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Arbitration
The Federal Supreme Court recently confirmed that foreign arbitration agreements which do not adhere to the formal requirements of Article II(2) of the New York Convention may still be valid under the less strict criteria of Section 1031 of the Code of Civil Procedure.
The Federal Supreme Court has changed its jurisdiction on preclusion in enforcement proceedings relating to international arbitral awards. The court held that a debtor is not required to exhaust all available remedies at the (foreign) seat of arbitration to preserve its right to argue in enforcement proceedings in Germany that no valid arbitration agreement exists.
DIS establishes new ADR rules
Together with its conciliation rules of 2002, Germany's foremost arbitration institution has now established a comprehensive set of administered ADR procedures to respond to the growing demand for the timely and cost-effective (although not necessarily final and binding) resolution of disputes. This update provides an insight into which procedures might advantageously be applied in different situations.
The Frankfurt Higher Regional Court has frozen assets on the basis of an ex parte application for preliminary enforcement of a foreign arbitral award. The decision was made under Section 1063(3) of the Code of Civil Procedure's preliminary enforcement provision, which allows successful claimants in arbitration to obtain securing measures like asset freezes even before exequatur of the arbitral award is granted.
The Federal Supreme Court ended the German practice of permitting claimants to seek the enforcement of foreign judgments confirming arbitral awards. Overturning a 25-year-old ruling, the court no longer offers claimants a choice between the enforcement of the original arbitral award and the recognition of its exequatur from jurisdictions following the procedural merger doctrine.
The Supreme Court has held that disputes on the validity of shareholder resolutions in German limited liability companies are arbitrable, based on an arbitration clause in the company's articles of association. The court established a set of requirements for the validity of shareholder arbitration clauses that other jurisdictions may wish to take into account when considering their position on appropriate procedural safeguards.
Asset Finance
Overview
Including: German Market; Legal and Tax Characteristics.
Aviation insurers have plans completely to exclude war risks from their insurance policies. This would have a significant impact not only on airlines, but also on financing banks, which would have to decide whether to withdraw from the airline financing business altogether or take the risk of financing partially uninsured aircraft, thereby assuming such risk.
New Rules for the Taxation of Ship Funds
As a result of tax benefits available under German tax law and high returns on investment, German ship funds have enjoyed increasing popularity in recent years, attracting a considerable amount of private equity from private investors. However, new rules on the tax treatment of such funds may make it more difficult to structure such funds in a tax-efficient way.
Aviation
The Landshut Regional Court recently ruled that each segment of a flight involving a scheduled stopover had to be regarded separately for the purposes of determining the applicability of EU Regulation 261/2004. The decision is important for third country (non-EU) air carriers which offer flights from EU countries via a hub outside the European Union to the rest of the world.
ECJ broadens application of Sturgeon
There has been a string of successful decisions in Germany regarding the requirement for delayed departure within the meaning of Article 6 of EU Regulation 261/2004 in order to seek compensation under the regulation further to the European Court of Justice (ECJ) decision in Sturgeon. A recent ECJ ruling in a case referred to it by the German Federal Court of Justice has thus come as something of a blow.
The Federal Court of Justice recently held that passengers were not entitled to compensation if the delay occurred on a connecting flight departing outside EU territory. The court stated that the meaning of the term 'flight' could not be determined by national air law, but was defined autonomously by EU Regulation 261/2004.
The federal state of Bavaria recently brought forward a motion aiming to abolish the Air Traffic Tax Act by Autumn 2013. The motion was approved by the Federal Council; as a result, the government has been requested to initiate a legislative procedure regarding the abolishment of the act.
According to a recent decision of the Cologne Regional Labour Court, a provision in a works agreement stating that male pilots were obliged to wear a uniform cap in the public areas of the airport premises was not deemed discriminatory under the General Act on Equal Treatment. The court left it unclear whether the relevant provisions were to be interpreted narrowly or broadly.
The Federal Finance Court has ruled that the mineral oil tax exemption may be granted to air carriers only. However, it did not address the potential overlap of the EU Energy Taxation Directive and the EU Emissions Trading Scheme. As the exemption from the scheme for commercial air carriers does not apply to non-commercial operators (ie, undertakings with corporate aircraft), such operators will be charged twice.
Banking
The Federal Financial Supervisory Authority (BaFin) recently published a revised version of its Circular on Minimum Requirements for Risk Management for banks and financial services institutions. The circular sets forth BaFin's interpretation of the Banking Act provisions regarding risk management, which are based on Pillar II of Basel II. The circular will be subject to continual updates in the future.
Until recently, savings banks, cooperative banks and private banks used general terms and conditions of business, including a clause giving them the right to charge expenses. However, in two judgments issued on the same day, the Federal Court of Justice changed its previous position and held that such clauses were not only subject to review under the Civil Code, but were also invalid when they imposed expenses.
In insolvency scenarios, banks and other creditors must examine their options carefully before taking any legal action. Restructuring may be achieved by selling certain parts of the debtor's business or some of its assets. Secured creditors must know whether their security interests are insolvency-proof under the law. A recent decision provides guidance to banks that consent to a sale of the insolvency debtor's collateral assets.
The new Act on the Optimisation of Money Laundering Prevention caused considerable controversy during the legislative process. However, the amendments are generally to be welcomed, particularly the removal of the requirement for distributors of e-money issuers to appoint a money laundering officer, and the introduction of a de minimis threshold for the distribution of e-money products.
The Federal Court of Justice recently ruled on two parallel proceedings on the extent of information that banks must provide to investors when selling certificates. Investors sued a bank that had sold them certificates of a Dutch subsidiary of US investment bank Lehman Brothers Holdings Inc, which became worthless following the Lehman collapse.
The Federal Court of Justice has recently issued two judgments in relation to the assignment of loan receivables and land charges. In the first judgment, the court confirmed that the assignment of loan receivables to a non-bank is valid. In the second decision the court ruled on an assignment of the land charge and the issuance of a so-called 'execution clause' to the assignee.
Capital Markets
Recent decisions of the Frankfurt am Main Higher Regional Court on the scope and applicability of the new Bondholder Act 2009 have cast considerable doubt on the viability of certain debt restructurings under German law. While reports of the 'death' of the Bondholder Act are exaggerated, it is nevertheless true that the court's view will make restructurings much more costly and complex.
In the wake of the global financial crisis, the difficulties in securing financing from banks for enterprises of all sizes, combined with an active and attractive bond market, have created an incentive for small and medium-sized enterprises to access the debt capital markets. Several German stock exchanges have tried to respond to this demand by creating a new market segment and infrastructure to facilitate small debt issues at reasonable costs for the issuer.
The Act on the Prevention of Improper Securities and Derivatives Transactions has become effective. The act stipulates several regulatory restrictions on certain securities and derivatives transactions that the German legislature believes may have exacerbated the global financial market crisis.
Commercial Property
Parliament recently voted to adopt the draft of the Tenancy Law Amendment Act. The proposed changes will apply immediately to all rental contracts as soon as they come into force. Measures for energy-efficient modernisation have been defined for the first time and are set to be integrated into other laws. Current court proceedings and enforcements should be reviewed to see how these revisions can be used to good effect.
The Federal Court of Justice recently decided that an online advertisement by an estate agent constituted a binding and sufficiently defined offer for the conclusion of an agency contract. This decision is particularly surprising as, until now, the court had not regarded an internet advertisement as a binding offer and the court placed far lower demands on the clarity of commission compared with its previous case law.
In a recent decision the Federal Court of Justice decided that if the offer by the purchaser and acceptance by the vendor are notarised separately in a property purchase contract, the time when the purchaser is assumed to be aware of a defect is not the time of acceptance, but rather the time of notarisation of the offer.
The Munich Higher Regional Court recently had to decide whether, and in what circumstances, a landowner which wishes to erect a photovoltaic installation on its own land and not on third-party land is entitled to approve and register an owner easement to ensure that it can continue to operate the installation even after the sale of the land.
The Dusseldorf Higher Regional Court has followed Federal Court of Justice case law on residential rental law and decided that it is also a defect in commercial lease agreements if the declared floor area differs from the actual area by more than 10%. The court explained that applying the case law to lease agreements for commercial premises is justified because the economic aspect plays an important role in such agreements.
In a recent ruling, the Dusseldorf Higher Regional Court interpreted the concept of defects and the possibility of termination considerably more strictly than in previous case law. The court ruled that a notice of termination given by a restaurant because a temperature of 20 degrees Celsius (which is considered necessary in shops) was not guaranteed during August and September was valid.
Company & Commercial
Directors of German limited liability companies are not liable for claims against the company. However, it is not always clear whether directors are free from liability if the company is involved in a wrongful act. In recent years there has been a trend to emphasise directors' liability.
Cross-border transfer of companies
German company law has traditionally been hostile to the international mobility of companies. However, Germany now accepts that EU companies may be directed from within Germany, without any negative impact on the companies' recognition. Recently, the Nuremberg Higher Regional Court had to decide on the transfer of a Luxembourg private limited company to Germany.
Letters of comfort under company law
When preparing a letter of comfort, the parent company must take care to limit its liability as far as possible. However, the more that the parent company reduces its liability, the less that the letter of comfort is suitable to provide comfort and prevent insolvency. As the parent company will be responsible for all uncovered debts, it should check thoroughly its subsidiary's financial position when issuing the letter of comfort.
In a recent resolution, the Munich Upper Regional Court held that the German regime on the registration of company names also applies to the registration of German branches of foreign companies, such as the German branch of an English private limited company.
The company law reform of November 2008 established a new regime of subdivision and attribution of shares in German limited liability companies. All shares must now be numbered, so that each share can be easily identified and it is simple to keep track of any transfers to new shareholders. Shareholders in German limited liability companies should ensure that they are registered on the relevant shareholder list.
In a series of judgments the German courts have subjected directors of UK limited companies with centres of main interest in Germany to German insolvency law. This issue has long been disputed by legal commentators and may well be referred to the European Court of Justice.
Competition
Overview
Including: Amendments to the Act against Restraints of Competition; New Regime on Horizontal and Vertical Restraints; Abuse of Dominant Position; Merger Control; Extended Powers of Competition Authorities; Increased Fines; Private Enforcement.
Court increases fines on appeal by up to 85%
The Dusseldorf Higher Regional Court recently ruled on the liquefied gas cartel members' appeal against a Federal Cartel Office (FCO) fine decision. The court found new evidence which allowed it to reach a different conclusion from the FCO when evaluating both the duration and gravity of the infringement. As a result, the court not only confirmed the fines but increased them for most appellants.
The Federal Supreme Court recently confirmed a judgment of the Berlin Court of Appeal concerning a telephone call on which a supplier was found to have exerted illicit pressure towards its retailer in order to enforce prohibited resale price maintenance. The appeal court construed the circumstances in a way that the retailer could only interpret the call as the supplier's attempt to exert unlawful pressure in order to influence retail prices.
The Constitutional Court recently ruled that the obligation to pay interest on fines imposed by a competition authority does not breach the Constitution. The court does not consider it contrary to the principle of equality that interest must be paid on cartel fines only. The risk that interest must be paid if an appeal against a fine is withdrawn should be taken into account when deciding whether to bring an appeal.
The Federal Cartel Office recently prohibited the continuation of a joint venture which it had cleared in 1996. The decision demonstrates that merger control clearance provides little legal certainty in Germany in cases where competitors intend to create a joint venture, at least if the joint venture operates on the same market as one or more of its parent entities.
The Federal Parliament recently passed the Eighth Amendment to the Act against Restraints of Competition with the aim of further modernising the conditions for competition. The revision introduces a new test for the assessment of mergers - the significant impediment to effective competition test - which facilitates a more flexible review of cases.
The Federal Cartel Office (FCO) deems exchanges of information between competing manufacturers regarding the status of proceedings in the context of annual meetings with retailers to be a severe violation of competition law. Recently, for the third time since 2008, the FCO imposed fines for such offences.
Construction
Contractual penalty provision null and void
The Federal Court of Justice recently ruled that a contractual penalty provision in a client's general terms of business which fixed a contractual penalty payable for culpably exceeding an interim deadline at no more than 5% of the total order sum was null and void. The ruling means that in any contractual penalty provision for interim deadlines, the upper limit must be based on the amount that has been earned up to that point only.
The new Act to Combat Delayed Payments in Business Transactions, which is now in the consultation stage, will force clients to check and pay invoices from contractors more quickly in future. If they fail to do so, the financial costs arising from the delay will increase. It will also be easier for a contractor to enforce costs arising from the recovery process.
The Brandenburg Higher Regional Court recently ruled that a contractual penalty provision stipulating that the contractor must pay 0.2% of the net invoice amount for each working day of any delay, up to a maximum of 10% of the net invoice amount, in the general terms of business of a client places the contractor at an unreasonable disadvantage and is therefore null and void.
It has long been disputed whether fire safety planning is an additional service by the architect which must be remunerated separately, or whether it is part of the basic service to be rendered by the overall building planner. A recent Federal Court of Justice decision has not completely settled this dispute, but leans strongly towards fire safety planning falling under the remit of the building planner.
In a recent ruling, the Federal Court of Justice again stated its fundamental position on the correct invoicing of several technical service installation groups according to the Ordinance on the Schedule of Services and Fees for Architects and Engineers. The court also clarified that there is no minimum rate protection under the schedule if the maximum amounts in the table of fees are exceeded.
If Part B of the Standard Building Contract Terms provided by the client is not agreed as a whole in the construction contract, Section 16(3)(i) of Part B will not stand up to an isolated judicial examination of the terms. This means that the remuneration becomes due with acceptance and receipt of the final invoice. The client then falls into default at the latest 30 days after the final invoice.
Corporate Finance/M&A
Overview
Including: Market Trends; Legal Trends; Select Major M&A Transactions; Framework of an M&A Transaction; Significance of the Due Diligence Review; Confidentiality Issues; Structuring a Transaction; Defences against Hostile Takeover Attempts; Cross-Border Mergers.
Buying a business: non-compete obligations
A company's profitability depends significantly on its reputation with its customers, suppliers and other market participants (ie, its goodwill), as well as on the special market, production, marketing and other know-how of its employees. These assets are usually not protected by patents or similar IP rights. Therefore, the buyer of a business would be well advised to insist on a non-compete clause.
The treatment of 'phoenix' companies under German law is quite distinct from that in other jurisdictions. A new owner that carries on an existing business under an identical or similar name as that used by the original company may face unlimited liability for all debts arising from the business activity of the original company. Although this liability can easily be excluded, there are several pitfalls which must be avoided.
Amendments to the Foreign Trade Act and the Foreign Trade Ordinance have taken effect. They empower the Federal Ministry of Economic Affairs and Technology to control - and, in certain circumstances, block - the acquisition of companies and interests in companies in Germany by non-EU investors.
When negotiating a corporate acquisition, the buyer and the seller often agree on a standardized share purchase agreement. It is impossible for a seller to exclude itself from any liability for damage sustained by the buyer due to a defect which the seller was aware of but did not disclose. Many recent civil actions against enterprise sellers have been based on alleged breaches of disclosure obligations.
Restrictions on Foreign Investment Proposed
The federal government is planning to impose new restrictions on foreign investments in Germany. New draft reforms would empower the Ministry of Economics and Technology to review and prohibit or restrict, for reasons of public order or security, any direct or indirect acquisition by a non-EU/EFTA entity of 25% or more of the voting rights in a German resident enterprise in any industrial branch or trade sector.
The Federal Court has confirmed that financial support provided by a shareholder to a joint stock corporation will be subject to equitable subordination only if the shareholder has a stake of at least 25%. This is the sole criterion that applies; whether the shareholder is a managing director of the company is irrelevant.
Corporate Immigration
Overview
Including: Citizenship Categories; Employment Requirements and Categories.
ECJ Decision on Central Foreigners' Register
In December 2008 the European Court of Justice decided that personal data of EU citizens kept by the Central Foreigners' Register must be made anonymous when used for statistical purposes. The data must not be used for crime prevention or investigation, as the register does not collect similar data on German citizens and must not discriminate against EU citizens.
From September 2008, naturalization in Germany will require the applicant to answer successfully 17 out of 33 questions on German politics, geography, history and culture. The necessary legislation was introduced last August and the preparation of the questions was completed this month.
Enlargement of Schengen Area
The EU Council has recently adopted the decision on the enlargement of the Schengen Area by adding the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia. The decision allows for the removal of checks on persons at the area's internal borders - on December 21 2007 at land and sea borders and on March 30 2008 at air borders.
Following the initiative of the state government of Hessen, the offices responsible for the settlement of foreign companies and admission of foreign workers into the country have harmonized their forces and adopted a parallel procedure to reduce the review time for the approval of residence and work permits for highly qualified individuals.
New Changes in German Immigration Law
German immigration law has been changed again to accommodate the transposition of several EU directives into national law. This change of law has also been used to fine-tune the newly developed immigration legislation in reaction to issues raised in the first two years of its existence.
Business Visa Provisions Explained
Knowledge of the German business visa is crucial for human resources personnel who regularly assist their travelling personnel in obtaining visas. Otherwise they may find themselves at risk of being charged with a criminal offence. The employer of a foreign national who does not have a valid permit may also be charged with an immigration crime for supporting that person's illegal presence in Germany.
Corporate Tax
The Ministry of Finance recently published a circular regarding the withholding tax relief for foreign companies. According to the circular, the lack of an individual relief entitlement excludes indirect relief for higher-tier shareholders. Moreover, indirect domestic shareholders are not entitled to relief. In future, foreign companies should verify whether the new rules lead to a partial withholding tax relief.
The tax offices of the 16 federal states have together issued a draft amending the decree regarding the addback of financing expense for trade tax purposes of July 4 2008. The draft decree has been agreed by the Ministry of Finance and is now open for comments from Germany's tax-related associations. It is not yet clear when the final version will be published.
In response to the initiation of the infringement procedure of the European Commission in March 2010, the German government is proposing to amend the domestic anti-treaty/anti-directive shopping rule. If enacted, the draft amendment will improve conditions for foreign companies that are not owned by shareholders entitled to relief under a double tax treaty or under an EU directive.
Since a legislative reform in 2006, Germany's state governments have had the right autonomously to change the real estate transfer tax (RETT) rates applicable to transfers of properties located in their states. RETT is generally triggered when real estate is transferred, directly or indirectly, under an asset or share deal. However, exceptions or exemptions may apply, particularly in share deals.
Tax regime to be overhauled
German tax law will undergo several major changes in 2011. The Federal Cabinet has approved a draft bill on the implementation of the EU Mutual Assistance Directive and other changes to tax law, and the Finance Committee has published a report on the simplification of the German tax regime.
The local tax court of Hamburg has requested the Federal Constitutional Court to consider the question of whether the German change of control rule of Section 8c of the Corporation Tax Act is compliant with the German Constitution.
Derivatives
The XI Civil Senate of the Federal Court of Justice recently held that a defendant bank was liable to the plaintiff, a medium-sized company, for compensation because it had breached its duty when advising on the conclusion of a constant maturity swap spread ladder swap agreement which it had designed.
A bank which arranged a 10-year currency swap for a small utility company owned by a municipality has been found liable for damages because of insufficient risk advice. While the bank had advised the company of the risk in general terms, it should not have proceeded before discussing with the managing director whether and to what extent the swap would also be in the best interest of the shareholding municipality.
E-commerce
The Federal Supreme Court has published a long-awaited decision on the liability of internet users whose internet access has been used for illegal file-sharing. As a result of the ruling, rights owners are increasingly likely to monitor the dissemination of their content and take measures in order to limit its uncontrolled dissemination on illegal
file-sharing sites.
An artist in Germany posted images of her artwork on her website. When she realized that Google displayed thumbnail versions of her artwork whenever an Internet user searched for her name, the artist took legal action against Google, claiming that Google's behaviour violated her copyright to the images. The Federal Court of Appeal ruled in favour of Google.
Google, a leading online service provider in Germany (among other countries), has been exposed to legal action on various aspects of its business regarding the terms of service relating to its use of data generated by its users. A recent decision of the Hamburg Regional Court raised fundamental questions regarding data protection and the validity of terms and conditions for online service providers.
Recent E-commerce Decisions
The Federal Court of Justice has recently issued several judgments concerning particular e-commerce issues, including displaying prices online and consumer revocation rights, which have a substantial practical impact on business-to-consumer e-commerce transactions. The decisions have strengthened the position of internet retailers.
Shrink Wrap Contracts: An Overview
Shrink wrap (and click wrap) contracts are commonly used as an attempt to establish rules on the use of standard software which the software company can directly assert in relation to the end user. In Germany, numerous software products are distributed by means of such a licence structure. However, under German law, it is doubtful whether shrink wrap terms can be effectively agreed.
Consumer Law Developments
The courts have recently issued several judgments concerning particular e-commerce issues with a substantial practical impact on business-to-consumer e-commerce transactions. Moreover, a recent change in German law regarding the new commercial register will affect commercial corporate email communication.
Employment & Labour
The European fund sector will soon be subject to new regulatory requirements concerning the remuneration of fund managers. Remuneration will have to be calculated in an appropriate manner, without encouraging staff to take risks which are inconsistent with contractual conditions or instruments of incorporation of the funds they manage. Affected enterprises must adapt their existing remuneration schemes accordingly.
A recent Federal Labour Court decision dismissed a claim of a former employer to surrender the remuneration which the employee had received from a competitor. The court assumed that the contractual non-compete clause continued to apply during garden leave. The result of the decision means that the employer must continue to pay the employee, while the employee also draws a salary from the competitor.
Is it lawful for an employer to bear the costs of fines and legal defence for criminal proceedings against one of its employees for illegal acts committed in the context of his or her work? Does the employee have a right to have such costs refunded? An employer may have to consider these issues if an employee oversteps legal boundaries in the company's commercial interest.
A works council consulted a firm specialised in advising works councils. The consulting firm charged the works council for services rendered, but the employer did not pay as it believed that the consulting firm did not provide satisfactory proof of its services. The Federal Court of Justice held that a works council can validly enter into agreements with third parties within the scope of the responsibilities assigned to it under the Works Constitution Act.
The use of an interim employment and qualification company is a good way to preserve jobs and insolvency assets in a crisis or insolvency-hit company. Among other advantages, this model ensures that the employer will avoid the risk of lawsuits being filed on the grounds of unfair dismissal. However, a recent decision sets narrow limits for the use of such models.
Obligation to adjust company pensions
The issue of whether a company has increased its pension sufficiently often arises between employers and recipients of company pensions. The review of the pension amount required under statute stipulates that employers must exercise due discretion, taking into account both the interests of company pension recipients and the financial situation of the company.
Energy & Natural Resources
Overview
Including: Power; Oil and Gas; Environmental Issues.
Renewable Energy Sources Act Revised
The Renewable Energy Sources Act 2009 has been designed to meet Germany’s renewable energy target of 30% of total power by 2020. It will result in significant changes for plant operators, in particular regarding remuneration, self-marketing of electricity and the consequences for grid system operators of disconnection due to grid capacity shortages.
Last year, Germany - the former world leader in wind power installations - lost a considerable amount of ground. Hopes that offshore wind power would fill the gap left by the long-expected downturn in onshore business were not fulfilled. This update reports on the status of German offshore projects and the possibility that planned legislation will boost the German market for wind power at sea.
Environment
The German government was required to transpose the EU Carbon Capture and Storage Directive into national law . However, the fate of the resulting act on carbon capture and storage is still uncertain. The crucial subject of discussion is the so-called 'exit clause'. Nevertheless, the fact that talks are continuing seems to indicate a general willingness for compromise among the parties involved.
A recent European Court of Justice decision has substantially expanded environmental NGOs' standing in court . As a result, it is to be expected that environmental NGOs will gain a more prominent role in future permitting procedures in Germany.
Compensation and the Federal Soil Act
A recent Federal Court of Justice decision has clarified that a property owner can start remediating soil contamination as soon as the competent authority has announced that it is planning to issue a remediation order, safe in the knowldge that it will subsequently be able to claim compensation. The court also affirmed that compensation claims become statute-barred after three years.
The Federal Parliament has passed a bill to promote the use of green energy. From 2009, a certain percentage of the energy used in new buildings for heating, hot water preparation and cooling must be drawn from renewable sources. The law will apply, with certain exceptions, to industrial, commercial and residential buildings.
A draft bill to bring national law into line with the EU Regulation Concerning the Registration, Evaluation and Authorization of Chemicals (REACH) is awaiting approval in the upper house of Parliament. Among other things, the regulation will designate implementing authorities and set out their powers of enforcement.
Over six months after the implementation period provided by the EU Environmental Liability Directive, the Environmental Damages Act has finally entered into force. At present, it is difficult to predict what impact the act will have on liability, and consequently how large the environmental damage insurance market will be.
Franchising
Overview
Including: Legislative Framework; The Civil Code; The Commercial Code; The Standard Contracts Act; The Consumer Credit Act; The Act against Restraints of Competition
The Federal Court of Justice recently held that that the expiry of a main copyright licence agreement does not lead to the expiry of the related sub-licences. The question is whether and to what extent this also applies to master franchising. Under a master franchising system, the franchisor concludes a master franchise agreement with a master franchisee, which is given the right to grant sub-franchises.
A contractual non-compete clause in a franchise agreement was at the centre of a case before the Dusseldorf Higher Regional Court. Its decision concerns the prerequisites for a franchisee's claim to information where it has reasonable suspicion of its franchisor having breached a contractually agreed non-compete obligation, and the right to claim damages from the franchisor.
The Dusseldorf Higher Regional Court recently ruled that a contractual duty of protection against competition on the part of the franchisor can arise only if the financial survival of the franchisee is at sustained risk due to competing activity. The court explicitly left open the question of whether the franchisor has a contractual obligation to protect against competition over and above the contractual provisions in principle.
Whether supplier rebates received by a franchisor are passed on to franchisees is a subject of practical importance in franchising. The Federal Court of Justice had previously ruled that a franchisor is not obliged by law to pass on these benefits to franchisees, except in cases where such an obligation has a contractual basis within the franchise agreement. The Dusseldorf Higher Regional Court recently confirmed this.
Contractual penalties are of great significance, especially in franchising. This is because losses arising from causes such as a breach of a non-compete provision or a confidentiality obligation relating to know-how are very difficult to quantify. The Erfurt District Court recently considered a contractual penalty clause and set strict criteria for its validity, in line with previous case law. In order for the clause to be valid, the court required penalties to be limited in cases of multiple breaches of the prohibition on competition.
The Dusseldorf District Court recently dismissed a breach of good faith claim. While the ruling did not concern a franchise system, its reasoning may be extended to similar situations within franchise systems. The judgment is therefore significant for franchise systems, especially since there are few rulings on the topic of imminent competition protection.
Healthcare & Life Sciences
Competition law is finally becoming established in the German healthcare market and is paving the way for equal opportunities for medicine producers. As yet, however, the market has not become fully accustomed to its implementation and interpretation. Medicine and other healthcare producers would be well advised to keep an eye open for potential breaches of antitrust law.
Following the introduction of an additional benefit assessment for innovative drugs and consecutive price negotiations, the first results have been published. Substantial reductions have been made to the prices and the effects on international reference pricing can now be observed. The new system has resulted in substantial rebates. However, comparison between the rebates is frustrated by several factors.
A growing number of medicines have marketing authorisations that confine their use to patients with specific biomarker conditions. The physician will be required to initiate biomarker testing before prescribing a medicine. Market access of medicines that require positive biomarker testing may face the obstacle that the diagnostic procedure is not reimbursable.
Effects of the AMNOG procedure
In 2011 Germany introduced an additional benefit assessment for innovative drugs and consecutive price negotiations with statutory health insurance. The procedure is targeted at new drugs entering the market. It accepts proven efficacy but assesses therapeutic additional benefit compared to a standard therapy (medication or other) determined by the Federal Joint Committee.
Information Technology
Why e-businesses need to be on the button
The Act for Improving Customer Protection in E-commerce has now come into force. It is designed to ensure that information being provided to consumers must be placed prominently above the order button, which must clearly indicate that by clicking it, the consumer will face payment obligations. However, the act contradicts some provisions of the EU Consumer Rights Directive, making further changes likely.
'Bring your own devices' is a growing trend – private hardware in corporate use. Instead of a company being equipped on a central basis, employees use their private mobile devices for work communication. But is this a long overdue development which could lead to increased productivity or a precarious scenario? Many issues arise, particularly in regard to IT security and compliance.
Seizure of social media accounts
A recent high-profile trial centred on the legal requirements for the judicial seizure of social media accounts. The Reutlingen District Court charted new territory by trying to seize the Facebook account of a 20-year-old who was accused of burglary. However, the court did not seize the Facebook account as such, but only specific content. Observers agree that Germany will see an increase in account seizures in the future.
The Data Protection Act, which deals with the handling and processing of personal data, was implemented in Germany in 2001. This regime is set to be shaken up by the European Commission, which has published a draft of its legislative package (the new data protection regulation) to reform data protection laws across the European Union. Businesses must start preparing for a significantly higher regulatory burden.
Does German data protection law, which is based on the EU Data Protection Directive, prevent companies from entering into and conducting offshore outsourcing transactions? What are the legal implications of data transfers outside the European Union? Under the Data Protection Act, data may be transferred to another country if that country provides for a level of data protection equivalent to data protection in Germany.
Social plug-ins are increasingly coming under pressure as several German data protection authorities have expressed their concern about compliance with German data protection and media laws. In case of non-compliance, administrative fines of up to €50,000 may be imposed. According to press reports, first-public providers have already followed this request and taken down social plug-ins from their sites.
Insolvency & Restructuring
The Federal Supreme Court recently underlined the importance of commercial considerations in the context of insolvency avoidance rules regarding the repayment of shareholder loans. The court explicitly outlined that a commercial approach is required in order to prevent any potential strategies to structure around the German principles of equitable subordination.
The Federal Supreme Court recently ruled that a termination clause was invalid pursuant to Section 119 of the Insolvency Code, as it was based on an insolvency-related termination event which limited the insolvency administrator's right to choose whether to perform the supply contract in accordance with the code. The court's judgment is likely to cause suppliers to monitor the financial situation of their customers more carefully.
When a company is in financial distress, the shareholders and management must decide to what extent they will subordinate their own interests to the company's interest in survival. It is vital for them to know whether they can rely on advice given by company advisers. A recent Federal Supreme Court judgment provides insight to advisers and stakeholders on how best to protect their interests in a distressed situation.
Does subordination cause taxable profits?
Subordination agreements between a debtor and its shareholders are a frequently used restructuring tool for German companies. A Federal Finance Court decision has highlighted that the decisive factor in the treatment of debt is the wording of the relevant subordination provision and, in particular, the circumstances under which the debtor must repay the subordinated claim.
The German Federal Court of Justice has refused to recognise an English scheme of arrangement in relation to the German branch of an insurance company, finding that such recognition would be contrary to EU Regulation 44/2001. The judgment was based on specific insurance-related provisions of the Judgment Regulation, suggesting that outside the scope of these specific provisions, schemes will be recognised in Germany.
The Federal Court of Justice has clarified that a former shareholder will be subordinated to its claim under a loan only for a one-year period. The ruling has been widely accepted by German legal scholars and practitioners. However, some legal authors have criticised the ruling, since they think that it could create questionable incentives for delays in filings for insolvency in order to overcome the one-year period of subordination.
Intellectual Property
The Dusseldorf Higher Regional Court recently decided in favour of Apple after Apple had sought a preliminary injunction against any manufacture, import or sale of Samsung Galaxy Tab 10.1 tablets in Germany and the European Union. The court stated that Samsung's science-fiction defence was too unclear to discern a specific design and Samsung's tablet must be considered an unauthorised reproduction of Apple's iPad.
Will framing become illegal in Germany?
The Supreme Court recently expressed doubts as to whether framing is permissible under the Copyright Act. According to media reports, the court observed a "certain tendency" among its judges to consider framing as an infringement. This would apply at least in situations where embedded content is made accessible to a large number of users which were not originally targeted by the copyright owner.
The Federal Court of Justice recently ruled that competitors of Swiss confectioner Lindt & Sprüngli can also sell golden chocolate bunnies. The court had to deal with the scope of protection of the three-dimensional trademark GOLDEN EASTER BUNNY. It ruled that distribution of a similar bunny model cannot be prohibited by the trademark proprietor. Lindt may have had better results had it based its claims on a word mark.
The Court of Dusseldorf recently shot down an attempt by a patent infringer to obstruct a preliminary injunction by referring to the court's strict standard that a preliminary injunction can be granted only if the validity of the patent in suit is certain. It is apparent from the grounds of the decision that the court found that its strict jurisdiction was being misused by a patent infringer and it did not want to reward such behaviour.
A preliminary injunction can be a powerful weapon in patent litigation, but the prerequisites are substantial. In a recent decision denying a request for a preliminary injunction, the Dusseldorf Regional Court confirmed that a plaintiff must file its request for preliminary injunction within one month of receiving proof of infringement and must establish a preponderant interest.
The Supreme Court recently held that keyword advertising does not constitute trademark infringement if the advertising is clearly separated from the search results. A retailer may use the trademark of a competitor as a keyword in Google AdWords without violating trademark law if the advertisement does not contain the trademark and the display URL points to a third-party website.
Litigation
The Federal Supreme Court has rendered an important decision dealing with the international jurisdiction of German courts in execution proceedings against sovereign assets of foreign states. In the case at hand, even a waiver of the debtor state's immunity under German law could not establish the jurisdiction of German courts for the granting of execution orders into sovereign claims.
The European Court of Human Rights has recently pointed out that excessively long judicial proceedings constitute a systemic problem in German procedural law and stated that the German legal system does not provide for an effective remedy against this. The government has since submitted a draft law with the aim of implementing an effective remedy against unreasonably long judicial proceedings.
The Federal Supreme Court has ruled that, despite being of an extra-contractual nature, liability for damages on tort may trigger a court's jurisdiction in accordance with Article 13(1)(3) of the Lugano Convention, provided that these claims are so closely linked to the contract that they are indissociable from it. This development will significantly increase the protection afforded to consumers.
Emergency laws which are enacted in the wake of the financial crisis are unavoidable for creditors and the rules that they establish are hard to predict. As long as these foreign laws achieve the collective satisfaction of creditors' claims, the risk of a pending lawsuit in Germany being suspended cannot be excluded. However, the chances of litigating such cases in the German courts may be better than in other EU countries.
The Federal Supreme Court's decision in Gebäckpresse confirms that there is a de facto necessity to apply for Community registration of designs which have been disclosed outside the European Union within one year of the date of disclosure. This is because any publication of a design has a novelty-destroying effect, regardless of whether it takes place inside the European Union.
In the German courts, German lawyers present their cases based on German law. This scenario does not benefit from the use of the English language. While non-German parties should not be excluded due to language difficulties, oral arguments and briefings take place not for the benefit of non-German parties, but in order to convince the German judge.
Media & Entertainment
A decision by the Dusseldorf Higher Regional Court on the liability of web hosting providers under German copyright law has disappointed many - not least the film distributor that had sought to prevent the reproduction and dissemination of illegal copies of its film. The court failed to consider a combination of effective and feasible measures to reconcile the interests of copyright owners and hosting providers.
VAT on co-production contributions
The tax authorities are increasingly taking the position that financial contributions by co-producers in film productions are subject to value added tax (VAT) at a rate of 7%, where these co-productions are undisclosed partnerships. Companies would thus be well advised to consider VAT on such financial co-production contributions when calculating film budgets.
Following the expiry of the separate tariffs for music downloads and streaming, the German music rights organization GEMA established a new royalty scheme to cover both forms of use. The new tariff was challenged as part of a collective agreement proceeding initiated by the German trade association BITKOM, and the Copyright Arbitration Board has now submitted a proposal to settle the dispute.
Law on public film funding amended
Generally feature films made in Germany and international co-productions involving German companies receive state funding of between 25% and 50% of the production costs or the costs incurred by German entities. Thus, state funding is central to the financing of film productions which involve German entities. Recent legislative changes have affected the way in which this funding is distributed among film producers.
The Superior Civil Court has rendered a decision on a dispute between a German resident and the author of an article which appeared in the New York Times, as well as the newspaper's publisher. With this ruling, the court has further protected German individuals whose personal rights have been infringed by an article that has been published online from the need to seek damages in a foreign country.
For broadcasting and non-linear content which is disseminated by electronic means - especially the Internet - the Treaty on Protection of Minors in the Media provides for a joint regulatory framework agreed between the federal states and implemented in local legislation. The treaty has recently been reviewed and an agreed draft is likely to be accepted by the legislatures in the respective federal states.
Product Liability
Overview
Including: Strict liability and defence; Possible statutory defences; Burden of proof; Remedies; Liability in tort; Possible defences in tort; Supreme Court definition of 'product defect'.
A German court recently ruled that a producer of sesame oil did not have a duty to warn of the danger that textiles impregnated with sesame oil remnants might ignite while in a tumble dryer. For the court, the danger of spontaneous combustion does not arise with normal use of the product, but only when sesame oil-soiled textiles are dried in a dryer and additional conditions are present.
Liability with respect to a vehicle fire
The Schleswig-Holstein Higher Regional Court recently held that no prima facie evidence existed to prove that defects in the electrical system of a car were attributable to the manufacturer, and that such defects were present when the vehicle was put on sale. This decision serves as a reminder that plaintiffs should be careful in preserving the entire body of evidence and not relying on the report of a private expert.
A recent appeal court decision has placed a difficult burden on manufacturers. Applying the standards of the court, a product may be regarded as defective even if it fully complies with the applicable technical standards of the industry and such compliance has been confirmed by a neutral third party. The court expressly ruled that it is the manufacturer's duty to anticipate foreseeable misuse of a given product.
The German civil courts increasingly seem to have to deal with 'quasi-manufacturer' cases. The main reason for this is that an ever-growing range of consumer products are imported into the European Union from emerging markets. Hidden manufacturing defects of a motor vehicle and the potential responsibility of the importer for hazards formed the core subject of a recent Hamm Court of Appeal decision.
The Chemnitz District Court has awarded damages based on the creeping defect concept. This decision is noteworthy – and simultaneously perplexing – because the district court based its decision on Section 1 of the Product Liability Act. This appears to be the only reported decision in which a court has so construed the creeping defect concept under Section 1.
Munich court rules on exploding wine bottle
The Munich Higher Regional Court recently issued a ruling in a case involving an exploding wine bottle. The court held that in order to rely successfully on exculpatory evidence, the manufacturer must present evidence of a sequence of events that indicates as plausible a scenario whereby damage occurred to the product after it was been placed on the market; the mere theoretical possibility is not be enough.
Projects & Procurement
Overview
Including: The Legal Environment; The Parties; The Market
Choosing a Strategic Partner in PPP Projects
The implementation of a public-private partnership (PPP) project, such as the recent part-privatization of the treatment of residual waste in Halle, is complex and requires diligent preparation. Resistance may best be overcome by involving the diverse interest groups as early as possible in an interactive process in the conception of the PPP model.
The first, and so far only, toll-based and project-financed road infrastructure in Germany is under construction. It is expected that the financial closing of this ground-breaking project will improve the chances of further projects earmarked for private financing by the Federal Ministry of Transport being realized.
Balancing International Accounting Rules
The recent financial closing of the off-balance project finance of a large industrial investment shows that the requirements of both German and US tax and accounting rules as regards off-balance sheet structures can be successfully reconciled.
Securitisation & Structured Finance
Irrespective of certain weaknesses that German restructuring and insolvency law may have, creditors whose claims are secured by land charges can nevertheless choose between several feasible possibilities for realising encumbered real estate. German law tends to be somewhat reluctant to allow creditors to grasp direct control of real estate. As such, the Federal Ministry of Justice's recent proposals should be welcomed.
Shipping & Transport
German maritime trade law reformed
German maritime trade law has been reformed in order to satisfy the needs of the 21st century shipping industry. The new legislation entered into force on April 25.
Germany modernises maritime trade law
Germany is in the final stages of significantly reforming its maritime trade law. The reform bill has been approved and is set to enter into force in due course. The reform is a considerable step towards improving the standards of the German shipping industry, providing a modern legal framework without losing sight of practical needs. However, it will be essential to revise standard terms and conditions to meet the new standards.
The Federal Court of Justice recently clarified the rules pertaining to the freight forwarder's burden of proof and the scope of compensation in the case of partial loss of goods of exceptionally high value. The court confirmed that the burden of proof rests with the claimant, but under certain circumstances the claimant may invoke a derivative burden of proof for the defendant.
The German Parliament recently approved new rules on the use of private maritime security companies onboard German flagged vessels to fight piracy. Private maritime security companies must now be licensed under the new scheme, which is far more demanding than its predecessor. The new rules provide a clear legal framework for the licensing process and ensure that the quality of services is safeguarded.
The Hamburg Higher Regional Court recently held invalid a clause which exempts and limits the liability of the carrier for damages caused by delay, independent of the degree of default. The court found that a limitation of liability could not be justified, even in the event that use of the clause would be customary in international maritime business.
The Dusseldorf Court of Appeal recently clarified a carrier's obligation to provide information in case of damage to goods. The carrier must provide detailed facts concerning the damage only if the claimant has provided evidence of the likelihood of a qualified fault. In this case, the claimant failed to provide such evidence.
Telecommunications
Although many businesses which offer internet access to their customers through wireless local area network devices may not have considered whether they are obliged to register this service with an official regulatory authority, recent practice in Germany suggests that a more thorough approach in this regard is required, given that ignorance of the associated legal requirements can result in fines.
The application proceeding for what is considered to be the largest frequency auction in Germany recently closed. A total of 360 megahertz (MHz) in four different frequency bands (800 MHz, 1800 MHz, 2 gigahertz (GHz) and 2.6 GHz) are to be auctioned. However, according to a press release issued by the Federal Network Agency, only six companies applied to take part in the auction.
The Federal Administrative Court recently issued a landmark decision with respect to fundamental spectrum management issues. The decision favoured companies seeking legal protection from two Federal Network Agency decisions regarding frequency award proceedings.
Following the postponement of the adoption of the Frequency Allocation Ordinance, it seems clear that the further procedure and timeframe for the award of the frequencies in the 790 megahertz (MHz) to 862 MHz band will not only depend on the adoption of the Frequency Allocation Ordinance by the Federal Council, but will also require solutions to be found to a series of pending technical and legal questions.
The Federal Network Agency has published its guidelines for the allocation of the 790 to 860 megahertz band. The government's controversial adoption of an amendment to the Frequency Allocation Ordinance 2006 enabled the band - previously reserved for broadcasting services - to be allocated to mobile network services. Fears remain that such usage will cause harmful interference.
The Federal Administrative Court has decided Deutsche Telekom's appeal against a Federal Network Agency order that Deutsche Telekom grant competitors internet protocol bitstream access upon request. The order will enable competitors to offer their own broadband internet access products to consumers instead of merely reselling Deutsche Telekom's digital subscriber line products.
Trade & Customs
State Aid from the Economic Fund
In order to support manufacturing companies and their employees, the government intends to introduce a special programme under which the German public bank, KfW, will provide loans for projects carried out in Germany. Further funds have been made available for loan guarantees funded by the German federal states and, in certain cases, the central government.
White Collar Crime
Anti-corruption clauses are becoming more common in German contract practice. The objective of companies using such clauses is to protect against corrupt behaviour of business partners and ensuing risks of administrative fines and damage claims, as well as impending image loss. Although many of the anti-corruption clauses in place are at risk of being held invalid, they should nonetheless be taken seriously.
Is it lawful for an employer to bear the costs of fines and legal defence for criminal proceedings against one of its employees for illegal acts committed in the context of his or her work? Does the employee have a right to have such costs refunded? An employer may have to consider these issues if an employee oversteps legal boundaries in the company's commercial interest.
In 2012 a Federal Court of Justice decision fuelled debate about the scope and effectiveness of German anti-corruption legislation in the healthcare sector. Nearly one year on, there are signs that stricter rules could come into force in the near future. Thus, both pharmaceutical companies and medical professionals are well advised to keep a close eye on legal developments in this area.
The latest revisions of the Anti-money Laundering Act have extended the scope of anti-money laundering duties to cover issuers of electronic money ('e-money') and e-money agents, as well as entities or persons distributing or redeeming e-money. The amendments restrict pre-paid card-based transactions and thus may have severe effects on the pre-paid market.
According to the Code of Criminal Procedure, witnesses must appear before the court on the date of their appearance. They are required to testify unless an exception is permitted under statute. However, it is questionable whether, and to what extent, witnesses are obliged to prepare for their appearance in court.
The Federal Court of Justice has ruled that it is not a criminal offence for German doctors who have their own practice and are authorised to treat patients insured with a statutory healthcare fund to accept favours or gifts from pharmaceutical companies in return for prescribing particular drugs and medication. The ruling shows that, in this respect, there is a loophole in German anti-corruption legislation.
