The personality right, in principle, extends across the whole world: for the personality can exert its power over all mankind. … Since, however, full trademark protection will not be granted on the basis of the owner’s personality alone, but usually also requires owner activity and a contribution by public authorities, an indirect localization exists. The same personality that is protected worldwide with respect to unfair competition enjoys trademark protection in one state where a trademark is registered, but not in another where no such registration exists. … If it is correct that the trademark right is a universal right of its owner’s personality, but as an enhancement of such a right localized in and valid only in the territories of single countries, a domestic trademark can be infringed on only inside the national territory, a foreign trademark only abroad.
Introduction
Both in Europe and the United States, a socioeconomic cataclysm of industrialization and market liberalization—including the invention of branding, mass advertising, and marketing psychology—was the driving force behind the construction of modern trademark and unfair competition laws. During the last two centuries, legal doctrine accordingly underwent partly groundbreaking transformations. Many of these account for today’s transatlantic dichotomy, particularly in the field of trademark and unfair competition choice of law, or conflicts law. My analysis will focus on the most relevant characteristics of legal doctrine between the eighteenth and twenty-first centuries.Footnote 1 I argue that a closer look at conceptual and structural differences, as well as commonalities between European and US law, provides the basis for a reconceptualization of the field.
With regard to commonalities, there is one aspect that has always, albeit mostly subconsciously, dominated the field across jurisdictions: cases of alleged trademark infringement are considered an issue of individual property rights protection. It is usually the plaintiff-as-right-owner who asks the court to protect a hard-earned reputation, goodwill, or business position against the defendant-as-villain trying to ride on her coattails. Indeed, it is the subjectivism of right owners’ and courts’ perspectives that has driven trademark doctrine toward a system of propertization, the extension of trademark rights as domains of economic power, and protection against competition in the marketplace. By the 1800s, this extension of private rights had already become the order of the day in private law in general—both in Germany (as in other European jurisdictions) and in the United States. Trademark law was no exception from this trend. In fact, a closer look at German and US doctrines reveals that the propertization of trademark rights started around the same time and has grown continuously since.
Yet the methods used to extend property in trademarks have varied widely between the two countries’ systems. Roughly summarized, German trademark propertization can be understood as an evolution of formalistic rights protection. The subject matter of statutory and court-made rules was a state-granted privilege. The US equivalent, by contrast, can be seen as founded on a nonformal concept of goodwill protection. Trademarks were considered market-based entitlements rather than state-granted monopolies. These divergent conceptions necessarily led to distinctly different approaches to conflicts law, as reflected in current practice. In Germany, the idea of formal property in trademarks and an adherence to the traditional conception of state-granted rights have led to a rule of strict territoriality. Under the dominant lex loci protectionis rule, trademark rights are, in principle, protected only against infringing conduct within the granting state’s territory; foreign-based activities or commercial effects are, at best, of secondary concern. Quite differently, US practice, from the beginning, built on a concept of virtually borderless and liquid market extensions. Accordingly, it considers commercial effects to be of ultimate importance in conflicts determination.
While both systems appear to have perpetuated the dichotomy, a new trend has recently begun. On the one hand, US courts are becoming more cautious in applying domestic law to foreign-based conduct. Indeed, the “Bulova test” for Lanham Act subject-matter jurisdiction, established in the 1950s, has increasingly come under critique. German courts, on the other hand, have gone in the opposite direction. Most recently, in an internet trademark conflict, the Bundesgerichtshof required “commercial effects” within the country, disregarding the once ironclad rule that territorial conduct was required. Notwithstanding these moderate beginnings of approximation, however, legal doctrine everywhere is far from having established a consistent or feasible solution for the difficult balancing between the universality of trademark rights and their underprotection. In this regard, the situation still resembles what Frank I. Schechter, in a slightly different context, described almost a century ago as an attainment of “forward strides … by appeals to ‘good conscience’ and ‘judicial sensibilities’ rather than to strictly legal principles derived from a critical analysis.”Footnote 2 The first two chapters—which examine distinct elements of the history of German, European, and US law—will be my starting point for such a critical analysis. In the following chapters, I will analyze the scholarly debate taking place around the world, the structure of substantive law conceptions and its thus-far unexplained convergence, and the doctrine of international comity. On this basis, in the last chapter, I will attempt to suggest a reconceptualization of trademark and unfair competition conflicts law.
For this chapter, which looks at German and European civil law, several aspects are of particular interest; these themes will guide the order of my exploration. In German trademark law, the dichotomy between registered rights as formal state grants and nonregistered entitlements as informal rights, especially under the rules against unfair competition, has become so deeply ingrained that a reconceptualization has become virtually impossible. Not surprisingly, the strict distinction between formal trademark “property” and “nonproperty” unfair competition prevention still dominates modern doctrine (see infra p. 9 et seq.). At the conflicts level, this separation of fields has had a significant impact. Trademark conflicts law has transformed from an initial idea of the universality of rights under Josef Kohler’s 1880s theory of personality protection into a rule of strict territoriality that limits the application of domestic law to territorial conduct only (lex loci protectionis). Unfair competition conflicts doctrine, by contrast, has embraced a marketplace effects principle similar to the approach in international antitrust law from the 1960s (see infra p. 53 et seq.). It is only recently that the effects principle has also surfaced in German trademark conflicts, notably in the Bundesgerichtshof’s 2004 HOTEL MARITIME decision and its recourse to a testing of “commercial effects.” While this represents a first step toward modernization, the replacement of the formalist lex loci protectionis with a balancing-of-interests and commercial-effects testing hardly offers a consistent or workable standard for conflicts resolution (see infra p. 74–75).
Section 1 Substantive Trademark and Unfair Competition Law
Even though today the protection of trademark rights is universally acknowledged as part of the larger field of unfair competition prevention,Footnote 3 a dichotomy has strictly divided the two sectors. Trademark law has been and continues to be dominated by the idea that trademarks are state-granted monopoly rights and privileges. This is due in part to the fact that protection was initially an issue of state-backed enforcement, largely through administrative and criminal law sanctions. Even though a system of private enforcement gained ground over time, remnants of privilege theory have survived—and it is this foundation of privilege theory that also governs in conflicts law.
I Structure: State Regulation and Formal Privileges
Throughout the nineteenth and most of the twentieth century, the doctrinal characterization of what constituted a “trademark,” “unfair competition,” and protectable subject matter was heterogeneous. Most importantly (and as a caveat), the issue was often not the protection of “trademarks” in a modern sense but the protection of personal names, firm or corporate names, and other indicators of source or origin. In particular, criminal law sanctions were first applied with regard to the protection of names and firm names, not of trademarks.Footnote 4 While these doctrinal intricacies are important to keep in mind, they must not fog our more specific view: substantive law doctrine in the field began as a system of preventing fraud and deception, but over time its strict and exclusive public policy impetus was lost, giving way to a structure oriented toward the protection of individual rights. What remained unchanged was the understanding of trademarks as state-granted privileges.
A The Criminal Law Beginnings
Early nineteenth-century Germany and Western Europe witnessed a fundamental alteration of social and economic conditions. Legal approaches to trademark protection changed accordingly. Prior to the nineteenth century, the guild system (System der Zünfte) had governed, whereby market competition was regulated on the basis of producer self-administration.Footnote 5 On the macrolevel, of course, absolutistic lawmakers in Germany’s states regulated trade and commerce through tariffs, certain prohibitions on production and trade, and the granting of privileges (for instance, for industrial inventions or book reprints). Yet on the microlevel—notably with respect to individual transacting—they intervened only sporadically.Footnote 6 One example was the control of product quality.Footnote 7 With respect to trademark or trade-name use beyond this modest domain, however, there was no regulation, nor was there a general system of unfair competition prevention.Footnote 8 In other words, since there was no freedom of competition, no regulation was necessary.
This situation would change in the early nineteenth century. From then on, the increasing incorporation of freedom of economic activity and freedom of trade (Gewerbefreiheit) into German states’ legal systems set the stage for a growing use of trade names and trademarks in daily commerce. The guild system was first deprived of its powers, and then completely disintegrated. One example is Prussia, where the introduction of freedom of economic competition was combined with an abolition of the guilds in 1810 and 1811.Footnote 9 Furthermore, innovations in production methods and an extension of trade infrastructure brought further momentum to the economic transformation in state and society. In addition to the shift toward market liberalism in economic and legal thought, the advent of mass production and consumption accelerated the development of competition.Footnote 10 Starting around 1840, transportation infrastructure was modernized, and the existing economy of handcraft and small-business manufacturing was superseded by methods of industrialized and standardized production.Footnote 11 This stimulated a need for more expandable instruments of market communication. Production and consumption no longer coincided temporally and geographically. The growing distance between producer and consumer resulted in anonymity and alienation.Footnote 12 While product features, notably source and origin, had been an issue of local information for centuries, extended marketplaces could no longer offer a reliable face-to-face trust mechanism. This bore a risk of deterioration in quality.Footnote 13 And, in fact, unfair competition became widespread.Footnote 14 Legal doctrine was forced to follow suit and accept the challenge of regulation.
Yet, under the influence of liberalist thought, the idea had come to govern that the state should largely abstain from regulation in areas that had been taken over by individual freedom and private activity.Footnote 15 In other words, state intervention had to have a relevant and necessary purpose in order to be justified. With respect to trademark and trade-name protection, such justification was considered to exist when protection of the consuming public against fraud and deception or with regard to public health was at stake. This, however, was not an issue of private rights enforcement.Footnote 16 The panacea instead was seen in criminal law sanctions.Footnote 17 Beyond this narrow sector, as was further contended, no regulation was indicated. The 1871 Criminal Code of the German Reich was paradigmatic for this era.Footnote 18 Section 287 of the code penalized the false use of personal and trade names in the branding or trading of goods or packaging.Footnote 19 This provision was actually based on the 1851 Prussian Criminal Code, which, in turn, had implemented the Dresden Agreement reached by member states of the German Customs Union (Zollverein) in 1838.Footnote 20 At the Custom Union’s conference, member-state delegates had agreed on two basic premises. First, they had established a uniform standard of enforcement for all member states and their subjects. Second, they had identified criminal law sanctions as the preferred instrument of regulation.Footnote 21 But this approach was soon to be superseded by alternative conceptions of trademark and name protection.
B From State Regulation to Individual Rights Protection
Over time, a broader understanding of trademark and unfair competition policies—particularly the regulatory aspect of market information correctness—gained ground. This also brought ideas of private individual rights protection to the fore. In an 1839 treatise on political economy, for instance, self-evaluation and marketing of the quality of products (as well as the use of a personal name or mark) was described as having both “the purpose to protect purchasers from fraud and the economic purpose to promote sale of those wares in the quality of which the purchasers can trust.”Footnote 22 Indeed, by the early nineteenth century, ideas of consumer trust and quality preservation had become part of the theoretical debate. As one scholar posited in 1827:
Trademarks are a kind of a substitute for public expert control since anyone must take care to maintain the good reputation of his mark by upholding the quality of his ware. At the same time, a well-reputed mark is the foundation for extensive sales and can be the basis of a useful monopoly, which in turn further spurs better-quality fabrication.Footnote 23
This modernization of policies not only suggested a stronger emphasis on the private rights aspect of trademark protection but also included a distinctive flavor of personality rights protection. In 1844, for instance, Robert von Mohl, in a leading treatise on administrative and police law, explained that the deceptive use of another’s trade name was an invasion of personality rights.Footnote 24 Even though von Mohl did not conclude that the private right element of name protection ultimately also required establishing a civil law remedy,Footnote 25 his reference to the owner’s individual rights was a predecessor to Josef Kohler’s later iconic personality rights theory.Footnote 26
Under a different lens, von Mohl’s explanation reflects a more general and trans-European debate on trademark protection, particularly with respect to the character of trademark rights as private entitlements. This is illustrated by the development of French doctrine, which at times also influenced German law. Interest in foreign trademark and unfair competition regimes was common in nineteenth-century scholarship. Not only had inter-European trade increased, but in Germany, the French code civil was governing law in numerous areas of the Reich due to the Napoleonic annexations in the early nineteenth century.Footnote 27 French law, however, differed significantly from the German states’ common law (gemeines Recht) and their statutory trademark laws. Postrevolutionary France had implemented numerous laws protecting intellectual property. Protection was granted to propriété littéraire et artistique. In patent law, for instance, the invention as such was deemed a propriété de son auteur. While trademark protection was initially also founded on a concept of criminal law protection against contrefaçon, it soon also became a question of protecting the owner’s individual propriété industrielle.Footnote 28 Under a genuine natural law perspective, trademark rights were characterized as sacred rights of production and labor (droits sacrés de la production et du travail).Footnote 29 Remarkably, however, and in line with postrevolutionary France’s aversion to privileges, there were no state-administered rights in trade names or marks.Footnote 30 Furthermore, during the second half of the nineteenth century, the scope of protection was extended to cover instances of improper conduct, even absent the infringement of formal property rights. Establishing fairness in commerce became the chief concern.Footnote 31 In French trademark doctrine, the subject matter was amended from the protection of property to the prevention of unfair competition (concurrence déloyale).Footnote 32 The legal basis was found in article 1382 of the code civil.Footnote 33 In the end, civil law remedies prevailed in both trademark and unfair competition law. Indeed, private rights enforcement upon the individual’s initiative had become the guiding paradigm in practice. Although criminal sanctions still existed, they were of only secondary concern.Footnote 34 By the end of the century, French law had abandoned the concept of state-administered and state-enforced monopolies and privileges.Footnote 35
C The Positivist Concept of Privilege Grants
While countries such as Austria followed the French lead,Footnote 36 and several Italian states acknowledged the concept of private trademark property,Footnote 37 German lawmakers were more hesitant. They refused to acknowledge name and trademark rights as preexisting or natural entitlements.Footnote 38 German scholarly commentary, by contrast, exhibited a natural rights conception of intellectual property quite similar to and influenced by French doctrine. In 1843, for instance, a leading treatise described a natural rights concept of industrial property (industrielles Eigenthumsrecht) that was intended to provide owners with absolute and exclusive rights of use.Footnote 39 Despite a natural rights foundation, however, positive law still provided for utilitarian confines to individual “property”:
The concept of this property right develops from natural law. The positive right under natural law, however, … must be brought in conformity with the interest in progress of the state’s welfare. If the latter prevails, the former must be cut back. In the end, the natural-law concept of property in ideas must be modified.Footnote 40
As the author continued:
The individual’s property right must yield to the requirements that the public’s welfare has. And even if the positive law would go so far as to include the natural-law concept of property in ideas to its full extent, one would need to establish an accompanying principle to expropriate the individual in the interest of the public welfare.Footnote 41
Finally, with regard to the nature and scope of trademark property,Footnote 42 he went on to explain that
[e]ach manufacturer has the legal right to designate his wares in a way that allows them to be distinguished from those of his competitors with little effort and attention. In order to provide to the manufacturer with this right to distinguish his wares from those of others, the law grants an exclusive property right in the designation he chooses.Footnote 43
This express reference to the legal granting of a property right is representative of the positivist doctrine that dominated the scholarly discussion in Germany.Footnote 44 And this doctrine had another important characteristic: it established a formal foundation for trademark rights. This foundation was not the French notion of preexisting property in names and trademarks but rather the idea of state-granted rights. As a scholarly treatise on trade and business theory explained in 1841:
Simply putting an arbitrarily adopted designation on one’s products does not give one the right to enjoin others from using the same designation; such a right can be granted only by the state’s power, and only within its dominion.Footnote 45
Just as drastically, another scholar stated in 1866:
I only claim that, under our German legal system, an exclusive right of the manufacturer or merchant in his fabrication and trade symbols cannot be acknowledged absent a special legal writ granting the right.Footnote 46
In the end, the foundation on formal state grants had become a determinative characteristic of trademark rights. Private rights would never come into existence without the sovereign’s permission.Footnote 47 Under trademark law, finding an infringement was equated with the violation of a legal monopoly:
One acknowledges the order of morals and equity, demanding protection of the product of one’s mind. And instead of providing each single owner with a special monopoly, one generalizes the prohibition for anybody by establishing a legal command. … [T]he legal protection of the manufacturer and merchant for their designations can also be explained as a monopolization for the exclusive use for their wares and makes. Infringement of this monopoly will, under the general legal rules establishing the monopoly, be characterized as a delict per se.Footnote 48
In sum, even though there was a general conception that personal and firm names, as well as trademarks, could be understood as individual entitlements, the idea of a natural law foundation did not leave a permanent mark in German doctrine. On the contrary, trademarks remained state-granted rights and privileges.
II Substance: Personality Rights and Private Property
Ever since, the formal structure of state-granted privileges has dominated in German doctrine. With respect to substance, two additional aspects are important. First, as alluded to above, by the nineteenth century, an idea of competitor personality protection had taken over in scholarship. This concept was perfected by Josef Kohler in his theory of personality rights protection. Second, the development on the theoretical plane was accompanied by a shift in statutory law. The German Trademark Acts of 1874 and 1894 ultimately established a private rights concept of protection.
A Josef Kohler’s Personality Rights Theory
As we have seen, personality rights protection was not a new concept at the end of the nineteenth century. In fact, it had existed prior to Kohler’s famous groundwork. An early explanation can be found in R. Klostermann’s 1869 treatise on intellectual property law:
The law of firm and trade marks is founded on a ground quite different from the intellectual property in inventions and trade samples. It is not a product of intellectual labor, through which the firm sign or the trademark is brought into existence, but an emanation of the personality, as the expression of which it represents itself.Footnote 49
Later scholars, such as Carl Gareis, extended this conception. According to Gareis, trademark rights were individual entitlements intended to spur ambition and motivation:
In order to accommodate the higher human desire not only to live on the basis of making use of one’s powers and abilities, but also to be respected as an individual, the legal order acknowledges and protects a certain name that identifies the individual (especially for commercial transactions, by acknowledging firm name and trademark protection) and by protecting the honor of the individual’s (good) name and reputation.Footnote 50
Notwithstanding these preceding foundations of trademark-as-personality protection, Kohler’s concept has so significantly dominated and predetermined German practice and scholarship that it requires a literal citation at length.Footnote 51 In his 1884 treatise on trademark law, he elaborated on the idea that individuality should be guaranteed and protected:
The relations between the person and the thing, which is expressed by the mark as a sign of origin, is of an individual rights nature: it is the manifestation of the creator, the expression of the producer’s activity. The right of the producer, however, to be recognized as such, and the right to demand that he will not be foisted on a product that is not of his produce, is among the most important emanations of, one of the most important manifestations of, the individual right.Footnote 52
Trademark protection was not necessarily a consequence of labor and investment—it was a genuine emanation of the owner’s personality.Footnote 53 Also, according to Kohler, protection was not founded primarily on legislative acts, as trademarks were more than state-granted benefits. As he posited, contemporary German common law (gemeines Recht) was capable of providing protection in addition to statutory trademark law:
Even though statutory law does not provide special rules on the right in marks, a certain kind of right already exists on the basis of acknowledging the individual right as such. Since the right to demand that nobody impute another’s work result for his own wares, that nobody be entitled to “put off his goods for sale as the goods of a rival trader,” that is the direct emanation of the individual right as the right to exclusive use of one’s own personal capacities and dispositions. That this individual right, however, is not only a postulate directed at lawmakers, but already acknowledged under the law as it stands now, should not be in doubt.Footnote 54
This last point in Kohler’s conception seems to contradict the contemporary paradigm of state-granted privileges. Indeed, the protection of personality rights could have been interpreted as a distinctly antiformalist model of rights acquisition and protection. But this is not what resulted from Kohler’s theory. He never rejected lawmakers’ independent and genuine power to create rights. The acquisition of rights by state grant was never seen as a mere declaratory matter. Kohler’s dichotomy—which allowed for both state-backed and personality-founded rights acquisition and protection—ultimately led to a determinative peculiarity of German trademark law in both substantive and conflicts doctrines. Before I address this point in more detail, however, I will take a closer look at the second aspect of trademark propertization: the statutory implementation of the private rights protection paradigm.
B The Statutory Introduction of Private Rights Protection
Beginning mid-century, the statutory landscape of intellectual property protection had begun to change. The protection of corporate names was statutorily implemented throughout the German Reich in 1862. Copyrights also became an issue of uniform statutory protection in 1870.Footnote 55 The 1874 Trademark ActFootnote 56 absorbed protection that had formerly been granted under the Criminal Code (Reichsstrafgesetzbuch), and it enhanced the protection of personal and firm names. From then on, right owners were entitled to civil law sanctions.Footnote 57 Toward the end of the century, the prevalence of fraud prevention had lost its once dominant position.
A prominent illustration of the new mind-set was Wilhelm Endemann’s 1875 commentary on the Trademark Act, in which he described protection as fostering a dual policy—protecting both the public and the individual right owner. Interestingly, as Endemann further pointed out, the act’s emphasis was now on individual rights protection. Protection of the public was a mere reflex:
The draft Act’s motives, at some points, also give regard to a concern of protecting the public. And it cannot be denied that what the Act prescribes does, at the same time, provide some aspects of general security in commercial transacting. Yet, it will become evident that this is not too much, and that what can be observed is only an unplanned consequence of this other concern, not a voluntary main purpose. The governing principle of the Act is protection of business persons in using their trademarks. …
What is acknowledged is due ownership of the trademark, and this ownership is supported by sharp-edged weapons of civil and criminal law, protecting against unauthorized use of the same mark. The ensuing benefit for the public interest must be accepted; it is, however, in the lawmakers’ sense, an actual side benefit only. We have to make clear from the beginning that the whole Act concerns only the relations between members of the business community acting as manufacturers or merchants, but that a direct protection of consumers or purchasers against improper designations is not sought after.Footnote 58
And while such a “privatized” understanding of trademark policy was still an issue of debate under the 1874 act,Footnote 59 it came to dominate under the 1894 act.Footnote 60 Indeed, the idea that protection of the public is secondary to private rights enforcement has governed trademark law ever since. Over time, the policy of trademark protection was transformed from its initially communitarian focus into an individualist orientation toward private property. Not surprisingly, administrative and criminal law sanctions lost their importance as the main tools of regulation.Footnote 61 Despite this shift toward private rights protection, however, the idea of trademarks as state-granted privileges remained the major structural underpinning of trademark-as-property protection under the 1874 and 1894 Trademark Acts.Footnote 62 It was this idea that gave German trademark doctrine its formalist character.
III Consequences: The Field’s Dichotomies
Despite a formal shift to trademark-as-property protection, neither of the two nineteenth-century Trademark Acts established a uniform system of private property rights protection in trademarks. This is not surprising given that neither of the acts covered the entire range of trade symbols and indications. The dichotomy between registered or state-granted rights and other entitlements therefore did not disappear. To the contrary, as we will see, statutory trademark law provided the foundation for an advancement of Kohler’s theory of personality rights protection, thereby contributing to an even deeper consolidation of formalist structures. In the end, the formalist concept of trademark property not only established a separation between trademark protection and unfair competition prevention but also led to a stringent stratification within the field, with registered rights taking precedence over nonregistered positions.
A The Trademark/Unfair Competition Dichotomy
A striking characteristic of trademark and unfair competition law—one that remains alive and well today—was its bifurcation, with the protection of trademark “property” on the one hand and the prevention of unfair “conduct” on the other. Kohler’s 1884 critique is enlightening for the still existent conflict between the two concurrent regimes:
If the individual right is fully sufficient—why, then, should we have a special law on trademarks? Is not the existence of such a law the most eloquent proof for the fact that individual rights protection alone is not enough to completely cover the field? And should not the trademark legislation be conceived of as the best and as a sufficient legal instrument to govern the field, from now on dominating solely and without concurrent legal devices? … Should it not lead into confusion if, next to the new order, the ruins of the old law persist? This question is paramount; and the whole scholarly understanding of our field depends on a correct answer to it.Footnote 63
Answers to Kohler’s questions differed widely in the years following their publication. Since the next chapter will address US doctrine on this issue in more detail, a deep analysis is not required at the moment. A brief discussion, however, is helpful and necessary.
In 1865, the Supreme Court of California was faced with a similar issue in Derringer v. Plate.Footnote 64 The court had to clarify the relation between common law rights acquisition and protection under an 1863 Californian trademark statute. The question was whether the statute constituted a “‘complete scheme’ for the acquisition and protection of property in trademarks.” The court’s answer to this question was no.Footnote 65 As it explained, lawmakers had not attempted to “divest persons of existing rights of property, nor … to preclude them from acquiring title as they had formerly done, by adoption and use.”Footnote 66 As a result, common law rights and statutory rights alike would be protected. Both systems would allow for rights acquisition and protection. German law took a different route at this point. Initially, courts adjudicating on the basis of French law were willing to extend protection against unfair competition (concurrence déloyale) beyond statutory black letters.Footnote 67 Early case law actually mirrored Derringer: Courts agreed on the fact that the special protection of trademarks under the French Republic’s or the German Reich’s federal legislation would not overrule preexisting structures of unfair competition prevention on the basis of the German states’ statutory or common law regimes (gemeines Recht).Footnote 68 But this understanding soon vanished.
In fact, even earlier, Germany’s statutory system of rights acquisition had been destined to favor registration, when the 1874 and 1894 acts detached the acquisition of rights from a requirement of prior use in commerce. And a trademark’s actual use was also irrelevant beyond the domain of formal rights. Neither the 1874 nor the 1894 act allowed rights to be acquired on the basis of use alone.Footnote 69 Under the 1874 act, acquisition required application for registration; under the 1894 act, registration only created the right.Footnote 70 This positivistic shift toward registered rights protection was completed by the Reichsgericht’s 1880 Apollinarisbrunnen decision, the high-water mark of trademark rights’ formality.
The plaintiff, a corporation selling mineral water under the firm name “Apollinarisbrunnen, vormals Kreuzberg,” based its suit on an alleged violation of the 1874 act’s anticonfusion provisionsFootnote 71 and on a claim of unfair competition under articles 1382 and 1383 of the French code civil. The argument was that the defendant’s use of the mark “Apollinarisbrunnen” for mineral water was deceptive. In principle, the code civil was applicable at the defendant’s place of business. But the court had doubts whether the code’s general principles could apply concurrently to the German Reich’s uniform trademark act. Ultimately, the Reichsgericht denied the subsidiary application of general principles:
What remains to be explored is whether the plaintiff can refer to article 1382 of the Code civil insofar as she claims … that the defendant, … apart from the provisions of the Trademark Act, has committed a wrongful act. However, application of article 1382 of the Code civil cannot be conceded in this regard. The Trademark Act, as is evident from the introductory motives of the draft act, … aims to regulate civil-law protection of trademarks for the whole German Reich uniformly and exhaustively; it would, hence, be incompatible to qualify an act deemed admissible under the Trademark Act as wrongful and leading to a claim for damages within the domain of article 1382 Code civil.Footnote 72
At its core, the Reichsgericht’s formalistic positivism disregarded the protections provided by natural and individual private rights. Use-based rights were considered inexistent, and there was no concurrent protection against unfair competition beyond the trademark act. In essence, the idea of an absolute and exclusive system of state-granted statutory privileges prevailed.
A few years later, in its Reiner Kakao decision, the Reichsgericht further explained that “the Act considers trademarks as formal rights, to be created only by the formal act of application and registration.”Footnote 73 Referring to Apollinarisbrunnen, the court continued:
The argument that … protection of registered marks, if applied for with the intent of usurpation of another’s symbol and in order to create the possibility of confusion, must be denied on the basis of the underlying dolus [i.e., bad faith] brings back the aspect that has just been excluded in the course of the Trademark Act’s introduction, notably the elimination of unfair competition principles by imposition of a formal regime of trademark protection.Footnote 74
According to the court, ignoring infringing activities or unfair competition whenever the alleged invader could claim to have acquired a formally valid registration was far from exceptional:
In large parts of Germany, lawmakers [when conceiving of the Trademark Act] were confronted with a legal situation under which attachment of [confusing] trademarks, despite their effects on the public, was deemed to be something legally indifferent. They were thus not prevented from founding their newly created law on a purely formal principle with the advantage of highest precision and certainty.Footnote 75
This positioning led to a lock-in: beyond the trademark act’s black-letter rules, no other regime of rights protection or unfair competition prevention would apply. In essence, the general rules of private law rights protection had become inoperable with respect to the informal regulation of fairness in competition.Footnote 76
B The Privilege/Personality Right Dichotomy
Even though the 1894 act, for the first time, offered protection against the unauthorized use of another’s trade dress, as well as indications of origin,Footnote 77 this protection was still qualitatively inferior to a registered trademark. The extension of protectable subject matter was primarily due to the contemporary lack of a functional system of unfair competition prevention.Footnote 78 Accordingly, it did not attain the same strength or dignity as a registered—and thereby expressly state-granted—entitlement. Unlike the scope of protection granted to registered trademark owners, for instance, there was no cause of action to enjoin an infringer with respect to the violation of a nonregistered entitlement; the only option besides criminal law sanctions was a claim for damages. In addition, in a dispute between a registered right and a nonregistered entitlement, the registered right would always prevail—even if the later registration had been applied for in knowledge of the preexisting nonregistered right and of the confusion that might ensue.Footnote 79 This difference is reflective of the doctrinal foundations: registered trademarks were seen only as constructs of state authority, granted at the individual’s request and therefore the unconditioned property of their owners.Footnote 80
Kohler’s theory of personality rights protection did not alter this stratification. While his concept may have been understood as establishing a new basis for the acquisition and protection of rights, the persisting duality of rights springing from the owner’s “personality” and her “trademark” ultimately only deepened the dichotomy. For this understanding of personality rights theory, Hoffmann may again serve as an early example. As discussed above, Hoffmann was a prominent advocate of privilege theory in trademark law.Footnote 81 In addition, he distinguished between different categories of formal and informal rights. While trade-name and trademark rights were founded on state grants, the deceptive use of a person’s signature was contra bones mores. The abuse of signatures was an offense universally deemed improper:
There is only one category of manufacturer’s marks where it must be acknowledged unconditionally that their imitation is improper: it is designation with the full name of a manufacturer by a seal, representing his handwriting. Without regard to status or trade, good morals and custom prevent in all countries, where education and culture are guaranteed, imitation of an individual’s signature. This custom thereby significantly facilitates transacting and commerce; hence, there is no written law necessary to provide for universal respect for this rule.Footnote 82
Morals and custom (Sitte) was an internationally uniform concept. While trademark protection regimes varied across borders, honesty in trade was considered transnational.Footnote 83 By mid-century, a dichotomy between rights protection and unfair competition prevention had developed—a bifurcation to be perfected with Kohler’s personality rights theory.
Kohler rejected Apollinarisbrunnen’s formalist limitation of trademark protection.Footnote 84 He understood the 1874 act to have substituted preexisting state statutes but not the general principles, particularly the so-called actio doli of the German gemeines Recht, which was designed, among other things, to cover unfair competitive conduct.Footnote 85 As he believed, statutory and nonstatutory law would continue to govern the field concurrently. He characterized all rights as emanations of their owner’s personality:
The personality right as such does not need a special act of acquisition; it comes into existence with the personality itself: it can only develop and unfold into different directions, with the single aspects of the personality more or less stepping into the light.Footnote 86
Yet formal trademark rights had to be chosen. They came into existence by application or registration, not by use in commerce.Footnote 87 Protection under the actio doli, by contrast, depended on trademark use alone.Footnote 88 Hence, Kohler, too, distinguished different sectors of rights protection:
By this means, the system of the registered mark gives the transacting person the eminent advantage that the mark he has chosen will immediately be associated with his person, that it will immediately be an unmistakable signal of the origin of his wares, without first having to make use of the medium of traffic and transacting in order to bring out such a connection and characterization. …Footnote 89
The trademark is nothing else than an individual right consolidated, secured, and reinforced by state regulation. … Hence, the state-regulated trademark right is the augmentation of the pure individual right: this is the true relation, the correct characterization of the thing.Footnote 90
In essence, Kohler conceived of a two-layered structure: commercial activity was protected as an emanation of the personality per se. In addition, a higher level of protection, beyond mere personality rights, could be achieved by trademark registration. It was then an enhanced or upgraded right that constituted the subject matter of protection. As we will see in the following, this reinforcement of personality rights by registrationFootnote 91 should prove significant for subsequent ideas in international trademark and unfair competition doctrine.Footnote 92
One aspect in particular is intimately related to this idea of upgraded rights. While the dual structure of trademark and personality rights protection (or unfair competition prevention) had been a source of debate ever since Apollinarisbrunnen, courts and legal scholars accorded scarce attention to defining protectable subject matter. Rights in a trademark were never deemed to be directly connected to or intertwined with the tangible assets or premises of their owner’s business. To the contrary, rights in trade symbols and in production and business equipment or real estate were deemed to be distinctly separate and independent from one another.Footnote 93 Yet Kohler’s understanding of an upgrading of rights made the trademark an asset of the owner’s business.Footnote 94 Rights in the trademark were thus detachable from the owner’s personality. And detachment led to an amalgamation with the business.Footnote 95 In more general terms, with regard to the correlation between “personality” and “business,” Kohler elaborated in 1914:
It is due to a superficiality of analysis … if it is overlooked that the person’s activities and their automatic outcome will—in certain directions—be dissociated from the person and take on an independent nature within the commercial enterprise. … The enterprise as such can be sold and transferred; thereby a part of the person is peeled off, similar to organic life where fission and pullulation can create a new entity or, at least, make elements of an existing entity the part of a different creation.Footnote 96
Over time, the trademark was conceived of as protecting the owner’s business as such. It became an asset of the going concern. Friedrich Jüngel and Julius Magnus explained this dominant position in 1933:
[The trademark right] has, over time, gained an economically and legally different shape: the mark has become a property asset that is dissociated from the holder’s personality …. The purpose and the subject matter of mark protection is not the person of the holder, but his business. … The right in the sign is a property right; an absolute right, that has, however, no self-contained legal existence; it is only the accessory to a certain business concern.Footnote 97
As a result, the owner’s place of business would determine the location of what had to be protected.Footnote 98 Interestingly, the value to be protected was thus clearly detached from actual market conditions. No matter how far the trademark owner’s commercial activity extended, the place of business was the cynosure of its legal protection. As we will see in the following, German conflicts doctrine did not consider the trademark owner’s information capital in the trade symbol or her goodwill as being spread across the market and across the customer base. This characteristic is what largely distinguishes German trademark conflicts doctrine from its American counterpart.Footnote 99
At this point, we can conclude that the German practice of trademark and unfair competition law did not manage to fill the void that had developed after the decline of the guild system. While courts in other European jurisdictions did find and provide for sufficient grounds, the German courts failed to implement remedial schemes beyond the codified regime. As a result, a coherent system of unfair competition prevention did not develop until the German Civil Code and the Unfair Competition Act came into force around the turn of the century.Footnote 100 Further, a more specific consequence of the doctrinal struggle is the deep divergence between trademark protection and unfair competition prevention that developed during the nineteenth century. With the dichotomy came a bifurcation of the field. For this book, the latter aspect is particularly relevant. While it seemed as if the field’s bifurcation might be overcome in early twentieth-century theory, the division has survived all attempts at reconciliation and, ultimately, has been implemented in modern European doctrine.
IV The Twentieth Century: A Triumph of Separatism
The interrelation of trademark protection and unfair competition prevention has been a problematic issue not only in Germany but in the United States as well. US doctrine has long struggled with the question of whether trademark protection has a place within the field of or in proximity to unfair competition repression. Early twentieth-century practice appeared to have brought at least a formal clarification for the United States when the Supreme Court declared in Hanover Star that “the common law of trademarks is but a part of the broader law of unfair competition.”Footnote 101 I will address this issue in more detail in my discussion of US law in the next chapter. In the meantime, it is worth mentioning that US doctrine ultimately adopted a rather homogeneous and comprehensive concept of trademark and unfair competition law. Today, the two areas are rarely distinguished with regard to their doctrinal foundations. This has not been the case in Germany—not just as a consequence of nineteenth-century formalism but also due to subsequent developments.
A Reichsgericht Sansibar and Pecose: A Shaky Hierarchy of Policies
One may be tempted to conclude that German formalism lost its dominance at the beginning of the twentieth century. After all, the 1894 act implemented a rule against the unauthorized use of another’s trade dress (Ausstattung), absent formal registration.Footnote 102 With the 1896 Unfair Competition Act,Footnote 103 lawmakers had added a number of gap-filling provisions on the prevention of unfair competition in addition to formal trademark rights protection, and the courts had extended the 1900 German Civil Code’s defense of unfairnessFootnote 104 to the trademark regime, which allowed for fending off bad-faith registrations or other kinds of improper attack on a competitor.Footnote 105 Indeed, the most prominent incipiency of such deformalization can be found in the 1907 Sansibar decision, in which the German Reichsgericht—quite different from its prior formalism—found preexisting and use-based entitlements to ultimately prevail over a bad-faith registration. In Sansibar, the defendant argued that the plaintiff had intentionally chosen the defendant’s unregistered right for registration in order to oust her from the established market position. The court succinctly jettisoned the once ironclad rule of positivism:
The Trademark Act, even though intended to exclusively regulate the field of trademarks as the sole legal instrument, still remains the law for a special regime and thus does not preclude application of general principles of the Civil Code that provide protection against unfair acts in commerce.Footnote 106
As it seemed, the strict registration theorem from the dark Apollinarisbrunnen era had been replaced by a reasonable substantive-balancing analysis.Footnote 107 But the issue remained contested.
Even though the dissolution of formalism as such was well received, some feared that the courts might overshoot the mark. In particular, one of the court’s statements in the 1919 Pecose decision, describing the law of unfair competition as a regime of higher order and hierarchy (Recht höherer OrdnungFootnote 108), provoked heavy critique. A dominance of unfair competition principles over trademark law was perceived as a threat to the system of state-granted registered rights.Footnote 109 Evidently, the trademark register had attained utmost practical relevance for the nationwide acquisition of rights by the second half of the nineteenth century. At the same time, however, the extension of formal rights to markets that a right holder only planned to explore—hence, in advance of actual marketing activity—was still seen skeptically. At issue were the potentially anticompetitive effects of such advance performance in the sense of right ownership before market activity. The question in practice was how to limit windfall profits for early registrants, particularly those lacking genuinely bona fide motives.
Seen in this light, the Reichsgericht’s concept of a hierarchy of orders was the reflection of an ongoing conflict between the sphere of strictly formal trademark rights protection and that of more flexible unfair competition prevention. While the former illustrated a basically liberalist conception of an optimally extended sphere of freedom of competition, the latter expressed a concern for a more “socialized” and “politicized” regulation of the marketplace.Footnote 110 Since the two fields’ doctrinal and structural interrelation had never been fully clarified, it had become a constant source of practical dispute and theoretical confusion. Not surprisingly, in the years to come, the challenge remained: how to determine the exact boundaries between the extension of absolute and exclusive rights and the principles of free and unhindered competition in light of varying conceptions of the economic policies at work when “fairness” was at issue.
B Eugen Ulmer: An Almost Reconciliation
Ironically, it was the maître penseur of twentieth-century German intellectual property law who further contributed to the consolidation of registration formalism. Even though he provided for more clarity, his influential concept of the two fields’ interrelation did not overcome the dichotomy.
Indeed, in 1929, Eugen Ulmer seemed to present a final solution to the problem in his habilitation thesis.Footnote 111 And, ever after, he has actually been praised for having successfully reconciled trademark and unfair competition policies.Footnote 112 As we have seen, unfair competition prevention was deemed to regulate commerce and competition in general, whereas trademark law was designed to protect individual rights. Ulmer rejected this separation. Yet with respect to the subject matter that should be protected, his theory was still based on the primacy of individual rights protection.
He considered both trademark and unfair competition law to be part of commercial tort doctrine. This concept was not new—after all, both sectors had already been characterized as interrelated.Footnote 113 Ulmer, however, gave the idea a richer foundation. A comparative analysis of different national laws served as a blueprint for what could be characterized as an early transnational theory of core policies:
The value to be legally protected on the field of trademarks and firm names is to be found in the business enterprise. It is a part of those intangible business assets that are incapable of a self-contained protected existence, and that we—in order to find a concept for their legal protection—can position as an immaterial good next to the holder’s other legal entitlements. This value is part of the area that Pisko … has explained as “secured sales option.” English legal terminology provides the term “goodwill” …, French [terminology] summarizes it in “la clientèle et l’achandalage” …; we will … speak of the advertising capacity … of the business.Footnote 114
The value embodied in what he called “advertising capacity” (Werbekraft) was represented by the entrepreneurial use of trademarks and trade or firm names, and by the indication of source or origin in commercial advertising.Footnote 115 Since all jurisdictions alike protected advertising capacity, he found the goodwill that was incorporated into consumers’ minds to be the universal and only relevant subject matter. Accordingly, preventing consumer confusion (konfundierender unlauterer Wettbewerb) had to be seen as the most basic tenet of both trademark protection and unfair competition repression.Footnote 116
In addition to this overarching policy, however, Ulmer still adhered to the idea that the register’s genuine function required an exceptional treatment of registered rights. The law of unfair competition allowed for rights to be acquired naturally—that is, by making use of a trademark in the course of trade or commerce. Registration and the granting of rights in advance of actual use in the marketplace, by contrast, provided for trademark rights to develop within an artificially created sphere of individual freedom.Footnote 117 This geographic area covered the full national territory. This function became known as the principle of trademark promotion and fostering (Prinzip der Entwicklungsbegünstigung).Footnote 118 As Ulmer understood, promoting and fostering the development of nascent trademarks were of ultimate import. The registrant needed security to plan and invest in her marketing activities—in particular, in building the goodwill of her trademark. Without a wide-reaching guarantee of right protection, incentives to create and establish new trademarks would be limited. Seen in this light, no alternative to the register existed, and concerns for potentially anticompetitive effects had to stand back.Footnote 119
Accordingly, depending on the stage of development, either the policy of trademark promotion or that of confusion prevention governed. In statu nascendi, registration was the instrument for fostering the development of trademark rights. Registered rights would then prevail over a competitor’s nonregistered entitlement or a pre-acquired position. But registration was limited to fostering legal certainty. It played only a servant function to the rules of unfair competition prevention.Footnote 120 In the later stages of a trademark’s life, upon acquisition of marketplace goodwill, the idea of developing nascent trademarks would yield to the principles of preventing confusion. In this last stage, the protection of existing rights and acquired positions on the market (Besitzstandswahrung)—not trademark promotion—governed.Footnote 121 This concept overthrew the previously dominant idea of a so-called self-sufficiency of the trademark register (Selbstgenügsamkeit); the register was a mere facet of the overall system of trademark/goodwill protection, not the ultimate denominator of rights creation and enforcement.Footnote 122
Even though Ulmer brought the two concurrent protection systems in harmony with each other, he did not do away with the dichotomy. This is mostly due to the fact that he defined trademark rights as immaterial property. Unfair competition prevention, however, remained a category of commercial torts.Footnote 123 Accordingly, consumer protection was still of secondary concern. Consumer interests and their protection were a mere reflex of individual-competitor protection. Competitors’ interests were what mattered.Footnote 124 By this means, Ulmer ultimately further extended Kohler’s concept of upgrading personality rights. In addition to the idea of trademark and unfair competition law being part of the larger fields of economic and commercial torts, the focus on individual rights protection remained formative throughout the century.
C Europe: Rights Formalism and Individualization
In the following decades, German doctrine further extended the protection of nonregistered entitlements. Ultimately, full-fledged trademark rights could be acquired either by registration or by the use of symbols having earned a sufficient level of recognition among the consuming public (Verkehrsgeltung).Footnote 125 In this regard, the 1936 Trademark ActFootnote 126 became an additional pillar of full-fledged rights acquisition. The act’s provision on the protection of trade dress in section 25 (Ausstattung) was widely understood to have established a valid domain of use-based rights.Footnote 127 Ever after, both categories—registered and use-based rights—seemed to be equivalent with regard to the extent and intensity of protection.Footnote 128 It was even posited that German trademark law had changed its paradigm of protection from registration to use.Footnote 129 Other European countries faced a similar situation. In Switzerland, for example, the equivalence of registered and use-based rights had been acknowledged even earlier, at the beginning of the century.Footnote 130 For a moment, it appeared as if the pendulum had swung back.
Yet, even though the categories’ equivalence with respect to the protection of “property rights” was acknowledged, the two categories remained separate concepts: propertization via registration, on the one hand, and the gradual development of possessive rights in an intangible goodwill within the marketplace, on the other.Footnote 131 The latter was still considered more “fleeting” in character.Footnote 132 Hence, even proponents of equality continued to adhere to the doctrinal dichotomy: registered rights would be protected by trademark law, and use-based rights would remain largely an issue of unfair competition prevention.Footnote 133 Moreover, the equality of use-based and registered rights was never fully integrated into other European countries’ national laws. On the contrary, the second half of the twentieth century witnessed another swing of the pendulum. A number of national laws changed their protection principles from “use” to “registration.”Footnote 134 The main reason for this countermovement was industry lobbying.Footnote 135 The ideas brought forward in this regard had already influenced Ulmer’s theses on the register’s functions: in essence, registration systems were deemed to establish transparency; only by prioritizing registered rights, it was contended, could trademark conflicts with prior users’ unregistered rights be prevented, thereby avoiding costly and ultimately useless trademark registration, promotion, and advertising efforts.Footnote 136 In this light, one can understand why European Union law—under the Trademark Directive and the Trademark Regulation—does not provide for equivalence, either.Footnote 137 As the directive’s preamble explains, trademarks “acquired through use” are taken into account “only in regard to the relationship between them and trade marks acquired by registration.”Footnote 138 Hence, despite the fact that national regimes may and actually do provide for the protection of use-based trademark rights, acquisition and protection at the community level is an issue of registration formalities.Footnote 139
Finally, formalism of this registration preference has been accompanied by a more general, increasingly property-oriented perspective in modern European trademark doctrine. Both the directive and the regulation employ the terms “property” and trademark “proprietor.”Footnote 140 In this light, it is little surprise that scholarly commentary and the European Court of Justice have succumbed to a doctrine of protecting owner investment under a specifically property-oriented perspective. Traditionally, the primary function of a trademark was its capacity to distinguish between competitors’ products and to indicate product origin. In particular, the Court of Justice used to emphasize the guarantee of origin as the “essential function of the trade mark.”Footnote 141 Other trademark functions—such as quality control and advertising functions—were initially considered less dominant and protectable only within the scope of protecting the trademark’s indication-of-origin function.Footnote 142 Indeed, prior to the European harmonization of trademark law, many aspects of modern trademark goodwill were protected by unfair competition law only, and not trademark doctrine. One example is the protection of famous marks against their use for dissimilar products.Footnote 143 While trademark law was protecting the symbol as an indication of origin, unfair competition law was protecting its value as an advertising tool and the underlying entrepreneurial performance.Footnote 144 This rather narrow scope of trademark functions, however, was early on contested in scholarly commentary, which argued that the economic multifunctionality of trademarks should be supplemented by the recognition of more than one legal purpose, thereby giving particular regard to the right owner’s interests in protection of her investment.Footnote 145 European and national lawmakers responded to this concern. Today, article 5(2) of the directive offers member states the opportunity to protect well-known trademarks against use that takes unfair advantage of or is detrimental to a trademark’s distinctive character or reputation. Article 9(1)(c) of the regulation contains a similar provision. And the Court of Justice has recently extended its perspective on trademark functions. Its 2009 L’Oréal opinion, even though still emphasizing product origin as essential, lists further examples:
[Trademark] functions include not only the essential function of the trade mark, which is to guarantee to consumers the origin of the goods or services, but also its other functions, in particular that of guaranteeing the quality of the goods or services in question and those of communication, investment or advertising.Footnote 146
Hence, mere confusion prevention no longer appears to be the primary policy.Footnote 147 The extension of trademark functions and owners’ rights under European Community law and within national regimes has moved doctrine toward an implementation of the trademark-as-property protection paradigm.Footnote 148 I will analyze substantive law in more detail in chapter 4. At the moment, it suffices to conclude that the legal entitlement granted to a trademark owner is no longer only an exclusive right; it has achieved a position of almost absolute dominion.Footnote 149
D The Final Blow: Propertization vs. Socialization
Finally, despite Ulmer’s resourceful explanation of the structural overlap between trademark and unfair competition law, his theory and its implementation did not do away with the second dichotomy in German doctrine—the distinction between registered and use-based rights. Ulmer may have paved the way for the recognition of use-based rights.Footnote 150 Nevertheless, he largely adhered to the distinction between two spheres: registration was a domain qualitatively different and separate from the use of a trademark on the market. Not only were the two areas distinguished according to their temporally different relevance for rights acquisition; in addition, registration rights remained an aliud to use-based positions.Footnote 151 And even though it was confusion prevention that was paramount to Ulmer’s theory, the ultimate distinction came to be explained by a different aspect of consumer concerns. In this regard, the final decades of the twentieth century witnessed a further step toward separation, notably also in European trademark and unfair competition doctrine.
While both trademark and unfair competition law initially focused on protecting individual entitlements, the two sectors moved in different directions. Trademark law continues to protect individual rights; unfair competition law has evolved toward a so-called social or institutional model of protecting consumer interests and the public’s interest in unhindered competition. The individualization of trademark protection is reflected, for instance, in the Misleading and Comparative Advertising Directive, which speaks of “exclusive rights o[f] the proprietor of a registered trade mark.”Footnote 152 The concept of an institutional model of unfair competition prevention is most prominently expressed in the Unfair Commercial Practices Directive’s article 1, which explains that the directive’s purpose is “to contribute to the proper functioning of the internal market and [to] achieve a high level of consumer protection.”Footnote 153 It was this concurrent evolution—propertization in trademark law and socialization in unfair competition law—that let the two areas drift even farther apart.
Of course, both sectors are still connected. Trademark law has left space for additional protection by unfair competition law—in principle, unfair competition law provides protection wherever trademark law has left gaps.Footnote 154 Similarly, modern trademark doctrine has been supplemented by protection against conduct formerly categorized as unfair competition; antidilution protection is one example. However, close interrelations at the fringes do not overcome the fundamental dichotomy. Trademark law is a domain of private rights and investment protection. Unfair competition law seeks to regulate the market and competitors’ conduct. Right owners’ interests dominate on one side, while public policy concerns govern on the other.Footnote 155 In the words of one modern leading scholar in the field:
The sector of unfair competition rules is concerned if the issue is protection of the functioning of the market with respect to marketplace effects. Yet, if the focus is on the protection of legal rights, the issue is under the umbrella of intellectual property.Footnote 156
In essence, the perspective has not changed much from what Alfred Hagens wrote almost a century ago:
While the law of preventing unfair competition, in a narrow sense, regulates—as a kind of civil police law—the order of competition on the basis of the public’s economic and moral interest, the law of trademark protection pursues its purpose by granting individual rights to the business owners.Footnote 157
Section 2 Trademark and Unfair Competition Choice of Law
In Germany, international trademark and unfair competition disputes are governed by the system of trademark and unfair competition conflicts law, or choice of law. This field has traditionally been characterized as a subcategory of international tort law, which is part of the larger field of private international law.Footnote 158 While critics have called for this area to be characterized as a field of international economic law,Footnote 159 its traditional classification has prevailed (at least formally) at the European level. The Rome II Regulation encases intellectual property and unfair competition law (along with antitrust law) within the larger context of “noncontractual obligations.”Footnote 160 In this regard, its historical foundation in tort conflicts appears to persist. While I will address doctrinal intricacies of such a retrograde perspective in more detail in chapter 3, a closer look at German and European choice-of-law doctrine under a historical-comparative perspective helps reveal and explain the most fundamental issues that currently stand in the way of a consistent reconceptualization of the field.
I From Universality to Territoriality
A The Worldwide Scope of Personality Rights
As described above, Kohler was the most noticeable voice in German scholarship to formulate a theory of trademark personality rights.Footnote 161 From the concept of personality rights ensued the idea of universal protection in international conflicts:
The trademark right is not a locally restricted entitlement; it cannot be locally segmented in the sense that a locally confined acquisition would be possible like it is with tangible property situated in different countries or with rights in immaterial goods that manifest themselves economically in locally different acts. The trademark right is different: the trademark right, as the personality’s right to validity and manifestation is, like all personality rights, not bound to any local restriction. … From this principle, it follows automatically that the trademark right … with respect to its foundation and formation is to be governed by only one legal regime—the law of its home country. Protection in foreign countries, hence, is just a locally extended home-country right protection; the right in a foreign country is an extension of the domestic right only.Footnote 162
Early on, German courts adopted Kohler’s concept of virtually unlimited rights. The application of domestic law in international trademark and unfair competition conflicts was an issue of protecting the right owner’s comprehensive and globally valid right of personality.Footnote 163 In favor of domestic parties, the scope of protection for their trademark rights and for national competitors’ interests was territorially unlimited.
The seminal Reichsgericht case in this regard, Hoff, was decided in 1886. The case centered on the legality of the defendant’s exportation of beer in barrels from Germany to the United States and her subsequent bottling and branding of the beer with the plaintiff’s German trademark, “Hoff,” in the United States. In principle, the court’s argument was based on the concept of the 1874 Trademark Act’s exclusivity:
The Trademark Act intends to exhaustively regulate protection [for registered trademarks]. As far as protection for trademarks does not ensue from the act itself, there is no protection with respect to the German Reich’s territory. And as far as the act restricts protection to domestic infringements, the respective rights or entitlements are without protection against infringements undertaken abroad. Application of a foreign law in order to attain inland protection for the rights covered by the act is excluded by the existence and the tendencies of the [Trademark Act].Footnote 164
Yet, since no protection would ensue without the application of federal statutory law, the court extended the argument. In this regard, personality right protection became a convenient instrument to cater for domestic right owners’ concerns—what a difference to the formalistic minimalism in Apollinarisbrunnen:Footnote 165
But we fail to see why the [Trademark Act]—if the right at issue, due to its nature, is geographically unlimited and if it can also suffer injury abroad—should not have extended protection for domestic rights so far as the country’s actual powers can reach, notably with respect to court jurisdiction and access to assets within its territory.Footnote 166
In the decision’s wake, late nineteenth-century Reichsgericht practice applied domestic trademark law to virtually all allegedly infringing activities, regardless of whether a defendant’s conduct had occurred in Germany or abroad. All owners of German trademarks could therefore sue for any alleged infringement abroad—as long as only personal jurisdiction existed.Footnote 167
Some years later, in the Reichsgericht’s Gratisschnittmuster decision, this concept of borderless personality rights was extended to cases of international unfair competition infringements.Footnote 168 Like trademark infringement, acts of unfair competition were deemed violations of personality rights.Footnote 169 Over time, the idea of universal protection governed both trademark and unfair competition law in theory and practice. Adolf Lobe’s 1907 explanation of unfair competition law illustrates the principle:
It further is irrelevant for the question of civil law liability whether the conduct at issue, causing a violation of the victim’s right to commercial activity, has occurred on domestic territory or abroad. Protection for certain immaterial goods is not geographically limited; even less can it be limited with respect to protection of the personality and of personality rights. Commercial activity reaches beyond the home country and, from there, can take effect in all parts of the world. It, then, is always the personality protected in Germany that is infringed upon by restrictions to its freedom of activity—no matter whether this happens in Germany or abroad.Footnote 170
Contrasting trademarks to patents, Lobe went on to explain:
With respect to the protection of those commercial instruments that also constitute an immaterial good, and where the instrument’s use is, due to its nature, not limited to the domestic territory, like personal name, trade name, trademark, trade dress, the same principle applies. But this is not the case for the patent right, because it is a state-granted privilege that is valid within the granting country’s borders only.Footnote 171
Other jurisdictions followed a similar directive. For example, Swiss courts and scholars also considered their domestic trademark rights to be universally valid and protectable on the basis of trademarks being personality rights.Footnote 172
B Alfred Hagens and the Territoriality of Trademarks
Even though Kohler himself, in the second edition (1910) of his trademark treatise, attempted to backpedal from his initial position on trademark universality, his original concept remained the governing approach during the first decades of the twentieth century.Footnote 173 Prima facie, Kohler’s revised explanation did not have a significant impact on legal practice. Yet his corrected model of trademark territoriality, which highlights the aspect of “upgrading” and the corresponding materialization of personal entitlements through state grants, would prove determinative. As Kohler explained:
The personality right, in principle, extends across the whole world: for the personality can exert its power over all mankind. … Since, however, full trademark protection will not be granted on the basis of the owner’s personality alone, but usually also requires owner activity and a contribution by public authorities, an indirect localization exists. The same personality that is protected worldwide with respect to unfair competition enjoys trademark protection in one state where a trademark is registered, but not in another where no such registration exists.Footnote 174
Other scholars, too, attempted to put forward restrictions on personality rights protection. Their suggestions were founded on the idea that trademarks, as immaterial rights or goods, could and should be detached from their owner’s personality.Footnote 175 But adherence to universality did not disappear immediately.
The ultimate change in direction occurred with the Reichsgericht’s 1927 Hengstenberg decision.Footnote 176 In this case, the issue at hand was whether a foreign right owner’s foreign-based conduct could affect a domestic plaintiff trademark owner’s national rights. The parties used quite similar trademarks. The domestic plaintiff had German registrations; the Italian defendant’s trademark was an international registration. The court rejected the contemporary theory of universality:Footnote 177
There is an opinion that German trademark rights are not territorially limited but rather protected beyond the Reich’s borders. Hence, the right owner is thought to be able to pursue and enjoin infringements that have occurred abroad even if he has no protection there. The only precondition is that German courts have jurisdiction. This opinion, which has also found followers among scholarly commentators, cannot … be upheld.Footnote 178
The court’s decision to restrict the universality of protection was based on a perceived similarity between trademark and patent rights with regard to their national restrictedness, as well as the international trademark system’s foundation on territorially limited rights.Footnote 179 Early on, international patent doctrine had laid out a strictly territorial limitation of rights. This restriction was due mainly to two factors. First, patent law was always perceived as firmly founded on state grants alone. Second, patent right enforcement was largely devoid of personality protection purposes.Footnote 180 Interestingly, the Second Civil Senate in Hengstenberg explicitly referred to a critique of Hagens, its former presiding justice,Footnote 181 who had been an opponent of trademark universality. In his rejection of unlimited rights protection, he provided the court’s arguments concerning both the trademark’s patent-like territoriality and the international system of trademark protection. Formally, Hagens described trademark rights as state-granted monopolies. Accordingly, it was unthinkable to extend them to foreign sovereigns’ territories.Footnote 182
In substance, his critique expressed that the time for the territoriality of trademark rights had come; universality was no longer necessary or legitimate. Trademark universality in Hoff had reflected a basic mistrust of foreign regimes’ protection standards for domestic exporters. After all, the worldwide codification of trademark law had begun only at the end of the nineteenth century.Footnote 183 In the 1880s, the United States in particular was seen as a territory of trademark insecurity. After the Supreme Court had struck down the federal statute in 1879, concerns about the protection of foreigners were commonplace.Footnote 184 It is therefore not surprising that the Hoff court extended protection for German trademark owners into the United States. But an increase in national codifications around the world and the creation of an international system of intellectual property protection beginning in the 1880s provided the foundation for more trust in and acceptance of foreign regimes’ trademark laws.Footnote 185 This was also reflected in the German Reich’s accession to the Paris Convention (1903), the Madrid Agreement Concerning the International Registration of Marks (1922), and the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods (1925).Footnote 186 Apparently, the era of intellectual property territoriality had arrived.
C Under the Surface: Fairness-Standard Universality
But Hagens’s elaboration on trademark nationality also provides an additional—and quite different—insight into the interplay of trademark and unfair competition protection in the international arena. In Gratisschnittmuster, as we have seen, the Reichsgericht had extended the paradigm of personality rights protection to unfair competition conflicts. A bit more than two decades later, of course, the curtain had fallen again on trademark universality with Hengstenberg. But domestic parties’ interests could still be protected, even without the extraterritorial protection of national “rights.” After all, the effectuation of domestic interests was possible by means of international unfair competition prevention.Footnote 187 A part of Hagens’s illustration on industrial property protection reflects the other side of the coin with respect to the universality of personality rights—necessarily, universal protection had to be accompanied by an assumption of transnationally uniform fairness standards for competition. Trademark rights may have been subject to different nations’ legal rules, but unfair competition seemed to be prevented under virtually identical standards everywhere:
The [Reichsgericht] has expressly extended this principle … to the field of unfair competition. The violation committed abroad affects the competitor’s commercial relations, having their center in the inland seat of his business, in the same way as if it had occurred domestically; it has been undertaken in competition and can injure the competitor’s business or creditworthiness. … With respect to unfair competition, however, the situation is quite different from trademark infringement where violation of an absolute right is at issue, a right that exists only under the conditions of a single country’s legislation. In unfair competition, what is at issue is conduct deemed improper under the general and uniform perspective of culture states.Footnote 188
This last aspect may explain why choice of law in unfair competition did not also succumb to an argument of territoriality—at least not immediately. In fact, looking at the subject matter that was considered protectable, the difference to trademark “rights” may not have been overly significant. In essence, agreement existed that the distinction was to be made between “property” protected by trademark law and “possession” of a market position protected by unfair competition norms. As Ulmer explained in 1931:
The trademark right founds on the monopoly granted to the owners by means of registration; it enjoys artificially created legal protection, where it is justified to limit the owner’s entitlement to the Reich’s territory, notably since other countries have established equivalent means of according protection for their territories. With respect to unfair competition prevention, where protection of self-acquired consumer recognition for a designation is at issue and where the legal order acknowledges the natural possession in a competitive position, this aspect does not matter.Footnote 189
With respect to the protection of “self-acquired consumer recognition,”Footnote 190 a more territorial perspective would have suggested itself quite casually. After all, consumer recognition was an issue of geographical extension and, accordingly, quite apt to be territorially segmented. A territorial restriction of domestic unfair competition law may thus have been manifest. Yet, despite the fact that, over time, the paradigm of personality rights protection also became questionable in international unfair competition disputes, a connection between the parties’ “market capital” or “customer base” and their respective political-national territories was not established. Such a more tangible localization of the subject matter could have provided (and, in the United States, actually did provideFootnote 191) a convenient point of attachment. But it did not.
In this regard, Hagens’s understanding displays the major defects of contemporary doctrine. He combined universal personality rights protection under unfair competition standards with the idea of a transnational consensus on fairness, at least among civilized nations and cultures. The concept subsequently reappeared. Courts and legal scholars often found the application of domestic fairness rules admissible on the grounds that other nations’ legal regimes would have decided the same way.Footnote 192 Since these foreign jurisdictions were not in a “state of barbarism,”Footnote 193 the application of domestic standards, the argument went, violated neither public international law nor individual rights. Trademarks had become territorially confined. Fairness standards, however, underwent a subtle transformation toward universal validity and effectuation.
II From International Torts to International Economic Law?
Against this backdrop, it comes as no surprise that the shift toward territoriality occurred later and more subtly for international unfair competition doctrine. Unfair competition choice of law has a troubled history of meanderingFootnote 194 and, upon a closer look, stands in stark contrast to trademark conflicts law.
A From Lex Loci Delicti Commissi to Nussbaum’s Rule
As in trademark doctrine, over time, universality in unfair competition conflicts law was modified and eventually replaced. Structurally, however, the jettisoning occurred differently. It was not territoriality (or nationalization) of the protectable subject matter that led to the alteration but a return to the lex loci delicti commissi rule.Footnote 195 In tort conflicts, the place where a competitive act was deemed to occur could be either the place of the alleged infringer’s conduct or the place where the victim had suffered detrimental effects.Footnote 196 For international unfair competition, this provided a simple rule. Since victims would suffer loss and damage generally at their place of business, courts could virtually always find national law applicable if the plaintiff was German. As the Reichsgericht stated in 1903:
The violation committed abroad affects the competitor’s commercial relations, having their center in the inland main establishment of his business, in the same way as if it had occurred domestically; it has been undertaken in competition and can injure the competitor’s business or creditworthiness.Footnote 197
Over time, this place-of-business rule was complemented by an extended place-of-conduct approach. As the Reichsgericht explained in 1923, for instance, the defendant’s dispatch of a letter with allegedly infringing content in Germany already sufficed to fulfill the requirement of territorial conduct.Footnote 198 Subsequent case law extended both the place-of-conduct and the direct-impact rule.Footnote 199 On this basis, with an extensive degree of discretion for the interpretation of what constituted relevant domestic conduct or impact, a judge could always generously determine infringing activities that were at least partly based on German territory.Footnote 200 Ultimately, therefore, nothing had changed. Under both personality rights protection and tort conflicts law, a virtually genuine effects principle (Auswirkungsprinzip) governed in international unfair competition disputes.Footnote 201 Still, the only precondition that had to be fulfilled by a German competitor in order to attain the application of national law was establishing personal jurisdiction over the defendant.Footnote 202
In addition, a second instrument provided for the application of German law, even in cases where neither domestic injury nor conduct could be found. The so-called Nussbaum rule required the application of German law among German competitors.Footnote 203 The Reichsgericht’s 1933 Hohner Mundharmonika opinion illustrates the rule in operation. The court, while generally refusing to find domestic injuries as a result of the foreign-based conduct at issue,Footnote 204 still applied German unfair competition law on the basis of the parties’ common place of business. The plaintiff, a producer of harmonicas sold under the trademark “Hohner’s Nr. 13,” contested the defendant’s production and exportation of harmonicas to India under the brand “Mouth Organ No. 2113.” In particular, the plaintiff argued that the defendant’s use of “13” was a violation of German trademark and unfair competition law.Footnote 205 The court denied an infringement of the plaintiff’s German trademark. At that time, as we have seen, territoriality no longer allowed for the extension of domestic trademark rights. In addition, the court explained that a violation of German unfair competition principles might also lie in the defendant’s conduct if at least some of the relevant activities had occurred on domestic territory.Footnote 206 Since the deception of customers had occurred in India, however, German law was inapplicable under the place-of-conduct rule:
The possibility of an “inland impact of the unfair competition on the commercial relations” of the victim-competitor, hence, the possibility of domestic injury at the victim-competitor’s business seat ensuing from the act exclusively committed abroad, is irrelevant for the issue at bar. Commission of a tort requires conduct and injury, not the indirect consequences of the tortious act that are not an element of the tort.Footnote 207
Despite this restrictive approach, the court ultimately turned to a policy that became known as the Nussbaum rule.Footnote 208 In cases where two parties shared a common residence or place of business, this rule allowed for the application of domestic law to all competition among German actors, even if the places of conduct and injury were located abroad. Conceiving this rule, Arthur Nussbaum had started from an assumption that trademark rights were immaterial property and that unfair competition prevention was a tort.Footnote 209 Yet he disagreed with contemporary case law that unfair competition should always affect the victim at her place of business and that, accordingly, domestic law had to govern all incidents of unfair competition among nationals in foreign markets.Footnote 210 Instead, he posited a much narrower concept of “competitive damage”: the place where the damage occurred in cases of unfair competition (if analyzed under tort principles) would not be the victim’s place of business but the consumer’s residence or place of transacting.Footnote 211 In this regard, Nussbaum was far more insightful than contemporary doctrine since he actually duly qualified the subject matter of protection in unfair competition cases. But this did not alter courts’ practice. To the contrary and quite paradoxically, his elaboration ultimately became the basis for a new extension of the national unfair competition rules. As he explained:
The current practice should be justifiable on the ground that all commercial actors that have their seat inside this country have to accommodate their competitive activities with respect to each other, even if undertaken abroad, to the domestic rules against unfair competition. Thereby, acts committed abroad will be covered by domestic law. This somewhat appears as a condition attached to the operation of an inland business establishment.Footnote 212
The application of German standards of fairness and honesty was deemed a necessary and inevitable condition for domestic businesses.Footnote 213 By this means, since it was usually German parties litigating in German fora, the former universality of personality rights was actually succeeded by an inter-litigant extraterritoriality of domestic fairness standards. German law governed competition among Germans everywhere. And even though this may have seemed a reasonable rule to guarantee honesty in trade at first sight, it was soon criticized for its detrimental effects. The extensive application of German fairness standards to foreign competition was quickly exposed as an unfair burden to German competitors in foreign markets.Footnote 214 Nonetheless, the Nussbaum rule—albeit ultimately jettisoned in German and European doctrines—is still alive in other jurisdictions’ modern scholarship and practice.Footnote 215
B A Silver Lining: The Kindersaugflaschen Doctrine
Notwithstanding the critique, the Bundesgerichtshof initially also adhered to the Nussbaum rule, as well as the other detours that had been established, in order to provide for the application of domestic law in international unfair competition cases. On the basis of tort conflicts doctrine, the lex loci delicti commissi was determined by reference to the place of conduct, which, in turn (as the Reichsgericht had done before), was determined with remarkable leeway. Almost any contribution to foreign-based infringing conduct was sufficient to trigger the application of German law.Footnote 216 For example, the Bundesgerichtshof’s 1956 Uhrenrohwerke decision found the domestic production of replica watch parts, even though produced solely for export, to suffice.Footnote 217 And even though occasional attempts to limit the scope of German law were undertaken, the established doctrine of virtual universality remained largely unchanged. One example is the Bundesgerichtshof’s 1957 Zeiß decision, where the court explained that allegedly unfair competitive activities occurring abroad should not be governed by the stricter standards of domestic law if the conduct at issue was considered legitimate under the foreign state’s regime.Footnote 218 But this only changed the concrete outcome in Zeiß. In essence, the conflicts technique remained unaltered: the places of conduct and impact were still broadly defined, thereby principally preserving the reign of German law.Footnote 219
The first and most dramatic shift away from the predominance of domestic law occurred in 1961 with the Kindersaugflaschen case. The competing parties were concurrently marketing similar baby bottles on different continents and in several countries around the world. Competition in Germany did not exist, though: the plaintiffs’ sales in Germany were small, and the German defendant only produced, but did not sell, its bottles in Germany. The plaintiff asserted a violation of German unfair competition law by, inter alia, the defendant’s allegedly slavish imitation of the plaintiff’s bottles. But the Bundesgerichtshof did not abide by its former willingness to widely extend German law to international and cross-border disputes. Instead, it introduced a new conflicts approach that, among other things, defined the place where the competitive interests of parties collide:
Unfair competition can … usually be committed only where the competitors’ competitive interests collide; for only at the place of competitive interests’ intersection does the concern for avoiding unfair competitive conduct exist.Footnote 220
This approach to unfair competition choice of law has come to be characterized as the so-called marketplace principle or rule.Footnote 221 In light of this analysis, the defendant’s activities in Germany—where the baby bottles were produced, not marketed—did not suffice to establish a sufficiently marketplace-related connex. In short, mere preparatory activity prior to the market entry could not qualify as a connecting factor.Footnote 222 The relevant point of attachment in the case, as the court went on to explain, was to be found abroad:
The element of unfairness in such a case must be seen in the use of an imitated product in the battle for customers, notably, e.g., if such use can evoke an incorrect belief in the product’s origin or quality on side of the buyers. This can, however, usually only occur in market areas where the competing products at issue come across each other.Footnote 223
Interestingly, the court also questioned—albeit hesitantly—the application of the Nussbaum rule more generally. As it explained, the application of German law to domestic defendants’ foreign-based conduct in cases where the plaintiff was a foreign party was inadequate: binding domestic competitors alone to stricter national standards would distort competition between the parties in foreign markets.Footnote 224 As we will see, even though this argumentation is principally correct, it still does not cut through the thicket.Footnote 225 Yet, with Kindersaugflaschen, German practice had made a big leap toward a less individualized perspective and a more economic approach to resolving international unfair competition disputes.
The Nussbaum rule suffered another blow in 1963, with the Bundesgerichtshof’s Stahlexport opinion.Footnote 226 As the court explained, the application of German law to German competitors’ activities in foreign markets was to be considered an exception to a general application of the marketplace rule. In addition to the first step in Kindersaugflaschen, the Stahlexport holding further perfected conflicts doctrine in light of a necessity to avoid anticompetitive distortion. The court stated that the marketplace rule was the general approach, even for conflicts between domestic parties competing in foreign markets.Footnote 227 The lex domicilii communis should apply only under exceptional circumstances. For instance, German law might apply (even absent the defendant’s domestic activity) in cases where competition in a foreign market occurs exclusively between German parties. In addition, all conduct intentionally and purposefully directed toward a German competitor in foreign markets was considered eligible for the application of German law.Footnote 228
This last stand of Nussbaum was finally abolished in 2010. In Ausschreibung in Bulgarien,Footnote 229 the Bundesgerichtshof decided that the Stahlexport exceptions to the universal application of the marketplace principle would no longer be accepted. The parties in this case were German competitors in the Bulgarian market for industrial heating and burner equipment. In the course of a tendering procedure, the defendant had allegedly sent a telefax containing defamatory statements about the plaintiff to a potential customer. As the court explained, all relevant interests in the case were to be found at the place where the customer’s decision making was to be affected: Bulgaria. Hence, unlike how the Stahlexport doctrine would have required, the parties’ common domicile or place of business was irrelevant.Footnote 230 Ultimately, it is the marketplace alone that determines choice of law in unfair competition conflicts.
C Twenty-First Century: A Merger of Conflict Rules?
The advent of the marketplace rule has not remained the only element of economization in European choice of law. I will address the current landscape of theories later, in chapter 3. For now, one aspect of the history of European trademark and unfair competition choice of law must be mentioned as the final step in the development of legal doctrine. Notwithstanding the still existing dichotomy between substantive trademark and unfair competition doctrine, as well as the differences in choice of law, it appears as if trademark and unfair competition choice of law have recently begun to move toward a common core.
For quite some time now, unfair competition choice of law has been founded on effects testing. It is not a perfectly dematerialized rule, but it has overcome the doctrine’s initial foundations on defendant conduct and injury at the plaintiff’s place of business. The rule is different, though, in trademark conflicts. The principle of trademark territoriality, as we have seen, still establishes a requirement of domestic conduct in order for an infringement of national rights to be found. Conduct abroad will not suffice for the infringement of a domestic trademark. The opposite is also true: domestic activity cannot impinge on foreign rights.Footnote 231 Hence, under the lex loci protectionis rule, actual conduct has usually been the ultimate parameter of conflicts determination. But this has changed.
Persuaded by rules in the WIPO Joint Recommendation Concerning Provisions on the Protection of Marks, and Other Industrial Property Rights in Signs, on the Internet,Footnote 232 the Bundesgerichtshof broadened the principle of territoriality in its 2004 HOTEL MARITIME decision.Footnote 233 I will analyze the decision in detail in chapter 6, focusing here on its most significant aspect: for an application of domestic trademark law, it no longer appears to be indispensable that the defendant actually acted domestically. More generally, it seems as if conduct is no longer a prime factor of conflicts determination at all. In HOTEL MARITIME, the owner of the German trademark registration “MARITIM,” a large hotel chain, contested the defendant’s use of “Hotel Maritime” for its Danish hotel and for advertising under a website with the domain “hotel-maritime.dk.” The defendant owned a Danish trademark registration and was soliciting guests from Germany both by direct mail advertising and by providing significant parts of its website in German. The court agreed with the appellate decision that there was no actual activity in Germany.Footnote 234 But this did not end the analysis. Instead, the Bundesgerichtshof went on to discuss “domestic effects” as an alternative criterion for conflicts attachment:
Not any use of a mark on the internet is subject to the national legal order’s protection of marks against confusion. Otherwise, protection of national rights would be extended shorelessly and would—contrary to the European freedom to provide services …—inadequately restrict self-expression of foreign enterprises. This would involve a significant limitation of opportunities to make use of rights on the internet since owners of confusingly similar marks, protected in different countries, could—irrespective of the priority of the conflicting marks—reciprocally demand forbearance of use from the other side. … What is required instead is that the offer exert sufficient economically relevant inland effect (defined as “commercial effect” by the WIPO).Footnote 235
Ultimately, the plaintiff’s claim failed as a result of the court’s concrete balancing of the interests involved. The Bundesgerichtshof did not find “sufficient economically relevant inland effect.” This outcome, as well as the details of this approach, may be questioned; the doctrine surely must evolve even further.Footnote 236 But its defects aside, the decision introduced a new and valid aspect: HOTEL MARITIME did not concern an instance of territorial conduct—it was the accessibility of the defendant’s website in Germany that qualified as a substitute. In essence, this is an effects test. With this step toward dephysicalization, trademark conflicts doctrine has moved closer to international unfair competition theory. Territorial conduct or activity is no longer required; commercial effects may suffice to trigger the application of the legal regime where these effects have occurred. As it may seem, the trademark conflicts rule under the lex loci protectionis and the unfair competition choice-of-law marketplace rule have begun to merge.
Conclusions
The development of trademark and unfair competition doctrine throughout the last two centuries has been dominated by a fundamental dichotomy: since trademark rights were deemed state-granted privileges and monopolies from the beginning, their existence—and, accordingly, their scope of protection—was considered to be inseparably tied to the granting state’s political boundaries. Only in hindsight can it be said that this tradition of strictly formal rights territoriality has suffocated the evolution of a structured and comprehensive “effects” approach for international trademark disputes.Footnote 237 Unfair competition choice of law, by contrast, has undergone a much deeper scholarly debate with regard to the relevance of different aspects, including, inter alia, defendant conduct, impact on competitors, and effects on the marketplace. While a comprehensive and consistent approach may have yet to be developed, the so-called marketplace rule seems to be most apt for conflicts analysis under modern socioeconomic circumstances. In a sense, unfair competition choice of law—its historical detours and defects aside—has been emancipated from the spell of legal formalism.
Not only is this divergence between trademark and unfair competition law at the conflicts level problematic with respect to the impracticalities of decision making and with regard to its potential economic distortions, but it also suffers from a severe doctrinal inconsistency by overlooking the fact that, with regard to substantive law policies, both sectors have recently converged. This will be the subject of chapter 4. Yet this historical overview has already illustrated an intense entanglement—both trademark and unfair competition law are designed to provide for an optimal level of market information in favor of the consumer’s decision making. If such a convergence has finally arrived at the level of substantive law, however, why then should choice of law still be handled so differently? Although attempts to explain the difference abound, none has managed to overcome the basic deficit of the traditional formalist myopia. An illustrative example that somewhat “translates” the substantive law dichotomy to the international arena is Gerhard Schricker’s distinction, which is founded on an assumption that “interests” might be unbounded or bounded, depending on the respective interest’s upgrading “by state grant”:
Spheres of interest can transgress the national borders without further ado; tort protection does not stop in front of a border. Unlike trademark law, there is no segmentation in territorial protection zones, in which formal requirements for protection exist. The issue is not state-granted positions.Footnote 238
What such a perspective fails to explain is that if unfair competition law is eligible to protect extraterritorially due to the fact that individual “spheres of interest” protected by tort principles may easily transcend national borders, why should trademark protection stop at political frontiers? Interests exist in both areas. In fact, those interests (not only on the side of the competing parties but also on the side of the regulating states) will be identical in most cases. Trademark rights do not simply establish monopolies of trade. The aim of preventing consumer confusion over the source of a branded product, a specific version of unfair competition protection, is what governs both trademark and unfair competition law. Furthermore, as developments in Germany and Europe have illustrated, whether a national regime grants formal “rights” or whether the interests involved are reconciled on the basis of “conduct rules” is often the result of historical happenstance rather than doctrinal consistency or economic necessity. A formalistic approach, therefore, necessarily disregards and inevitably misinterprets the interests involved in multijurisdictional conflicts.
Chapter 4 will provide the groundwork for a new concept of conflicts resolution in both trademark and unfair competition doctrines. At the moment, it suffices to conclude that whether information infrastructure and consumer decision making within the marketplace fall under the protection of trademark rights or under the enforcement of unfair competition rules of conduct should not make a difference regarding the resolution of cross-border disputes. What is sorely needed is a theory of reconciliation—a reconceptualization of both fields’ choice of law fundament.
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