Using an Agent or Distributor

Companies wishing to use distribution, franchising and agency arrangements need to ensure that the agreements they put into place are in accordance with European Union (EU) and Member State national laws. Council Directive 86/653/EEC establishes certain minimum standards of protection for self-employed commercial agents who sell or purchase goods on behalf of their principals. In essence, the Directive establishes the rights and obligations of the principal and its agents; the agent’s remuneration; and the conclusion and termination of an agency contract, including the notice to be given and indemnity or compensation to be paid to the agent. U.S. companies should be particularly aware that the Directive states that parties may not derogate certain requirements. Accordingly, the inclusion of a clause specifying an alternate body of law to be applied in the event of a dispute will likely be ruled invalid by European courts.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L0653:EN:HTML

The European Commission’s Directorate General for Competition enforces legislation concerned with the effects on competition in the internal market of such "vertical agreements." Most U.S. exporters are small- and medium-sized companies (SMEs) and are therefore exempt from the regulations because their agreements likely would qualify as "agreements of minor importance," meaning they are considered incapable of affecting competition at the EU level but useful for cooperation between SMEs. Generally speaking, companies with fewer than 250 employees and an annual turnover of less than €50 million are considered small- and medium-sized undertakings. The EU has additionally indicated that agreements that affect less than 10 percent of a particular market are generally exempted as well (Commission Notice 2001/C 368/07).
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2001/c_368/c_36820011222en00130015.pdf

The EU also looks to combat payment delays with Directive 2000/35/EC. This covers all commercial transactions within the EU, whether in the public or private sector, primarily dealing with the consequences of late payment. Transactions with consumers, however, do not fall within the scope of this Directive. In sum, the Directive entitles a seller who does not receive payment for goods/services within 30-60 days of the payment deadline to collect interest (at a rate of 7 percent above the European Central Bank rate) as compensation. The seller may also retain the title to goods until payment is completed and may claim full compensation for all recovery costs.
http://ec.europa.eu/comm/enterprise/regulation/late_payments/

Companies’ agents and distributors can take advantage of the European Ombudsman when victim of inefficient management by an EU institution or body. Complaints can be made to the European Ombudsman only by businesses and other bodies with registered offices in the EU. The Ombudsman can act upon these complaints by investigating cases in which EU institutions fail to act in accordance with the law, fail to respect the principles of good administration, or violate fundamental rights.
http://www.ombudsman.europa.eu

To a far greater degree than its neighbors in Europe, Germany's population and industry are decentralized and their locations spread throughout much of the country. Major cities and businesses dot the countryside in a landscape that features no one single predominant business center. Often U.S. companies hope to cover Europe from a single European base, or even through periodic visits from the United States. The German commercial customer at the same time expects to be able to pick up the telephone, talk to his or her dealer, and have replacement parts or service work immediately available. American exporters should avoid appointing distributors with impossibly large geographic areas, without firm commitments regarding parts inventories or service capabilities, and without agreements on dealer mark-ups.

Success in the German market, as elsewhere around the world, requires long-term commitment to market development and sales back up, especially if U.S. companies are to overcome the geographic handicap with respect to European competitors.
Germans at times perceive U.S. suppliers as tending to process a U.S. domestic order before taking care of an export sale, or being quick to bypass a local distributor to deal directly with its customer. Some German entrepreneurs with selective experience with U.S. companies are skeptical about their long-term commitment and after-sales support. American firms entering Germany today are generally aware of the factors that make for a successful export relationship and are ready to establish a credible support network. Nevertheless, U.S. firms should be ready to address any lingering doubts from prospective German clients/partners.

If a manufacturer wishes to distribute its products abroad by itself, an independent distribution company must usually be established. This step entails not only considerable expense, but also requires extensive organization and control. Medium-sized manufacturing companies, in particular, therefore, tend to engage sales intermediaries to work a certain market independently.

The most important types of distribution intermediaries are commercial agents, distributors, and franchisees. While the law on commercial agents has been revised and harmonized among the European Union member states based on a European Commission Directive, Germany still lacks a codified distributor and franchising law. For EU directives and legislation relevant for selling U.S. products in the European Union, please see the Country Commercial Guide of the U.S. Mission to the European Union available at http://export.gov/mrktresearch

Commercial Agents

Agency Agreements
An agency agreement needs not be concluded in writing and can arise informally, verbally or even tacitly. There are, however, two exceptions to this rule: a del credere agreement, under which the commercial agent guarantees the fulfillment of liabilities arising from a transaction, must be concluded in writing, as must a post-contractual agreement regulating exclusivity.
To attract a talented consultant or salesperson, a firm will need an impressive track record. Germans, in particular, are hesitant to participate in start-up ventures.

Claim to Remuneration
The remuneration of a commercial agent may consist of either a performance-related commission, fixed remuneration, or a combination thereof (a so-called guaranteed commission).
In addition to remuneration for the arrangement and conclusion of sales activities, a commercial agent may also be entitled to a commission for other activities, such as collections, assumption of liability, warehousing, and after-sales service.

Distribution
A distributor is always a dealer, i.e., he or she buys and sells in his or her own name and for his or her own account. The distributor undertakes to vouch for the sale of the contractual products on an ongoing basis. He or she often also assumes the obligation to maintain a warehouse, a stock of spare parts or even a repair service.

Exclusivity Clause
A territorial protection or exclusivity clause is often included in distribution agreements. Pursuant to EU competition law, such clauses, however, are allowed to a limited extent only. They prevent a manufacturer from engaging other distributors in a certain contractual region or from conducting transactions directly. It is not unusual for a manufacturer to reserve the right to supply certain major customers with whom business relations already exist before concluding the distribution agreement. For a distributor, exclusivity usually means that only he or she may purchase the same or similar products from the manufacturer for sale in the contractual region. Exclusivity clauses are generally agreed to when the manufacturer’s product is protected by a patent.
Under an exclusive distribution arrangement, a product may or may not receive the attention it deserves. It could become nothing more than a line item in a hefty catalogue. Without someone on the ground to initiate demand, it is unlikely that a new product will sell on its own.

Competitive Restrictions
Objections based on EU and German competition law may be raised against distribution agreements if exclusivity or territorial protection, non-competition, resale price maintenance, or other restrictive clauses are included. Distribution systems between non-competing companies are widely covered by the Block Exemption Regulation for Vertical Restraints, which applies to products and services in all industries, except for motor vehicle distribution and technology transfer.

The Block Exemption Regulation exempts all types of vertical restraints on competition from the general prohibition, unless the share of the supplier, or for exclusive purchase agreements, of the buyer of the relevant market is not higher than 30%. Some particularly restrictive clauses are “blacklisted”; agreements providing for such restrictions do not benefit from the exemption, such as minimum or fixed resale price maintenance or restrictions regarding the territory in which the buyer may sell the products. Non-competition clauses, which also include exclusive purchasing agreements, are exempted only for a limited time. Special rules apply to agreements between competitors and to post-contractual non-competition agreements.

Agreements that are not covered by the Block Exemption, for instance because the market share threshold is passed, must be reported to the Commission of the European Union to apply for a single exemption or a comfort letter.

German law prohibits resale price maintenance and resale maintenance of terms and conditions. In general, exclusivity or tying agreements can be practiced unless the competent competition authority prohibits the parties from doing so.

Data Privacy

The EU’s general data protection Directive (95/46/EC) spells out strict rules concerning the processing of personal data. Businesses must tell consumers that they are collecting data, what they intend to use it for, and to whom it will be disclosed. Data subjects must be given the opportunity to object to the processing of their personal details and to opt-out of having them used for direct marketing purposes. This opt-out should be available at the time of collection and at any point thereafter. This general legislation is supplemented by specific rules set out in the "Directive on the processing of personal data and the protection of privacy in the electronic communications sector" (2002/58/EC). This requires companies to secure the prior consent of consumers before sending them marketing emails. The only exception to this opt-in provision is if the marketer has already obtained the intended recipient’s contact details in the context of a previous sale and wishes to send them information on similar products and services.
http://ec.europa.eu/justice_home/fsj/privacy/index_en.htm

Transferring Customer Data to Countries Outside the EU
The EU's general data protection Directive provides for the free flow of personal data within the EU but also for its protection when it leaves the region’s borders. Personal data can only be transferred outside the EU if adequate protection is provided for it or if the unambiguous consent of the data subject is secured. The European Commission has decided that a handful of countries have regulatory frameworks in place that guarantee the adequate protection of data transferred to them – the United States is not one of these.

The Department of Commerce and the European Commission negotiated the Safe Harbor agreement to provide U.S. companies with a simple, streamlined means of complying with the adequacy requirement. It allows those U.S. companies that commit to a series of data protection principles (based on the Directive), and who publicly state that commitment by "self-certifying" on a dedicated website, to continue to receive personal data from the EU. Signing up is voluntary but the rules are binding on those who do. The ultimate means of enforcing Safe Harbor is that failure to fulfill the commitments will be actionable as an unfair and deceptive practice under Section 5 of the FTC Act or under a concurrent Department of Transportation statute for air carriers and ticket agents. While the United States as a whole does not enjoy an adequacy finding, companies that join up to the Safe Harbor scheme will. Companies whose activities are not regulated by the FTC or DoT (e.g. banks, credit unions, savings and loan institutions, securities dealers, insurance companies, not-for-profit organizations, meat packing facilities, or telecommunications carriers) are not eligible to sign up to the Safe Harbor.

EU based exporters or U.S. based importers of personal data can also satisfy the adequacy requirement by including data privacy clauses in the contracts they sign with each other. The Data Protection Authority in the EU country from where the data is being exported must approve these contracts. To fast track this procedure the European Commission has approved sets of model clauses for personal data transfers that can be inserted into contracts between data importers and exporters. The most recent were published at the beginning of 2005. Most transfers using contracts based on these model clauses do not require prior approval. Companies must bear in mind that the transfer of personal data to third countries is a processing operation that is subject to the general data protection Directive regardless of any Safe Harbor, contractual or consent arrangements.

EU countries’ Data Protection Authorities (DPAs) and large multinational companies are also developing a third major approach to compliance with EU rules on transfers of personal data to countries outside the EU. This is based on country-by-country approval of “binding corporate rules” (BCRs). Companies that set up BCRs that satisfy European DPAs will be able to use the presumption of conformity that these approvals provide to transfer personal data from the EU to any location in the world – not just the United States. BCRs can be a tool for compliance with privacy rules on a global scale. The process of negotiation and approval of the BCRs is currently lengthy and complex, and has not been attempted by small or medium-sized companies.
http://www.export.gov/safeharbor/

http://ec.europa.eu/justice_home/fsj/privacy/modelcontracts/index_en.htm

http://ec.europa.eu/justice_home/fsj/privacy/workinggroup/wpdocs/2007_en.htm

Establishing an Office

If a potential investor intends to form a relationship or entity beyond a strategic alliance with an existing German business on a contractual basis, German law allows a broad variety of business forms. Since corporate, tax, and trade law (containing the provisions regarding partnerships and sole proprietorships) are codified in German Federal law, the actual place of business or incorporation is not a factor in choosing the business vehicle (except for the local trade tax burden).

GmbH
The GmbH (Gesellschaft mit beschränkter Haftung - limited liability corporation) is the corporate entity most commonly used for business enterprises in Germany. The structure of a GmbH is relatively straightforward and flexible. It is designed for private businesses (no IPO possible) with a clear and stable shareholder structure looking for full liability protection of their shareholders. The liability of a GmbH is limited to the value of its assets including its share capital.

For detailed information on the different German business vehicles please visit http://www.invest-in-germany.de

Franchising

Germany is a mature franchise market in which local entrepreneurs have developed sophisticated concepts. A high concentration of franchising chains in Germany exists in the service sector (45%), trade (37%), building and handicraft (8%), and gastronomy (10%). Industry sources expect the best prospects to be in the areas of training and educational services; express delivery services (all types); theme bistros/restaurants; office management, accounting and tax services; maintenance, cleaning and sanitation services; advertising; telecommunication products and services; energy saving products and services; retail stores (specialized); home care services; and environmental services. U.S. franchisors must be prepared to adapt to required market norms and standards, invest in market research, test market receptivity through pilot projects, and to adjust their concepts to German business practices and consumer tastes.
Restrictions to competition in franchise agreements are generally covered by the Block Exemption on Vertical Restraints of 1999 referred to in the preceding chapter "Distributors."

Direct Marketing

German consumers are accustomed to purchasing via catalog and have become more receptive to shopping on Internet platforms. More than 80% of German enterprises use direct marketing to sell their products and services. The most frequently used formats are email and Internet marketing (65%), telephone marketing (31%), direct mail (24%) and inserts in publications with a response element (18%). Trading companies, manufacturers, and service companies spend more than EUR 30 billion on direct marketing with mailing expenditures clearly in the lead, followed by inserts with response elements, and telephone marketing. Direct marketing agencies currently employ 48,000, a number which is expected to grow over the next years.

It is important to know the pitfalls of using direct marketing as a selling tool in Germany. Data protection and privacy laws are stringent, and consumer protection guidelines and competitive advertising are also highly regulated. Companies should consult with a lawyer before raising, storing or processing any sort of data in Germany. Other potential challenges regard the laws pertaining to unfair competition and rebates.

EU Regulations
There is a wide range of EU legislation that impacts the direct marketing sector. Compliance requirements are stiffest for marketing and sales to private consumers. Companies need to focus, in particular, on the clarity and completeness of the information they provide to consumers prior to purchase, and on their approaches to collecting and using customer data. Companies are advised to consult the information available via the hyper-links, to check the relevant sections of national Country Commercial Guides, and to contact the Commercial Service at the U.S. Mission to the European Union for more specific guidance.

Processing Customer Data
The EU has strict laws governing the protection of personal data, including the use of such data in the context of direct marketing activities. For more information on these rules, please see the privacy section above.

Distance Selling Rules
Distance and Door-to-Door sales
The EU’s Directive on distance selling to consumers (97/7/EC) sets out a number of obligations for companies doing business at a distance with consumers. http://ec.europa.eu/consumers/cons_int/safe_shop/index_en.htm

Distance Selling of Financial Services

Financial services are the subject of a separate Directive that came into force in June 2002 (2002/65/EC). This piece of legislation amends three prior existing Directives and is designed to ensure that consumers are appropriately protected in respect to financial transactions taking place where the consumer and the provider are not face-to-face. http://ec.europa.eu/consumers/cons_int/fina_serv/index_en.htm

Direct Marketing Over the Internet

The e-commerce Directive (2000/31/EC) imposes certain specific requirements connected to the direct marketing business. Promotional offers must not mislead customers and the terms that must be met to qualify for them have to be easily accessible and clear. The Directive stipulates that marketing e-mails must be identified as such to the recipient and requires that companies targeting customers on-line must regularly consult national opt-out registers where they exist.
http://ec.europa.eu/internal_market/e-commerce/index_en.htm

Joint Ventures/Licensing

Joint Ventures
Dealing with joint ventures ranks among the most difficult jobs under German competition law. In Germany, joint venture legislation falls under the purview of the Federal Cartel Office (Bundeskartellamt: http://www.bundeskartellamt.de3). The law requires that a joint venture must exercise “genuine entrepreneurial” activities. Under German law, this means:

• Organizations which merely carry out auxiliary functions such as purchasing or distribution on behalf of the parents are not considered joint ventures; and

• JVs must have at their disposal sufficient assets and personnel to carry out their activities.

The Bundeskartellamt is required to prohibit a merger if it is "expected to create or strengthen a dominant position.” Market dominance is defined as an undertaking, which either has no competitors or is not exposed to any substantial competition or has a paramount market position in relation to its competitors.

Licensing
German antitrust law does not, in the absence of a dominant market position, restrict the owner’s freedom to use her/his industrial property rights, including the exploitation of a patented innovation.

Selling to the Government

Selling to German government entities is not an easy process. Although there has been a delay in implementing some facets of the EU Utility Directive, German government procurement is formally non-discriminatory and compliant with the GATT Agreement on Government Procurement and the European Community's procurement directives. That said, it is a major challenge to compete head-to-head with major German or other EU suppliers who have established long-term ties with purchasing entities.

EU Regulations
The EU public procurement market, including EU institutions and Member States, totals around EUR 1,600 billion. This market is regulated by two Directives:

• Directive 2004/18 on Coordination of procedures for the award of public works, services and supplies contracts, and

• Directive 2004/17 on Coordination of procedures of entities operating in the Utilities sector, which covers the following sectors: water, energy, transport and postal services.

Remedies directives cover legal means for companies who face discriminatory public procurement practices. These directives are implemented in the national procurement legislation of the 27 EU Member States.

The US and the EU are signatories of the World Trade Organization’s (WTO) Government Procurement Agreement (GPA), which grants access to most public supplies and some services and works contracts published by national procuring authorities of the countries that are parties to the Agreement. In practice, this means that U.S.-based companies are eligible to bid on supplies contracts from European public contracting authorities above the agreed thresholds.  

For more information, please visit the U.S. Commercial Service at the U.S. Mission to the European Union website dedicated to EU public procurement. This site also has a database of all European public procurement tenders that are open to U.S.-based firms by virtue of the Government Procurement Agreement. Access is free of charge.
http://www.buyusa.gov/europeanunion/eu_tenders.html  

Distribution and Sales Channels

Distribution channels are varied and similar to the United States. There are certain restrictions, however, concerning multi-level networking systems, i.e., so-called snowball or pyramid distribution systems. More information: http://www.wettbewerbszentrale.de/

Selling Factors/Techniques

Success in the German market, as elsewhere around the world, requires long-term commitment to market development and sales backup, especially if U.S. companies are to overcome the geographic handicap with respect to European competitors. Germans at times perceive U.S. suppliers as tending to process a U.S. domestic order before taking care of an export sale, or being quick to bypass a local distributor to deal directly with its customer. Some German entrepreneurs with selective experience with U.S. companies are skeptical about their long-term commitment and after-sales support. U.S. firms entering Germany today are generally aware of the factors that make for a successful export relationship and are ready to establish a credible support network. However, U.S. firms should be ready to address any lingering doubts from prospective German clients/partners.

Electronic Commerce

Germany is the European leader in Internet commerce and is among the world’s most sophisticated markets: business worth a total of EUR 438.7 billion was conducted online in 2006, and EUR 779.8 billion is predicted for 2010. In 2006, over 30% of all goods and services traded online in Western Europe (EU 15 plus Norway and Switzerland) were sold in Germany, representing by far the largest market share of any Western European country. Germany, the world’s number one exporter, is the largest economy in the European Union and the third largest in the world. As Europe’s most populous nation, Germany also has the largest number of Internet users, nearly 56 million people in 2007. These users generate one of Europe’s highest per capita revenue rates and contribute, alongside businesses, to the predicted 84% growth of e-commerce volume in Germany.

B2C - In 2006, EUR 46 billion were exchanged in the B2C market, representing 11% of the Germany’s total e-commerce volume. Price plays a major role in determining where various IT products are purchased. Sales of small-ticket items such as speakers, web cams, and wireless input devices are reasonably balanced between bricks-and-mortar stores and online shops. More expensive devices, however - laptops, desktops, monitors - are purchased 58% online. Retailers without "physical" retail stores or those lacking brand recognition sometimes encounter difficulties when trying to win the trust of German customers. Besides price and trust, product diversity is also an important competitive factor.

B2B - Virtually all German small and medium-sized businesses have Internet access. In 2006, EUR 392 billion were exchanged in Germany in the B2B sector. In contrast to B2C, business-to-business trade is unaffected by seasonal cycles and is predicted to grow steadily, reaching EUR 636 billion by 2010. Germany represents 31% of the entire western European online trade among businesses – by far the largest share of any country. Among wholesalers, the traditional distribution channels still clearly dominate: nearly 72% of companies employ a field sales force, and about 61% market their products via telephone and mail advertising. Despite this apparent reluctance among B2B firms to embrace the online world, there is a clearly measurable trend toward internationalization. 56% of these same companies have expanded their territory in order to sell to other parts of Europe, and nearly 34% deliver outside the continent.

Financial Services - Germans are heavy users of banking and financial sites and increasingly trust online banking services. Forty-nine percent of Germans did online banking in 2007.

E-Government - Germany offers a good number of e-government services. Since August 2005, more than 440 Internet-capable services of German federal agencies can be used online. The German federal and of state governments, backed by national associations and local authorities, adopted a joint strategy called “Deutschland-Online” in 2003. On the basis of successful joint projects, they are intensifying their efforts in e-Government (http://www.deutschland-online.de). The central German government online procurement website e-Vergabe is available at http://www.evergabe-online.de/
In July 2003, the European Union (EU) started applying Value Added Tax (VAT) to sales by non-EU based companies of Electronically Supplied Services (ESS) to EU-based, non-business customers. U.S. companies that are covered by the rule change must collect and submit VAT to EU tax authorities. European Council Directive 2002/38/EC changed the EU rules for charging Value Added Tax. The U.S. businesses mainly affected by this rule are those that are based in the United States and selling ESS to EU-based, non-business customers or to businesses that are EU-based and selling ESS to customers outside the EU who no longer need to charge VAT on these transactions.
There are a number of compliance options for businesses. The Directive created a special scheme that simplifies registering with each Member State. The Directive allows companies to register with a single VAT authority of their choice. Companies have to charge different rates of VAT according to where their customers are based, but VAT reports and returns are submitted to just one authority. The VAT authority responsible for providing the single point of registration service is then responsible for reallocating the collected revenue among the other EU VAT authorities.

EU Regulations

In July 2003, the EU started applying Value Added Tax (VAT) to sales by non-EU based companies of Electronically Supplied Services (ESS) to EU based non-business customers. U.S. companies that are covered by the rule must collect and submit VAT to EU tax authorities. European Council Directive 2002/38/EC further developed the EU rules for charging Value Added Tax. These rules are currently set to expire at the end of 2008.

U.S. businesses mainly affected by the 2003 rule change are those that are U.S.-based and selling ESS to EU based, non-business customers or those businesses that are EU based and selling ESS to customers outside the EU who no longer need to charge VAT on these transactions. There are a number of compliance options for businesses.
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/e-services/index_en.htm

Trade Promotion and Advertising

Trade Fairs
Few countries in the world can match Germany when it comes to leading international trade fairs. Such a reputation should be no surprise given that the trade fair concept was born in Germany during the Middle Ages. Today, Germany hosts a major world-class trade event in virtually every industry sector, attracting buyers from around the world. Trade fairs thrive in Germany because they are true business events where contracts are negotiated and deals are consummated. The U.S. exhibitors at German fairs should be prepared to take full advantage of the business opportunities presented at these events. While U.S. exhibitors and visitors can conclude transactions, all attendees can use major German trade fairs to conduct market research, see what their worldwide competition is doing, and test pricing strategies. Finally, German fairs attract buyers from throughout the world, allowing U.S. exhibitors to conduct business here with buyers from across Europe, Asia, Africa, Latin America, the Middle East, as well as with other U.S. companies.
German trade fairs, in general, attract impressive numbers of visitors and exhibitors. This reality confirms the conviction that there is no other venue where an American company can get so much product exposure for its marketing dollar. Trade fairs also provide a U.S. company interested in entering Germany with the opportunity to research its market and the potential of its product properly before making a business decision.
Website: http://www.buyusa.gov/germany/en/events.html

Showcase Europe
Responding to the international nature of German trade shows, the U.S. Commercial Service has a broad-ranging program entitled “Showcase Europe” designed to support U.S. business interests in the expanded European Union. Focused on high priority sectors such as aerospace; energy; medical equipment, including drugs and pharmaceuticals; telecommunications and information technologies; environmental technologies and equipment; and travel and tourism, “Showcase Europe” provides contacts, market information, and commercial guidance for the entire European market region. What makes these programs effective and unique is that they are conducted by trade specialists who regularly work at U.S. embassies and consulates around Europe, but come together at selected trade fairs for the sole purpose of supporting U.S. firms. "Showcase Europe" programs also address trade policy and other business concerns, such as the protection of intellectual property rights and other market impediments to U.S. companies, which are common across Europe. Website: http://www.buyusa.gov/europe/

Showcase Global
Only recently, U.S. Commercial Service Germany has started to expand “Showcase Europe” into a true “Showcase Global” program, which is designed to promote the presence of U.S. companies at selected trade fairs in Germany globally, through the Commercial Service’s worldwide network. Please visit our website at http://www.buyusa.gov/germany/en for more information on Commercial Service Germany's activities at trade fairs.

Advertising
In addition to exhibiting at major German trade fairs, advertising plays a central role in most companies’ broad-based marketing programs. Regulation of advertising in Germany is a mix between basic rules and voluntary guidelines developed by the major industry associations. The “Law Against Unfair Competition” established legal rules at the beginning of the 20th Century. Although it has been modified over time, this law continues to be valid today. The law allows suits to be brought if advertising "violates accepted mores."
Many advertising practices that are common in the United States, such as offering premiums, are not allowed in Germany. Any planned advertising campaigns should be discussed with a potential business partner or an advertising agency in Germany. Following is the address of the German association of advertising agencies:

Gesamtverband Kommunikationsagenturen e.V.
(German Association of Advertising Agencies)
Friedensstr. 11
60311 Frankfurt a.M.
Telephone: [49][69] 2560080
Telefax: [49][69] 236883
http://www.gwa.de/

There are numerous technical or specialized periodicals that deal with all aspects of technology and doing business in Germany. In addition, Germany has a well-developed array of newspapers and magazines which offer the opportunity to gather information and advertise products and services.

EU Regulations
Laws against misleading advertisements differ widely from Member State to Member State within the EU.
The EU’s Television without Frontiers Directive lays down legislation on broadcasting activities allowed within the EU.  From 2009 the rules will allow for US-style product placement on television and the three-hour/day maximum of advertising will be lifted.  However, a 12-minute/hour maximum will remain.  Child programming will be subject to a code of conduct that will include a limit of junk food advertising to children.
The EU adopted Directive 2005/29/EC concerning fair business practices in a further attempt to tighten up consumer protection rules. These new rules will outlaw several aggressive or deceptive marketing practices such as pyramid schemes, "liquidation sales" when a shop is not closing down, and artificially high prices as the basis for discounts in addition to other potentially misleading advertising practices. Certain rules on advertising to children are also set out.
http://ec.europa.eu/comm/consumers/cons_int/safe_shop/fair_bus_pract/index_en.htm

Medicine
The advertising of medicinal products for human use is regulated by Council Directive
2001/83/EC. Generally speaking, the advertising of medicinal products is forbidden if market authorization has not yet been granted or if the product in question is a prescription drug.   The Commission plans to present a new framework for information to patients on medicines in 2008. The framework would allow industry to produce non-promotional information about their medicines while complying with strictly defined rules and would be subject to an effective system of control and quality assurance.
http://ec.europa.eu/eur-lex/pri/en/oj/dat/2001/l_311/l_31120011128en00670128.pdf

Food Supplements
Regulation 1925/2006, applicable as of July 1, 2007, harmonizes rules on the addition of vitamins and minerals to foods. The regulation lists the vitamins and minerals that may be added to foods and sets criteria for establishing minimum and maximum levels.
Key Link: http://useu.usmission.gov/agri/foodsupplements.html

Tobacco
The EU Tobacco Advertising Directive bans tobacco advertising in printed media, radio, and internet as well as the sponsorship of cross-border events or activities. Advertising in cinemas and on billboards or merchandising is allowed though these are banned in many Member States. Tobacco advertising on television has been banned in the EU since the early 1990s and is governed by the TV Without Frontiers Directive.
http://ec.europa.eu/health/ph_determinants/life_style/Tobacco/tobacco_en.htm

Pricing

Germany has become more price-conscious, especially in consumer goods areas. Consequently, price is increasing in importance as a competitive factor, but quality, timely delivery and service remain equally important, especially in the B2B relations.

Sales Service/Customer Support

The German commercial customer expects to be able to pick up the telephone, talk to his or her dealer and have replacement parts or service work immediately available. American exporters should avoid appointing distributors with impossibly large geographic areas, without firm commitments regarding parts inventories or service capabilities, and without agreements on dealer mark-ups

EU Regulations
Conscious of the discrepancies among Member States in product labeling, language use, legal guarantee, and liability, the redress of which inevitably frustrates consumers in cross-border shopping, the EU institutions have launched a number of initiatives aimed at harmonizing national legislation. Suppliers within and outside the EU should be aware of existing and upcoming legislation affecting sales, service, and customer support.

Product Liability
Under the 1985 Directive on liability of defective products, amended in 1999, the producer is liable for damage caused by a defect in his product. The victim must prove the existence of the defect and a causal link between defect and injury (bodily as well as material). A reduction of liability of the manufacturer is granted in cases of negligence on the part of the victim.
http://ec.europa.eu/enterprise/regulation/goods/liability_en.htm

Product Safety
The 1992 General Product Safety Directive introduces a general safety requirement at the EU level to ensure that manufacturers only place safe products on the market. It was revised in 2001 to include an obligation on the producer and distributor to notify the Commission in case of a problem with a given product, provisions for its recall, the creation of a European Product Safety Network, and a ban on exports of products to third countries that are not deemed safe in the EU.
http://ec.europa.eu/consumers/safety/prod_legis/index_en.htm

Legal Warranties and After-sales Service
Under the 1999 Directive on the Sale of Consumer Goods and Associated Guarantees, professional sellers are required to provide a minimum two-year warranty on all consumer goods sold to consumers (natural persons acting for purposes outside their trade, businesses or professions), as defined by the Directive. The remedies available to consumers in case of non-compliance are:

• repair of the good(s);
• replacement of the good(s);
• a price reduction; or
• rescission of the sales contract.

http://ec.europa.eu/comm/consumers/cons_int/safe_shop/guarantees/index_en.htm

Protecting Your Intellectual Property

Several general principles are important for effective management of intellectual property rights in the EU and Germany.  First, it is important to have an overall strategy to protect IPR.  Second, IPR is protected differently in Germany than in the U.S.  Third, rights must be registered and enforced in Germany under EU laws.  Companies may wish to seek advice from local attorneys or IP consultants.  The U.S. Commercial Service can often provide a list of local lawyers upon request.

It is vital that companies understand that intellectual property is primarily a private right and that the US government generally cannot enforce rights for private individuals in Germany.  It is the responsibility of the rights' holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors.  While the U.S. Government is willing to assist, there is little it can do if the rights holders have not taken these fundamental steps necessary to securing and enforcing their IPR in a timely fashion.  Moreover, in many countries, rights holders who delay enforcing their rights on a mistaken belief that the USG can provide a political resolution to a legal problem may find that their rights have been eroded or abrogated due to doctrines such as statutes of limitations, laches, estoppel, or unreasonable delay in prosecuting a law suit. In no instance should USG advice be seen as a substitute for the obligation of a rights holder to promptly pursue its case.

The EU’s legislative framework for copyright protection consists of a series of Directives covering areas such as the legal protection of computer programs, the duration of protection of authors’ rights and neighboring rights, and the legal protection of databases. Almost all Member States have fully implemented the rules into national law, and the Commission is now focusing on ensuring that the framework is enforced accurately and consistently across the EU.

The on-line copyright Directive (2001/29/EC) addresses the vexing problem of protecting rights holders in the online environment while protecting the interests of users, ISPs and hardware manufacturers. It guarantees authors’ exclusive reproduction rights with a single mandatory exception for technical copies (to allow caching) and an exhaustive list of other exceptions that individual Member States can select and include in national legislation. This list is meant to reflect different cultural and legal traditions, and includes private copying "on condition right holders receive fair compensation.": http://ec.europa.eu/internal_market/copyright/index_en.htm

Patents (Patent) are issued for technical inventions, which are new, involve an inventive step, and are susceptible to a commercial application. The term of protection is 20 years, commencing with the filing date. The pertinent legal source is the Patent Act of 1981 (Patentgesetz, PatentG), which has adapted the former German Patent Act to the European Patent Convention.

The EU countries, including Germany, have a "first to file" approach to patent applications, as compared to the "first to invent" system followed in the United States. This situation makes early filing a top priority for innovative companies. Unfortunately, it is not yet possible to file for a single EU-wide patent that would be administered and enforced like the Community Trademark (see below). For the moment, the most effective way for a company to secure a patent across a range of EU national markets is to use the services of the European Patent Office (EPO) in Munich. It offers a one-stop-shop that enables rights holders to get a bundle of national patents using a single application. However, these national patents have to be validated, maintained, and litigated separately in each member state. EPO’s web site is
http://www.european-patent-office.org

http://ec.europa.eu/internal_market/indprop/index_en.htm

Trademarks (“Marken”) are signs that serve to distinguish the goods and/or services of one enterprise from those of another. They enable their holders to build up, expand and maintain a market position. Trademarks are regulated by the German Trademark Act, which covers both trademarks that are used although not registered, as well as registered trademarks. The Trademark Act further provides protection of commercial designations (trade names and other company designations, such as titles and the trading name of works, e.g., for films and books). A German trademark is registered for ten years, after which the term can be extended for another ten-year term. Additional fees become due if the extension fee is not paid in a timely fashion.

The EU-wide Community Trademark (CTM) can be obtained via a single language application to the Office of Harmonization in the Internal Market (OHIM) in Alicante, Spain. It lasts ten years and is renewable indefinitely. For companies looking to protect trademarks in three or more EU countries, the CTM is a more cost-effective option than registering separate national trademarks. On October 1, 2004, the European Commission acceded to the World Intellectual Property Organization (WIPO) Madrid Protocol. The accession of the Madrid Protocol establishes a link between the Madrid Protocol system, administered by WIPO, and the Community Trademark system, administered by OHIM. As of October 1, 2004, Community Trademark applicants and holders are allowed to apply for international protection of their trademarks through the filing of an international application under the Madrid Protocol. Conversely, holders of international registrations under the Madrid Protocol will be entitled to apply for protection of their trademarks under the Community Trademark system: http://oami.europa.eu/en/default.htm
http://www.wipo.int/madrid/en

A utility model (“Gebrauchsmuster”) is a registered right to technical inventions (e.g., for equipment, technical devices, chemical substances, electrical switches, etc.). Unlike a patent, protection by utility model is not possible or appropriate for processes such as production or assessment.

A design patent (“Geschmacksmuster”) is used to protect the coloring and shape of two-dimensional or three-dimensional commercial products intended to appeal to the eye.

Designs
The EU adopted a regulation introducing a single Community system for the protection of designs in December 2001. The regulation provides for two types of design protection, directly applicable in each EU member state: the registered Community design and the unregistered Community design. Under the registered Community design system, holders of eligible designs can use an inexpensive procedure to register them with the EU’s Office for Harmonization in the Internal Market (OHIM), based in Alicante, Spain. They will then be granted exclusive rights to use the designs anywhere in the EU for up to twenty-five years. Unregistered Community designs that meet the Regulation’s requirements are automatically protected for three years from the date of disclosure of the design to the public. http://oami.europa.eu/en/design/default.htm

Copyright
The German Copyright Act (“Urheberrechtsgesetz”) grants someone who creates an original work expression the right to control how that work is used. On July 1, 2002, after lengthy and public discussion, the Copyright Act was amended to improve an author’s rights for reasonable compensation, as well as an author’s contractual position vis a vis the industry exploiting the author’s works. Literary works, musical arrangements, graphic works, audio-visual works, compilations thereof and other works are all covered by copyright. The act expressly mentions computer programs and databases. German copyright has no formal requirements. Registration is not required. Copyright protection is limited to 70 years after the death of the author.

European Trademarks
Since 1996, it has been possible to register Community Trademarks at the Office for Harmonization in the Internal Market, Alicante, Spain (http://oami.europa.eu/). This step often makes sense if an enterprise seeks protection not only in one country, but in at least three or four EU member states of the European Union. The Community Trademark offers financial advantages in addition to other significant advantages. For example, the use of a Community Trademark in only one member state is sufficient to meet the requirement of use for the entire territory of the European Union. It is advisable to consider use of both community and single country protection systems simultaneously.

Trademark Exhaustion
Within the EU, the rights conferred on trademark holders are subject to the principle of "exhaustion." Exhaustion means that once trademark holders have placed their product on the market in one Member State, they lose the right to prevent the resale of that product in another EU country. This has led to an increase in the practice of so called "parallel importing" whereby goods bought in one Member State are sold in another by third parties unaffiliated to the manufacturer. Parallel trade is particularly problematic for the research-based pharmaceutical industry where drug prices vary from country to country due to national price Regulation.

Community wide exhaustion is spelled out in the Directive on harmonizing trademark laws. In a paper published in 2003, the Commission indicated that it had no plans to propose changes to existing legal provisions.
http://ec.europa.eu/internal_market/indprop/tm/index_en.htm

European Patent Law
The European Patent Convention, in force in Germany since 1976, provides for a single, centralized and uniform procedure for granting patents in all or part of the contracting or extension States (i.e., all Member States of the European Union, in addition to Monaco, Switzerland, Albania, and Macedonia). Once a European patent has been granted, the convention stipulates that the European patent assumes the character of individual national patents of the Member States, subject to the authority of the respective States. Patents so derived enjoy the same protection as a national patent. Further information on protecting your intellectual property in Germany and elsewhere in the EU is available from the German Trademark and Patent Office at http://www.dpma.de

IPR Resources
A wealth of information on protecting IPR is freely available to U.S. rights holders.  Some excellent resources for companies regarding intellectual property include the following:

-    For information about patent, trademark, or copyright issues -- including enforcement issues in      the US and other countries -- call the STOP! Hotline: 1-866-999-HALT or register at
     www.StopFakes.gov.  

-    For more information about registering trademarks and patents (both in the U.S. as well as in
     foreign countries), contact the US Patent and Trademark Office (USPTO) at: 1-800-786-9199.

-    For more information about registering for copyright protection in the US, contact the US  
     Copyright Office at: 1-202-707-5959.

-    For information on obtaining and enforcing intellectual property rights and market-specific IP 
     Toolkits visit:  www.StopFakes.gov  This site is linked to the USPTO website for registering 
     trademarks and patents (both in the U.S. as well as in foreign countries), the U.S. Customs &
     Border Protection website to record registered trademarks and copyrighted works (to assist
     customs in blocking imports of IPR-infringing products) and allows you to register for Webinars
     on protecting IPR.

Due Diligence

Companies interested in taking over German firms should always conduct their own due diligence before entering into business ventures. One of the Commercial Service Programs, the International Company Profile, has been designed to support due diligence processes. All major consulting companies offer due diligence services, and most large U.S. accounting or consulting firms have subsidiaries in Germany.

Local Professional Services

The professional services sector is comparable to that in the United States. For all segments of business, there are professional service providers. U.S. Commercial Service Germany has started to build its own network of such companies. The Business Service Provider Directory lists experienced firms which offer services to U.S. exporters and investors interested in Germany: http://www.buyusa.gov/germany/en/business_service_provider.html

Local service providers focusing on EU law, consulting, and business development can be viewed on the website maintained by the Commercial Service at the U.S. Mission to the European Union at: http://www.buyusa.gov/europeanunion/services.html

For information on professional services located within each of the EU member states, please see EU Member State Country Commercial Guides which can be found at the following website: http://www.export.gov/mrktresearch/index.asp under the Market Research Library.

Marketing U.S. Agricultural Products

The Foreign Agricultural Service (FAS), of the U.S. Department of Agriculture (USDA) maintains an Agricultural Affairs Office in the U.S. Embassy in Berlin. A primary objective of the Agricultural Affairs Office is to facilitate trade in U.S. agricultural products. To meet this goal, they provide the following support and services:

• Custom Matchmaking Service (CMS): Designed to bring German importers and U.S. exporters of food and agricultural products together.
• Lists of German importers, by product sector, for use by U.S. exporters.
• Attaché Reports: Current Market trends on select commodities, such as fish, wine, and forestry products; basic information on exporting food and agricultural products to Germany; and reports on the retail and food-processing sectors in Germany.
• USA Promotions: Decoration and other promotional materials for use in special USA promotions.
• Trade Shows: Information on key trade shows being held in Germany. Also, coordinate special USA pavilions at certain food shows in Germany, and organize and recruit German buyers for U.S. food and agricultural trade shows.
• American Food Directory: Extensive listings of U.S. food and beverage products imported and available for sale in Germany.

The Agricultural Affairs Office also works closely with numerous U.S. agricultural trade associations and U.S. firms in programs to boost foreign demand for U.S. agricultural products. The Agricultural Affairs Office is also responsible for agricultural trade issues,such as reform of farm support, food aid, and biotechnology.

Agricultural Affairs Office American Embassy
Berlin Clayallee 170,
14195 Berlin, Germany
Tel: [49][30] 8305-1150
Fax: [49][30] 8431-1935
Agberlin@N0SPAM.usda.gov

http://www.usembassy.de/germany/fas/index.html

Web Resources

German Patent and Trademark Office (Deutsches Patent-und Markenamt):
http://www.dpma.de

European Patent Office:
http://www.european-patent-office.org

EC Directive on Commerical Agents: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31986L0653:EN:HTML

EC Directive on Data Protection:
http://ec.europa.eu/justice_home/fsj/privacy/law/index_en.htm

Electronic Commerce:
http://ec.europa.eu/internal_market/e-commerce/index_en.htm

Industrial Property:
http://ec.europa.eu/internal_market/indprop/index_en.htm

Office for Harmonization in the Internal Market (OHIM):
http://oami.europa.eu/en/default.htm

WIPO Madrid System:
http://www.wipo.int/madrid/en

OHIM Community Design:
http://oami.europa.eu/en/design/default.htm

Exhaustion of trademark rights:
http://ec.europa.eu/internal_market/indprop/tm/index_en.htm