An unfounded threat of proceedings for infringement of a trade mark can be just as much an unlawful invasion of the victim’s right to an established and operative business as an unjustified threat based on any other intellectual property right and likewise give rise to damages.
The claimant, a producer and distributor of sanitary fittings and attachments, was the holder of two three-dimensional trade marks, registered with the German Patent and Trade Mark Office as “nozzles for sanitary fittings”.
On 13 October 1997 the claimant wrote to the defendant asserting that the defendant’s flow regulators infringed the claimant’s trademark and demanding an undertaking to desist or pay penalties. The defendant rejected this demand as unjustified and sought the annulment of the trademarks by the German Patent and Trade Mark Office. In the course of the proceedings for infringement the Office did annul the trade marks as having no distinctive quality as required by §8(2) no. 1 of the Trade Mark Law, but omitted to order the present claimant to bear the defendant’s costs. The claimant thereupon dropped his proceedings for infringement and the sole matter now in issue is the defendant’s counterclaim for the costs incurred in the annulment proceedings, on the basis that the claimant’s threat issued on 13 October 1997 was unjustified and that he is consequently liable in damages.
The first civil senate deferred decision on the ground that the question was one of fundamental importance and that a decision of the Grand Senate was needed to harmonise the case-law.
The question put by the first civil senate was as follows:
“Can an unfounded threat of proceedings for trademark infringement constitute, if there be fault, an invasion of the right to an established and operative business in the sense of §823(1), leading to liability in damages, or can such a damages claim, in the absence of liability under §826 BGB, arise only under the Law on Unfair Competition (§§3, 4 no. 1, 8 and 10)?”
The underlying reasoning of the first civil senate is as follows:
A competitor must put up with business losses which result from the lawful exercise by others of their protected rights, for that is quite consistent with the law of competition. Likewise there is nothing unlawful in claiming protection for one’s rights, by legal proceedings or otherwise, even if the claim eventually proves unjustified. A person who in good faith brings and maintains proceedings in the state courts in the manner permitted by law does not unlawfully infringe any interest of the other party, even if the claim is bad in substance and the other party suffers harm in consequence of the proceedings. But existing case-law holds that when a person issues an unjustified threat of proceedings to protect a right, along with a serious and final demand for the cessation of the alleged infringement this constitutes an unlawful invasion of an established and operative business in the sense of §823(1) BGB. This line of decisions should be abandoned….
By contrast, the tenth civil senate is in favour of maintaining the constant jurisprudence of the supreme courts to the effect that an unjustified threat of proceedings to protect a right constitutes an unlawful invasion of the victim’s right to his established and operative business and renders the threatener liable in damages if he is at fault. The imposition of such liability, especially where the threat is directed to the victim’s customers, is necessary in order to prevent owners of patents and other rights from obstructing free competition by the deliberate or negligent exaggeration of their legal rights, for otherwise the owner of those rights could, virtually without risk to himself, obtain a benefit without any liability for the harm, frequently serious, caused to the other party should the claim prove groundless. …
The question submitted should be answered as follows:
An unfounded threat based on a trade mark can be just as much an unlawful invasion of the victim’s right to an established and operative business and give rise to damages as an unjustified threat based on any other intellectual property right.
The Bundesgerichtshof has always held, like the Reichsgericht before it, that an unjustified threat of proceedings for infringement of a protected right can constitute an unlawful invasion of the legal rights of the person threatened as well as of the traders whose clientele can be gravely affected by an unjustified claim to a monopoly.
The Reichsgericht based its decision … on the fact that the patent and design rights which the law grants to a trader are valuable and exclusive perquisites which permit them to profit from the products of their inventive activity and prevent their use by competitors. The correlative of this privilege is that they must show that the right they claim to restrict the freedom of their competitors to run their businesses really exists. The fundamental view which has always underlain the caselaw of the superior courts still needs to be upheld: the holder of the right is empowered to exclude competitors from using the item protected within the limits laid down by the law at the time, but the central feature of the exclusive right, namely that it restricts freedom of competition, requires a correlative, that competition not be restricted beyond the objective limits laid down by the law for the proper protection of the item in question.
A balance must be struck between the interest of the right-holder, protected by Art 14 of the Constitution, in vindicating his rights and the interest in competition, which inheres in everyone’s constitutionally protected interest in freedom of commercial activity and personal development in accordance with law and respect for existing rights of others. The correct balance would not be achieved if the holder of rights were allowed, without being liable for the harm thereby caused to his fellow competitors, to claim protection to which those rights are not entitled and to benefit economically from a culpable misapprehension of their extent.
This is especially clear when the warning is directed to the customers of a competitor rather than to the competitor himself, for while customers also must respect the right, they normally have a much slighter interest than the competitor in engaging with the right-holder. … In such a situation it is actually the supplier rather than the customer who is affected, and without the liability developed by the courts for unjustified warnings he would have no effective means of avoiding the possibly ruinous effect on his business of an unjustified claim against his clientele. …
There is the further point that if the competitor had to bear the loss of trade resulting from the threat to his customers the party issuing the threat, who profits if the customers give in to his unjustified claim, could keep this benefit to himself. … In economic terms this would amount to allowing a right-holder to extend the scope of protection of his right entirely as he chooses and virtually without risk.
2. The reasons given by the first civil senate do not call for any
departure of the existing case-law. …
The first civil senate accepts that where threats are directed at a competitor’s clientele the competitor cannot enjoin him from seeking judicial acknowledgement of his rights,. This is because one cannot prevent a person going to court for a determination of the validity of the rights one asserts. But this is merely a matter of procedure, as indeed follows from the line of cases which allow third parties to sue in delict: the fact that one cannot use the courts so as to prevent a threatener from litigating the validity of his claim does not render lawful the intrinsic invasion of the victim’s right to an existing and operative business. This point therefore does not argue against the competitor’s claim for damages.
c) The first civil senate is of the view that the privilege of litigating the validity of a claim should be extended to extrajudicial or prejudicial threats and that the competitor should no more be able to prevent an unjustified threat of action against a client than oppose a legal action against him for infringement. We cannot accept this view: there is no logical need to treat action and threat in the same way…
One may make a claim for a temporary injunction without issuing any prior threat. The threat merely allows the threatener to protect his right (if he has one) without judicial assistance and saves him from the cost of litigation should there be an action which he wins. This interest on the part of the right-holder does not deserve protection when the threat is unjustified. …
If one equated threats and actions at law, an unjustified threat, even if culpable, would have practically no adverse consequences. Yet a sanction is needed much more in the case of threats than of actions. Right-holders rarely raise an action against a customer, but the issuance of a warning even to quite a large number of customers is relatively cheap and therefore quite common. …To deprive the party mainly affected of his right to claim damages in delict would be highly prejudicial to the public interest in effecting a fair balance between the protection of creative enterprise on the one hand and the maintenance of free competition, subject to the exclusive rights of others, on the other.
d) Another objection raised by the first civil senate against imposing liability on a person who issues a baseless warning is that he generally knows no more of the relevant facts than the party he warns. This is not, however, a consideration which would justify abandoning the established case-law of the Bundesgerichtshof. …
It is precisely because of the difficulties in ascertaining the true factual and legal position in such matters that the scope of protection of the right is typically unclear. This is the very reason why the right-holder often succeeds with his unjustified assertions of infringement. …
Just as a competitor must bear the risk of carelessly infringing another’s intellectual property rights by underestimating their scope, so it is only fair that a person warning of infringement of his own right be held liable if he carelessly claims a protection he is not entitled to, especially if he fails to verify the factual and legal position as he ought. In this way a proper balance is established between the protection of creative activity on the one hand and the freedom of competition on the other: the dividing line between them turns on the objective scope of the protected right, both as regards the proper method of establishing it and liability for claiming more than is due.