SC makes U-turn on parallel application of trademark and unfair competition law

Germany

In a case of first impression (I ZR 188/11), the German Supreme Court has re-assessed the parallel application of trademark law and unfair competition law and held - contrary to its previous case law - that, in principle, such parallel application is required under EU law. In the course of the judgment, the Supreme Court clarified the application of the concept of ‘acquiescence’ or ‘forfeiture’ (‘Verwirkung’) to trademark infringement and unfair competition claims, as well as the application of the statute of limitation or prescription (‘Verjährung’).

The claimants are the proprietor of a series of German HARD ROCK CAFE marks (first applied for in 1986) and the operator of the Hard Rock Cafes in Berlin, Munich and Cologne (since the start of the proceedings, an additional Hard Rock Café has opened in Hamburg).

The defendants are:

  1. the operator of the Hard Rock Cafe Heidelberg (established in 1978), which sells merchandise such as t-shirts and caps;
  2. the manager of the first defendant; and
  3. the owner of various domain names containing ‘hardrockcafe’.

In 1993 the claimants obtained a preliminary injunction against the defendants prohibiting them from using ‘Hard Rock Café’ for merchandising articles. When the defendants opposed the injunction and pointed out that they had been operating their establishment in Heidelberg since 1978 and selling goods since 1985, the claimants withdrew their request for a preliminary injunction. No further contact occurred until 2008, when the claimants complained about the domain names.

The claimants filed the present action, seeking injunctive and other relief (eg, damages) against the use of ‘Hard Rock Café’ as a word element or logo for restaurants and merchandising articles, and with regard to the challenged domain names. The action was dismissed as unfounded at the first and second instances based on the concept of acquiescence. The Supreme Court reversed and remanded in part, and confirmed in part.

With regard to trademark infringement, the court concluded that most of the infringement claims were not barred by acquiescence. In order for the concept of ‘acquiescence’ to apply, the infringing acts must be “continuous”; the committing of a new infringement act starts a new period of acquiescence. Therefore, the operation of the Heidelberg restaurant under the Hard Rock name was the only act that the claimants could not prohibit. In contrast, each variation of the logos used for the restaurant would restart the relevant time period. Consequently, advertisements for the restaurant, including on the Internet, were seen as renewed acts of infringement.

As regards the domain names used by the defendants, the Supreme Court found that the Karlsruhe Appeal Court had not clearly established the starting time for the period of acquiescence. In 2002, when the domain names were acquired, the defendants may have been acting in bad faith.

The Supreme Court further held that the claims regarding the merchandising articles were justified. Nevertheless, for acts committed prior to January 1 2006, the claims were precluded by the applicable statute of limitations (three years). The Supreme Court noted that the Appeal Court had not made any findings concerning the possible rights acquired by the defendants prior to the filing of the HARD ROCK marks by the claimants.

The second claimant (the operator of German Hard Rock Cafes) also relied on the German unfair competition law. The relevant provisions are contained in Section 5 and Section 3 of the German Act against Unfair Competition, which implemented the EU Unfair Commercial Practices Directive (2005/29/EC). The directive prohibits misleading advertising (deception) through the creation of confusion as regards the origin of goods or services.

In this respect, the Federal Supreme Court expressly abandoned its earlier case law, which had given precedence to trademark claims and precluded the parallel or concurrent application of unfair competition law to the same factual situation. The case was remanded to the lower court.

In particular, the Supreme Court considered that it was possible that the defendants had acquired rights to their designation which would entitle them to continue to use it, subject to measures to avoid deception concerning the defendants’ relationship with the claimants.

The court also considered that the unfair competition claims could be barred by acquiescence. While acquiescence does not usually apply in cases of deception, when deception as to commercial origin is involved it would not make sense to apply acquiescence to trademark claims, but not to unfair competition claims. 

The court also considered that claims based on Paragraph 13 of the Annex to Section 3 of the Act against Unfair Competition were possible. According to Paragraph 13, it is an offense per se to advertise goods or services are which are similar to those of a competitor with the deliberate intent (‘Absicht’) to deceive consumers as to the commercial origin of those goods or services. Such claims - which are plausible in the present case because consumers may believe that the Heidelberg restaurant belongs to the claimants - are not subject to the period of limitation. The Supreme Court interpreted the term ‘Absicht’ (‘deliberate act’) as including ‘bedingten Vorsatz’ (‘conditional intent’) on the part of a defendant who considers that deception is possible. In this respect, the question of who was first on the market is not relevant.

The court also considered that claims based on actual confusion on the part of the public as to the commercial origin of the defendants’ products were possible.

The judgment is significant in that it constitutes a spectacular turnaround in the court’s position in cases involving both (European or German) trademark law and (German) unfair competition law. Previously, the court had given precedence to trademark law. However, this position has now been abandoned, in view of the binding rules found in the Unfair Commercial Practices Directive, which prohibit intentional deceptions as to the origin of goods or services, and allow anyone to prevent acts that mislead the public as to the commercial origin of goods or services, including through the use of trademarks or other designations.

While, previously, German practice applied to some degree the prohibition of ‘slavishly’ imitating the appearance of products alongside trademark or design law, the novel aspect of the present judgment is that, in the future, the concurrent application of the prohibition of creating a likelihood of confusion will also be possible. The court was innovative in this respect in that it imported concepts from trademark law (eg, the notion of ‘acquiescence’) into unfair competition claims, arguing - convincingly - that it would be incongruous to bar the trademark proprietor from filing claims after a certain time, but not competitors of the alleged infringer.

The significance attributed to this judgment by the court itself is evidenced by:

  • the great care with which it was written;
  • the unusual length of the judgment for a case involving IP and unfair competition claims (99 paragraphs over 40 pages); and
  • the fact that the court designated the judgment for inclusion in the official collection of Supreme Court decisions.

In addition, the judgment was made available within a few weeks of its pronouncement, while this normally takes four to six months.

The effects of the judgment will be felt for many years, although it will take some time for all the lower courts - and the actors in this field, including lawyers - to adjust to the new doctrine.

Alexander von Mühlendahl, Bardehle Pagenberg, Munich

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