Franchise & Distribution Networks Newsletter N°10 - 1st Quarter 2017 Summary France u Liability of the Franchisor acting as Central Listing Unit in the termination of an established commercial relationship with a supplier u Absence of cause and vitiated consent are two reasons for avoidance of the franchise agreement: however they have to be demonstrated u Abrupt termination of an established commercial relationship: the termination letter must be clear and non ambiguous for the notice period to begin u The supplier does not have to justify his refusal to accept a distributor who fulfills his selection criteria France Liability of the Franchisor acting as Central Listing Unit in the termination of an established commercial relationship with a supplier Cass. Com., 5 July 2016, n° 14-27030, Société Groupe Planet Sushi c/ Blue Ocean Venture In this case, a company was listed as a service provider by a franchisor acting as a Central Listing Unit for the members of its network (operating subsidiaries and franchisees). After three years, arguing that the service provider had committed several contractual breaches, the franchisor brought legal action against the former to obtain judicial termination of the agreement. As a counterclaim, the service provider claimed to have been the victim of an abrupt termination of an established commercial relationship and sought compensation for the damage suffered. The Court of Appeal, and then the Cour de Cassation upheld the claims of the service provider and calculated the damages owed by the franchisor on the basis of the turnover achieved by the service provider with the whole distribution network. The franchisor was however only an intermediary (a broker) between this service provider and the suppliers and distributors who ordered services from him. At first glance, this decision seems to ignore the autonomy not only of the franchisor’s operating subsidiaries, but also and more importantly of the franchisees, who after all are the only ones to have had a commercial relationship with this supplier and to have terminated it (even if they had been asked to do so by the franchisor). However, it is precisely the lack of autonomy of the distribution network in the decision to terminate that serves as a justification to the Cour de Cassation for validating the sanctioning of the franchisor. To uphold the liability of the franchisor on the grounds of the abrupt termination of an established commercial relationship, the Cour de Cassation indeed pointed out that: u The franchisor had instructed the whole network to stop placing orders with the service provider; u The franchisees were contractually bound by an obligation to source 80% of their supplies from suppliers listed by the franchisor; and u Ultimately, the members of the distribution network (subsidiaries and franchisees) did not play any part and therefore did not have any say in the decision for establishing and terminating the commercial relationship with the service provider. United Kingdom u Consequential loss - what does this exclude? u A contract does not always mean what it says... Germany u The principal’s obligation to support its commercial agent - Digital pricing data to be provided free of charge? Consequences for franchise/distributorship/commission agency agreements? u Are commission agents entitled to termination indemnity under German distribution law? Europe u CJEU ruling on meaning of “new customers” for indemnity purposes in the Commercial Agents Directive u Porsche versus P@RSCHE 1 Franchise & Distribution Networks Newsletter N°10 - 1st Quarter 2017 This decision is a warning to franchisors acting as Central Listing Units: that their status as mere broker (or representative) does not exonerate them from their liability when taking decisions on behalf of their network. Given the method for calculating the damages, the issue must be taken seriously. Absence of cause and vitiated consent are two reasons for avoidance of the franchise agreement: however they have to be demonstrated CA Versailles, 13 September 2016, No. 14/05670, SARL BDP/ SA Speed Rabbit Pizza It is not uncommon for a franchisee facing economic difficulties to attempt to get the franchise agreement annulled, either for absence of cause or for vitiated consent (error or willful misrepresentation), in order to transfer the financial burden of this failing onto the franchisor. That is what the franchisee of a brand producing delivering and selling take away pizzas attempted to do in the case under review. The franchisee first raised the absence of cause of the agreement, claiming that his poor results were the direct consequence of the lack of know-how (and transmission of the latter by the franchisor). The franchisee argued that franchising is the reiteration of success and that some sites operated by the franchisor himself were deficient, which according to him showed the absence of know-how. The Court however rejected the argument, reminding that the existence of know-how should not be confused with the results of certain units and that account should be taken of all the establishments operated and the overall results of the franchisor. In the present case, the network had a hundred points of sale and its overall situation was good at the time of the facts. The franchisee then relied on vitiated consent, accusing the franchisor of having provided misleading and incomplete information at the pre-contractual stage. The franchisee first of all blamed the franchisor for having communicated an average network turnover figure which gave him a false insight. However the Court rejected the argument, noting that (i) it was not demonstrated that this average turnover figure was erroneous, (ii) the franchisee had been informed that it was an average figure, and that the turnover could vary substantially from one restaurant to another and (iii) the franchisee had established a forecast and a study with his accountant and was aware (or should have checked) the results of the other network members the identity of which was indicated in the document. The franchisee then emphasized the lack of a local market study. This argument could only be dismissed, courts consistently ruling that the franchisor is not obliged to provide such a document (the text only requiring a presentation of the market). The franchisee finally criticized the franchisor for having validated a forecast which was too ambitious. However, once again, the Court rejected the argument, noting that the franchisee had been assisted by a professional with respect to the figures, who had himself established the forecast and that no erroneous information had been communicated to him by the franchisor. The Court noted in addition that the turnover was indeed lower than the forecast (by 25%) but that the difference was explained by the halving of the franchisee’s workforce. Finally, the franchisee presented a series of allegedly erroneous or incomplete information and a long series of alleged contractual breaches which would have justified, in his view, the termination of the agreement against the franchisor. However, after having taken time to examine them individually, the Court of Appeal rejected them all and finally ordered the franchisee to indemnify the franchisor for the harm suffered due to early termination of the agreement. This decision reminds us that a diligent franchisor who establishes his pre-contractual information document correctly and carefully significantly lowers his risks. This document should therefore be prepared with all necessary attention and precaution, it being stated anew that the candidate should be provided with all the information provided for by the law but also information not specifically required but which could have an impact on the future franchisee’s operations and which the latter could not obtain from an ordinarily diligent research. Abrupt termination of an established commercial relationship: the termination letter must be clear and non ambiguous for the notice period to begin CA Paris, 4 September 2016, RG n° 14/00827, SAS CSM France / SAS GDA In this case, a distributor had been in a contractual relationship with a supplier for almost 30 years when in June 2009, the latter informed him of the termination of the agreements with effect from 31 December 2009. In the termination letter, the supplier informed the distributor of the reorganization of the network and stated that he would contact him in September 2009 to present him with the content of the new selective distribution contract and evoke the “foundations of a new partnership for the future“. Eventually the supplier changed his mind and did not propose a new agreement to the distributor and informed him thereof verbally in November and then once again in December 2009. The distributor then brought legal action against his partner for abrupt termination of an established commercial relationship, on the grounds of Article L.442-6, I, 5° of the 2 French Commercial Code. The Court of Appeal of Paris, in its decision of 14 September 2016, considered that the letter of 19 June 2009 was ambiguous because by terminating the agreements it left the distributor thinking that the commercial relationship would continue on a new basis. It follows for the Court that if the supplier has indeed terminated agreements with a notice period of 6 months, the letter of termination did not constitute notice for termination of the commercial relationship, within the meaning of Article L.442-6, I, 5° and did therefore not trigger the start of any notice period in this respect. The Court thus sanctioned the supplier, ordering him to pay the equivalent of the profit lost by the distributor on the totality of the reasonable notice that he should have given to the distributor following the effective termination of the agreements (in the present case 10 months). This solution recalls that the concept of “commercial relationship” should not be confused with that of “contractual relationship.” The termination of an agreement may cause the end of the commercial relationship, subject however to it being non-ambiguous. Practically speaking if, during the termination or non-renewal of an agreement the continuation of the commercial relationship with the commercial partner on a new basis is an option being envisaged but not a certainty, it is recommended indicating it clearly in order not to generate any “legitimate belief” of the commercial partner in the continuation of the relationship. The supplier does not have to justify his refusal to accept a distributor who fulfills his selection criteria CA Paris, 19 October 2016, n° 14/07956, SARL Elysées Shopping / SAS Rolex France In this case, the Court of Appeal of Paris had to rule on the legality of the refusal to integrate a candidate in the selective distribution network of a brand of luxury watches. After having suffered this refusal, the applicant initiated legal action in an attempt to demonstrate, first and foremostly, the anti-competitive nature of this refusal, and subsidiarily the abuse of right exercised by Rolex by refusing to sell to him. The Court of Appeal of Paris referred to its classic caselaw: a selective distribution network is lawful under competition rules (irrespective of the market share) if it fulfills three cumulative conditions: u Firstly, the nature of the product justifies it (for example technical or luxury goods); u Secondly, the resellers must be selected according to objective criteria of a qualitative nature applied uniformly and in a non-discriminatory manner; u Finally, the selection criteria must not go beyond what is necessary. The nature of the products was not an issue in this case. With regard to the selection criteria, the Court noted that the candidate could not, without contradiction, claim on the one hand to fulfill them and question the reasons for which Rolex had refused to accept him and, on the other hand claim that these criteria were not clear and objective. The Court then pointed out that the candidate did not evoke any discriminatory criterion which would be likely to exclude from the market a category of distributor. Furthermore, although Rolex was not able to prove that it had less than 30% of market shares and that its network therefore benefited from the exemption by category under EU Regulation n°330/2010, the Court of Appeal recalled that this does not mean that the system implemented constitutes an anti-competitive collusion. According to the Court to constitute an anti-competitive collusion the refusal by a supplier to authorize a distributor must be such that it eliminates competition or allows the elimination of competition. In the case at stake, the Court noted the market presence of many brands of luxury watches and indicated that the candidate himself marketed 25 luxury and prestige brands in his store. The Court thus concluded that there was no evidence here of an anti-competitive effect of the refusal to grant authorization. Curiously, intra-brand competition was not even mentioned… Then, with regard to the abuse of right alleged by the applicant, the Court stated that refusal of sale and discrimination are no longer sanctioned under French law, except in the case of anticompetitive practice (agreement or abuse of dominant position) or abuse of right. In this case, the existence of an anticompetitive practice was ruled out. As for abuse of right, according to the Court, it could have consisted of discriminatory application of the selection criteria “to candidates in the network placed in a comparable situation”. However, in this case, the candidate compared himself to other candidates who had indeed been appointed selective distributors, but who were not in a comparable situation. The Court decided that “Rolex […] was free to refuse to examine the application of Elysées Shopping without having to justify itself, whether or not the latter fulfilled the selection criteria. ». This decision is in line with precedents of case law of the Court of Appeal of Paris according to which, subject to the aforementioned reserves (anticompetitive practice and abuse of right), the supplier is free to contract or not with the distributors of its choice who meet his selection criteria (CA Paris, 30 September 2015, RG No. 13/07915). 3 Franchise & Distribution Networks Newsletter N°10 - 1st Quarter 2017 United Kingdom Consequential loss - what does this exclude? The courts continue to look at the meaning of “consequential loss” in limitation of liability clauses and at whether the traditional legal meaning or the ordinary language meaning should apply. u What’s the issue? Exclusion clauses in a contract aim to exclude a party’s liability for certain types of losses. It is essential that these clauses are drafted clearly and without ambiguity if they are to be effective. There can be a dispute between the customer and supplier as to the nature of losses recoverable under a supply agreement. These are likely to include both direct losses and indirect losses (e.g. caused by business disruption although loss of profits can be both direct and indirect loss depending on the circumstances). The risk of a badly drafted exclusion clause is that it is left to the courts to interpret its meaning, which can often result in a decision which leaves one party exposed to unanticipated liabilities. u What’s the development? Once again the interpretation of exclusion clauses limiting liability for “consequential losses” has come before the courts. The High Court’s decision in Star Polaris LLC v HHIC-PHIL INC is an interesting reminder of the debate surrounding exclusion clauses and the interpretation of “consequential loss”. As with all cases on limitation of liability, this decision revolves around the exact wording of the clause but the Judge accepted that when read as a whole, it could be seen that the clause had the wider meaning of financial losses caused by guaranteed defects, above and beyond the cost of replacement and repair of physical damage. The relevant clause was intended to operate as a complete code under which all liability for losses over and above those specifically accepted by the defendant shipbuilder were excluded. u What does this mean for you? The courts have, in the past, construed the phrase “consequential losses” narrowly, using the traditional interpretation set out in Hadley v Baxendale, often in an attempt to achieve what was perceived as a fair outcome. Now, the trend, reflected in the Star Polaris decision, is for the courts to give the words used their natural and ordinary meaning. This is particularly true for commercial contracts negotiated between sophisticated parties. This case serves as further guidance on the courts’ approach to interpreting the phrase “consequential losses” in an exclusion clause and develops the debate around whether 4 the term should be given its traditional legal definition or interpreted using the ‘natural language’ definition. It is a helpful reminder of the need to draft such clauses carefully in a clear and unambiguous way which accurately reflects the intentions of the parties as to which types of losses are excluded. It is important when drafting the contract to consider (a) what type of losses may occur from the possible breaches of that specific contract, (b) whether they are intended to be included or excluded and (c) whether the use of language such as “consequential” or “indirect” loss reflects the intention of the parties as to what should be recoverable and what should not. Careful drafting at this stage can substantially diminish the risk of disputes on exclusion clauses if a project goes wrong. u Read more Case law has established the traditional interpretation of the meaning of “consequential loss” in exclusion clauses. The principles under contract law are described under two limbs. g The first limb relates to direct losses – “losses arising in the ordinary course of things” those claimable losses which arise naturally as a result of the breach. g In more exceptional circumstances, and under the second limb, are “indirect” losses or “consequential losses” – “losses likely to arise from special circumstances of the case”. These are particular losses recoverable only if the other parties know of those circumstances and if it was in the reasonable contemplation of the parties at the time the contract was made as being a probable result of the breach. In Star Polaris, the vessel built by the defendant shipyard suffered a serious engine failure. The ship owner claimed compensation against the shipbuilder for repair costs and expenses caused by the engine failure (such as towage fees). The ship owner also claimed the loss of value in the vessel following the incident. On the question of breach, the tribunal found that while the shipbuilder was responsible for certain causative defects (breach of warranty of quality because there were weld spatters in the pipework at delivery), the chief engineer was negligent in failing to react to alarms which would have slowed the engine down. This meant not all of the losses could be recovered. The shipping contract excluded losses for “consequential … losses, damages or expenses” and this included a claim for diminution in value. The ship owner appealed the arbitral award to the High Court. The judge confirmed that although exclusion clauses are no longer read narrowly, the words must be given their ordinary meaning. The phrase “consequential or special losses, damages or expenses” did not mean those losses coming within the second limb (arising from special circumstances known at the time the contract was entered into). Rather Rock defended the claim on the basis that: (a) The Payment Plan constituted an oral contract which varied the payment provisions due pursuant to the licence; (b) In the alternative, MWB was now estopped from enforcing the terms of the licence as Rock had acted to their detriment by paying £3500 when the alleged Payment Plan was made. u MWB’s arguments MWB argued that it was not possible for the licence to be varied as the terms of clause 7.6 were clear: “variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.” Consequently, even if an agreement was made, it was not enforceable. In the alternative, MWB denied there could be a valid contract as there was no consideration provided by Rock for the variation as Rock had simply agreed to pay the same sums that were already due under the licence. No further consideration for the new oral contract had been provided. Further, there could be no estoppel as Rock had simply agreed to pay an existing debt and therefore the initial payment of £3500 could not amount to detriment on Rock’s part. u County Court decision The Judge held: g A contract had been made orally on 27 February 2012 as there had been adequate consideration. This took the form of Rock agreeing to remain in occupation of the offices which meant that MWB did not suffer a void. In addition, MWB could be sure of receiving payment. g However, the Judge upheld the enforceability of clause 7.6 and found that the licence had not been varied orally. For that reason, Rock’s claim defence failed. g The Judge also rejected Rock’s claim that MWB was estopped from enforcing any of its other rights under the terms of the licence. u Court of Appeal Rock appealed, claiming that clause 7.6 of the licence was not enforceable despite what it said. In turn, MWB argued that the Judge was wrong in holding that there had been adequate consideration for any variation. u The decision It was clear that there was conflicting authority on the enforceability of clauses such as clause 7.6. On the one hand, there was authority to suggest that such clauses were properly enforceable as the parties had agreed to them from 5 the clause had a wider meaning of financial losses caused by guaranteed defects above and beyond the replacement and repair of physical damage. A claim for diminution of value was therefore excluded as a consequential loss. The shipbuilder’s liability was limited to the repair of defects (due to defective materials, design error, construction miscalculation and/or poor workmanship) and to physical damage caused by them – financial loss as a consequence of the physical damage was excluded. It was said that under the contract the exclusion clause was intended to operate as a complete code under which all liability for losses over and above those specifically accepted by the defendant shipbuilder in were excluded. The appeal failed. A contract does not always mean what it says... MWB Business Exchange Limited v Rock Advertising Limited  EWCA Civ 553 u The facts Rock Advertising (“Rock”) enjoyed a licence for serviced offices belonging to MWB Business Exchange Limited (“MWB”). Rock had in fact been in occupation for over seven years when it renegotiated its licence to take additional space at an increased fee. The licence contained a clause which stated that all “variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.” Unfortunately, Rock’s business did not expand as anticipated and it fell into arrears. Rock claimed that it orally agreed a payment plan (the “Payment Plan”) with MWB’s credit controller and then paid over £3500 on that same day. The Payment Plan involved making reduced payments initially but then making up the balance by the end of that year. Subsequent to this, MWB denied that the Payment Plan had been agreed and terminated Rock’s licence. MWB then brought these proceedings in respect of the arrears. u The law This case involved an examination of the following principles: g The enforceability of “non-variation” clauses that say that contracts may only be varied in writing; g What constitutes “consideration” – all contracts must have an element of consideration given by both parties to be valid; and g Whether an estoppel arose – for an estoppel argument to succeed, the party must show that they acted to their detriment in reliance on a promise. u Rock’s arguments the outset. In addition, restrictions of this nature result in more certainty and avoid unmeritorious allegations of oral variations. On the other hand, other case law suggested that such clauses were not enforceable as they prevented parties from entering into a subsequent contract in another way and that is against public policy. Parties should have the freedom to contract subsequently in any manner possible by law. At the same time that this case was being heard, there was another case also in the Court of Appeal dealing with a similar issue. As it happens, the decision in both cases was the same. Essentially, clause 7.6 was not sufficient to stop the parties agreeing to vary the contract or entering into another contract on a subsequent date orally. The main reason given in both cases was that a party should enjoy autonomy in how they choose to contract. Consequently, the oral agreement between Rock and MWB was enforceable despite the clear terms of clause 7.6. On the question of consideration, there was a detailed review of case law. Ultimately, the Court of Appeal held that payment to a creditor of sums pursuant to an instalment plan could amount to adequate consideration given that the alternative might be that no payments were received at all. However, an agreement to a payment plan will not always mean a creditor is estopped from enforcing other rights – it depends on the circumstances of each case. For these reasons therefore the Court of Appeal overturned the first decision and found in favour of Rock. u Our comments It might seem odd that an express term of a contract can be ignored by the Courts. However, it must make sense for the Courts to encourage the practice of parties entering into further contracts how they wish and that such freedoms should not be curtailed. Still it is usually best practice to record variations in writing to avoid this sort of dispute. Similarly, it is difficult to see how a payment of a debt which is already due pursuant to an existing contract could be seen as consideration in respect of a new contract. However, it perhaps meets public policy demands that such agreements are held to be enforceable as otherwise there would be no incentive for the parties to agree them in the first place. Certainly a pragmatic decision to ensure the commercial world works more smoothly. The case also demonstrates the need to be careful when interpreting contracts – they might not mean what they say. Germany The principal’s obligation to support its commercial agent - Digital pricing data to be provided free of charge? Consequences for franchise/distributorship/commission agency agreements? One of the major obligations of a principal is to assist its commercial agents in the performance of their activities. This is stipulated in Sec. 86a (1) HGB (German Commercial Code). According to this provision, the principal shall provide the commercial agent with the documentation the commercial agent needs for performing his activities, such as samples, price lists, terms and conditions of business, etc. According to the prevailing opinion, such documents must be provided free of charge, and if this is not the case, the relevant agreement is legally invalid. Recent case-law (case no. VII ZR 6/16) of the German Federal Court of Justice (“BGH”) deals with the question whether this also applies with respect to digital pricing data provided by the principal to the operator of a petrol station (the principal’s commercial agent with respect to fuel and lubricants), which is transmitted by way of a chargeable POS cashier system. The BGH holds that in the case at hand the agent needed the relevant pricing information because without such information on the applicable prices the agent would not have been able to solicit sales and enter into agreements with customers (in the name and on behalf of the principal). Consequently, the BGH comes to the conclusion that the pricing data qualified as necessary documentation within the meaning of Sec. 86a (1) HGB. The BGH further holds that if the principal uses a certain system for transmitting the pricing information to the commercial agent, this (cashier) system must be provided free of charge, and that otherwise, i.e. if the principal is remunerated by the agent for transmitting such information, the agreement is invalid (Sec. 86a (3) HGB). It follows from the above that the relevant agreement should break down for which “documentation” the principal is (or is not) remunerated, and if a package or a system consisting of different components is provided, the share of the remuneration for individual components of the package/ system in the overall remuneration should be made clear. Thereby, potential invalidity of remuneration agreements can be avoided at an early stage. In general, the judgment is also interesting with respect to agreements with other distribution intermediaries such as distributors, franchisees and commission agents. Also under these relationships, the respective principal (e.g., franchisor) is obliged to reasonably support the respective intermediary in its distribution activities. This follows from the general principle of good faith which is of particular relevance in distribution relationships. Franchise & Distribution Networks Newsletter N°10 - 1st Quarter 2017 6 7 Are commission agents entitled to termination indemnity under German distribution law? A recent judgment (BGH I ZR 229/15) of the German Federal Court of Justice (“BGH”) provides guidance with respect to termination indemnity claims of commission agents. By way of background, a commission agent is a self-employed intermediary who has continuing authority to enter into agreements with third parties in his own name for the account of the principal. German law does not include a provision on termination indemnity claims of commission agents. However, it includes a provision on termination indemnity claims of commercial agents, sec. 89b German Commercial Code (HGB; see Art. 17(2) of Council Directive 86/653/EEC). With respect to distributors, it is settled case-law that this provision applies by analogy if certain requirements are fulfilled. In German legal literature it has been more or less common sense that said provision should also apply (by analogy) to indemnity claims of commission agents. It was, however, not clear whether the BGH would share this view. Now, it is clear that this is the case. According to the judgment, sec. 89b HGB is also applicable by analogy to termination indemnity claims of commission agents if (i) the commission agent is integrated into the distribution system of the principal like a commercial agent and (ii) if the commission agent is obliged to transfer customer data to the principal (so that the principal upon termination of the agreement is able to derive substantial benefits from the business with such customers). With respect to the second requirement, the judgment includes an important clarification. The BGH holds that this requirement typically is fulfilled in commission agency relationships because according to statutory German law a commissionaire and also a commission agent is obliged to provide (inter alia) information on customers to the principal with respect to every commission transaction. The BGH notes that this statutory obligation can be derogated from by agreement and that only in such case the second requirement would not be fulfilled (unless, of course, there were another (contractual) obligation of the commission agent to transfer customer data to the principal). In the case at hand, such agreement had not been made, and the second requirement was fulfilled (as well as the first requirement). The judgment includes some further interesting aspects. In particular, the BGH confirms its case-law on termination indemnity claims of other distribution intermediaries according to which a legal obligation to transfer customer data and not only a mere factual continuity of the customer base is necessary for satisfying the second requirement for an analogous application of sec. 89b HGB (which case-law had been developed in particular with respect to potential termination indemnity claims of franchisees). However, it is controversial to which extent Sec. 86a HGB applies (by analogy) to such relationships. In particular, with respect to franchise relationships, it is disputed that Sec. 86a (1) HGB (by analogy) and the obligation to provide documentation free of charge is applicable at all, which would mean that the BGH judgment does not apply to franchise agreements. In a nutshell, there are good grounds to argue that there is no basis for an analogy of Sec. 86a (1) HGB as the franchisee’s position is not similar to the position of a commercial agent; indeed, the franchisee, unlike a commercial agent, is an independent entrepreneur, who acts in his own name and for its own account, and thus conducts its own business. This is in line with recent BGH case-law with respect to termination indemnity claims of franchisees under Sec. 89b HGB; in this respect, the BGH noted expressly that the franchisee ran an own business while the commercial agent were active for the principal’s business (case no. VII ZR 109/13, para 18). On this basis, arguably, the present judgment of the BGH is not applicable with respect to franchise agreements. However, in practice, the parties to a franchise agreement should (and often do) agree which documentation/information shall be provided by the franchisor (free of charge) to the franchisee (of course, in particular with respect to pricing aspects as in the case at hand, competition law requirements need to be considered). The same holds true with respect to distributorship agreements. Sec. 86a (1) HGB is not applicable by analogy to distributorship agreements, as the distributor runs an own business (as the franchisee), but the parties should agree which documentation/information shall be provided (free of charge) to the distributor. Commission agents, however, are generally considered to be in a position comparable to that of a commercial agent, so that it is justified to apply Sec. 86a (1) HGB by analogy to commission agency relationships. This means that the present BGH judgment applies with respect to commission agency, and the commission agency agreement should break down for which “documentation” provided to the commission agent the principal is (or is not) remunerated, as outlined above. Otherwise, there is a considerable risk of invalidity (see above). Europe CJEU ruling on meaning of “new customers” for indemnity purposes in the Commercial Agents Directive The CJEU ruled on the meaning of “new customers” in Article 17(2) of the Commercial Agency Directive (17(3)(a) in the Commercial Agents Regulations 1993). This states that on termination of a commercial agency agreement, the agent will be entitled to an indemnity if and to the extent the agent brought new customers to the principal. The reference asked the CJEU to determine whether this meant completely new customers with whom the principal had no previous relationship or whether it could include customers who are only new in relation to the specific goods sold by that agent. The CJEU held that it was the latter interpretation which applied. The customers must be regarded as new if they are new to the specific goods the agent is selling, even if they deal with the principal already in relation to other goods. Porsche versus P@RSCHE On 26 October 2016 the District Court in The Hague (the Netherlands) rendered a decision in a case brought by the German company Dr. Ing. H.C.F. Porsche Aktiengestellschaft (“Porsche”) against an unnamed natural person. Porsche was established in 1931 and is famous for the production of luxury cars. It is the proprietor of amongst others an EU trade mark for the words PORSCHE DESIGN for goods and services in class 9, 12 and 28 and an word EU trade mark for goods and services in class 9, 12, 28 and 42 for the word: In a previous case between Porsche and the same Defendant in 2012, the District Court in The Hague decided that the Defendant had filed a trade mark application for the sign PORSCHE in bad faith. The Court ordered, in short, that the Defendant must cease and desist the filing of an Benelux or EU trade mark consisting of the word element “Porsche” under a penalty of €25.000 for each time that the Defendant acted in breach of this order. This decision was confirmed on 26 November 2013 by the Court of Appeal in The Hague. On 17 March 2014, 11 April 2014 and 10 May 2014 the Defendant registered several trade marks with the Benelux Office for Intellectual Property (“BOIP”) for the sign P@RSCHE for goods and services in class 9, 12, 28 and 42. On 15 September 2015 and 14 October 2015 the Defendant also filed trade mark applications for EU trade marks, but these applications did not lead to registration since the fees were not paid. 8 Porsche requested the Court to annul the registration of the Benelux P@RSCHE trade marks, an injunction to prevent it filing or register the sign P@RSCHE or similar signs that are similar to the Porsche trade marks and an injunction preventing it from infringing the Porsche trade marks. Porsche also claimed payment of €75.000 as penalties and the full costs of the proceedings. According to Porsche the P@RSCHE trade marks are similar to the Porsche trade marks and are registered for identical or similar goods, which could lead to confusion on the part of the public. In addition, it claimed the use of the sign P@RSCHE took unfair advantage or is detrimental to the distinctive character or the repute of the Porsche trade marks. Finally, Porsche stated the P@RSCHE trade marks should be declared invalid based on bad faith. The Defendant denied that the P@RSCHE sign is similar to the Porsche trade marks, as (i) the Porsche trade mark is a figurative mark, (ii) the trade mark P@RSCHE has not yet been used and (iii) no oral, visual or conceptual similarity would exist between the marks. All three arguments were rejected by the Court. The Court granted Porsche’s request to annul the P@RSCHE trade marks. However, Porsche’s request for an injunction in relation to infringement was dismissed, as Porsche failed to demonstrate that there is a threat of infringement. The mere circumstance that Porsche cannot exclude the fact that the Defendant will use the P@RSCHE trade mark is insufficient for an injunction. The Court also denied Porsche’s request for the payment of €75.000 as penalties. According to the Court the scope of the injunction is limited to acts that constitute infringements as ordered by the Court. In the previous case the filing of the word mark PORSCHE had been discussed and not any sign that is similar to it. The injunction mentioned explicitly “PORSCHE” and therefore it cannot be understood to include similar signs. Franchise & Distribution Networks Newsletter N°10 - 1st Quarter 2017 Europe > Middle East > Asia taylorwessing.com 9 uHeiko Franke Düsseldorf T: +49(0)211 8387-0 firstname.lastname@example.org Contacts uGrégoire Toulouse Paris T: +33 (0)1 72 74 03 33 email@example.com Contributors to the Newsletter: France: Grégoire Toulouse, Fanny Levy, Floriane Cadio de Kermainguy. Germany: Heiko Franke, Sebastian Rünz. UK and EU: Mark Owen, Debbie Heywood. uMark Owen London T: +44 (0)20 7300 4884 firstname.lastname@example.org TWF_00005_01.17 © Taylor Wessing 2017 This publication is intended for general public guidance and to highlight issues. It is not intended to apply to specific circumstances or to constitute legal advice. Taylor Wessing’s international offices offer clients integrated international solutions. Though our offices are established as distinct legal entities and registered as separate law practices, we are able to help our clients succeed by providing clear and precise solutions with high-level legal and commercial insights. For further information about our offices and the regulatory regimes that apply to them, please refer to taylorwessing.com/regulatory.html and rhtlawtaylorwessing.com.