“Coexistence or No Existence”_ Chances and Challenges of Coexistence Agreements Under General and German Trademark Law

8/10/2019 Coexistence or No Existence_ Chances and Challenges of Coexistence Agreements Under General and German

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October 15, 2014 Vol. 69 No. 19 Back to Bulletin Main Page

Coexistence or No Existence: Chances and Challenges of

Coexistence Agreements Under General and German

Trademark Law

Morten Petersenn, Hogan Lovells International, LLP, Hamburg, GermanyINTA BulletinFeatures Subcommittee

In the world of business and commerce it is not uncommon for two parties to use similar or identical trademarks tomarket their goods and services. The more crowded the national and supranational trademark registers become,the more potential conflicts arise. However, such conflicts do not necessarily lead to contentious proceedings.Instead, many parties frequently are willing to solve disputes amicablymost have realized that often its eithercoexistence or no existence, as British philosopher Bertrand Russell put it.

The common tools for two parties to coexist peacefully are prior-rights agreements, or other kinds of coexistence

agreements. The aim of this article is to provide an overview of typical terms, problems and potential pitfalls ofcoexistence agreements. While mostly of general relevance, the article also highlights some aspects that are to betaken into account under German law. Particularly in cases in which the party with the older trademark rights is aGerman company, it will be necessary to keep German legislation and jurisdiction in mind, as most likely theGerman company will insist on including a provision that the coexistence agreement shall be subject to Germanlaw.

Possibilities of Demarcation

Coexistence agreements can settle a number of issues regarding trademarks and their use. Often they arepreceded by an opposition, a warning letter or a request for consent, and most frequently they are drawn up to setout rules about the use of the conflicting trademarks and the delimitation of registered goods and services, and

about the waiving of legal claims arising out of the parties respective trademark rights.

There are numerous ways of demarcation that ensure that two conflicting signs can peacefully coexist in themarket. The parties can agree, for example:

on a regional segmentation (e.g., the applicant for a Community trade mark can agree not to use the mark ina specif ic national market of the European Union);that the owner of a word mark will use its mark in a specific graphical form only;that one party will use the mark for a specific subcategory of registered goods only; and/orto direct their products to specific customers only (e.g., intermediaries or resellers, as compared to endconsumers).

Such provisions are aimed at ensuring that the parties do not interfere in each others relevant markets. Once theterms of the agreement are in place, the owner of the younger mark can register and use its mark without any legalhindrances from the other party. Likewise, the owner of the earlier mark does not have to pursue its opposition orobjection to the younger mark to safeguard its rights and can eliminate the risk that the owner of the younger markwill attack its rights at some point in the future or in a jurisdiction different from the one in which the dispute arose.Therefore, coexistence agreements are beneficial for both parties.
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Typical Structure of Coexistence Agreements

Most coexistence agreements are drawn up in a similar layout. After apreamble, which usually gives some general information about thecontracting parties, their field of activity and their respectivetrademarks, the obligations of both parties, as discussed above, areenumerated.

The agreement typically concludes with some final provisions. Thesecan, and normally do, include references to the competent court, theapplicable law (mostly where the parties are from different countries),the applicable language of interpretation (in cases where agreementsare drafted in two languages to facilitate understanding between

parties of different nationalities) and the countries in which the agreement shall apply. Most frequently the finalprovisions also include some general contractual clauses, such as a written form requirement and a clause statingthat a possibly invalid individual provision shall not affect the validity of the remaining provisions, but shall bereplaced by such legal provision as comes closest to the intention of the parties.

Scope of the Agreement

Coexistence agreements always require careful examination of their scope and effectiveness. Generally speaking,when interpreting the content of an agreement, the wording, the purpose and the overall context of the agreementmust be taken into consideration. While these rules apply to all kinds of contracts, German case law includes some

more specific rules for the interpretation of coexistence agreements (German Federal Court of Justice(Bundesgerichtshof (BGH)), Dec. 7, 2010, Case No. KZR 71/08Jette Joop):

If the agreement provides that the trademark can be used for certain goods, this may imply, when considering thepurpose and context of the agreement, that the use for other goods shall be prohibited.Written correspondence between the parties regarding the agreement can be of importance for the parties mutualunderstanding of the agreement and therefore may be consulted for its interpretation.For the validity of the agreement the prevailing legal status at the time of the conclusion of the agreement isbinding; if legislation or jurisdiction changes, this does generally not affect the validity of the agreement.

In another ruling, the German Federal Court of Justice clarified that the written form of the agreement usually shallbe presumed to be correct and complete (BGH, Jan. 18, 2001, Case No. I ZR 175/98buendgens). If anagreement sets out its provisions in an extensive and detailed form, it is unlikely that an issue that was not

explicitly dealt with may nonetheless be interpreted as being regulated by the parties.

Problems regarding the scope of an agreement may also arise if the parties agree that they may use theirrespective trademarks for goods or services that fall under a specific class of the Nice Agreement. Which goods orservices fall within one particular Nice class may change over the years as new editions of the Nice Classificationare adopted. It can, therefore, be preferable to name the specific goods and services in connection with which thetrademark may be used, instead of just referring to the Nice class.

Duration and Cancellation

Coexistence agreements usually are in effect for an indefinite period of time. They constitute a continuingobligation, which can be terminated only by means of an ordinary or extraordinary termination.

The possibility of an ordinary termination can be included in the agreement itself, in provisions regulating the timeperiod within which the termination can be declared and the accepted reasons that will justify a termination. Suchprovisions, however, are rather uncommon. Therefore, in practice, the right to terminate the agreement forextraordinary reasons plays a greater role, and it is given even if it is not specifically defined in the agreement.

Such an extraordinary termination can be declared only for a compelling reason. Whether a reason is compellingenough must be decided on a case-by-case basis by weighing the respective interests of the parties. In any case,the circumstances that justify a partys request for an extraordinary termination of the agreement must be sosevere that upholding the agreement would be unbearable for that party.

By way of example, the constant and substantial violation of the agreement by the other party or the registration ofa very similar trademark in order to circumvent the regulations of the agreement would qualify as a compelling

reason (German Regional Court Hamm, Nov. 22, 1984, Case No. U 105/90Grohe). Such actions against thespirit of the contract damage the parties mutual trust so substantially that upholding the agreement would beunacceptable for one of the parties.

By contrast, economic considerations generally are not a compelling reason for an extraordinary termination of theagreement. If upholding the agreement would, however, put the continuation of the business or the existence of the

company in danger, an extraordinary termination might be admissible (BGH, June 15, 1951, NJW 1951, 836). This


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s rare y e case, espec a y w en one a es n o accoun e ac a ac ons a were a en a e cance ngpartys own risk or that were caused by the cancelling party itself cannot justify a termination (id.; BGH, Feb. 11,1981, NJW 1981, 1265).

Another reason for a coexistence agreement to be terminated may be one partys loss of its trademark rights.Trademark rights can be considered the foundation of a coexistenceagreement: The agreements main purpose is to regulate the partiesrespective trademark rights and to avoid future disagreementsinvolving conflicting trademarks. If those trademark rights cease toexist, the basis for the agreement no longer exists, nor does thebalanced quid pro quo system that is inherent in the agreement.

Naturally, there cannot be a coexistence between trademarks if thereis only one trademark left to exist. Therefore, a coexistenceagreement has effect only as long as both parties trademark rightsexist (Bkel, GRUR 1972, 28, 30 et seq.). To avoid uncertaintiesabout the continuance of the agreement in the case of one partyslosing its trademark rights, it is advisable to include a clause providingthat the coexistence agreement shall remain in effect only as long asboth parties trademark rights exist.

Legal Succession

It goes without saying that a coexistence agreement regulates onlythe relationship between the contracting parties. If the trademark rights

of one party are assigned to a third party, the obligations that derivefrom the agreement are not automatically passed on to the legal successor (BGH, Feb. 27, 1981, Case No. I ZR78/79Gigi-Modelle). The contracting parties to the agreement are legally not able to impose the agreementsobligations on a third party, as this would be considered an inadmissible contract at the expense of third parties(German Regional Court Stuttgart, July 30, 1991, Case No. 2 W 76/89settled out of court).

In practice, coexistence agreements usually include a reciprocal provision, in which the parties agree to impose theobligations laid down in the agreement on potential legal successors. This provision is meant to sensitize theparties to the necessity of a legal successors explicitly agreeing to the coexistence agreement in a formaldeclaration of commitment in order to be bound by it. The challenge is how to make sure that the parties to theagreement many years later comply with their obligation to make the agreement binding on potential legalsuccessors. Obviously, at the time the agreement is concluded, the parties well know their obligations. However,experience shows that companies often do not store coexistence agreements professionally and simply forgetabout such agreements later on. In such a case, the company management might simply forget to impose theobligations set forth in the coexistence agreement on the purchaser. As a result, the contracting party to theagreement might not be able to enforce obligations spelled out in the agreement on the purchaser and have damageclaims only against the other original contracting party. Such damage claims may not really be useful if thecontracting party can no longer rely on the coexistence agreement. Moreover, a damage claim might not beenforceable if the original contracting party has ceased to exist (e.g., because it became insolvent).

Therefore, in order to reduce these practical risks, brand owners should establish an internal system by which theymonitor the contracting parties to agreements relating to key brands. That way, the contracting parties can react,for example, if and when they learn through the press that the brand owner is considering selling its business orpart of it. In such a case, the contracting party could remind the brand owner of the outstanding obligations, inparticular with regard to the succession clause in the agreement.

Antitrust Law Issues

Demarcation naturally goes hand in hand with market segmentation. It therefore has the potential to restraincompetition. Against this background, coexistence agreements, while being beneficial to the parties, can beinherently problematic from a competition law perspective. The European Court of Justice (ECJ) has ruled that acoexistence agreement is likely to violate antitrust laws if it imposes obligations only on one of the parties. Thisvirtually controls that partys sales and distribution instead of protecting both parties trademark rights. (BATCigaretten-Fabriken GmbH v. Commission of the European Communities, Case 35/83 (ECJ Jan. 30, 1985)(TOLTECS vs. DORCET II).) The ECJ has, however, acknowledged those agreements to be a necessary andlegally admissible instrument to minimize court proceedings over trademark issues. (See, to that effect, Guidelineson the Application of Article 101 of the Treaty on the Functioning of the European Union to Technology Transfer

Agreements para. 242 (non-challenge clauses in settlement agreements).)

How do you avoid the presumption that an agreement does not aim to solve possible trademark disputes betweenthe parties but intends to divide up the market between them? In these situations an agreement should not beconcluded if there is little to no likelihood of confusion between the trademarks in question. There also should be noagreement if the registered goods and services are vastly different.

The German Federal Court of Justice supports this view (BGH, May 22, 1975, Case No. KZR 9/74; BGH, Dec. 7,


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2010, Case No. KZR 71/08): The coexistence agreement may cover only issues that need to be settled betweenthe parties because otherwise they could lead to legal disputes. Thus, an agreement is most likely to comply withantitrust laws if it prevents a party from raising an objection against the other partys trademark or even from filingfor injunctive relief. Furthermore, the German Federal Court of Justice has ruled that it is possible to rid acoexistence agreement of content that violates antitrust laws by just striking it out and reducing the agreement toits legally valid core.

Moreover, according to German law, the relevant time to assess whether a coexistence agreement complies withantitrust laws is when the agreement is concluded. To take account of the parties need for legal certainty theymust be able to rely on the agreement as it was written down, as they were not able to foresee possible legaldevelopments at the time of conclusion of the agreement. Circumstances that have changed after the conclusion of

the agreement can be accounted for only through the German legal concepts of supplementary interpretation of theagreement, termination for good cause or frustration of contract/purpose (BGH, Dec. 7, 2010, Case No. KZR 71/08Jette Joop).

This relevant point in time, that is, the time of the conclusion of the agreement, leads to the necessity of assessingthe validity of old agreements by considering the case law that was in place at the relevant earlier times. In Europethis means, for example, that the court may not apply the concept of a reasonably well-informed customer, which isa fundamental concept in the law of the EU today. Instead, the court may have to apply the concept of a customerwho is less prudent and informed. The court will have to carefully analyze all relevant decisions known at the timethe agreement was concluded, and it will have to consider the agreement valid and not in breach of antitrust rules ifthe possibility remains that the parties might have been able to successfully enforce their trademark rights beforethe agreement was signed.

Conclusion

Coexistence agreements are an important instrument for settling trademark rights issues before they become aliability. Even though they cannot always resolve arising trademark disputes, they are key self-help measuresagainst crowded trademark registers and avoidable court proceedings. Especially while dealing with parties fromdifferent geographical origins, it is necessary to take the national legal practice and jurisdiction into account. Aswas discussed in this article, coexistence agreements can be a valuable and effective tool to settle trademarkconflicts. However, the particularities of national law may include some pitfalls and loopholes to be avoidedotherwise, the coexistence agreement could turn out to be a possible problem on its own. And, as the examples inthis article show, the problems arising from a coexistence agreement might only come up many years later.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to

check independently on matters of specific concern or interest.

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“Coexistence or No Existence”_ Chances and Challenges of Coexistence Agreements Under General and German Trademark Law