Disgorgement of Profits in German Law
© Springer International Publishing Switzerland 2015
Ewoud Hondius and André Janssen (eds.)Disgorgement of ProfitsIus Comparatum – Global Studies in Comparative Law810.1007/978-3-319-18759-4_1212. Disgorgement of Profits in German Law
(1)
University of Marburg, Universitätsstraße 7, D-35032 Marburg, Germany
Abstract
The rules for the disgorgement of profits in German Law cannot be traced back to a general principle. Three different approaches can be distinguished. Under certain circumstances the justification for ordering a disgorgement of profits is found in the infringer’s intentional and calculated way of proceeding since a specific danger is posed by intentional perpetrators which is not adequately addressed by the mere prospect of (normal) liability for damages. In other cases, however, an order for the disgorgement of profits can arise from the specific nature of the legal duty that has been infringed (liability for the breach of fiduciary duties being an important example). Lastly, disgorgement of profits is also employed as a means of a comprehensive compensation for the damages suffered, as far as intangible property or personality rights are concerned; in these two instances mere liability for damages that can specifically be proved typically turns out to be inadequate, resulting in a structural under-compensation of the aggrieved party.
Keywords
Disgorgement of profits in Geman Lawhas been the head of the Department for Family and Succession Law at the Institute for Comparative Law at the Philipps-University in Marburg since 2006. He cordially thanks Mr. Jeremy Fenner, LL.M., M.A., doctoral candidate at the University of Marburg, for the translation of this article.
Definition and Concepts of Disgorgement
Disgorgement of profits can be viewed as the opposite of a damages claim. While damages compensate the loss that an aggrieved party has suffered, disgorgement of profits serves to restore the benefit gained by a person who illegally encroached on another person’s rights. However, the concept of disgorgement of profits is not as clear as it seems at first glance because the profits gained from the infringement can be assessed in two different ways: on the one hand, an illegal benefit can be seen as the entirety of the assets that have accrued to the infringer as a result of the infringement; alternatively, an illegally gained benefit can be seen in the sum of money the infringer avoided paying by using another person’s right without authorisation. In German law the term ‘disgorgement of profits’ usually only refers to the first form of – comprehensive – disgorgement of profits1 and will therefore only be used in this manner in the following article.
Private Law
Intentional Acts in One’s Own Interest
De Lege Lata
Disgorgement of profits is explicitly enshrined in statute law in section 687(2) in connection with sections 681 and 667 Civil Code (BGB). According to these provisions, any person knowingly treating another person’s affairs as his own must surrender anything he obtained as a result of his actions. This form of liability is known as ‘non-genuine’ negotiorum gestio (unechte Geschäftsführung ohne Auftrag or Geschäftsanmaßung). This concept is based on the traditional rules for ‘genuine’ negotiorum gestio (echte Geschäftsführung ohne Auftrag), which prescribe that any person enforcing the interests of another person without having been authorised to do so is liable to surrender any proceeds of his actions in the same manner as an agent (actio negotiorum gestorum directa). However, liability for ‘genuine’ negotiorum gestio is dependent on the animus negotia aliena gerendi – on a person knowingly managing another person’s affairs with the intention of benefiting that other person, since liability along contractual lines requires that the parties have reached a quasi-contractual concurrence of their intentions. But German law went a step further and developed the concept of ‘non-genuine’ negotiorum gestio which is laid down in section 687(2) BGB: in instances where someone intentionally takes advantage of another person’s legally protected interests to his own benefit, the lack of animus negotia aliena gerendi does not present an obstacle to an actio negotiorum gestorum directa: for equitable reasons the unauthorised person can be treated as if he had acted with animus negotia aliena gerendi (unechte Geschäftsführung ohne Auftrag or Geschäftsanmaßung).2
But Section 687(2) BGB is actually not particularly relevant in practice: the prevailing opinion is that it does not apply to intentional breaches of contract3, while the most important instance where it might apply – the infringement of intangible property rights – is covered by other, more specific claims which already provide for disgorgement of profits where the infringement was merely negligent. The practical use of the provision is further diminished by the fact that, according to the wording of section 687(2) BGB, Geschäftsanmaßung is not given with just any intentional infringement of another person’s rights, but in fact requires the management of another person’s affairs (“Führung eines fremden Geschäfts”). An example of this deficiency is the Caroline of Monaco decision from 1994, where this requirement – according to the prevailing opinion – was not fulfilled. The case involved an infringement of the right of personality through the publishing of a contrived interview.4 A further example can be seen in another decision of the Federal Supreme Court from 2006, in which it rejected a claim under section 687(2) BGB.5 In that case a landlord had initially rented out an 8,000 m2 property as a parking lot, but then later rented out part of the same property again to third parties for the use of market stalls without the initial tenant either noticing or suffering any concrete losses from this action. The first tenant’s claim for the disgorgement of the profits which the landlord had accrued through this second rental was rejected by the Federal Supreme Court. The Court’s decision turned on the fact that the landlord had not managed the first tenant’s affairs within the meaning of section 687(2) BGB by renting out part of the property a second time as, according to their tenancy agreement, the first tenant would not have been permitted to rent out the property to a third party himself.
Although its practical importance is rather limited under the current state of German law, the approach to disgorgement of profits under section 687(2) BGB is based on the convincing idea that disgorgement of profits should be made available where the rights of another person have been intentionally infringed. On the one hand, this is because the belief of the intentional infringer that he will be allowed to keep his illegally gained profits is not worthy of protection. On the other hand, the intentional infringer poses a specific potential danger in light of the fact that he is in a position to weigh up whether the benefit he will receive from the infringement is greater than the damage he will cause (and may have to pay for).
De Lege Ferenda
In light of section 687(2) BGB’s limited practical relevance it would appear congruous to give up on the provision’s historically obsolete limitation to cases where the infringer had managed another person’s affairs. Instead one could base the claims for disgorgement of profits specifically on the intentional infringement of another person’s rights. This is precisely what was proposed by Gerhard Wagner at the 66th German Jurists’ Forum (Deutscher Juristentag) in 2006 when he advocated deleting section 687(2) BGB and adding the following subsection 3 to section 251 BGB: “Where the person liable in damages has intentionally infringed the obligee’s [= the injured party’s] right, the obligee can – instead of compensation – demand disgorgement of the profits achieved by the person liable in damages and that he renders account of those profits.” (“Hat sich der Ersatzpflichtige vorsätzlich über die Berechtigung des Gläubigers [= des Geschädigten] hinweggesetzt, so kann dieser statt des Schadensersatzes die Herausgabe des Gewinns, den der Ersatzpflichtige erzielt hat, und Rechnungslegung über diesen Gewinn verlangen.“).6
However, the participants at the German Jurists’ Forum reacted to this suggestion in a contradictory fashion: although there was widespread agreement over disgorgement of profits being the preferred solution for deterring intentional infringements of others’ rights for the sake of profit7, Wagner’s suggested amendment of section 251 BGB was rejected by an overwhelming majority.8 The overly broad wording of Wagner’s provision was probably partly responsible for this rejection. It would not be appropriate for any and all intentional infringements of another’s right to automatically entitle him to a disgorgement of profits, even where that action only played a very minor part in achieving that profit. Or should a thief be required to surrender game shot with a stolen gun?9 It could still be argued from a theoretical perspective that such cases would only lead to a partial disgorgement of profits, but dividing profits is immensely difficult in practice.
It would be preferable to develop more precise rules for determining which intentional infringements of another person’s rights can justify a disgorgement of profits. I am of the opinion that the deciding factor therein is whether the infringement merely amounts to usurping another person’s right without having been authorised to do so, or whether the injured party was additionally deprived of the opportunity to profit from that right because he had the option to refuse to permit another to make use thereof on strategic grounds in order to realise the opportunities for profit granted by that right himself.10 Such a constellation would almost necessitate the disgorgement of the illegal profits in favour of the rightholder.
Breach of Fiduciary Duties
Further justification for an order to disgorge profits can derive from the particular nature of the infringed duty. This applies specifically to fiduciary duties, which obligate the fiduciary to exclusively pursue the interests of the beneficiary, as is the case with, for example, partners, directors or administrators. The most common infringements of these duties which are of great practical importance are the acceptance of bribes from third parties,11 the pursuit of economic activities in competition with those of the beneficiary12 or the use of the entrusted goods and resources for one’s own purposes.13
Although explicit provisions for disgorgement of profits only exist in relation to prohibition of competition (Wettbewerbsverbote, cf. section 61(1) Commercial Code (HGB); section 113(1) HGB; section 88(2) Companies Act (AktG)), a general principle that mandates that breaches of fiduciary duties lead to disgorgement of profits can be found in German law:14 if the (intentional or negligent) infringement of a fiduciary duty creates a conflict of interests, the profits attained are to be restored to the beneficiary even if the latter has not suffered any measurable damage and would never have made the profits himself.
In this instance the liability to surrender all illegal profits can be seen as a natural consequence of the specific nature of the duty that has been infringed: where an autonomous and influential position is entrusted to someone, there is inevitably a risk that he will exploit it to his own benefit. At the same time, the possibility of supervising the fiduciary’s activities is limited by the autonomous nature of his position. Unconditional trust in the loyalty and trustworthiness of the fiduciary is therefore essential for granting such an influential position. However, this trust is destroyed where the fiduciary exploits his position to his own benefit. Where a breach of duty is constituted by the breaching party achieving a benefit for himself the law’s reaction cannot be anything other than to deprive him of that benefit.
Reaction to the Inadequacy of Compensation
Intangible Property Rights
Disgorgement of profits also plays an important role in Germany as a special form of compensation. German law explicitly provides for disgorgement of profits as a special form of compensation for a number of different types of infringements, such as copyright infringements (section 97(2) UrhG),15 patent infringements (section 139(2) PatG),16 design patent infringements (section 42(2) GeschMG),17 infringement of utility models (section 24(2) GbmG)18 and trademark infringements (section 14(6) MarkenG).19 The current wording of the respective provisions is based on the EU Directive on the enforcement of intellectual property rights of 29 April 2004 (Dir 2004/48). According to Art. 13(1)2 lit. a of this Directive, in case of an infringement of intellectual property rights the ‘actual prejudice’ (Art. 13(1)1) is to be compensated whilst taking all ‘appropriate aspects’ into account, including ‘any unfair profits made by the infringer’.20
Claims of this type are also recognised as being part of legal custom where other kinds of rights have been infringed, such as the right of personality,21 insofar as economic value can be attributed to the right of personality, the same applies to the infringement of naming rights and company name rights.22 Other types of cases in which disgorgement of profits has been recognised as a remedy include certain forms of unfair competition, as long as a legal status similar to an absolute legal interest has been infringed.23