Intellectual property and established business relationships
When professional activities are subject to litigation, French law determines whether the activity is governed by the French Commercial Code or the French Civil Code. Depending on which set of laws applies, the jurisdiction will be different. The French Supreme Court has ruled that consulting in intellectual property is not to be considered as a business activity and is thus governed by the French Civil Code. Therefore, a consultant in intellectual property cannot invoke the provisions of article L.442-6 I 5° of the French Commercial Code concerning sudden termination of established business relationships (Com. 3 avril 2013, n°12-17905).
In this recent case, the dispute concerned the company Galeries Lafayette and a consulting firm in intellectual property following the termination of a contract binding the two parties. Galeries Lafayette had delegated the management of the portfolio of brands and domain names, for several years, to a consulting firm in industrial property before changing for a different provider in 2008.
Considering the termination as abusive, the fired firm claimed damages against Galeries Lafayette in order to compensate it’s moral and economic damages on the grounds of the termination of established business relationships. The claim was rejected at the appeal stage on 14th March 2012 (Paris, 14 March 2012, RG 10/15338), so the consulting firm challenged the decision before the French Supreme Court.
The termination of established business relationships, requires three conditions to be met: a business relationship, which has been established over time and is brutally terminated.
The dispute between the parties concerned the first element, the need for a business relationship. Can a consulting firm in intellectual property consider its activity to be commercial? Or, in other terms, what is meant by a “business” relationship?
On the first hand, the consulting firm argued that the contractual relationship with the company was necessarily a business relationship because the activity was exercised in the form of a commercial company (a SAS in French), and so the acts carried out by the company Galeries Lafayette were presumed to be commercial acts. Hence established business relationships.
On the other hand, the company Galeries Lafayette argued that their relationship was not business, referring to article L 422-12 of the French Intellectual Property Code under which the profession of intellectual property consulting is incompatible with any other activity of a commercial nature, exercised directly or through an intermediary.
In appeal and in cassation, the courts ruled that it is not possible to restrict the nature of the activity to the form in which the activity is exercised.
Therefore, in the judgment of 3 April 2013, the French Supreme Court ruled that the consulting activity in industrial property was not a commercial activity and that the provisions relative to sudden termination of established business relationships were thus not applicable.
There are many decisions on the termination of established business relationships, however, questions concerning the business nature of the relationship are far less frequent. The recent decision of the French Supreme court is therefore important as it specifies the notion of a “business” relationship. It follows the legal trend, as courts have already ruled in the same way for liberal professions, like health professionals (Com. 23 oct. 2007, n°06-16774) or notaries (Com. 20 janv. 2009, n°07-17556).
- Established business relationships:
Article L. 442-6 Commercial code
“I. – Any producer, trader, manufacturer or person recorded in the trade register48 who commits the following offences shall be held liable and obliged to make good the damage caused:
5° Abruptly breaking off an established business relationship, even partially, without prior written notice commensurate with the duration of the business relationship and consistent with the minimum notice period determined by the multi-sector agreements in line with standard commercial practices. Where the business relationship involves the supply of products bearing the distributor’s brand, the minimum notice period shall be double that which would apply if the products were not supplied under the distributor’s brand. In the absence of such agreements, the orders issued by the Minister for Economic Affairs may determine a minimum notice period for each product category, taking due account of commercial practices, and may lay down conditions for the severing of business relations, in particular based on their duration. The foregoing provisions do not affect the right to terminate without notice in the event of the failure by the other party to perform its obligations or in the event of force majeure. Where the business relationship is terminated as a result of competitive bidding via distance auction, the minimum notice period is double that of the period resulting from the application of the provisions of this paragraph if the duration of the initial notice period is less than six months, and at least one year in the other cases;”