Prosecution of managers – brand violation by employees

Prosecution of managers – brand violation by employees

The case: A German CD pressing company concluded a contract with a Bulgarian company to produce CDs of recordings of international pop stars. The Bulgarian company provided the music recordings for pressing. The CDs were intended exclusively for the Bulgarian market and were delivered to Bulgaria by air freight. The music producers, who held the rights for pressing and export of the music recordings in Germany, had not agreed to this. Could that trigger a prosecution of the manager?

The managing director of the pressing plant was accused of having been party to the infringement of the rights of the music producers. But had the managing director made himself liable to prosecution?

The deal had been arranged by a department within his company and this department had informed him that the Bulgarian client held all the rights. This was also the initial assumption of the managing director, which is why the courts did not hold him responsible for the pressings that had taken place until then.

Subsequently, however, the managing director had asked his manager whether it was possible to acquire the rights to the recordings, and the manager, after consulting the Bulgarian company, had replied that the latter only held the rights in relation to Bulgaria and could therefore not resell them for use in Germany. The managing director had thus been presented with the confirmation that the Bulgarians did not in fact own the rights to the recordings in relation to Germany.

Since he was familiar with the licensing business in the music industry and was considered to have the requisite knowledge, all the evidence suggested that he now knew all the actual circumstances of the infringement. Nevertheless, he still had 29 pressings of a total of 260,000 music CDs made for the Bulgarian market.

The managing director’s defence consisted of an assertion that he himself had not been informed, or had only been informed later, of the infringement, and that as managing director he was not responsible for the pressing. According to the circumstantial evidence, however, he had at least considered that the facts may lead to the infringement of the rights of music producers in Germany after having been provided with the information by the manager, and he had shown indifference towards such facts, demonstrated by the continuation of the business. He had acted intentionally.

The manager also objected that he had mistakenly believed that the consent relating to Bulgaria also legitimised the pressing in Germany and the export of the CDs. The German Federal Supreme Court (BGH) rejected this argument. The error would have been ‘easily avoidable’ by making relevant enquiries and did not excuse the managing director.

The managing director was sentenced to imprisonment of one year and three months, which was suspended on probation. An uplift of the penalty for commercial activities was ruled out in his favour, as it was not proven that he wanted to obtain a continuous source of income from the violation of the rights of music producers, Federal Supreme Court – Tonträgerpiraterie durch CD-Export, judgment of 03.03.2004, 2 StR 109/03.

Learnings: Managing directors in Germany can be party to criminal infringements of property rights by their companies if they consider that the facts may result in infringement of property rights and allow the potentially infringing activities to proceed regardless. An error as to the legal situation does not necessarily relieve them of their responsibility, because it is open to them to obtain sufficient information about the legal situation.

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