, Berlin, Mannheim and Munich.

In the Wangzhihe case, jurisdiction of the Munich District Court resulted from the claimant‘s plea pursuant to which the defendant's national trademark registration of the claimant's brand "Wangzhihe" was in breach of Section 14 German Trademark Act. The claimant could have also chosen the Berlin District Court according to the domicile of the defendant. Jurisdiction of the Munich District Court also came about from the asserted claim for assignment and/or cancellation of the defendant's Ger-man trademark registration, since the GPTO is located in Munich.

Length of proceedings and possible time limitations

It is not clear from the wording of the Wangzhihe ruling of the Munich District Court when the main action was filed.  However, it does not appear that the Wangzhihe proceedings took longer than average.

Generally, the length of proceedings in trademark or design infringement cases as well as in unfair competition matters may differ from court to court and may vary with the court's workload.  As a rule, main proceedings for trademark or design infringement are likely to take between six and nine months in the District Court, from filing of the complaint until rendering of the judgment.  Depending on the practice of the court, there may be one or two hearings in a typical case.  If the court orders the taking of evidence, there may be one further session of the court for hearing wit-nesses or experts, and in that case the proceedings will typically take another three months.

Appeal proceedings generally take approximately nine to twelve months on average, with usually only one court hearing.  If evidence is taken at the appeal stage, approximately three months should be added.  If admitted, a further appeal to the Federal Supreme Court would likely take one and a half to two years.

As a rule, infringement proceedings start with the claimant filing a comprehen-sive complaint, stating all relevant facts of the case.  The defendant then has to an-swer within about six to eight weeks.  An oral hearing will be held within another one or two months.  The decision is typically rendered about one month after the oral hearing. There is no automatic enforcement of the decision if an appeal is lodged against it.  A special order may authorize preliminary enforcement.

In the current Wangzhihe case, the asserted claims were mainly based on the German Act against Unfair Competition and only supplementary on trademark, trade name and copyright law. According to the press at www.bjrundschau.com, proceed-ings before the Munich District Court took just longer than nine months, as the com-plaint was pending since January 2007.  The decision was rendered on November 14, 2007.  It is worth noting that the Court held that the decision could be preliminary en-forced, in particular the obligation to cease-and-desist, by deposit of a security bond in the amount of EUR 40,000.00.

On the facts of the Wangzhihe case

The defendants had formerly been the exclusive importers of the claimant's products showing the "Wangzhihe" logo.  This was not in dispute between the parties.  According to the Munich District Court, the defendants successfully applied for regis-tration of the sign-in-suit at the GPTO in order to "save" or protect the exclusivity and/or to be the only beneficiary for marketing the "Wangzhihe" food products even in case the business relationship with the claimant ended.

Pursuant to the findings of the Court, the claimant has vested rights worth pro-tecting in Germany (even if it did not apply for a registration of the sign-in-suit in Germany and/or Europe), since it was one of the leading manufacturers of spices and food ingredients in China.  Thus, the Munich District Court concluded that the defendant by registering the sign-in-suit "Wangzhihe" for food matter merely aimed at forcing the claimant to keep the defendant as an exclusive trading partner for market-ing the products showing the sign-in-suit in Germany.

It is interesting to learn that the Munich District Court, in general, treated the claimant, a Chinese enterprise, in the same manner as any national or European claimant (as long as the Chinese claimant is represented by an attorney-at-law admit-ted to a German bar).  The only difference concerned the above mentioned security for costs and lawyers' fees.  Such a security must be deposited upon request of the defendant by any non-EU national acting as a claimant in main proceedings before a German infringement court.

On the grounds of the Wangzhihe case (cease-and-desist and cancella-tion)

The claimant's arguments were largely based on domestic law against unfair competition (and alternatively on trademark, trade name and copyright law). The Court found that the accused infringements as a targeted obstruction of the competi-tor, i.e., the claimant, fulfilled the preconditions of the German Act against Unfair Competition.  As a consequence, the defendant was enjoined to refrain from using the sign-in-suit and to consent to the cancellation of the German trademark registra-tion "Wangzhihe" as registered in the name of the defendant.  However, the obliga-tion to refrain from using the sign-in-suit only applied to products, which had not originally been put on the market by the claimant (with regard to which any rights would be "exhausted").  The Court's finding is in line with established German case law.  Accordingly, the application for registration of a trademark constitutes unfair competition in case the claimant's vested rights are worth protecting and the trade-mark registration is used as an abusive means of competition, in accordance with the case law of the German Federal Supreme Court.

However, the claimant argued that the sign-in-suit was a reputed trademark not only in China but also in relation to the target public in Germany (i.e., Chinese living in Germany and Germans interested in the Chinese culture of food).  The Wangzhihe decision refused to grant the asserted trademark claims. This resulted from the fact that the claimant's plea was based mainly on unfair competition law rather than trademark law. The German Act against Unfair Competition, largely re-codified in July 2004, provides a strong tool in the day-to-day struggle against unfair advertising and imitation practices.  Since "targeted obstruction of competitors" is one of the classic examples of unfair competition being explicitly stipulated in Section 4 No. 10 German Act against Unfair Competition (which is allowed to be applied inde-pendently from trademark law), the Munich District Court was not obliged to deal with trademark law and, thus, was not forced to decide whether the sign-in-suit had de-veloped any secondary meaning or had become well-known within the related fields of trade in Germany.

On the grounds of the Wangzhihe case (assignment, information and compensation)

The Court rejected asserted claims for assignment of the defendant's regis-tered German trademark as well as for information and compensation.

As a rule, the legal tools at the disposal of the claimant in infringement pro-ceedings include: claims for a cease-and-desist order (injunctive relief), for destruc-tion of the infringing products and for detailed information and rendering of account about infringement activities by the defendant, as well as for damages which may be calculated based on the accounting rendered (account of sales, profits etc.).  The claimant may choose between three alternatives for calculating damages: lost profits, infringer's profits, or reasonable royalty.  Punitive damages are not awarded.

The claimant has to present evidence of all relevant facts for finding infringe-ment.  Discovery, in general, is not available in German court proceedings.  Any facts which cannot be proven by documentary evidence may be dealt with in a taking of evidence by hearing witnesses in oral testimony.  Rarely, German courts require an expert; this may occur in proceedings concerning the infringement of, by way of an example, a widely used trademark of which the degree of public awareness is to be determined.  The court may order an opinion poll to be conducted by a market survey expert.  Many cases are decided on the basis of written presentations by the parties and in subsequent oral hearings in which the presiding judge explains the views of the court and gives the parties an opportunity to present their arguments and their observations.  Formal taking of evidence is rather an exception in infringement pro-ceedings.

In the current Wangzhihe case, the Court found that the claimant's business relations with the defendant were limited to the importation and sale of goods and, therefore, did not provide a basis for any obligation of the defendant to attend to the claimant's interests.  For this reason, the asserted claim for assignment of the trade-mark as set forth in Section 17 (1) German Trademark Act (pursuant to which an "un-faithful agent" is required to assign a trademark registered in contravention of his duty toward the principal) was rejected.

The same applied in case of the asserted claims for information and compen-sation.  According to the Munich District Court, the claimant did not maintain that the defendant had sold products which were showing the sign-in-suit but which were not emerging from the claimant's business.  Consequently, following the procedural bur-den of evidence, the asserted claims for detailed information and for damages had been rejected.

Costs of infringement proceedings

The regular cost risk in trademark and design litigation just as in unfair compe-tition matters usually includes fees for attorneys and (optional) patent attorney, plus court fees and expenses for witnesses, travelling, experts, and even an opinion poll.  It is difficult to give a general estimate for litigation costs at first or second instance.  To give an idea of the magnitude of the litigation costs, one should focus on statutory lawyer's fees (according to the German statutory fee regulation) and court fees only.  These fees are calculated on the basis of the value in litigation, which reflects the claimant's interest in the disputed matter. A typical value in dispute as fixed at the court's discretion, but essentially based on the parties' sales figures, would be in the range of EUR 100,000.00.  The sum of fees for both parties' representatives plus the court fees represents the statutory cost risk, because the losing party has to pay the costs of the winning party as well. The statutory cost risk is approximately EUR 15,000.00 in first instance and approximately EUR 18,000.00 in second instance.  In case a law firm bills on an hourly basis, which is very common in the field of IP law, this can, depending on the actual workload, lead to own attorney fees which may be higher than the attorney fees according to the statutory fee regulation.  Since the los-ing party only needs to reimburse the statutory fees, the winning party may still incur an amount of costs which is not reimbursable.

As in some cases the value in dispute is fixed by the court in a separate order, it is not necessarily part of the decision on the merits.  This is the case in the current decision, where the value in dispute, merely regarding the obligation to cease-and-desist the use of the sign-in-suit (not including the claims for assignment, information and compensation), can be derived from the security bond and is thus likely to be approximately EUR 35,000.00.  Since both the claimant and the defendant lost and won in different proportions, the court fees as well as the attorneys' fees had to be borne by them accordingly.

Conclusion of the Wangzhihe case

In the interim, the judgment of the Munich District Court has been appealed to the Munich Appeal Court (Case No. 29 U 5712/07). Consequently, the Wangzhihe decision is not yet final.  What are the conclusions to be drawn from the Wangzhihe proceedings?

It became obvious that Chinese trademark owners planning to enter the Ger-man market should have their domestic trademarks protected in Germany (and in Europe) as well. Thus, potential German importers are successfully kept from misap-propriating the Chinese principal's trademark by way of applying for a German trademark registration. Additionally, it is recommended that any distribution agree-ment between the Chinese principal and the German importer should include water-tight provisions according to which the importer is not authorized to register the prin-cipal's IP rights in Germany (or elsewhere) without the principal's consent. In this way, the exclusivity of use of the Chinese principal's rights in Germany is guaranteed.

About the author:
Dr. Henning Hartwig is a partner with the IP law firm BARDEHLE PAGENBERG in Munich, Germany. His practice as an attorney-at-law focuses on prosecution and litigation of IP rights in the fields of trademark, design, copyright and unfair competition law.

Verena Wintergerst is an attorney-at-law the IP law firm BARDEHLE PAGENBERG in Munich, Germany. Her practice centers on counseling and litigation in the fields of trademark, design, unfair competition and copyright law.

Member Message


Only our members can leave a message,so please register or login.

IP Law Firms Inquiry

Article Search

Keywords:

People watch

Online Survey

In your opinion, which is the most important factor that influences IP pledge loan evaluation?

Control over several core technologies for one product by different right owners
Stability of ownership of the pledge
Ownership and effectiveness of the pledge