Licensing in Germany 2024

 

Licensing in Germany 2024

Licensing in Germany 2024

LICENSING 2024

GERMANY

Christof Karl

(BARDEHLE PAGENBERG Partnerschaft mbB)

OVERVIEW

Restrictions

  1. Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a license agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?

A foreign licensor is not restricted in any way if he or she enters into a license agreement without establishing a subsidiary or branch office in Germany. There are also no particular restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor. German law does not distinguish between Germans and foreign nationals regarding the establishment of business entities.

KINDS OF LICENSES

Forms of license arrangement

  1. Identify the different forms of license arrangements that exist in your jurisdiction.

In general, three types of license agreements can be distinguished: exclusive, sole and non-exclusive. While an exclusive license confers all the rights that subsist in the subject matter of the license agreement to the licensee, a sole license only gives exclusivity in the sense that the licensor will not grant licenses to any other party, but he or she will retain the right to use the subject matter of the license agreement for itself. A non-exclusive license, contrary to an exclusive or sole license, does not grant all the rights that subsist in the subject matter of the license agreement to one particular licensee; the licensor may grant rights to several licensees. The rules applicable to exclusive or sole licenses may be different from the rules that apply to non-exclusive licenses. For example, unlike a non-exclusive licensee, an exclusive or sole licensee of a patent has the standing to sue for infringement and may grant sub-licenses.

In the patent field, there are also cases of compulsory licenses. A compulsory license to a patent must be granted (in rare cases) for public interest reasons, or when the licensee owns a dependent patent to an important invention that he or she cannot exploit without a license to use the licensor’s basic patent (section 24(1) and (2) of the German Patent Act). An obligation to conclude a license agreement also exists in the field of standard essential patents, where any third party who wishes to practice the standard can ask for a license under the patent for such use. Certain compulsory licenses are also known in the copyright field (see section 42a of the German Copyright Act).

Any kind of intellectual property that allows its holder to exclude others from using the same, such as patents, utility models, copyright – including copyright for software, industrial design, trademarks, topographies of semiconductor products – can be the subject matter of a license agreement. In addition, personality rights and confidential information (know-how and trade secrets) can also be the subject matter of a license agreement.

LAW AFFECTING INTERNATIONAL LICENSING

Creation of international licensing relationship

  1. Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.

Legislation does not directly govern the creation or otherwise regulate the terms of a licensing relationship. German intellectual property acts such as the Patent Act or the Trademark Act only specify that the respective intellectual property rights can be the subject of an exclusive or non-exclusive license (section 15(2) of the German Patent Act and section 30 of the German Trademark Act), but do not contain any rules about the creation or the further terms of a license.

In principle, parties are free to choose the content of the license agreement, but this freedom is limited by antitrust law and general contract law, in particular the laws on standard terms and conditions, which impose certain requirements on the terms of a licensing relationship. In the case of compulsory licenses, royalty rates typically have to be fair, reasonable and non-discriminatory.

Pre-contractual disclosure

  1. What pre-contractual disclosure must a licensor make to prospective licensees?

The licensor has no specific pre-contractual disclosure obligations. However, the general obligation to act in good faith requires a party to a prospective license agreement to disclose information that is so relevant for the decision of the other party that disclosure can reasonably be expected. For example, courts found a disclosure obligation to exist where the licensor was aware of a prior piece of art that was likely to render the patent to be licensed invalid (RG GRUR 41, 99, 101), or where the licensor was the inventor and owner of the rights to the invention whose use was to be licensed, but a third party, and not the licensor, was registered as the formal applicant of the corresponding patent application (LG München I, Case No. 21 O 4559/08). The licensor has no disclosure obligation if the other party can obtain the relevant information itself with reasonable effort (LG München I, GRUR-RS 2022, 29884, marginal no. 45).

Registration

  1. Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?

There is no requirement to register a grant of licensing rights, but a registration may have certain advantages for the licensee.

INTELLECTUAL PROPERTY ISSUES

Paris Convention

  1. Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?

Germany is a party to all these treaties.

Contesting validity

  1. Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?

No-challenge clauses in license agreements concerning patents and utility models are in general considered to be a violation of EU antitrust law and therefore void (article 5(1)(b) of the Technology Transfer Block Exemption (TTBER) Regulation (EU) No. 316/2014)). The requirement is, inter alia, that the agreement is liable to affect trade among the member states of the European Union. Exceptions exist where the license is granted royalty-free or where the licensed technology is outdated (ECJ, Case C-65/86).

After the amendments to the TTBER and the Commission Notice (TTBER Guidelines) in May 2014, a stricter approach has been taken on no-challenge clauses. First, although no-challenge clauses in the context of a settlement or non-assertion agreement are generally considered to be allowed under antitrust law even after the amendments (Commission Notice (TTBER Guidelines) 2014/C 89/03 at 242), the amended TTBER Guidelines stipulate that they may be prohibited under article 101(1) of the Treaty on the Functioning of the European Union under specific circumstances with mentioning, as one of those circumstances, the case where an intellectual property right was granted following the provision of incorrect or misleading information (TTBER Guidelines at 243). No-contest clauses in trademark or design license agreements are judged according to the same criteria.

Second, although, in the case of an exclusive license, the licensor may continue to reserve the right to terminate the license agreement, in the case of a challenge of the licensed intellectual property right by the licensee, regarding the case of a non-exclusive license, whether the reservation of such right in the case of a challenge is considered to be a violation of EU antitrust law has to be decided on a case-by-case basis (article 5(1)(b) of the TTBER). The same applies to a clause of automatic termination in the case of a challenge by the licensee.

Invalidity or expiry

  1. What is the effect of the invalidity or expiry of registration of an intellectual property right on a related license agreement in your jurisdiction? If the license remains in effect, can royalties continue to be levied? If the license does not remain in effect, can the licensee freely compete?

The expiry or a final decision of invalidity of an intellectual property right usually leads to the expiry of a related license agreement if there is no provision about the term of the agreement. However, the agreement may be set to run beyond the lifetime of the intellectual property right; for example, for a fixed period of time. Such a clause is common in agreements that grant a license to know-how in addition to a license to intellectual property rights. In the case of a plurality of licensed intellectual property rights, parties typically set the term of the agreement to the period of protection of the intellectual property right that expires last.

For patents and utility models, the European Commission considers a clause that extends the licensee’s obligation to pay royalties beyond the lifetime of the licensed intellectual property right as not being in conflict with antitrust law (TTBER Guidelines at 187). However, this issue has not yet been decided by a court. Where the license concerns a plurality of intellectual property rights, the agreement should specify whether royalty payments are reduced accordingly if one of the intellectual property rights expires, or whether the same royalty amount is due until all intellectual property rights have expired. The rules mentioned are also applicable to trademark and design licenses, whether community rights or national rights.

In Germany, unless otherwise agreed by the parties, royalties already paid by the licensee do not have to be paid back in the case of an invalidation of the licensed intellectual property right, and outstanding payment obligations for royalties that become due prior to the invalidation have to be fulfilled.

After expiry or invalidation of the licensed intellectual property right, the licensee is free to compete unless the license agreement comprises a non-compete obligation for a time period after the expiry or invalidation. The validity of such a non-compete obligation under antitrust law depends on the circumstances of the case; in particular, the effect it may have on the competitive situation after the expiry of the intellectual property right.

Unregistered rights

  1. Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?

Unregistered trademarks, as well as all other intellectual property rights that do not require registration (e.g, copyrights), can be licensed in Germany.

Security interests

  1. Are there particular requirements in your jurisdiction to take a security interest in intellectual property?

There are no specific formal requirements in Germany for taking a security interest in intellectual property. In particular, since 1 January 1999, it is not necessary to conclude the security interest in writing. It is also not necessary to register the security interest, but it is possible (and may be advisable) to do so under section 30(2) of the German Patent Act; section 29(2) of the German Trademark Act; and section 30(2) of the German Design Act.

Proceedings against third parties

  1. Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?

An exclusive or sole licensee of a patent or utility model can institute proceedings before the national courts against an infringer of the licensed intellectual property without the consent of the owner or licensor unless he or she has been contractually prohibited from doing so. The same is true for proceedings before the Unified Patent Court (UPC), of which Germany is a contracting member state. For UPC proceedings, the patent owner needs to be given notice by the licensee prior to the action. Contrary to that, a non-exclusive licensee of a patent or utility model has no standing to sue, but the right to sue can be granted by the owner of the patent or utility model to the non-exclusive licensee. If the licensee then brings suit, the owner can no longer do so. In the UPC, the non-exclusive licensee can bring an action if this is expressly permitted by the license agreement. Additionally, the non-exclusive licensee must give notice to the owner prior to the action.

A licensee of a German trademark, be it a non-exclusive licensee, a sole licensee or an exclusive licensee, can institute proceedings against an infringer only with the consent of the owner. However, an exclusive licensee can bring an action for infringement of a trademark if the owner of the trademark has not himself brought an action for infringement of a trademark within a reasonable period of time after being formally requested to do so (section 30(3) of the German Trademark Act). The same rules apply for EU trademarks (article 25(3) of the EU Trademark Regulation) and German or community designs (section 31(3) of the German Design Act and article 32(3) of the Community Design Regulation). Since the general rule is that a licensee can act only with the consent of the owner, a sole licensee might have to be treated like a non-exclusive licensee. However, there is no case law on the rights of the sole licensee in this regard as yet.

As a rule, the owner of an intellectual property right has the standing to sue. Exceptions to this rule exist where the owner has granted an exclusive license and is not affected by the infringement, because, for example, he or she receives no running royalty fees from his or her licensee, or where the owner has granted his or her right to sue to the licensee, at least if the licensee made use of that right. If the owner has the standing to sue, he or she can institute proceedings without the licensee, even if the licensee has already instituted his or her own proceedings. Licensees may join in the action of the owner to recover their own damages. However, at least for patents, German case law acknowledges damages claims only for exclusive licensees, not for non-exclusive licensees (BGH, Case No. X ZR 48/03). As regards damages caused by trademark or design infringement, German courts have decided that a licensee (be it a non-exclusive or an exclusive licensee) cannot claim his or her own damages, but only claims of the licensor (BGH, Case No. I ZR 93/04).

Sub-licensing

  1. Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?

It is recognized that an exclusive licensee may sub-license the use of the trademark to third parties, unless the right to sub-license has been excluded in the license agreement. In the case of a non-exclusive license, the licensee is not entitled to grant sub-licenses, unless such right was explicitly granted in the license agreement.

Jointly owned intellectual property

  1. If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?

The provisions of sections 741 to 758 of the German Civil Code apply to joint ownership of trademarks and patents, including Unitary Patents governed by German law. In contrast, joint ownership of copyright is governed by the special provision of section 8 of the German Copyright Act.

Each of the joint patent or trademark owners has the right to use the subject protected by the intellectual property (section 743(2) of the German Civil Code). If one of the co-owners is incapable of exploiting the patent or trademark, he or she is at least entitled to compensation for the use by the other co-owners. However, compensation is due only for uses that occur after the date on which the non-using co-owner has demanded compensation (German Federal Court of Justice, Case No. X ZR 152/03). Compensation may be calculated as reasonable royalties. Similarly, if one of the co-owners uses the patent or trademark to an extent that exceeds its share, the other co-owners can demand compensation. Co-owners of copyrights (co-authors) need to reach consent on the publication, exploitation or alteration of a copyrighted work (section 8(2) of the German Copyright Act, first sentence). However, a co-author may not refuse his or her consent to publication, exploitation or alteration contrary to the principles of good faith (section 8(2) of the German Copyright Act, first sentence).

Acts that affect an intellectual property right as a whole, such as a transfer of the intellectual property right, a license to the intellectual property right, or using the intellectual property right as security, require consent by all co-owners (section 747 of the German Civil Code, second sentence for patents and trademarks; and section 8(2) of the German Copyright Act, for copyrights). On the other hand, each co-owner of a patent or trademark (but not of copyright) is free to transfer his or her share to a third party (section 747 of the German Civil Code, first sentence), which will then give the third party the right to use the patent or trademark instead of the previous co-owner. A co-owner may also give a license to a third party to use the patent or trademark in place of the co-owner, or use his or her share in the patent or trademark as security. A co-owner of a copyright may waive his or her share of the exploitation rights.

Co-owners of intellectual property rights are able to change this position in a contract. For example, they can decide that the right to use may be governed by a majority decision of the joint owners (section 8(4) of the German Copyright Act), but they cannot transfer it to a third party.

First to file

  1. Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?

Germany is a ‘first to file’ jurisdiction. A licensor can grant a license for the use of an invention even before filing a patent application, or after the filing of a patent application but before grant of the patent (section 15(2), (1) of the German Patent Act).

Scope of patent protection

  1. Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?

Only technical inventions can be patented in Germany (section 1 of the German Patent Act). Consequently, software and business methods ‘as such’ are not patentable, but technical aspects of software and technical implementations of business methods can be protected by patents, provided that the technical aspects are novel and inventive.

Living organisms are not precluded from patent protection per se. However, there are a number of exclusions and restrictions. The recent amendment of section 2a of the German Patent Act decided a question that is yet to be answered on behalf of the European Patent Office (see pending cases No. G 2/13 – Broccoli II and No. G 2/12 – Tomatoes II): besides the exclusion of patentability of plant and animal varieties as well as of essentially biological processes for the production of plants or animals, plants and animals obtained exclusively via such processes are now also excluded from patentability.

Trade secrets and know-how

  1. Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?

Trade secrets or know-how are protected by the German Trade Secrets Act, which entered into force on 26 April 2019. The Act defines a trade secret in its section 2 as information that (1) is not generally known or readily accessible, neither as a whole nor in the precise arrangement and composition of its components, to persons in the circles that ordinarily handle that type of information, and is therefore of economic value; and which (2) is the subject of secrecy measures appropriate under the circumstances by its rightful owner; and for which (3) there is a legitimate interest to keep it secret.

Even though trade secrets are not regarded as intellectual property rights in Germany in the sense of granting its holder exclusive rights, the Act provides for a full set of remedies including injunctions, damages, destruction of infringing products, recall of infringing products or removal from the channels of commerce, disclosure of information about suppliers and customers, sales and costs, the persons from whom the trade secret was obtained and the persons to whom the trade secret was passed on, when information is used that was passed on in breach of trade secret law.

  1. Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the license agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?

The licensor can restrict the disclosure and the use of trade secrets and know-how by the licensee or third parties during and after the term of the license agreement. Liability of third parties arises only if they are also contractually related to the licensor. Otherwise, general law prohibiting the disclosure of trade or commercial secrets applies.

Secrecy obligations and use restrictions after the termination of the license agreement are exempted from antitrust rules by article 2 of the TTBER. However, if the know-how becomes publicly known after the date of the agreement or it proves to not have been secret at the date of the agreement, any restrictions lose exemption from antitrust rules, since only secret know-how can be the object of an agreement restricting competition. According to the German antitrust authority, the lawfulness of an absolute duration of such restrictions, for example, 20 years, is questionable. Therefore, license agreements should limit disclosure for such time as the licensed trade secret continues to exist.

After the amendments to the TTBER and the TTBER Guidelines in May 2014, any direct or indirect obligation on the licensee to grant an exclusive license to the licensor in respect of any improvements to the licensed know-how made by the licensee, or to assign to the licensor the licensee’s rights in the improvements is not exempted from antitrust rules (article 5(1) of the TTBER). Before the amendment, the subject not exempted from antitrust rules was limited to ‘severable’ improvements. Therefore, the permissibility of restrictions regarding improvements made by the licensee may conflict with antitrust law, depending on the circumstances of the case.

Copyright

  1. What constitutes copyright in your jurisdiction and how can it be protected?

Literary, scientific and artistic works are protected via copyright, which includes, in particular:

  • literary works, such as writings, speeches and computer programs;
  • musical works;
  • works of pantomime, including choreographic works;
  • works of fine art, including works of architecture and of applied art and plans for such works;
  • photographic works, including works produced by processes similar to cinematography; or
  • illustrations of scientific or technical nature, such as drawings, plans, maps, sketches, tables and three-dimensional representations.

Translations and other adaptations or modifications of a work may constitute copyrighted creations of the person having created the adaptation or modification. Collections of works, of data or of other independent elements that, by reason of the selection or arrangement of the elements, constitute a personal intellectual creation, are also protected by copyright.

Copyright protection requires that a work is the author’s individual creation, which requires a certain level of originality. Recent decisions of both the Court of Justice of the European Union (Case C-5/08) and the German Federal Court of Justice (Case No. I ZR 143/12) show a tendency towards a lowering of this threshold and a more equal threshold for different work categories.

Works that can be subject to copyright are protected without registration; the mere act of creation establishes the copyright.

SOFTWARE LICENSING

Perpetual software licenses

  1. Does the law in your jurisdiction recognize the validity of ‘perpetual’ software licenses? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licenses?

Perpetual software licenses are recognized as valid and are frequently used in Germany. In general, the law of sales is applied to them. As the German law of sales provides for rather strict liability in the case of defects of the purchased goods, the license agreement should define what constitutes a defect, and the measures the licensor has to take to remedy the defects. Further, since the law of sales does not provide for a right to terminate the contract in the case of a material breach of contract, the license agreement should include a provision that allows termination of the license in this case (e.g, if the licensee installs the software on more devices or for more users than contractually allowed, see LG Köln, Case No. 28 O 482/05).

Legal requirements

  1. Are there any legal requirements to be complied with prior to granting software licenses, including import or export restrictions?

No particular legal requirements to be complied with prior to granting a software license are known. Import or export restrictions may apply only in very specific situations, such as licenses for military use of the software.

Restrictions on users

  1. Are there legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a license agreement?

A licensee of a computer program may not be prevented by contract of performing the following acts:

  • the making of a backup copy by a person having a right to use the computer program if it is necessary to secure future use (section 69d(2) of the German Copyright Act);
  • the observation, studying or testing of the functioning of the program in order to determine the ideas and principles that underlie any element of the program if this occurs while performing any acts of loading, displaying, running, transmitting or storing the program that he or she is entitled to do (sections 69d(3) and 69g(2) of the German Copyright Act); and
  • decompilation, as far as it is indispensable to obtain the information necessary to achieve the interoperability of an independently created computer program with other programs (sections 69e and 69g(2) of the German Copyright Act).

ROYALTIES AND OTHER PAYMENTS, CURRENCY CONVERSION AND TAXES

Relevant legislation

  1. Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?

The nature, amount, manner and frequency of payments of royalties, fees or costs can in principle be freely chosen by the parties to the license agreement. One exception to this principle concerns copyright license agreements, where the German Copyright Act provides that the author can demand an adjustment of the agreement where the payment to the author is not fair and reasonable (section 32(1) of the German Copyright Act). Another exception concerns the field of standard essential patents, where according to the case law, antitrust law requires that any third party who wishes to practice the standard can ask for a license under the patent for such use under fair, reasonable and non-discriminatory conditions.

In the absence of regulation of the interest rate on late payments in the license agreement, general civil law provides for an interest rate of 8 per cent above the basic interest rate, and in the case of consumer contracts, 5 per cent (section 288 of the German Civil Code).

No regulatory approval of the royalty rate or other fees or costs is required in Germany.

Restrictions

  1. Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there any associated regulatory reporting requirements?

In Germany, anyone can make payments to foreign beneficiaries or receive payments from abroad without restrictions or a need for permission. However, companies or persons domiciled in Germany need to report to the central bank (Bundesbank) payments to or from abroad worth more than €12,500. These reports serve to provide statistical information about the degree and the structure of the trade between Germany and the rest of the world.

Taxation of foreign licensor

  1. In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?

A foreign licensor (i.e, a licensor whose residence or registered office or place of habitual residence is not in Germany) may have limited tax liability in Germany for royalties from Germany (section 50a of the German Income Tax Act). A German licensee may be required to withhold the tax and deduct it from the royalty payments and pay it directly to the tax office on behalf of the licensor. Double taxation can be avoided where respective treaties are in place (currently with approximately 90 countries). Where they are applicable, exemptions from the licensee’s duty to withhold the tax may be available if a corresponding request is filed in due time (at least three months before royalty payments are made to the licensor).

COMPETITION LAW ISSUES

Restrictions on trade

  1. Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?

Practices that have the intent to or effect of restricting trade between EU member states are governed by articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) and by the corresponding provisions of the German Antitrust Act.

Article 101 of the TFEU covers, inter alia, horizontal and vertical technology transfer agreements. The Technology Transfer Block Exemption Regulation (TTBER) (EU) No. 316/2014 provides certain general exemptions from violation by a license agreement concerning, for example, patents, know-how and copyright for software. Individual exemptions of restricted practices are possible if they meet certain criteria listed in article 101(3) of the TFEU and do not fall within the hardcore restrictions.

Article 102 of the TFEU forbids abuse of a dominant position. It does not directly govern license agreements, but exclusive license agreements between competing undertakings may produce a combined dominance, and where such dominance is abused by a restricted practice, it can be considered a breach of article 102 of the TFEU.

Legal restrictions

  1. Are there any legal restrictions in respect of the following provisions in license agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?

There are legal restrictions in respect of some of the above provisions in license agreements. Exclusive license agreements are generally permissible, but exclusivity in customer allocation is a hardcore restriction and thus such provisions are null and void. The same is true for an internet sales prohibition in a selective distribution agreement, which constitutes a restriction of competition ‘by object’ under EU law (Court of Justice of the European Union (CJEU), Case C-439/09). Grant-back provisions for assignment of or an exclusive license on improvements made by the licensee are excluded from the benefits of TTBER and must be assessed on a case-by-case basis to weigh up their pro- and anti-competitive effects. Non-competition clauses are generally not permissible if they hinder the licensee in the production, use or sale of unprotected items or products. The duration of the license agreement may extend beyond the term of protection of the licensed intellectual property right.

IP-related court rulings

  1. Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anti-competitive?

Since 2008, the European Commission has increasingly scrutinized agreements for patent dispute resolution. Inter alia, it has imposed fines in an amount totaling €146 million for infringement of article 101 of the TFEU in the case of an agreement between Danish pharmaceutical firm Lundbeck and several generics companies. Under the agreement, Lundbeck made substantial payments to the generics companies to delay their release of generic versions of a drug for which Lundbeck’s product patent had expired, and to which it held only certain process patents, which provided more limited coverage. The decision of the European Commission was upheld by the European General Court in September 2016 in a series of cases (T-472/13, T-460/13, T-467/13, T-469/13, T-470/13 and T-471/13). The Court found that the European Commission had correctly refused to apply the exceptions under article 101(3) of the TFEU in favor of the parties.

In a 2009 decision (KZR 39/06 – Orange Book), the German Federal Court of Justice found that denial to grant a license under a standard-essential patent (SEP) may be an abuse of dominant position under German and EU (article 102 of the TFEU) antitrust law. In this situation, seeking injunctive relief in a patent infringement lawsuit is likewise an abuse of a dominant position. The conditions under which the owner of a SEP may nevertheless ask for an injunction were further limited in a decision of the CJEU in July 2015 (Case C-170/13 – Huawei v ZTE). If an alleged infringer expresses his or her willingness to conclude a license under fair, reasonable and non-discriminatory (FRAND) terms, the SEP owner may ask for an injunction only after making a written offer for a license on FRAND terms, if the defendant did not diligently respond to the offer, in particular by submitting a specific counter-offer that also corresponds to FRAND terms. The German Federal Court of Justice held in a decision of 2020 (KZR 35/17 – FRAND Defense II) that the willingness to take a license on the part of the infringer must not be limited to a one-time expression of interest in licensing, or the submission of a (counter) offer. Rather, the infringer (like the patent owner) is required to facilitate that a license agreement on FRAND terms can be negotiated.

INDEMNIFICATION, DISCLAIMERS OF LIABILITY, DAMAGES AND LIMITATION OF DAMAGES

Indemnification provisions

  1. Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?

Indemnification provisions are commonly used in Germany and are generally enforceable. For example, claims for product liability may arise against the licensor from the use of the licensor’s trademark. The license agreement may comprise a provision for indemnification of the licensor by the licensee with respect to such claims.

Insurance coverage for the protection of a foreign licensor may be available in support of an indemnification provision.

Waivers and limitations

  1. Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?

Parties can, in general, agree to waive or limit damages claims. Such disclaimers and limitations of liability are generally enforceable.

Exceptions exist where a party uses standard terms and conditions: in this case, for example, liability for damages caused with intent or by a grossly negligent act cannot be excluded or limited. The same is true for liability resulting from ordinary negligence in the event of the death or personal injury and for liability for damages that are typical and foreseeable.

TERMINATION

Right to terminate

  1. Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?

Parties are free to terminate the license in accordance with the provisions as set out in the agreement. German law does not restrict the content of a termination clause. Therefore, German law does not generally impose conditions on or limit the right to terminate or not to renew a licensing relationship. An exception to this rule exists in the case of compulsory licenses, which owing to their nature cannot be terminated by the licensor without good cause.

In general, the payment of an indemnity or other form of compensation is not required upon a rightful termination of the license agreement. However, there is at least one decision of an appeals court (OLG Celle, Case No. 11 U 279/06), which ruled that if a franchisee is integrated into the organization of the franchisor like a commercial agent and does not have the possibility to keep his or her customer base after termination or non-renewal of the franchise agreement, commercial agency law (section 89b of the German Commercial Code) is to be applied by way of analogy and the franchisee has a right to compensation. Franchise agreements typically also comprise license agreements.

Impact of termination

  1. What is the impact of the termination or expiration of a license agreement on any sub-license granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?

For copyright licenses, the German Federal Court of Justice, in a series of three judgments between 2009 and 2012, decided that the termination of the license agreement in general does not lead to the termination of sub-licenses granted by the licensee (Case No. I ZR 153/06, I ZR 70/10, and I ZR 24/11). In this case, the licensor has a claim against the licensee for the assignment of the right to collect outstanding royalty payments from the sub-licensees. Although the Federal Court of Justice left the issue open, it can be argued that in the case of the expiration of a license agreement (e.g, if a license agreement has a limited term), a sub-license granted by the licensee likewise expires because the sub-licensee cannot acquire a use right from the licensee that goes beyond what the licensee owns.

It is generally expected that the courts will also adopt this case law for other fields of intellectual property, such as patents and trademarks, which will have the consequence that sub-licenses normally remain in force even if the licensor rightfully terminated the license. If a licensor wants to avoid this consequence, it is advisable to include a provision in the license agreement that requires the licensee to include clauses in the sub-license providing that the sub-license ends when the license ceases to exist. To be certain that this provision is correctly applied, the licensor’s explicit consent to any sub-license may be required in the license agreement. Alternatively, the right to sub-license could be granted in a way that is limited to sub-licenses that end when the license ceases to exist. Such a provision, if ignored by the licensee, is arguably enforceable in that the sub-license granted without the licensor’s right to terminate is beyond what the licensee owns and therefore either void or to be treated as if the licensor’s right to terminate was included.

BANKRUPTCY

Impact of licensee bankruptcy

  1. What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-license that the licensee may have granted? Can the licensor structure its international license agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?

In the case of bankruptcy of the licensee, the insolvency administrator can choose whether or not he or she wants to continue to perform the license agreement (section 103 of the German Insolvency Act). If he or she chooses not to continue the license agreement, the agreement is terminated. On the other hand, if he or she chooses to continue to use the licensed intellectual property right, royalty payments due after the day the commencement of insolvency was applied for, become debts of the estate, which are treated with priority over the debts to creditors in insolvency (section 55(1) No. 2 and section 53 of the German Insolvency Act).

It is generally assumed – although some doubts have been expressed concerning trademarks – that after the day the commencement of insolvency was applied for, the licensor cannot terminate the license agreement on the ground that the licensee is in default of royalty payments due prior to that day, or that the financial circumstances of the licensee have deteriorated (analogous application of section 112 of the German Insolvency Act, which refers to lease contracts). Also, a clause providing for termination or the right to terminate upon the commencement of insolvency proceedings is considered to be void.

However, a provision in the license agreement that allows the licensor to terminate the agreement, before the commencement of insolvency is applied for, on the grounds of payment default, indebtedness or a deterioration of the financial circumstances of the licensee is valid. Further, a provision that allows for the termination of the agreement in the case of late payments or where the licensee cannot meet an obligation for a certain minimum use of the licensed intellectual property right even after commencement of insolvency proceedings was applied for is generally considered to be valid.

Regarding sub-licenses that the licensee may have granted, certain principles are expected to apply in the case of bankruptcy of the licensee, be it that the insolvency administrator chooses not to continue to use the licensed intellectual property right, or that the licensor terminates the agreement prior to or after the application for the commencement of insolvency proceedings: arbitration clauses are common in license agreements and recognized by section 1029 of the German Civil Procedure Code. A valid arbitration clause has the effect that a complaint brought before a German court has to be dismissed for lack of jurisdiction if the defendant so requests prior to the oral hearing (section 1032(1) of the German Civil Procedure Code).

Impact of licensor bankruptcy

  1. What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-license the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?

Also, in the case of bankruptcy of the licensor, the insolvency administrator can choose whether or not he or she wants to continue to perform the license agreement, provided that the license contract was not yet completely performed by the licensor or the licensee (section 103(1) of the German Insolvency Act). This is the case at least where running royalties have been agreed upon. In a case of a royalty-free patent cross-license agreement, a German appeals court found that the contract had already been performed completely and could not be terminated by the insolvency administrator (OLG München, Case No. 6 U 541/12). If the insolvency administrator chooses not to continue the license agreement, the agreement is terminated. In this case, the licensee has a claim against the licensor for breach of contract (section 103(2) of the German Insolvency Act, first sentence), but this claim is treated like any other debt to creditors.

In several decisions, the sub-license granted by the licensee to its sub-licensee was found to remain unaffected by the termination of the agreement between the insolvent licensor and the licensee (Federal Court of Justice, Case No. I ZR 153/06, I ZR 24/11, and I ZR 70/10). Consequently, the licensee can mitigate the risk of a bankruptcy of the licensor by sub-licensing the license (e.g, to its affiliates who practice the license).

In another decision, the Federal Court of Justice (Case No. IX ZR 162/04) confirmed the validity of a clause in a software license agreement by which the right to use the software was transferred to the licensee subject to the condition precedent that the license agreement is terminated (including termination by the insolvency administrator). Thus, such a clause can provide another possibility in particular for the exclusive licensee to protect itself against the bankruptcy of the licensor.

Finally, it is widely recognized in legal literature that charging an intellectual property right with a usufruct survives the bankruptcy of the licensor.

GOVERNING LAW AND DISPUTE RESOLUTION

Restrictions on governing law

  1. Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?

In principle, the parties to an agreement are free to choose the law that governs the agreement (article 3(1) of Regulation (EC) No. 593/2008 (Rome I)). However, a German court would apply overriding mandatory provisions of German and EU law; namely, provisions the respect of which are regarded as crucial for safeguarding Germany’s or the EU’s public interests (article 9(2) of Rome I). In particular, EU antitrust law can be applied to assess the validity of the provisions of a license agreement.

Contractual agreement to arbitration

  1. Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?

Arbitration clauses are common in license agreements and recognized by section 1029 of the German Civil Procedure Code. A valid arbitration clause has the effect that a complaint brought before a German court has to be dismissed for lack of jurisdiction if the defendant so requests prior to the oral hearing (section 1032(1) of the German Civil Procedure Code).

Enforceability

  1. Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

Foreign judgments are, in general, enforceable in Germany. Enforcement requires that the foreign judgment has been declared enforceable by a German court.

Judgments from the Unified Patent Court (UPC), of which Germany is a member, are enforceable in Germany in the same way as judgments from a German court.

For judgments from EU member states and from a number of other jurisdictions (Iceland, Norway and Switzerland – the contracting parties to the Lugano Convention), the procedure and the prerequisites for the declaration of enforceability is simplified, and merely require that the judgment from the foreign jurisdiction is enforceable in that jurisdiction and that the interested party makes an application with the competent German court (see articles 38 and 39 of Council Regulation (EC) No. 44/2001 (Brussels I)).

For judgments from other jurisdictions, the interested party needs to sue the defendant at the competent German court for a declaration of the enforceability of the foreign judgment in Germany (section 722 of the German Civil Procedure Code). The German court will not review the lawfulness of the foreign judgment, but it will declare the foreign judgment enforceable in Germany only if the judgment from the foreign jurisdiction is final and the recognition of the foreign judgment in Germany is not excluded by law (section 723 of the German Civil Procedure Code). Recognition is excluded by law, for example, if it conflicts with German public policy (section 328 of the German Civil Procedure Code).

Foreign arbitral awards are recognized and enforced by German courts in accordance with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (section 1061 of the German Civil Procedure Code), to which Germany is a party.

Collective arbitration is rare in Germany although it is known in certain types of shareholder suits (see the DIS Supplementary Rules for Corporate Law Disputes). Unless explicitly agreed upon by the parties, collective arbitration is unavailable. Therefore, a contractual waiver is unnecessary.

Injunctive relief

  1. Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?

Permanent and preliminary injunctive relief is available in Germany and also in the UPC, of which Germany is a member. An injunction granted by a first instance court can regularly be immediately enforced, upon provision of a security bond, even if an appeal is pending. In the UPC, whether or not the enforcement of a decision is subject to the provision of a security is up to the discretion of the court. Pursuant to section 717 (2) of the German Civil Procedure Code, the plaintiff must compensate the defendant for all damages incurred by the defendant as a result of the provisional enforcement of the judgment, should the provisionally enforced judgment later be lifted.

At least for patents, the right to injunctive relief cannot be waived with in rem effect (LG Mannheim, Case No. 7 O 94/08), but the assertion of the right to injunctive relief can be waived contractually in an agreement with a third party. In this case, the third party has a defence against the claim for an injunction if the third party is sued for infringement (RGZ 153, 329 and 331). Restrictions to enforceability of such a waiver exist where standard terms and conditions are used.

Parties may waive their entitlement to claim (specific categories of) damages, such as loss of profits, in an arbitration clause or any other clause of an agreement. However, restrictions exist where standard terms and conditions are used.

UPDATES & TRENDS IN LICENSING IN GERMANY

Key developments of the past year

  1. Please identify any recent developments in laws or regulations, or any landmark cases, that have (or are expected to have) a notable impact on licensing agreements in your jurisdiction (including any significant proposals for new legislation or regulations, even if not yet adopted). Explain briefly how licensing agreements might be affected.

On 1 June 2023, the Unified Patent Court (UPC) started its operation. The UPC has jurisdiction in patent matters relating to all existing (national parts of) European Patents and European Patent Applications. During a transitional period of seven years (which can be extended by up to another seven years), the owners of European bundle patents and European Patent Applications may opt out of the jurisdiction of the UPC, with the effect that jurisdiction is limited to the national courts. Exclusive licensees of European Patents should contact their licensors if they want the licensed patent to be opted out. Parties negotiating new license agreements should likewise consider the question of an opt-out.

* The information in this chapter was accurate as of December 2023.

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