GERMANY. 1. General Background: Legal Environment:

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1 GERMANY Rudolph du Mesnil, Dominik Eickemeier, & Thorsten Wieland Heuking Kühn Lüer Wojtek General Background: Legal Environment: Courts: Procedure: Injunctive Relief: German law is civil law as opposed to common law; its legal system is contained in a number of major codes (Civil Code, Commercial Code, Criminal Code, Codes of Civil, Criminal and Administrative Procedure), a number of major statutory laws governing the principal rules of major legal and commercial sectors (including, for example, the Law Against Unfair Competition), and a large number of detailed laws and regulations in each of these and other sectors of law (including, for example, the Health Products Advertising Law, Pricing Regulations etc). To the extent statutory law contains general clauses which are subject to interpretation (to a large extent applicable in the fair competition and advertising sector), case law is providing supplementary guidance. German Courts are divided in civil/commercial, criminal, public administration, labor, social, and tax and constitutional sectors. Civil courts have special patent, trademark, copyright and unfair competition benches. There are, in principle, three review instances (second and third instance partly for review of law, only), namely the entry courts (local or district courts), the appeal courts and the several Federal Supreme Courts in civil and criminal, public administration, labor, social and tax matters, plus the Federal Constitutional Court. Senior judges are normally in a life time civil servant status. Under the Civil Procedure Code, a complaint must contain a full statement of facts and an offer of evidence relating to these facts. (documents, names of witnesses, offer of an expert opinion). There is no pre-trial discovery, the court takes and considers the evidence which relates to facts in dispute. Officers and Directors are considered party and do not qualify as witnesses. Regular court proceedings take about 9 to 12 months in each instance. Costs in litigation are composed of statutory attorneys fees and court costs. Both are regulated by statute, the amount depends on the value of the case (fees and costs are determined on the basis of graduated fee schedules).the losing party pays all costs and legal fees. Litigation is comparatively inexpensive if fees are based on the statutory schedule. Lawyers may charge their clients (higher) fees based on hourly rates if agreed in writing. Injunctive relief is available in quick injunction procedures. Normally, a prior cease and desist request is required (unless such prior warning would jeopardize the effects of the injunction or seizure). A case qualifies for injunctive relief only if court assistance is urgent. Cases where the facts are known to the plaintiff for more than one month are no longer considered urgent (some courts accept knowledge of up to six months). Ex parte injunctions (injunction without prior oral hearing) are subject to opposition (in which case the court will hear the case in an oral hearing), injunctions based on oral hearings are subject to one appeal.

2 Summary: German substantive and procedural laws are detailed and complex and differ substantially from common law principles. Courts are highly specialized and judges very qualified. Except in small cases before the local courts, parties must instruct a lawyer to represent the case in court. Although German lawyers have traditionally practised in relatively small offices, and were instructed mainly for dispute resolution purposes, the past 15 years have seen a change towards legal planning and advisory services. Notaries belong to a separate legal profession; a notary is mainly engaged in the legal notarization of certain corporate, real property and matrimonial transactions, assuming responsibility for the legal effectiveness of the transaction. 2. Legislation: Relevant Acts in Advertising Law: Role of Case Law: Expected Changes: Outstanding Adaptation to EU Law: Gesetz gegen den Unlauteren Wettbewerb UWG - (Law Against Unfair Competition), Preisangabenverordnung (Price Disclosure Regulation), Heilmittelwerbegesetz (Health Products Advertising Law), several other special regulations. The former UWG (effective until 6 July 2004) was based on mainly two general provisions addressing fair competition principles in general. Case law interpreting these rules was extremely important to determine the law. The new UWG provides more detailed rules addressing typical advertising situations. There is still a large number of open questions regarding the remaining general clause of 3 UWG. As the legislator reformed the UWG recently, no important changes are expected at the moment. The EU-Directive on Unfair Trade Practices (2005/29/EG) was published on 11 June 2005 and has to be incorporated into German law within 2 ½ years. On 8 July 2004 the new Law against Unfair Competition (UWG) came into force and replaced the former statute. The government took a decisive step towards increased consumer protection as well as using the opportunity to sweep away old concepts regulating trading practice in Germany, such as, for instance, the prohibition on end-of-season clearance sales. The UWG prohibits unfair trading such as deceptive advertising. It allows comparative advertising, provided the comparison complies with certain rules and the underlying facts are correct. Supplementary regulations, particularly the former Rabattgesetz (Discount or Rebate Law) and the Zugabeverordnung (Regulation Regarding Giveaways/Free Gifts) have been annulled earlier (in 2001). Unusually high discounts/rebates or extraordinarily valuable gifts can still violate the UWG. In the direct marketing sector, the government has adopted, in the new statutory provisions of the UWG, a number of rules that have evolved over the years in a large number of court decisions; in some cases the new rules are even stricter. One major innovation is the so-called Entitlement to Skimoff Profits which seeks to prevent profits from unfair trading practices being retained by unfairly acting businesses. The new law will have a particularly severe impact on advertising formats like SMS, or fax. This includes Cold Calling. In this area the new law lays down strict and clear regulations. It considers these practices unacceptable harassment. The regulation is based on an Opt-in Principle (consumer approval requirement with certain exceptions). By including these limitations on direct marketing in the UWG, the

3 government has turned its back on a more liberal legislative line. Consumer interests are in many respects ranking higher than interests of direct marketing operators like call centers. The Preisangabenverordnung (Price Disclosure Regulation) requires clear price statements. Prices displayed in the end consumer market must comprise all price components (incl. applicable VAT). The Heilmittelwerbegesetz (Health Product Advertising Law) aims at providing fair trade and safety principles in the market of pharmaceutical, medical device, cosmetic and similar products, methods and practises. A separate outline will be provided. 3. Industry Self- Regulation: Pharmaceutical Industry Self-Regulation in Advertising and Marketing Who: German Pharmaceutical Industry, Members of the registered association Voluntary Self-Control for the Pharmaceutical Industry When: Formation of Association and start of operation: February 2004 Currently approximately 60 industry members. Where: Nationwide Germany What Happened: A substantial number of businesses involved in the pharmaceutical sector in Germany has created a self-regulating body in order to enforce fair consumer advertising, health products advertising and corruption control rules in Germany. The organization acts upon request or notification of members, government bodies or consumers. By contract among its members, it has the power to request cease and desist undertakings and to impose fines of up to Severe violations and the sanctions may be publicly advertised. This effort is in addition to a number of other (governmental and business based) initiatives aiming at industry self-regulation in the above contexts. Health products advertising and anti-corruption issues of the pharmaceutical industry in relation to employed or self-employed doctors are among the most predominant areas of concern in pharmaceutical advertising and marketing law. For instance, the issue of whether and to what extent the cost of entertainment at educational conferences or elaborate give-aways can constitute an illegal influence of the pharmaceutical industry on doctors (particularly employed doctors), and whether it could jeopardize the independence of doctors in their sourcing/procurement and prescription behaviour (to the detriment of patients and the public heath insurance) is a current and much discussed topic in Germany. The aim is to ensure the greatest possible independence of doctors from the pharmaceutical industry. Relevant are the Criminal Code (regarding bribery aspects), professional regulations of doctors, the Health Products Advertising Law, the Law Against Unfair Competition as well as (increasingly) the self-regulatory codex of the members of the association "Voluntary Self-Control of the Pharmaceutical Industry". By way of example, bearing the cost of entertainment at professional events would not per se constitute a violation of the applicable rules if the cost is insignificant in relation to the cost and relevance of the professional programme (adequacy test). It is permissible to provide adequate food and beverage during conferences (but not at gourmet restaurants), to cover

4 adequate travel costs and necessary over night costs, and to cover participation fees of third party event organizers. At arm s length compensation for services rendered is also not a problem if properly documented and approved by the employer. It is not permissible to reimburse or pay for costs of participating guests (spouses), to hold conferences at resort locations or at a foreign location without international program content. Invitations of doctors to professional educational events must be in the professional interest and a product context of the inviting company and the invited doctor. There may be no context whatsoever between the invitation and sourcing/procurement/purchase transactions or prescription influences. All agreements and arrangements relating to such invitations must be laid down in writing, specifying the facts relating to the above restrictions (transparency principle). The employer/principal of the invited doctor must be informed and an express or implied consent obtained. The invitation may not be connected with indirect advertising of the sponsor through expensive give-aways, professional books or magazines, other valuable gifts. Tax aspects play a separate role in that certain benefits may be treated as taxable income of the doctor. In terms of sanctions, apart from the criminal sanctions of the criminal code in connection with cases of active or passive bribery or illegal influence on the decision of an employed doctor, the most effective other sanctions are those contained in the self-regulatory codex of the industry. Apart from the possibility to enforce the codex rules through cease and desist orders, the association may impose fines upon its members of up to , -- and in particularly severe cases up to , -- (plus public advertising of the sanction against the effected company). 4. Current Events: Heuking Kühn Lüer Wojtek: New German GALA member. Current Issues of the German Advertising and Marketing Industry When: September 2005 What Happened: Heuking Kühn Lüer Wojtek have joined GALA in 2005 as its new German member. Heuking Kühn Lüer Wojtek was formed in 1971 and has since then developed to a group of some 150 lawyers in seven German locations and one office in Brussels. The firm continues to grow as a full service firm, including tax law. The firm s growth is driven by its main practice areas: corporate and M&A, insurance, banking, antitrust and trade law, media and competition as well as a strong public law, property development and public procurement practice. Some specialty sectors are emphasized at certain office locations although the firm offers full services at each of its offices. Approximately 20 colleagues are involved in the firm s media, competition and marketing practice, some with an emphasis on related practice areas such as consumer protection, copyright, press, deformation and entertainment law. Internationally, Heuking Kühn Lüer has established its own successful good friends network and joins special services alliances such as GALA. A handful of major German law firms such as Heuking Kühn Lüer Wojtek have successfully retained professional independence, declined mergers with foreign law firms and focussed on important aspects of the German

5 professional tradition. Expert partner involvement, quick turnaround and a reasonable degree of flexibility and discretion in fee arrangements are part of this service idea. Based on long term experience in the advertising and marketing law sector, this flexible and lean approach makes much sense. Advertising businesses and agencies must cope with a number of difficult local and worldwide economic issues. On the other hand, the German advertising industry relies increasingly on new advertising concepts such as dialogue marketing, mobile direct marketing or marketing. Agencies and advertising industry discuss new spreads of budgets over a variety of advertising means, including Internet based and mobile advertising, sponsoring and event marketing. That requires intimate knowledge of new media and consumer behaviour, as well as the ability to serve these needs in a close and personal attorney-client relationship. 5. Case Report: Forum Shopping Where: Frankfurt Appellate Court (court file 16 U 23/05) When: 14 July 2005 Issue, What In injunctive relief procedures, claimant s counsel would occasionally call the Happened: judge to see whether the injunction application leaves any open question, and when claimant can expect a decision. The true intention behind the call is normally to find out whether the court is willing to grant the injunction or whether it is likely to reject. If the conversation leaves the impression that the court will likely dismiss the application, claimant s counsel would withdraw the request and file with a different court. That practice may no longer work out if the court has made its decision on the case. The Frankfurt Appellate Court has now held (although in a slightly different context) that a withdrawn application for injunctive relief may not normally be filed again before the same or another court if the original court has decided on it in whole or in part. If an application is unsuccessful, the claimant may not lodge the same claim a second time. In the pertinent case, the District Court of Wiesbaden partially rejected a cease and desist claim regarding certain allegedly defamatory statements. The claimant then withdrew its application entirely and filed an identical application in the Frankfurt District Court. The Frankfurt court granted the injunction again only in part, although deviating from the Wiesbaden decision. In the appeal proceedings initiated by both parties, the Frankfurt Appellate Court rejected the injunction application entirely on the grounds that the claimant had no legitimate interest for the proceedings before the Frankfurt courts. If the claimant was not satisfied with the decision of the District Court of Wiesbaden, it should have filed an appeal rather than withdrawing and filing again with a different court. By withdrawing the application the claimant demonstrated that the case was no longer urgent (a procedural precondition for injunctive procedures). The decision may have a bearing on all situations in which an application is withdrawn for whatever reason. In light of the Frankfurt judgment, forum shopping remains possible if the withdrawal has occurred at a time when the court has not yet decided on the matter.