Q&A: IP rights in competition in Germany

Competition

What statutes set out competition law?

The German Act against Restrictions on Competition (GARC) contains the substantive rules on cartels, abuse of market dominance, merger control and public procurement. It features civil law claims to remedies for parties infringed by anticompetitive behaviour and bestows the Federal Cartel Office (FCO) with competence to investigate markets and sanction anticompetitive behaviour.

At the EU level, articles 101 and 102 of the TFEU are the focal provisions of competition law. Articles 101 and 102 of the TFEU are flanked by a number of Commission Regulations and Commission Guidelines, setting out how EU antitrust law is to be applied in practice.

The GARC provisions have been widely harmonised with EU competition law (whereby sections 1ff of the GARC correspond to article 101 of the TFEU and sections 19ff. GARC correspond to article 102 of the TFEU). In cases that could potentially effect trade between EU member states, the FCO and civil courts will decide based on EU competition law provisions. Today, this is likely the majority of cases involving competition law matters.

The FCO regularly publishes investigation status reports and decisions on mergers and abuse of dominance, as well as guidelines on how the FCO will assess relevant product markets. Decisions and guidelines are available from the FCO website.

Do the competition laws make specific mention of any IP rights?

The GARC does not specifically address IP rights. However, EU Regulation 316/2014, exempting certain agreements on technology transfer from the cartel prohibition of article 101(1) of the TFEU (TT Block Exemption Regulation), is specifically directed to agreements involving IP. Regulation 316/2014 applies to agreements involving the assignment and licensing of patents, utility models, designs, rights to software and technical know-how. EU Regulation 1217/2010 exempting certain categories of agreements of research and development (R&D Block Exemption Regulation), and EU Regulation 330/2010 exempting certain vertical agreements from the prohibition of article 101(1) of the TFEU (Vertical Block Exemption Regulation), are equally relevant for agreements involving IP rights.

Which authorities may review or investigate the competitive effect of conduct related to exercise of IP rights?

The FCO is competent to enforce German antitrust law. In accordance with EU Regulation 1/2003 (Regulation on the implementation of articles 101 and 102 of the TFEU), the FCO will apply the provisions of EU competition law where national cases are likely to affect trade between EU member states. The FCO may start investigations of specific market sectors. It has the power to seize information and material, order undertakings to stop anticompetitive behaviour and fine infringers. Mergers and acquisitions are reviewed by the European Commission if the turnover thresholds of Regulation 139/2004 (Merger Control Regulation) are met. Below these thresholds the FCO will assess, clear or prohibit mergers on a national level.

The Court of Appeals in Düsseldorf has exclusive competence to handle appeals against decisions of the FCO. A further appeal to the FSC on grounds of law is possible.

It is expected that Council Directive (EU) 2019/1, empowering the national competition authorities to enforce the competition law rules more effectively, will foster harmonisation of competition law enforcement across EU member states, particularly as regards the standards of imposing sanctions and fines on non-compliant entities.

Can a private party recover for competition-related damages caused by the exercise, licensing or transfer of IP rights?

Under section 33a of the GARC, a private party may claim damages caused by the anticompetitive exercise of transfer of IP rights. In refusal to license cases, the claim to damages can take the form of a claim to a licence on fair and non-discriminatory terms. A claim for injunctive relief against anticompetitive behaviour may be invoked by competitors and other market participants affected by the anticompetitive behaviour.

Having acknowledged that establishing personal damage from anti-competitive behaviour often proofs difficult in practice, Germany has introduced a class action for a declaratory judgments. This procedural tool shall encourage individuals to pool their individual damages claims like claims under section 33a GARC.

Have the competition authorities, or any other authority, issued guidelines or other statements regarding the overlap of competition law and IP?

To date, the FCO has not published specific guidelines on IP. However, the FCO will apply the Commission Guidelines in the field of competition law. The guidelines on technology transfer agreements (OJ 2014 C89/3) and the guidelines on vertical restraints (OJ 2010, C130/1) include detailed guidance on how articles 101 and 102 of the TFEU are to be applied to cases involving IP.

Are there aspects or uses of IP rights that are specifically exempt from the application of competition law?

No. While the CJEU recognises the IP owner’s right to exclude third parties from use as the distinctive feature or ‘specific subject-matter’ of IP rights (CJEU, docket C-267/95 – Merck; CJEU, docket C-170/13 – Huawei/ZTE), the exercise of IP rights in general will be subject to review by the competition law authorities, particularly where the IP holder is dominant in the respective markets. However, when applying competition law, antitrust authorities and civil courts are required to take the specific characteristics of IP rights into account.

Does your jurisdiction have a doctrine of, or akin to, ‘copyright exhaustion’ (EU) or ‘first sale’ (US)? If so, how does that doctrine interact with competition laws?

Yes. The doctrine of copyright exhaustion is stipulated in section 17(2) of the German Copyright Act (GCA), and specifically codified for computer programs in section 69c(3) of the GCA. In fact, the exhaustion principle is an overarching concept of EU and national IP law: if a product is put on the market under the control and with consent of the IP owner, the rights under the IP are exhausted with respect to that specific product item. Accordingly, the IP owner may not prohibit the onward sale of this product item within the European Economic Area (EEA) (the EU, Norway, Iceland and Liechtenstein).

In contrast to the US ‘first sale’ concept, the EU principle provides for EEA-wide exhaustion only. This allows rights owners to establish dedicated distribution systems for EEA and ex-EEA markets and use their IP rights to keep products out of the EU. However, rights owners should keep in mind that products labelled with the CE mark (indication of compliance with pertinent EU regulations) may be considered to indicate that the IP owner expects, and tacitly consents, to the marketing of the product item in the EU (CoA Düsseldorf, docket I-15 U 68/15).

The European Court of Justice has handed down significant rulings with respect to the ‘exhaustion of copyrights’. In the UsedSoft case, the CJEU held that the owner of rights to a software program cannot prohibit the buyer, who has downloaded the software program from a link provided by the rights owner, from reselling its copy of the software to a third party, as the rights to the originally downloaded copy have exhausted with the first sale. The copyright holder may, however, oblige the buyer or reseller to delete all remaining copies of the software code at his or her end (CJEU, docket C-128/11, UsedSoft III).

 According to a recent decision of the CJEU, this would not apply with respect to Ebooks downloaded from a platform of the copyright holder. Ebooks would be different to paperback books and also to software programs. If the rights to an electronic copy of an Ebook would exhaust with the first download the legitimate interests of the copyright holder would be more seriously affected (CJEU, docket C-263/18, NUV v Tom Kabinet). It is suggested that the same would apply to downloaded music files.

To what extent can an IP rights holder prevent ‘grey-market’ or unauthorised importation or distribution of its products?

Given the principle of EEA-wide exhaustion of IP rights, the IP holder has limited options to prevent unauthorised distribution of its products once they have been marketed in the EEA with its consent. However, article 15(2) of the EU Trademark Directive and section 24(2) of the TMA provide for exemptions from the exhaustion of rights under a trademark, if the trademark owner has ‘legitimate reasons’ to object to the further distribution of the products. Legitimate reasons may be given where the branded product has been modified after first sale or marketed under conditions that are detrimental to the functions and the image of the trademark. Based on the ‘change of product’ objection, the CJEU and the FSC have developed detailed standards for the relabelling and repacking of pharmaceutical products for re-imports from other EU countries. Thus, re-importing of repacked products can be prohibited under certain conditions (eg, where the originally labelling or packaging has been impaired).

Owners of patents for pharmaceutical products may object to imports from some Eastern European countries under the ‘special mechanism’. This legal principle provides for an exception from exhaustion of patent rights if pharmaceutical products are imported from countries where no comparable patent protection was available to the IP holder at the time of filing the patent.

Given that rights under a patent can only exhaust with respect to the product as specified in the patent claim, the IP holder’s rights under its patent will not exhaust through the mere sale of components of that product. That is, depending on the circumstances of the case, grey imports of components may constitute contributory patent infringement under German law.

Are there authorities with exclusive jurisdiction over IP-related or competition-related matters? For example, are there circumstances in which a competition claim might be transferred to an IP court to satisfy subject matter jurisdiction? Are there circumstances where the resolution of an IP dispute will be handled by a court of general jurisdiction?

As the GARC and the dedicated IP statutes each establish exclusive jurisdiction of specialised divisions within the district courts, cases involving matters of IP and competition law will not be heard by lower courts or courts of general jurisdiction. The civil court decides ex officio if another court and division is competent. If so, it may dismiss or, upon request of plaintiff, defer the case to the competent division.

There are overlaps, however. If a competition law defence (such as the FRAND defence) is raised in an IP infringement case before a specialised IP division of the civil court, the IP division will decide on the competition law issue and not defer the case to the competition law division.

In 2019, an new senate was established at the German Federal Supreme Court, who will be competent to hear all cases involving issues of competition law and public procurement law. It is hoped that this new senate will harmonise and consolidate German case law in the fields of competition law and, in particular, provide guidance for the lower courts on the handling of FRAND cases.

Law stated date

Give the date on which the information above is accurate.

October 2020.