In its Study Question Q292 (see here), the “Association Internationale port la Protection de la Propriété Intellectuelle” (AIPPI) asked its National and Regional Groups to report on how their laws deal with situations in which IP rights are exercised in circumstances in which the infringement allegations that are made lack proper legal grounds or are motivated by improper purposes. Such allegations may be effective regardless, because even the mere threat of exercising the IP rights in question may make competitors withdraw from a market or otherwise change their behavior.
The Study Question examined what kind of activities, and by whom, should be deemed as unjustified allegations of IP infringements that exceed the boundaries of the legitimate exercise of IP rights, and what should be the consequences of making such unjustified allegations of IP infringements. This article is based on the answers provided by the German National Group of the AIPPI on the law and practice in Germany.
Communications considered as allegations of infringements of IP rights
The most relevant form of infringement allegations in Germany is warning letters. Usually, an IP infringement is alleged in a warning letter, the addressee is requested to cease the allegedly infringing conduct and desist from such conduct in the future, and to sign an undertaking to pay a contractual penalty in case the allegedly infringing conduct is continued or re-instated. It is noteworthy that if the warning letter has been sent due to incorrect legal advice, even the legal adviser may be liable to the addressee, in addition to the person sending the warning letter.
As an alternative instrument, an authorization enquiry has been established in German legal practice. Such an enquiry only substantiates a potential infringement of an IP right by the addressee and requests a statement as to why the addressee should not make use of the IP rights or to be entitled to do so. Due to its less disruptive characteristic, an authorization enquiry does not trigger any legal consequences.
Court proceedings like preliminary injunction proceedings or an action on the merits of asserting an IP infringement, necessarily contain an allegation of IP infringement. However, court proceedings are privileged means to enforce IP rights, in which the rights of the defendant are safeguarded by procedural rules. Therefore, aside from the obligation to reimburse the costs of the prevailing party, unfounded court proceedings for IP infringement do not trigger any liability of the plaintiff. Different rules may apply in the exceptional case of abusive court proceedings that were filed to harm the defendant, even though the plaintiff knows that their allegation of an IP infringement is ill-founded. Such proceedings may create a liability for intentional immoral damage.
Press releases and other public announcements are allegations of IP right infringements if an infringement is alleged in a concrete manner. Even in the absence of such a concrete allegation, the allegations may be considered to mislead or to constitute an inadmissible defamation, if they are not predicated on a factual standard.
In the case of a take-down notice, a platform provider may react by excluding the alleged IP infringer with their product from further sales on their platform within short notice. The alleged infringer will not be aware of the take-down notice until they are informed of this by the sales platform.
Finally, customs enforcement, during a border control or at a trade fair, may be based on allegations of IP infringements.
Criteria for such allegations to be considered unjustified
An IP infringement allegation is considered to be unjustified in Germany if the allegation ultimately proves to be incorrect. This may be the case for several reasons, for instance, the alleged IP right was not in force because, at the time of the allegation it had not (yet) been granted, has lapsed or has been revoked afterwards with retroactive effect; the incriminating act did not infringe the IP right because it was not in the scope of protection or justified by a defense (e.g., exhaustion); or the infringing act was not committed by the addressee of the allegation. An assessment whether an infringement allegation was incorrect is made objectively and with hindsight. It is not relevant whether the plaintiff acted in good faith or whether a court had previously shared their view in parallel proceedings.
The justification of infringement allegations will depend on the addressee. Allegations vis-à-vis third parties are judged by stricter standards than allegations vis-à-vis the alleged infringer themself. This is particularly true for allegations of an IP infringement towards the customers or distributors of a product manufacturer (customer warnings). Such warnings may have a severe impact on the manufacturer’s customer relationships, because customers are free to switch to other products and therefore have less interest than the manufacturer themself in verifying the allegation and engaging in a legal dispute with the plaintiff. An infringement allegation must not be misleading, i.e., the plaintiff must exhaustively, correctly and unambiguously disclose all relevant facts to enable the addressee to make an assessment to what extent a certain IP right may be infringed.
The same principles apply with regard to press releases and public announcements, which are by their very nature intended to be noticed by the public. It is generally permissible to publicly communicate statements about a competitor and a competitor’s conduct that are true as such, even if this can lead to damage to the competitor, because such statements may contain important information for market participants. The allegation of an IP infringement is not a factual allegation as such, but rather a “value judgement”. The admissibility of such a value judgement is decided by weighing the interests of the announcing party against the interests of the competitor, the other market participants, and the general public. Negative value judgements which impair the business reputation of a competitor are not covered by the fundamental right of freedom of speech if the assessment is not based on a factual standard.
Remedies available to a party subject to an unjustified allegation of infringement
In the event of an unjustified warning letter or take-down notice, the addressee has a claim for damages under tort law if, for example, they have stopped selling products or services as a result of the warning. Damages include in particular loss of profit, but overhead costs will not be taken into account and will not reduce profits when calculating the amount of damages.
A claim to damages requires culpability on the part of the owner of the IP right. The owner does not behave negligently if they formed their conviction through a conscientious examination or if they were guided by reasonable and fair considerations when issuing the warning letter. For example, the owner of an IP right would not act negligently if advice from an attorney-at-law could reasonably consider an infringement of their right to be so obvious that a warning letter, which also served to clear up any remaining uncertainties, appeared justified.
If an IP right is declared null and void with retroactive effect after sending out the communication, the standard of care depends on whether it was an examined IP right (e.g., patent or trade mark) or unexamined IP right (e.g., design, utility model or copyright). A higher degree of verification is required by an IP right holder when acting on the basis of an unexamined IP right than when acting on the basis of an examined IP right.
A stricter standard applies in the case of a customer warning, in which case the owner of an IP right must examine the legal situation even more critically. It is therefore advisable to first warn the manufacturer and issue a customer warning only if this has proven to be unsuccessful or if other special circumstances exist.
In the case of customs enforcement, if a seizure proves to be unjustified from the outset, the right holder is obliged to provide compensation for the damage caused by the enforcement. This is true even if they requested customs enforcement in good faith.
The requirements for an injunction are basically the same as for damages, but these can be issued even if a right owner made an allegation without fault. Instead, an injunction requires a risk of repetition, which is assumed as long as no cease-and-desist declaration has been submitted by the party who made the unjustified allegation. In a case of an unjustified take-down notice, injunctions are available in order to prevent the perpetrator from issuing such unjustified communications in the future. It is not clear whether an injunction order also has the effect of forcing the right owner to withdraw the unjustified allegation towards the platform provider so that the sales ban is lifted.
The recipient of an unjustified allegation of IP infringement can ask a court for a declaratory judgment that the other side is not entitled to make such allegations. As regards customs enforcements, the fact that they have no public effect can make it more difficult for the opponent to assert such a right for a declaration.
In cases where it becomes clear from the circumstances that the warning party is subject to a misconception, or if a longer period of time has elapsed since the warning without the warning party taking legal action, the warned party can send a counter warning letter and demand reimbursement of the costs of the counter warning letter.
Evaluation and outlook
It is a corollary of the advantageous position conferred to IP rights holders that they must bear the risks of exercising their rights. Remedies need to be available which effectively prevent the holder from asserting excessive claims. On the other hand, these remedies must not be disproportionate or overly deterrent, because otherwise they could prevent holders from asserting even justified claims.
The objective hindsight-based test to judge whether an allegation was unjustified applied by German law appears to be the appropriate approach. It provides the falsely accused party with a counterclaim to a cease-and-desist undertaking, or an injunction if this needs to be enforced via the courts, against any repetition of such false allegations of IP right infringement, independent of any subjective considerations on the right holder’s side. It also gives the falsely accused infringer a claim to reimbursement of their statutory attorney fees for replying to a warning letter or defending an infringement case in court. Whether a right holder’s beliefs – formed independently or based on attorney advice – were reasonable or unjustified play a role in the determination of the fault-based claims for damages instead.
Many allegations of infringement, be it in the form of a warning letter or in a press release that is publicly accessible on the Internet, are made in a cross-border fashion. It would be desirable to have a certain degree of harmonization to put parties in a better position to foresee the consequences of unjustified allegations. With the aim to further such harmonization, a Study Committee appointed by the AIPPI will prepare, based on the reports of its National and Regional Groups, a draft resolution for debate in a Plenary Session and adoption by the Executive Committee during the annual AIPPI Congress in Hangzhou from 18 through 22 October 2024.
Editor’s note:
The authors are members of the German national group of the AIPPI. They can be reached at rieck@aippi.de.