The case: It is not easy to calculate the cost of a trade mark infringement via advertising.

‘Wilhelm Layher GmbH & Co KG’ operates in Germany in the field of scaffolding. Its business is largely based on two special types of scaffolding: Layher-Blitz-Gerüst [Speedyscaf] and Layher Allround Scaffolding. The company also owns a trade mark

The brand is recognised by 88.5% of scaffolding contractors. It is also relatively well known among other construction companies.

‘Peralta Industrie GmbH’ is also involved in scaffolding. Among other things, it produces and sells a replica of the ‘Layher-Blitz-Gerüst 70 S’ scaffolding system, which has even been specially approved by the authorities for use in combination with Layher-Blitz scaffolding.

In 2017, Peralta sent out advertising mailshots to 34,962 recipients. The envelopes and the advertising leaflet inside drew attention to the approved combination of Layher-Blitz scaffolding and the Peralta replica:

[Layher Speedyscaf 70 S can be combined with Peralta scaffolding components; licensed for use together]

A Peralta price list was also attached to the promotional letter and contained a reference to the existing official licence for use of the parts together:

[Can be combined with Layher Speedyscaf 70S

Licensed for use together]

This advertising was also available on the internet. However, Peralta’s products themselves were never labelled with the Layher brand.

As can be seen, Peralta featured the Layher brand prominently in its advertising, which also stated that Layher scaffolding could be used together with the Peralta product, giving the false impression that this was a Layher company advertisement and/or there was a business relationship between the two companies. The Layher trade mark was infringed.

After receiving a warning letter, Peralta immediately signed a cease-and-desist declaration. However, a dispute arose as to the amount of damages to be paid for the trade mark infringement.

So what is the potential cost of a trade mark infringement through advertising? Were damages payable at all?

It is not possible to put a concrete figure on the damage caused. But there must have been some, since Peralta had used the third party’s trade mark for its own business purposes without authorisation, thereby creating a likelihood of confusion. The infringement of the third party’s trade mark was the damage suffered. The question was how to assess the damage.

It helps to break it down: By using Layher’s third-party trade mark, Peralta had in fact claimed an authorisation that was reserved exclusively for Layher as the trade mark owner. If there had been a prior contractual agreement, Peralta would have had to pay a licence fee, and Layher would have received corresponding remuneration. A fictitious licence agreement is therefore a permissible approach in assessing objectively the level of damages in the case of trade mark infringement – the so-called Lizenzanalogie [licence analogy]. The theoretical content of such a licence would depend on what reasonable contracting parties would have agreed, had they known the extent of the infringement.

Turnover licences are regularly included in licence agreements. In the case of mere advertising, however, there is no turnover that can be solely attributable to the infringer’s conduct. Peralta had achieved its turnover, in terms of its own products, without using the Layher brand. Nevertheless, advertising is intended to increase the regular sales of the infringer. Therefore, the damage caused by the advertising can be estimated on the basis of the infringer’s legitimate sale.

In order to estimate the damage, it is necessary to ascertain, first, the time periods for which royalties will need to be paid from the infringer’s sales and, second, what the royalty rate is.

As far as the time periods are concerned, the infringing one-off advertisement that has caused confusion in the market will continue to have an effect for some time afterwards. The duration of this lingering effect was estimated to be three months for the Peralta campaign. Royalties would therefore be payable for this period.

But how might one arrive at the fictitious royalty rate? If, in addition to advertising, Peralta had sold its own scaffolding under the Layher brand without authorisation, a royalty rate of 15% would have been appropriate. This is because Layher would have had a strong negotiating position in the fictitious contract negotiations due to the high level of recognition of the Layher brand. In addition, the fact that Peralta had clearly highlighted the Layher trade mark in an infringing manner would have had a particular impact. The advertisement, although short, had also been targeted at a large number of addressees.

In the fictitious licence agreement, however, the parties would not have agreed on royalties for the sale of infringing products, but only on royalties for infringing advertising. The 15% royalty rate can therefore only be considered as a reference point. It is true that all the above circumstances – Layher’s high profile, its strong negotiating position and the gravity of the infringement – remain the same. However, the severity of this infringement was significantly less than that of an infringement by product piracy. Advertising under a third party’s trade mark merely served as a way in to the infringing company’s own products; it did not deceive the public as to the origin of the mark, nor diminished the ‘origin’ function at the core of the brand.

However, the fact that only a small proportion of Peralta’s turnover was based on the trade mark infringement was not necessarily a reason to reduce the royalty rate. Reasonable parties to a licensing agreement would not have made the royalty amount for an advertisement dependent on the exact number of sales expected as a result of the advertisement. The method of calculation via the method of ‘analogical licence’ cannot be made dependent on causality – it is simply an estimate of damages based on objective principles.

This means that only the severity of the trade mark infringement is relevant in ascertaining the royalty figure. Due to the reduced severity, the royalty rate for trade mark-infringing advertising was reduced by a factor of two-thirds compared to the standard case of infringing sales. It was therefore set at 5% of net sales.

For the three-month after-effect period of the advertising, this amounted to damages of €33,500, based on Peralta’s net sales.

 

Federal Supreme Court (BGH), judgment of 22. 09. 2021, I ZR 20/21; subsequently: Higher Regional Court (OLG) Stuttgart, judgment of 12. 01. 2023, 2 U 34/20

 

Learnings: Make sure that the use of a third party’s trade mark in advertising does not create the false impression that the advertising originates from the trade mark owner or that there is any business connection between you and the trade mark owner. Even if your products do not bear the third party’s trade mark and you only advertise using the third party’s trade mark, the damage may be compensated by way of a fictitious licence fee. This would be calculated based on your company’s regular sales during a specific period following the presumed licence period. However, due to the reduced severity of the infringement in the case of mere advertising, the royalty figure should be lower than cases where infringing sales have taken place as a result of product piracy.