Setting the rules on ‘establishment’

25-04-2017

Aurélia Marie

Council Regulation (EC) No 207/2009 provides the rules on competence for judicial action, including on violations of rights in a European Union trademark.

Therefore, in applying article 95 of the regulation, each member state had to designate at least one “European court” competent for infringement actions undertaken on the basis of or against a European mark.

Under article 97 of this regulation, the European court in whose territory the defendant is domiciled is the competent authority. However, according to the same article, if the defendant is domiciled outside the EU, but has an establishment in a member state, the dispute is brought before the relevant court of this latter member state.

For the first time, the Court of Justice of the European Union (CJEU) will rule on the definition of ‘establishment’ within the meaning of article 97 of the regulation, to determine if a Danish applicant, Hummel Holding, may sue Nike, not at the headquarters of the company in the US, but in Germany where the latter has a Nike Retail establishment.

In his brief of January 12, 2017, advocate-general (AG) Tanchev recommended that the CJEU answer with the following:

“In circumstances such as those in the main proceedings, a legally distinct second-tier subsidiary, with its seat in an EU member state, of an undertaking that itself has no seat in the European Union is to be considered an ‘establishment’ of that undertaking within the meaning of article 97(1) of Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community trade mark (OJ 2009 L 78, p. 1) if that legally distinct second-tier subsidiary is a centre of operations which, in the member state where it is situated, has the appearance of permanency, such as an extension of the third state parent body.” 

According to the opinion of the AG, ‘establishment’ therefore means a centre of operations acting with certain autonomy.

After having emphasised that the term ‘establishment’ has its own European definition, the AG noted the legal independence of Nike Retail with regard to its parent company located in the US.

He commented that the German company saves third parties from having to negotiate directly with the parent company and, taking everything into account, is the extension of the latter in Germany. Its essential function is not only the management of sales but also identification and representation of its parent company.

According to the AG, these are material factors, verifiable by third parties, which lead one to consider that the German subsidiary of Nike is a centre of operations and therefore constitutes an establishment.

"After having emphasised that the term ‘establishment’ has its own European definition, the AG noted the legal independence of Nike Retail with regard to its parent company located in the US."

He pointed out that if a company located outside the EU wishes to avoid the extended international jurisdiction provided by article 97, this company must clarify the legal and commercial relations that bind it to a possible establishment, for instance by public and explicit messages, by restructuring its commercial organisation or restricting the use of its trademark by this establishment.

If this AG opinion is followed by the CJEU, the consequences of the decision that will be adopted will be important. Above all it will facilitate the ability for companies facing European trademark infringement litigation to sue multinationals located outside Europe when they have a centre of operation in Europe, which is often the case. If they wish to avoid such a risk, these multinationals will have to reorganise themselves.  

Aurélia Marie is a partner at Cabinet Beau de Loménie. She can be contacted at: amarie@bdl-ip.com 

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