October 15, 2014

Vol. 69 No. 19

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Coexistence or No Existence: Chances and Challenges of

Coexistence Agreements Under General and German
Trademark Law
Morten Petersenn, Hogan Lovells International, LLP, Hamburg, Germany
INTA BulletinFeatures Subcommittee

In the world of business and commerce it is not uncommon for two parties to use similar or identical trademarks to
market their goods and services. The more crowded the national and supranational trademark registers become,
the more potential conflicts arise. However, such conflicts do not necessarily lead to contentious proceedings.
Instead, many parties frequently are willing to solve disputes amicablymost have realized that often its either
coexistence or no existence, as British philosopher Bertrand Russell put it.
The common tools for two parties to coexist peacefully are prior-rights agreements, or other kinds of coexistence
agreements. The aim of this article is to provide an overview of typical terms, problems and potential pitfalls of
coexistence agreements. While mostly of general relevance, the article also highlights some aspects that are to be
taken into account under German law. Particularly in cases in which the party with the older trademark rights is a
German company, it will be necessary to keep German legislation and jurisdiction in mind, as most likely the
German company will insist on including a provision that the coexistence agreement shall be subject to German
law.

Possibilities of Demarcation
Coexistence agreements can settle a number of issues regarding trademarks and their use. Often they are
preceded by an opposition, a warning letter or a request for consent, and most frequently they are drawn up to set
out rules about the use of the conflicting trademarks and the delimitation of registered goods and services, and
about the waiving of legal claims arising out of the parties respective trademark rights.
There are numerous ways of demarcation that ensure that two conflicting signs can peacefully coexist in the
market. The parties can agree, for example:
on a regional segmentation (e.g., the applicant for a Community trade mark can agree not to use the mark in
a specific national market of the European Union);
that the owner of a word mark will use its mark in a specific graphical form only;
that one party will use the mark for a specific subcategory of registered goods only; and/or
to direct their products to specific customers only (e.g., intermediaries or resellers, as compared to end
consumers).
Such provisions are aimed at ensuring that the parties do not interfere in each others relevant markets. Once the
terms of the agreement are in place, the owner of the younger mark can register and use its mark without any legal
hindrances from the other party. Likewise, the owner of the earlier mark does not have to pursue its opposition or
objection to the younger mark to safeguard its rights and can eliminate the risk that the owner of the younger mark
will attack its rights at some point in the future or in a jurisdiction different from the one in which the dispute arose.
Therefore, coexistence agreements are beneficial for both parties.

Typical Structure of Coexistence Agreements

Most coexistence agreements are drawn up in a similar layout. After a
preamble, which usually gives some general information about the
contracting parties, their field of activity and their respective
trademarks, the obligations of both parties, as discussed above, are
enumerated.
The agreement typically concludes with some final provisions. These
can, and normally do, include references to the competent court, the
applicable law (mostly where the parties are from different countries),
the applicable language of interpretation (in cases where agreements
are drafted in two languages to facilitate understanding between
parties of different nationalities) and the countries in which the agreement shall apply. Most frequently the final
provisions also include some general contractual clauses, such as a written form requirement and a clause stating
that a possibly invalid individual provision shall not affect the validity of the remaining provisions, but shall be
replaced by such legal provision as comes closest to the intention of the parties.

Scope of the Agreement

Coexistence agreements always require careful examination of their scope and effectiveness. Generally speaking,
when interpreting the content of an agreement, the wording, the purpose and the overall context of the agreement
must be taken into consideration. While these rules apply to all kinds of contracts, German case law includes some
more specific rules for the interpretation of coexistence agreements (German Federal Court of Justice
(Bundesgerichtshof (BGH)), Dec. 7, 2010, Case No. KZR 71/08Jette Joop):
If the agreement provides that the trademark can be used for certain goods, this may imply, when considering the
purpose and context of the agreement, that the use for other goods shall be prohibited.
Written correspondence between the parties regarding the agreement can be of importance for the parties mutual
understanding of the agreement and therefore may be consulted for its interpretation.
For the validity of the agreement the prevailing legal status at the time of the conclusion of the agreement is
binding; if legislation or jurisdiction changes, this does generally not affect the validity of the agreement.
In another ruling, the German Federal Court of Justice clarified that the written form of the agreement usually shall
be presumed to be correct and complete (BGH, Jan. 18, 2001, Case No. I ZR 175/98buendgens). If an
agreement sets out its provisions in an extensive and detailed form, it is unlikely that an issue that was not
explicitly dealt with may nonetheless be interpreted as being regulated by the parties.
Problems regarding the scope of an agreement may also arise if the parties agree that they may use their
respective trademarks for goods or services that fall under a specific class of the Nice Agreement. Which goods or
services fall within one particular Nice class may change over the years as new editions of the Nice Classification
are adopted. It can, therefore, be preferable to name the specific goods and services in connection with which the
trademark may be used, instead of just referring to the Nice class.

Duration and Cancellation

Coexistence agreements usually are in effect for an indefinite period of time. They constitute a continuing
obligation, which can be terminated only by means of an ordinary or extraordinary termination.
The possibility of an ordinary termination can be included in the agreement itself, in provisions regulating the time
period within which the termination can be declared and the accepted reasons that will justify a termination. Such
provisions, however, are rather uncommon. Therefore, in practice, the right to terminate the agreement for
extraordinary reasons plays a greater role, and it is given even if it is not specifically defined in the agreement.
Such an extraordinary termination can be declared only for a compelling reason. Whether a reason is compelling
enough must be decided on a case-by-case basis by weighing the respective interests of the parties. In any case,
the circumstances that justify a partys request for an extraordinary termination of the agreement must be so
severe that upholding the agreement would be unbearable for that party.
By way of example, the constant and substantial violation of the agreement by the other party or the registration of
a very similar trademark in order to circumvent the regulations of the agreement would qualify as a compelling
reason (German Regional Court Hamm, Nov. 22, 1984, Case No. U 105/90Grohe). Such actions against the
spirit of the contract damage the parties mutual trust so substantially that upholding the agreement would be
unacceptable for one of the parties.
By contrast, economic considerations generally are not a compelling reason for an extraordinary termination of the
agreement. If upholding the agreement would, however, put the continuation of the business or the existence of the
company in danger, an extraordinary termination might be admissible (BGH, June 15, 1951, NJW 1951, 836). This
is rarely the case, especially when one takes into account the fact that actions that were taken at the cancelling

is rarely the case, especially when one takes into account the fact that actions that were taken at the cancelling
partys own risk or that were caused by the cancelling party itself cannot justify a termination (id.; BGH, Feb. 11,
1981, NJW 1981, 1265).
Another reason for a coexistence agreement to be terminated may be one partys loss of its trademark rights.
Trademark rights can be considered the foundation of a coexistence
agreement: The agreements main purpose is to regulate the parties
respective trademark rights and to avoid future disagreements
involving conflicting trademarks. If those trademark rights cease to
exist, the basis for the agreement no longer exists, nor does the
balanced quid pro quo system that is inherent in the agreement.
Naturally, there cannot be a coexistence between trademarks if there
is only one trademark left to exist. Therefore, a coexistence
agreement has effect only as long as both parties trademark rights
exist (Bkel, GRUR 1972, 28, 30 et seq.). To avoid uncertainties
about the continuance of the agreement in the case of one partys
losing its trademark rights, it is advisable to include a clause providing
that the coexistence agreement shall remain in effect only as long as
both parties trademark rights exist.

Legal Succession
It goes without saying that a coexistence agreement regulates only
the relationship between the contracting parties. If the trademark rights
of one party are assigned to a third party, the obligations that derive
from the agreement are not automatically passed on to the legal successor (BGH, Feb. 27, 1981, Case No. I ZR
78/79Gigi-Modelle). The contracting parties to the agreement are legally not able to impose the agreements
obligations on a third party, as this would be considered an inadmissible contract at the expense of third parties
(German Regional Court Stuttgart, July 30, 1991, Case No. 2 W 76/89settled out of court).
In practice, coexistence agreements usually include a reciprocal provision, in which the parties agree to impose the
obligations laid down in the agreement on potential legal successors. This provision is meant to sensitize the
parties to the necessity of a legal successors explicitly agreeing to the coexistence agreement in a formal
declaration of commitment in order to be bound by it. The challenge is how to make sure that the parties to the
agreement many years later comply with their obligation to make the agreement binding on potential legal
successors. Obviously, at the time the agreement is concluded, the parties well know their obligations. However,
experience shows that companies often do not store coexistence agreements professionally and simply forget
about such agreements later on. In such a case, the company management might simply forget to impose the
obligations set forth in the coexistence agreement on the purchaser. As a result, the contracting party to the
agreement might not be able to enforce obligations spelled out in the agreement on the purchaser and have damage
claims only against the other original contracting party. Such damage claims may not really be useful if the
contracting party can no longer rely on the coexistence agreement. Moreover, a damage claim might not be
enforceable if the original contracting party has ceased to exist (e.g., because it became insolvent).
Therefore, in order to reduce these practical risks, brand owners should establish an internal system by which they
monitor the contracting parties to agreements relating to key brands. That way, the contracting parties can react,
for example, if and when they learn through the press that the brand owner is considering selling its business or
part of it. In such a case, the contracting party could remind the brand owner of the outstanding obligations, in
particular with regard to the succession clause in the agreement.

Antitrust Law Issues

Demarcation naturally goes hand in hand with market segmentation. It therefore has the potential to restrain
competition. Against this background, coexistence agreements, while being beneficial to the parties, can be
inherently problematic from a competition law perspective. The European Court of Justice (ECJ) has ruled that a
coexistence agreement is likely to violate antitrust laws if it imposes obligations only on one of the parties. This
virtually controls that partys sales and distribution instead of protecting both parties trademark rights. (BAT
Cigaretten-Fabriken GmbH v. Commission of the European Communities, Case 35/83 (ECJ Jan. 30, 1985)
(TOLTECS vs. DORCET II).) The ECJ has, however, acknowledged those agreements to be a necessary and
legally admissible instrument to minimize court proceedings over trademark issues. (See, to that effect, Guidelines
on the Application of Article 101 of the Treaty on the Functioning of the European Union to Technology Transfer
Agreements para. 242 (non-challenge clauses in settlement agreements).)
How do you avoid the presumption that an agreement does not aim to solve possible trademark disputes between
the parties but intends to divide up the market between them? In these situations an agreement should not be
concluded if there is little to no likelihood of confusion between the trademarks in question. There also should be no
agreement if the registered goods and services are vastly different.
The German Federal Court of Justice supports this view (BGH, May 22, 1975, Case No. KZR 9/74; BGH, Dec. 7,

2010, Case No. KZR 71/08): The coexistence agreement may cover only issues that need to be settled between
the parties because otherwise they could lead to legal disputes. Thus, an agreement is most likely to comply with
antitrust laws if it prevents a party from raising an objection against the other partys trademark or even from filing
for injunctive relief. Furthermore, the German Federal Court of Justice has ruled that it is possible to rid a
coexistence agreement of content that violates antitrust laws by just striking it out and reducing the agreement to
its legally valid core.
Moreover, according to German law, the relevant time to assess whether a coexistence agreement complies with
antitrust laws is when the agreement is concluded. To take account of the parties need for legal certainty they
must be able to rely on the agreement as it was written down, as they were not able to foresee possible legal
developments at the time of conclusion of the agreement. Circumstances that have changed after the conclusion of
the agreement can be accounted for only through the German legal concepts of supplementary interpretation of the
agreement, termination for good cause or frustration of contract/purpose (BGH, Dec. 7, 2010, Case No. KZR 71/08
Jette Joop).
This relevant point in time, that is, the time of the conclusion of the agreement, leads to the necessity of assessing
the validity of old agreements by considering the case law that was in place at the relevant earlier times. In Europe
this means, for example, that the court may not apply the concept of a reasonably well-informed customer, which is
a fundamental concept in the law of the EU today. Instead, the court may have to apply the concept of a customer
who is less prudent and informed. The court will have to carefully analyze all relevant decisions known at the time
the agreement was concluded, and it will have to consider the agreement valid and not in breach of antitrust rules if
the possibility remains that the parties might have been able to successfully enforce their trademark rights before
the agreement was signed.

Conclusion
Coexistence agreements are an important instrument for settling trademark rights issues before they become a
liability. Even though they cannot always resolve arising trademark disputes, they are key self-help measures
against crowded trademark registers and avoidable court proceedings. Especially while dealing with parties from
different geographical origins, it is necessary to take the national legal practice and jurisdiction into account. As
was discussed in this article, coexistence agreements can be a valuable and effective tool to settle trademark
conflicts. However, the particularities of national law may include some pitfalls and loopholes to be avoided
otherwise, the coexistence agreement could turn out to be a possible problem on its own. And, as the examples in
this article show, the problems arising from a coexistence agreement might only come up many years later.
Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to
check independently on matters of specific concern or interest.
2014 International Trademark Association

2014 International Trademark Association

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