Claus Eckhartt of Bardehle Pagenberg reports on the final text of the European Union’s Enforcement Directive, and examines its implications for intellectual property practice in Germany.

The problem has been clearly identified and the figures are staggering: in 2002 alone, 85 million counterfeit articles were seized by the customs authority at the European Union's external border, and the first half of 2003, a further 50 million were seized. These figures are only the tip of the iceberg, as only a small fraction of the illicit goods are likely to have been apprehended.

Estimates place the global trade of fake goods as equaling between 3% and 9% of world trade, figures which equate to something between €120 billion and €370 billion per year. Considerable efforts have already been made to combat these industrial-scale illegal activities.

In the framework of the World Trade Organization (WTO), the Agreement on Trade-Related Aspects of Intellectual Property (TRIPs Agreement) has established a single, multilateral set of rules relating to all types of intellectual property rights. This agreement also contains a detailed chapter setting minimum standards for IPR enforcement to be implemented by all members of the WTO.

Nevertheless, as regards the means of enforcing IPRs, significant national disparities remain. Hence, while some of the provisions of the TRIPs Agreement are congruent with those of the Enforcement Directive (Directive 2004/48/EC), the latter attempts to address the shortcomings of the TRIPS Agreement and goes beyond it in relation to issues such as the preserving of evidence, calculation of damages as well as provisions for implying injunctions and the right of information. In fact, compared with other legal frameworks implemented to date with the objective of harmonising the laws of the Member States, the Enforcement Directive may well have more far-reaching implications, and a greater impact, than all other prior laws in the area of intellectual property rights.

The political will to seriously tackle this issue is demonstrated by the relative expediency in which it was developed, particularly considering the at times turbulent history and the controversial discussions leading up to the passing of the proposed text in April 2004, only a few days before the EU Accession by the ten new Member States.

This article provides a brief overview of the most important provisions of the Enforcement Directive and how these relate to current German law concerning their implementation with an emphasis on the issue of damages.

Controversy and response

Initially conceived primarily as a means to combat piracy counterfeiting, the first draft, based on the preparatory consultations published in January 2003, met with heavy criticism not only from the IP Community but also from the industry concerned.

Points of criticism were, in particular, the introduction of criminal sanctions and provisions concerning technical protection measures which were considered by some as failing to comply with the Community principles of subsidiarity and proportionality. Misgivings were also aired in relation to the scope of the application of the Enforcement Directive which, in effect, comprised virtually any infringement of economic relevance.

The criticism regarding the most controversial issues did not go unheeded: The proposed text of the Enforcement Directive as passed saw a deletion of criminal sanctions and technical protection measures such as double licence fees as damages, whereas the scope of the Directive in the final draft was, in fact, expanded to all intellectual property rights as provided for by Community law and/or by the national law of the Member States concerned.

Besides providing rules as to the presentation of evidence (Art 6) and measures for preserving evidence (Art 7), the right for information (Art 8), certain provisional and precautionary measures (Art 9) are provided as well as corrective measures (Art 10), injunctions (Art 11) as well as alternative measures and, in a topic discussed most hotly amongst the German IP professionals, regulations as to damages and legal costs (Art 13). The Directive is remarkable in that it constitutes the first legal framework directly regulating procedural aspects on a European Union level, which had hitherto been left entirely to the national rights of the Member States.

Turning first to the scope of the Enforcement Directive as defined in Art 2, it is noteworthy that national provisions remain unaffected if they are more favourable to the rightholders. In that context, recital No 13 is of relevance noting that Member States may also choose to apply the provisions of the Directive to "acts involving unfair competition, including parasitic copies or similar activities".

Art 2 and the recitals, however, remain silent as to the definition of "intellectual property". For example, would this term also encompass personality rights, geographical indications and trade secrets, the latter also falling within the scope of "intellectual property" as set out in the TRIPs Agreement? Furthermore, the Enforcement Directive only stipulates that damages may be compensated, whereas the option of claiming damages with respect to moral harm caused or questions regarding the publication of the judgment are not addressed. Both possibilities are provided for in current German law, and would likely remain in place, since they are more favourable to the right-holders than those contained in the Directive.

Procurement of evidence

Art 6 of the Enforcement Directive is concerned with the procurement of evidence. It stipulates the obligation to produce specific evidence if the applying party has presented evidence reasonably available and specified evidence lying in the control of the opposing party. The competent court of the Member State should then be enabled to order the presentation of such evidence, subject to the protection of confidential information. Where the infringement has reached a commercial scale, the courts shall be authorised to order a communication of banking, financial or commercial documents under the control of the opposing party.

Whereas the former is almost identical in content to Art 43 sec 1 of the TRIPs Agreement, the latter provision has no equivalent and is indeed a unique tool to combat piracy. In terms of content, it is structured on the claim for information on the origin and the channels of distribution of goods infringing third party rights such as are currently available under German law. However, in contrast to that claim for information directed against third parties, merely requesting a declaration of knowledge, it permits a direct insight into commercial documents of the adverse party.

The legislative purpose of the provision appears to be - at least partially - contradictory to the prevailing German civil procedural principles and, in particular, the prohibition of the discovery of evidence by investigation ("Ausforschungsbeweis"). While a civil procedure reform enacted in Germany in 2000 has substantially enhanced the possibilities of the court to order the opposing party to produce evidence, for example, documents, if such had been referred to by one of the parties, the general German procedural rule remains that the evidence to be produced by the opposing party has to be necessary and suitable to confirm the factual submissions already made by of the applying party in advance.

In effect, the notion that a court may order the production of evidence not covering the factual submissions of the applying party is, to date, alien to German law. It will remain to be seen how this concept hitherto unknown to in German practice will be implemented.

Similar considerations apply to the enforceability of such a court order. According to the prevailing German procedural rules, such an order is not enforceable. Rather, the court may duly take into account such non-compliance when evaluating the evidence. The non-enforceability, however, appears to contradict the general obligation of Member States to see to it that Community Regulations are duly implemented in national law.

Art 7 relates to the search for and preservation of evidence in the pre-procedural stage including the option to apply for ex-parte measures in urgent cases, namely when there is a tangible risk of evidence being destroyed. The thrust of this provision has the same direction as Art 50 of the TRIPs Agreement, but it appears to go beyond it, building on the pre-trial measures of the Anton Piller order in British common law and the Saisie-Contrefaçon available in French law.

While current German law provides for a right for inspection according to sections 809, 810 of the German Civil Code, case law available with regard to these provisions indicates that the requirements - at least as far as patent infringement cases are concerned - are stricter than the wording of Art 7: Not only reasonable evidence is required, but rather a significant degree of plausibility that an IPR infringement has occurred is necessary. In the light of Art 50 of the TRIPS Agreement as well as of Art 7 of the Enforcement Directive, German case law is likely to develop a less stringent approach in this respect.

Clarification is further required as to what is considered as "relevant evidence in respect of the alleged infringement" as set out in Art 7. In contrast to Art 6, the evidence does not have to be specified. This seems to indicate that Art 6 generally allows for an inspection of the place of business of the opposing party for the purpose of securing infringement evidence without prior concrete identification. Such a right to search the business premises of a presumed infringer has just recently been rejected by the German Federal Supreme Court in a decision of November 13, 2003. The Supreme Court primarily argued that the right for an inspection without prior, concrete identification of the evidence to be searched for is in contravention with the general German principle that evidence has to be clearly identified before instigating proceedings. No doubt, this position will also have to be reviewed in the near future.

One of the salient provisions stipulated in the Enforcement Directive is, no doubt, the right of information as set out in Art 8. It builds on Art 47 of the TRIPS Agreement. However, it goes beyond that regulation, and, besides defining the persons having to render the information, also stipulates the content and scope of the information to be provided. Furthermore, apart from the infringer, the claim for information is also directed against other persons commercially involved in the infringing activities.

While legally structured in a different manner, German law already provides for a right of information against third parties in sec 140 b Patent Act, sec 19 Trademark Act and sec 101a Copyright Act. Any party - also indirectly - involved in the infringement act will have to provide information, thereby being limited only by the principles of fairness and proportionality.

The principles of German procedural and substantive law, however, do not allow for a claim for information against a third party merely on the basis that a third party was somehow - more or less vaguely - indicated to be involved in acts of infringement. German law requires actual evidence that such an act has occurred. Conversely, as regards the scope and content of the information to be provided, the pertinent German provisions are already fully compliant with the standards set out in Art 8 of the Enforcement Directive. In fact, the current provisions available in German law are already in line with Art 8, differences only being discernable with regard to minor practical issues not touching upon the substantive scope of this provision.

Preliminary relief

Art 9 of the Enforcement Directive stipulates provisional and precautionary measures comprising interlocutory injunctions, seizure of allegedly infringing goods so as to prevent their marketing, and, in cases of infringement committed on a commercial scale, precautionary seizure of movable and immovable property or blocking of bank accounts.

German practice has a long-standing tradition of provisional court action by way of an "einstweilige Verfügung" (preliminary injunction). In cases where intellectual property infringements are made plausible to the court by submission of prima facie evidence, German courts issue such preliminary injunctions at very short notice. In fact, in contrast to some Member States, provisional legal remedies are readily granted if the facts and evidence provided are straightforward.

In certain respects, however, the options set out in Art 9 go beyond the current German practice, namely in relation to the seizure of movable and immovable property or blocking of bank accounts. These measures, shaped on the Mareva injunction of British common law right are, to date, alien to German practice.

Also previously unknown is the requirement for the applicant of provisional measures to instigate proceedings leading to a decision on the merits of the case, failure of which will result in the revocation of the provisional measures. According to German law, this is only possible on the request of the opposing party. However, in the light of the fact that Art 9 sec 5 of the Enforcement Directive is equivalent in its wording to Art 50 sec 6 of the TRIPS Agreement, and the pertinent sec 926 of the German Procedural Code has been considered as compliant with this provision, it would appear that the institution of main proceedings on the merits is not strictly necessary for compliance with Art 9 sec 5 of the Enforcement Directive.

Calculation of damages

The issue of damages set out in Art 13 of the Enforcement Directive has been the subject of much discussion in Germany. In the Commission’s initial draft of the Directive, as well as the text subsequently adopted by the EP's Legal Committee, a possibility was foreseen to claim, at the choice of the applying party, double license fees as regular damages. Such a provision would, however, have contradicted a basic principle of German civil law which expressly rejects the notion of punitive elements in compensation for damages.

German practice restricts claims to the actual economic harm suffered by the rightholder, the only exception being infringements of copyright law reprimanded by collecting societies, where German case law has allowed for double license fees. The rightholder can choose from three modes of compensation. He has the option of computing his damages either based on loss of earnings, or he may claim the proceeds made by the infringer, or, as a third option available, he may ask for a reasonable royalty.

For the first and the second alternative, the burden of proof as to the magnitude of refund claimed rests on the plaintiff who, in the majority of cases, will likely not be in a position to show proof of his actual losses, or it will not be in his interest to disclose his profit situation to the infringer, mostly a competitor. Hence, in most cases, he will resort to claiming a licence fee that would have been agreed upon by reasonable contractual partners. This mode of calculating damages has, in the past been viewed by many as insufficient for deterring infringers. It is considered to be particularly inadequate in cases of an intentional infringement.

Looking at the wording of Art 13, the Enforcement Directive will probably result in minor amendments to the current German practice, but it will not change the situation in principle. It is stipulated in sec 1 of this provision that, as a principle, damages should be appropriate to the actual prejudice suffered by the rightholder as a result of the infringement.

It then provides for two methods to be applied by the courts for computing damages. The first method takes into account all aspects of the economic consequences resulting from the infringement on the part of the infringer as well as of the rightholder, including, in appropriate cases, also the moral prejudice caused.

Alternatively, damages may be claimed as a lump sum on the basis of factors such as "at least" the amount of royalties or fees that would have been due if the infringer had asked for authorisation. Whereas the latter appears to be more or less congruent with the current German practice, the first option allows room for interpretation. Generally, the wording of the provision appears to imply that higher damages may be awarded than the mere compensation of actual damage or recovery of profits. However, in German practice, a less stringent approach will likely still be overridden by the general procedural rule that damages may only be awarded on the basis of factual evidence showing the damage inflicted.

The chances are that German court will, in most cases, abide by the current practice. Having said that, Art 13 may well be used as a basis by courts to award higher damages than had to date been allowed in cases of counterfeiting and piracy, and in those instances where a willful infringement of another party's IP right has occurred.

As a concluding remark, it is noteworthy that specifically relating to Art 6 and 7, the Enforcement Directive goes beyond what is currently available in German law. Since the options provided for in these provisions touch, in part, upon long-standing German procedural principles, the implementation may not be easy. Minor amendments are also necessary in relation to Art 9, whereas the right of information is more or less congruent to the prevailing German rules. As to damages, it remains to be seen how German courts will adjudicate in the light of the new room made available by Art 13.

© Claus Eckhartt, 2005

This article was first published with Trademark World, London, February 2005

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