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COMMERCIAL LAW
Exam questions
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LESSON 1: THE FOUNDATION OF CORPORATIONS

1- WHAT ARE THE TWO PRINCIPAL TYPES OF CORPORATION IN SPAIN?

Corporations are legal persons. The natural persons that own them do not respond with their
personal patrimony for the debts of a corporation but rather up to the limit of their investment
in them.

The two principal types of Corporations in Spain are the Joint Stock Company (La Sociedad
anónima) and the Limited Liability Company (La Sociedad de Responsabilidad Limitada).

2- WHAT ARE THE ESSENTIAL ELEMENTS OF THE CONTRACT THAT FOUNDS

A CORPORATION?

With the exception of the uni-personal corporation, all other Corporations are founded by
contract. This contract creates rights and obligations and grants faculties to both the members
and the organs of the Corporation.

The essential elements of the contract are:

1. The legal capacity to enter into a contract

2. The consent of the parties

3. The object of the contract

4. The cause of the contract

(Among the patrimonial rights are the right to share in the profits of the Corporation and the
right to receive payment of a quota of the patrimony of the Corporation when it is liquidated.

The most salient of the economic obligations is the obligation to contribute to the patrimony
of the Corporation.

In relation to the right to participate in the administration of the Corporation the key right is
the right to vote in the General Meeting of the Corporation)

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3- WHAT IS THE DEED OF CONSTITUTION AND WHAT ELEMENTS SHOULD IT

CONTAIN?

The deed of constitution is the formal document that reproduces the essential elements of the
contract of the Corporation and includes any additional pacts or conditions that the founding
partners decide to include.

In general, it contains:

• The names of the partners

• The amount of money that each partner has contributed to the Corporation

• The percentage of the company that they own

• The declaration of the will of the partners to constitute the Corporation

• The by –laws of the Company

4- WHAT DOES IT MEAN TO SAY THAT THE INSCRIPTION OF THE DEED OF

CONSTITUTION IN THE COMMERCIAL REGISTRY IS CONSTITUTIVE?

The inscription of the Corporation in the Commercial Registry is essential in order for the
Corporation to acquire legal personality. Its character is Constitutive - Article 20 of the
Corporate Enterprises Act (CEA). The Corporation is therefore not a Corporation before the
inscription has been carried out.

5- WHAT IS THE CONSEQUENCE OF A FUNCTIONING CORPORATION NOT

BEING INSCRIBED IN THE COMMERCIAL REGISTRY? HOW WOULD IT BE
TREATED LEGALLY)?

The lack of inscription in the Commercial Registry prevents the Corporation from being
considered as such but does not prevent it from being considered as a General Partnership
regulated by the Code of Commerce (the lack of inscription prevents the necessary publicity
required for Corporations but does not nullify it).

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6- WHAT ARE THE CAUSES OF NULLITY OF A CORPORATION ONCE IT HAS

BEEN INSCRIBED IN THE COMMERCIAL REGISTRY?

In the case of Corporations, the causes of nullity are contained in Article 56.2 of the
Corporate Enterprises Act. These causes are strictly limited to those contained in the Article.

Once inscribed, the action for the nullity of the Corporation can only be exercised for the
following causes:

• Due to the fact that in the deed of constitution the will of at least two founding
partners to form the Corporation is not manifested, or at least one in the case of
the unipersonal Corporation
• Due to the incapacity of all the founding partners
• The deed of Constitution does not detail the financial contribution of each of the
founding partners.
• The by-laws of the Corporation do not express the denomination of the
Corporation
• The object of the Corporation is not expressed in the by-laws, or this object is
illegal or contrary to public order.
• The by –laws do not express the total capital of the Corporation
• The total amount of the capital of the Corporation has not been paid out in the
Limited Liability Company, and in the Joint Stock Company the minimum
amount of capital required by law has not been paid out.

7- WHAT SAFEGUARDS ARE IN PLACE THAT MAKE THE NULLITY OF AN

INSCRIBED CORPORATION AN UNLIKELY EVENT?

A principal consideration concerning nullity:

In practice it is unlikely that any of these causes of nullity could be exercised by a partner
after inscription, given that the deed of constitution is a notarized document, and the
inscription in the Commercial Registry is carried out by the Registrar (see Article 6 of the
Regulation of the Commercial Registry).

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8- WHAT ARE THE EFFECTS OF THE DECLARATION OF NULLITY OF A

CORPORATION?

Effects of nullity (page 350):

If a partner were successful in exercising the action for the nullity of the corporation. Then
the sentence declaring the corporation null would initiate the process of the liquidation of the
company (see art. 57.1 CEA). Until the moment in which the corporation has been liquidated
the corporation shall be treated as if it were valid, both with respect to its partners and with
third parties.

The nullity of the corporation does not affect the validity of the obligations made with third
parties, although they are subject of the corporation (which we shall study lates in the course).

With respect to the internal relations, if the Limited Liability Company has been declared null
because the partners have not paid up the full amount of their investment, then they shall be
required to do so, while in the Joint Stock Company, when the third parties who are the
creditors of the Corporation that has been declared null require payment, they can compel the
partners who have not yet paid up the full amount of their shares to make payment.

9- WHAT IS MEANT BY THE “THE CORPORATION IN FORMATION”? WHO

BEARS RESPONSIBILITY/LIABILITY FOR ITS FINANCIAL OBLIGATIONS?

As we have had cause to mention previously, the Corporation in formation is that which,
while still operating as a commercial enterprise, has not yet been inscribed in the Commercial
Registry and so has not acquired legal personality as a Corporation.

As a general rule the acts and contracts celebrated by the Corporation in formation shall be
the responsibility of the partners (who respond jointly and severally with their personal
patrimony). However, if the inscription of the Corporation depended on the fulfillment of a
condition contained in the deed of constitution, then the Corporation, once registered, may,
assume full responsibility for the payment of these obligations.

Exceptionally the Law contemplates a series of cases in which the Corporation in formation
automatically responds for the debts of the Corporation.

(i) The acts and contracts necessary for the inscription of the Corporation (for
example the payment of the notary or the payment of taxes or licenses)
(ii) The acts carried out by the directors of the Corporation that correspond to
faculties granted to them by the deed of constitution.
(iii) Those acts that are carried out as the result of a specific mandate from all the
partners (see Article 37.1 CEA).
(iv) Those carried out by the directors in execution of the Corporate object if the date
at which these actions began coincides with the drawing up of the deed of
constitution.

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The patrimonial responsibility for all the actions just listed rests with the contributions made
by the partners to the Corporation. This includes not only the payments that the partners have
effectively made, but also those that they have undertaken to pay in the future (see Article
37.2 CEA).

Retrospective responsibility

Once the Corporation has been inscribed, with respect to the acts and contracts it had
previously subscribed to, there are two situations in which the Corporation must assume
patrimonial responsibility.

1. It automatically (that is to say in virtue of the inscription) becomes responsible for

those acts and contracts which the law had determined were the responsibility of the
Corporation in formation (Article 38.1 CEA).

2. Any acts or contracts carried out prior to its inscription that it assumes
responsibility for. This must be done within three months of its inscription.

How this might affect the capital of the corporation:

- Obviously, any payments that the Corporation might have had to make to cover
obligations that it had contracted before it had acquired legal personality will affect
the capital of the Corporation, and this will have to be re-established to its proper
value.
- The Corporate Enterprises Act states that if the value of the patrimony of the putative
Corporation, plus the value of the payments necessary for the inscription of the
Corporation, was a sum lower than the Capital of the Corporation (as determined by
the deed of Constitution), then the partners shall be obliged to cover the difference
(see Article 38.3 CEA).

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10- WHAT RESTRICTIONS ARE PLACED ON THE DENOMINATION OF A

CORPORATION? WHAT IS THE DIFFERENCE BETWEEN ABSOLUTE AND
RELATIVE PROHIBITIONS? WHAT ARE THE ABSOLUTE AND RELATIVE
PROHIBITIONS? WHAT IS THE CONSEQUENCE OF INFRINGING THESE
PROHIBITIONS?

The denomination of the Corporation identifies it and allows it to function in the market as a
unified group. If it is not mentioned in the by-laws of the Corporation, then the Corporation
can be declared null (Article 56 CEA).

In order to avoid confusion, Corporations should operate under only one name (see Article
398.1 of the Regulation of the Commercial Registry). The name can be formed by letters of
the alphabet of any of the Officials Languages of Spain and numerical expressions (in Arabic
numbers of Roman Numerals), (see Article 399 of the Regulation of the Commercial
Registry).

The name of the Corporation cannot include the name or pseudonym of a person without that
person’s consent, however: consent can be presumed when the person whose name or
pseudonym forms part of the denomination of the company is a partner in that company (see
article 401.1 CEA).

However, a name cannot be included in the denomination of the Corporation (even if the
person in question is a partner) if it coincides or can be confused with a trademark or a
notorious Commercial trading name.

The objective of the company can be included in the name but not if it references an activity
that the Corporation does not actually carry out (and so is not contained in the description of
the object of the Company in the deed of Constitution).

With reference to the company name there are two groups of prohibitions:

a) Absolute – these protect general or public interests.

b) Relative – these protect the interests of specific third parties.

The Absolute prohibitions are:

(i) To include in the denomination terms or expressions that are contrary to the Law,
public order or good practices (Article 404 of the Regulation of the Commercial
Registry).
(ii) Those that are composed exclusively with the name of Spain, its Autonomous
Communities, Provinces, Municipalities or the names of Organs, Departments or
Dependencies of the Public Administration or of Foreign States or International
Organisations (Article 405 of the Regulation of the Commercial Registry).
(iii) Those that can induce confusion or error over the identity of the Corporation or
its type or activities (Article 406 of the Regulation of the Commercial Registry).

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The relative prohibitions are:

(i) Names that are identical to any of those that appear in the Section on
denominations in the Central Registry of the Commercial Registry (Article 408 of
the Regulation of the Commercial Registry).
(ii) Those that coincide or could be confused with a trademark or notorious
commercial name, without specific authorization from the owners of the
trademark or the commercial name in question.

The consequence of infringment

In order to demonstrate that these conditions have been met the partners of the Corporation
must obtain a certificate from the Registrar of the Central Commercial Registry which
confirms whether the chosen denomination of the Corporation already figures on the list.

The deed of Constitution of the Corporation cannot be drawn up (nor the name changed)
without a certificate that attests to the fact that the denomination chosen has not already been
taken. This certificate must be shown to the Notary who draws up the deed of constitution of
the Corporation.

If these rules are infringed, then the consequence would be the nullity of the name, but not of
the Corporation itself. However, the Corporation would be dissolved by law if, in
contravention of a judicial sentence that imposed a change of name on the Corporation due to
an infraction of copyright law, this changed had not been made within the period of one year.

The Registrar of the Commercial Registry will cancel the inscription of the Corporation
automatically.

11- WHAT IS THE LEGAL SIGNIFICANCE OF THE CHOICE OF THE LOCATION

OF THE REGISTERED OFFICE OF THE CORPORATION? WHERE CAN THE
REGISTERED OFFICE BE LOCATED?

The registered office has to be named in the deed of Constitution and the by-laws of the
Corporation (see Article 24 of the Code of Commerce).

It has various important functions from a legal perspective:

- It determines which Courts have jurisdiction in the case of legal actions against the
Corporation.
- It determines the place in which the General Meeting of the Corporation must be
held.

The choice of place for the registered office is conditioned by the place where the
administrative functions of the Corporation are carried out, or where it carries out its main
business (see Article 9.2 CEA). The registered office should be a stable feature and not
subject to rotations, nor should a plurality of registered offices be set up.

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12- WHAT ARE THE CHARACTERISTICS OF CORPORATIONS WITH REGARD

TO:

a) Their structure
b) The responsibility of the partners
c) The rules relating to their capital and patrimony
d) Their legal personality
e) Their classification as commercial business persons?

The Corporate Enterprises Act does not define a Corporation. Article 1.1 simply states that
the:

- Joint Stock Company – La Sociedad Anónima - The Limited Liability Company – La

Sociedad de Responsabilidad Limitada.
- The Limited Partnership by Shares – La Sociedad Comanditaria por acciones Are all
types of Corporations.

However: it is possible to make some general points concerning the shared characteristics of
Corporations.

a) Their structure
1. All of these Corporation share a similar organisational structure. They have organs
whose existence and competences are pre-determined by the law. They all have a
General Meeting and a Board of Directors.
2. The right to direct the company is not an automatic right of all the partners.
3. The organs of the Corporation are collective organs, which means that decisions are
taken by majority vote, and this majority vote expresses the will of the Corporation.
This means that there must be a series of rules to regulate the voting procedure.

b) The responsibility of the partners

1. The partners of a Corporation have limited responsibility, and do not respond with
their own patrimony for the debts of the Corporation. In fact, they do not respond to
third parties at all, but rather to the Corporation, to the extent of their investment.
2. However, Corporations themselves (as legal persons) have unlimited responsibility,
as article 1911 of the Civil Code applies to them (and so they respond for their debts
with all their present and future patrimony).

c) The rules relating to their capital and patrimony

The patrimony of the Corporation is the only (or primary) guarantee that third parties
have that they will get paid (should the Corporation default on its debts). Therefore,
the capital of the Corporation is subject to strict rules designed to ensure that this
guarantee is effective.

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These rules stretch from the foundation of the Corporation ( the payment of the initial
capital, the rules for verifying the worth of goods which can be presented instead of
cash), to the day to day running of the Corporation (the rules determining when and
the manner in which profits can be distributed among the partners) to its extinction
(the rules determining the dissolution of the Corporation for losses or for maintaining
capital below its legally required level).

Given the importance of the capital of the Corporation, it is unsurprising that the
condition of partner can only be obtained by contributing capital or patrimony with an
economic value to the Corporation (which excludes those who wish to contribute only
their labour – see Article 58 CEA). Following this same logic, the rights and
obligations of the partners are generally a function of the amount of capital that they
have contributed to the Corporation.

d) Their legal personality

Another characteristic of Corporations (as we have already seen) is that Corporations

acquire legal personality through their inscription in the Commercial Registry (Article
20 CEA). This rule is principally designed as a means of protecting third parties
through publicity, although it also protects the partners themselves, as limited
responsibility is only attributed to Corporations.

e) Their classification as commercial business persons?

A final common characteristic of Corporations is that they are necessarily

Commercial businesspersons, whatever economic activity they may undertake and
whether they carry out their objective for profit or not.

13- WHAT MUST THE THE BY-LAWS OF THE CORPORATION CONTAIN?

Article 23 focuses on the requirements of the by-laws of the Corporation and states that they
must contain:

1) The name of the Corporation

2) The object of the Corporation and the activities that it proposes to carry out.
3) The registered office
4) The capital of the Corporation.
5) The number of Directors of the Corporation (or at least a maximum and minimum
number), the duration of their mandate and the form in which they are to be
remunerated. In the Limited Partnership by shares the by-laws should contain the
names of the collective partners.
6) The way in which the collective organs of the Corporation are to adopt agreements.

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The by-laws should also contain any pacts and conditions that the founding partners consider
necessary to include, providing that they do not oppose the law or the founding principles of
the legal type of Corporation that the founders have chosen.

The CAPITAL of the corporation:

With respect to the capital of the Corporation - the by- laws must contain the nominal value
and the number of actions or participations that this capital shall be divided into.

In the Joint Stock Company, the by-laws should contain the total number of shares and the
part of the nominal value that is yet to be paid up in full (where full payment has not yet been
made), and the deadline by which full payment has to be made. It should also distinguish
between different series of shares (those which have the same nominal value, and which
confer upon the buyer the same rights).

In the Limited Liability Company, the by-laws must contain the number of stakes into which
the capital of the Corporation is divided, the nominal value of the stakes and the rights
attributed to the stakeholders.

14- WHAT IS MEANT BY THE SIMULTANEOUS FOUNDATION OF A

CORPORATION? WHAT CONDITIONS MUST BE MET AND HOW DO THEY
DIFFER BETWEEN THE LIMITED LIABILITY COMPANY AND THE
JOINT-STOCK COMPANY?

The simultaneous foundation of a corporation consists in the drawing up of the deed of

Constitution of the Corporation by all those partners, whether they be natural or legal persons,
that are obliged to pay the total nominal cost of all the shares or participations into which the
capital of the Corporation is divided.

In the Limited Liability company this must be accompanied by the full payment of the
nominal value of each of the participations (see Article 73 of the CEA). In the Joint Stock
Company, it is sufficient that a quarter of the price of each share is paid up at the moment of
the Constitution of the Company (see Article 79 of the CEA).

(The main types of corporations in Spanish Law

The three principal types of Corporations configured in Spanish Law are the Joint Stock
Company, the Limited Liability Company and the Limited Partnership by shares (not to be
confused with the Limited Partnership - or Sociedad Comanditaria Simple – which is not a
Corporation and is regulated by the Commercial Code).

In very general terms:

(i) The Joint Stock Company is the type most suited to large businesses which have
a great number of partners whose identity may change rapidly overtime, and who

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rely on capturing investment from partners (shareholders) who have no direct or

previous connection with the company.
(ii) The Limited Liability Company is designed for a much smaller number of
partners, between which there is frequently some personal or family connection.
The rules governing the internal organs are more flexible than those of the Joint
Stock Company, but there is a restriction on the transmission of the stakes in the
Company.
(iii) The Limited Partnership by Shares, despite its name, attributes personal and
unlimited responsibility for the debts of the Partnership to the Directors, who are
collective partners.

As we have already seen Corporations are founded through a deed of Constitution that is
drawn up by a notary and then registered in the Commercial Registry.

The specific content of the deed of Constitution is specified in Articles 22, 23 and 28 of the
CEA.

CONTENT OF THE DEED OF CONSTITUTION

The deed of Constitution must contain as its minimum content:

1. The identity of all the partners

2. The declaration of the will of the partners to form the Corporation and the choice of
the legal form of the Company.
3. The patrimonial contribution made by each partner, or, in the case of the Joint Stock
Company, the contribution that the partners have undertaken to contribute and the
number of shares that they are to receive as a result.
4. The by-laws of the Corporation
5. The identity of the persons that shall initially be responsible for the management and
administration of the Corporation.)

15- WHO ARE CONSIDERED THE “FOUNDERS” OF A CORPORATION? WHAT

SPECIAL RESPONSIBILITY DO THEY HAVE?

The notion of the founders of the Corporation is purely formal, it is simply the natural or legal
person who, either personally or through their legal representative, participates in the drawing
up of the deed of Constitution.

The founders respond jointly and severally to the Corporation, to other partners and to third
parties for ensuring that the deed of constitution complies with the requisites contained in the
law, for the veracity of any declarations made in the deed of Constitution, and for the
safekeeping of any funds paid out for the expenses required for the Constitution of the
Corporation (see Article 30.1 CEA).

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16- WHAT SPECIAL ECONOMIC RIGHTS CAN THE FOUNDERS OF JOINT-STOCK

COMPANIES RESERVE TO THEMSELVES? WHAT LIMITATIONS ARE PLACED
ON THESE RIGHTS?

The founders of joint stock companies can reserve for themselves special economic rights
associated with their shares; however, these are limited both by their total value and their total
duration. Their global value cannot exceed 10% of the net benefits recorded on the balance
sheet of the Corporation, once the legal reserve has been deducted. These privileges cannot
exceed a period of 10 years.

These special rights can be included in nominative titles that are distinct from shares, and
restrictions may be placed on the ability to transmit them (see Article 27 CEA).

The by-laws of the corporation must have a system in place for the liquidation of the
economic value of these special rights if they are cashed in before their natural expiry date.

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17- WHAT IS THE PROCESS OF SUCCESSIVE FORMATION OF CORPORATIONS?

DESCRIBE THE PROCESS.

The successive formation of the Joint Stock Company takes place when, before the deed of
constitution of the Corporation has been drawn up, there is a public advertisement for the
subscription of shares.

This may be carried out by any form of publicity or through financial intermediaries (see
Article 41 CEA).

This method is scarcely used in practice. What normally replaces it is the intervention of
credit entities that subscribe shares with the intention of immediately selling them off to the
public. This avoids the slow, expensive and legally complex process of the successive
formation.

The successive formation of Joint Stock Companies is contained in articles 41 to 55 of the

CEA.

Further dispositions are contained in Royal Decree 1310/2005, which develops some of the
content of the Law of the Stock Market in relation to the admission of shares to the Stock
Market.

Briefly, in the Successive Formation of Joint Stock Companies, the figure of the founders is
substituted by that of a promoter. The Promoters create the programme for the deed of
constitution, and the prospectus for potential shareholders. These are communicated to and
deposited with the National Stock Market Commission before any publicity for the
prospective Corporation is released.

The share prospectus has to be approved by the National Stock Market Commission (NSMC)
before it is registered.

However, the registration of the prospectus with the NSMC does not entail the
communication of publicity to the general public. This must be done by the promoter that
makes the public share offer.

The promoter must also deposit a copy of the foundational programme for the deed of
constitution and the prospectus with the Commercial Registry, together with a certificate
attesting to its prior deposit with the NSMC.

The subscription of shares shall be carried out in the normal way, so that 25% of the total
value of the capital of the Corporation must be paid out. The money is paid into an account
opened for that purpose with a credit entity and cannot be withdrawn from the account until
the Corporation has been inscribed in the Commercial Registry. An exception is made for
those expenses necessary for the Constitution of the Corporation, such as the notary, the act of
registration and any taxes necessary for the inscription.

After the subscription of shares has taken place, a general meeting of the founding subscribers
shall be called. This requires the presence of a minimum number of subscribers (see Article
42.CEA which calls for at least half of the subscribed capital to be present). These will vote
on the deed of constitution, which should be inscribed in the Commercial Register within two
months.

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18- WHAT MUST THE FOUNDATIONAL PROGRAMME FOR JOINT-STOCK

COMPANIES CONTAIN?

The foundational programme for Joint Stock Companies must contain:

- The name, nationality, and domicile of all of the promoters.

- The text of the by-laws.
- The time limit for subscription to the shares of the Corporation and the credit entities
where subscribers should make payment.
- The Commercial Registry where the foundational programme and the share
prospectus are to be deposited.

19- WHAT IS THE CONSEQUENCE OF A YEAR PASSSING WITHOUT THE

INSCRIPTION OF THE DEED OF CONSTITUTION IN THE COMMERCIAL
REGISTER?

If a year passes since the deposit of the foundational programme and the share prospectus
with the Commercial Register without the deed of Constitution being inscribed in the
Commercial Registry, the subscribers to the shares can demand the return of their payments,
together with the interest that it would have accrued (see Article 55 CEA).

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LESSON 2: FROM SUCCESSIVE FORMATION TO

ANCILLARY SERVICES

1- WHAT ARE VOTING UNIONS AND HOY DO THEY OPERATE?

A frequent use of reserved agreements is the establishment of voting unions. These are
agreements between groups of shareholders to vote in a pre-determined fashion. This is made
effective by the device of granting the possession (but not the ownership) of the shares to the
president of the union and conceding to the president of the union the right to vote in the
name of the shareholder.

A regular feature of this arrangement is that transmission to people outside the voting union is
prohibited by the terms of the agreement.

Article 123.2 CEA prevents this type of restriction from being included in the by-laws of the
Corporation, and the pact has to be specifically made for each general meeting.

2- WHAT ARE THE CHARACTERISTICS AND THE FUNCTIONS OF THE CAPITAL

OF A CORPORATION? HOW DO THE CAPITAL AND PATRIMONY OF A
CORPORATION DIFFER?

The Capital of the Corporation - Characteristics

1. The Capital of the Corporation has to appear in the by-laws or statutes.

2. This amount cannot be modified unless the by-laws themselves are modified, and this
modification requires a special process detailed in the CEA
3. The Capital of the Corporation is not the same as the patrimony. The Capital of the
Corporation is (after the moment of Constitution) an abstract figure that technically
has no substantial reality. The patrimony on the other hand is the group of rights and
goods with an economic value that belong to the Corporation. It does not appear in
the by-laws and does not have a stable value.

Corporation Capital and Patrimony

In the moment that the Corporation is constituted the value of the patrimony and the Capital
of the Corporation generally coincide.

However even then there may be some discrepancies. For example, the non-cash
contributions to the patrimony may be overvalued with respect to their true market value
(even when the valuation has been carried out by an expert).

The law does impose limits on the discrepancy between the Capital of the Corporation and its
Capital. For example, as we shall see in a subsequent lesson, one of the causes of dissolution

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of a Corporation is related to losses that, during an extended period of time, leaves the
patrimony of the Corporation at a figure below its stated Capital.

The characteristics and functions of the Capital of a Corporation

The Capital is used to determine the condition of a partner in a Corporation.

The Capital of a Corporation is a guarantee for third parties that their credits can be satisfied.
Given the abstract nature of the actual value of the Capital, certain techniques are used to
ensure that this guarantee is effective:

a. The Corporation Capital is registered as a liability of the Corporation in its

accounting statements
b. Shares or stakes that are issued without a corresponding economic contribution are
null. This economic contribution cannot be the provision of services.
c. Stakes and shares cannot be issued at a value below their par value (the value of the
Capital divided by the total number of stakes or shares).
d. Limited Liability Companies have to have their total stake capital paid out in full in
the moment of their constitution and in the Joint Stock Company the statutes have to
set a time-limit for full payment of the share price.
e. The Corporation is obliged to be dissolved if its patrimony remains below its Capital
for an extended period.
f. It is prohibited to pay dividends based on fictitious profits.
g. There are rules restricting the possibility of a Corporation buying its own shares.
h. The Capital of the Corporation cannot be augmented without prior payment in full.

3- WHAT IS THE MINIMUM AMOUNT OF CAPITAL FOR JOINT-STOCK

COMPANIES AND LIMITED LIABILITY COMPANIES?

Joint Stock Companies: the minimum amount of capital is 60.000 euros.

Limited Liability Companies: the amount of capital is set at 1 euro.

However, the law states that until the capital of the limited liability company reaches 3.000
euros, a legal reserve representing at least 20% of the profits of the company has to be set
aside until the sum of the legal reserve and the capital of the company reaches 3.000 euros.

Article 4.1 CEA: The Law further states that, in the case of the liquidation of the company, if
the patrimony of the corporation was insufficient to cover the debts of the corporation, the
partners would respond jointly and severally for the difference between 3.000 euros and de
capital

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4- WHAT CAN BE CONTRIBUTED AS CAPITAL AND WHAT IS EXCLUDED?

The law establishes that only goods and rights that have an economic value can be
contributed towards the Capital of the Corporation (Article 58.1 CEA).

Work and services are excluded (Article 58.2 CEA).

5- HOW ARE MONETARY CONTRIBUTIONS TRATED IN THE JOINT-STOCK

COMPANY? HOY ARE THEY TRATED IN THE LIMITED LIABILITY COMPANY?

Payments have to be made in the national currency.

In the Joint Stock Company, a receipt for the deposit of payments in an account at a credit
entity accredited to the Corporation has to be shown to the Notary who draws up the Deed of
Constitution or the amounts should be paid to the Notary so that the Notary makes the deposit
herself on behalf of the Corporation (see 62.1 CEA)

In the Limited Liability company, there is no such requirement. The founders/partners in the
company are personally responsible for the authenticity of their contributions to the
Corporation. This is constituted in the law as a joint and several responsibility to both the
Corporation itself and to creditors of the Corporation (see Article 62.2 CEA).

6- HOW ARE NON-CASH CONTRIBUTIONS TREATED?

Non-monetary contributions have to be described in the deed of constitution or in the

notarised document that increases the Capital of the Corporation.

These documents should contain:

(i) The details of any registration of the goods/rights where these exist
(ii) The value of the goods/rights in Euros
(iii) The number of shares or stakes received in exchange for the contribution

→ See the article 62 of the CEA

Contributions: ownership or use

The contributions made can grant the Corporation the ownership or the use of a good or right.
Unless otherwise stated there is a presumption that non-monetary contributions grant the
Corporation the ownership of the goods or rights in question (Article 60 CEA).

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Guaranteeing the worth of the non-monetary contributions:

The CEA contains a series of dispositions designed to ensure the patrimonial worth of
non-monetary contributions (and so a minimal degree of correspondence between the Capital
of the Corporation and its patrimony).

If the contribution consists of goods, whether moveable or immoveable goods (or assimilated
rights of property), the contributor is obliged to hand over the good and guarantee that the
good is free of any legal encumbrances, defects or liens in the terms provided for in the
Spanish Civil Code.

If the contribution consists of rights, then the contributor naturally responds to the
Corporation for the validity of these rights and the solvency of the debtor (where a debtor
exists).

In the case where a debtor does not pay, the contributor will be obliged to make payment (see
Article 65 CEA).

If the partner has contributed an entire company, then she is obliged to provide a guarantee
that all of its elements are free from liens or encumbrances, and that no such legal
encumbrance or defect affects the essential elements for its exploitation.

The CEA requires that the individual elements of this business are free from encumbrances or
defects if they are relevant to its patrimonial value (see Article 66 CEA).

7- HOW ARE THE NON-CASH CONTRIBUTIONS EVALUATED IN THE JOINT

STOCK COMPANY? WHAT EXCEPTIONS ARE MADE TO THIS SYSTEM OF
EVALUATION?

The valuation of the non-monetary contributions:

The Joint Stock Company requires that the valuation of non-monetary contributions be
performed by one or various independent experts designated by the Registrar of the
Commercial Registry (see Article 67.1 CEA).

The value assigned to the non-monetary contribution in the Deed of Constitution cannot be
greater than the valuation of the experts (67.3 CEA).

Exceptions to the system of valuation of non-monetary contributions by independent experts:

1) Those contributions that consist in assets traded on an official secondary market or

financial instruments
2) Non-monetary contributions (distinct from the above) whose value had been
determined up to six months before their contribution by a competent independent
expert that had not been designated by the parties in compliance with the rules
regarding their valuation generally recognised for that type of good.

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IN THE CASE OF WHOLE COMPANIES OR PARTS OF COMPANIES

3) In the case of the merger or division of companies, when during the course of the
merger or division a report by an independent expert on the project had been made.
4) When , in the case of a forthcoming merger or division, there is an increase in
company capital made with the intention of giving new shares or stakes to the
partners of the company to be absorbed or divided, and an independent expert had
made a report on the project.
5) When an increase in company Capital is carried out with the intention of giving the
new shares to shareholders of a Company that is to be the object of a public share
offering.

In the cases previously mentioned the Directors are obliged to write a report that substitutes
that of the independent expert. The content of this report is determined by Article 70 CEA.

8- IF THE DIRECTORS ARE OBLIGED TO WRITE A REPORT ON NON-CASH

CONTRIBUTIONS, WHAT MUST THAT REPORT CONTAIN?

In the cases previously mentioned the Directors are obliged to write a report that substitutes
that of the independent expert. The content of this report is determined by Article 70 CEA.

Content of the report in the Article 70 CEA:

The report to be compiled by the Directors should contain:

I. A description of the contribution

II. The value of the contribution, the origin of the valuation and (where relevant)
the method followed in order to reach it.
III. When the contribution was an asset sold on a recognised secondary market
the report will be accompanied by a certificate issued by its regulator.
IV. A declaration stating that the value corresponds (at minimum) to the nominal
value of the number of shares given to the contributor.
V. A declaration that no additional circumstances have occurred that could
affect the initial valuation.

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9- WHAT IS MEANT BY OUTSTANDING PAYMENTS IN RELATION TO SHARES?

WHAT HAPPENS ONCE THE DEADLINE TO MAKE ANY OUTSTANDING
PAYMENTS HAS EXPIRED? WHAT STEPS CAN THE CORPORATION TAKE TO
RECUPERATE ITS MONEY?

As mentioned previously, in the Joint Stock Company only a quarter of the value of the shares
acquired needs to have been paid before the registration of the Corporation. This means that
the outstanding amount has to be paid at a later date, and that there have to be rules regarding
the treatment of late payments.

Outstanding payments need to be made within the time-limit specified by the by-laws, or,
within the time-limit agreed upon by the directors (although always within the maximum time
– limit that is necessarily stipulated by the by-laws) (see Article 23 d CEA).

In the case of non-monetary contributions, the contribution cannot be made any later than 5
years since the moment of constitution of the corporation, or the agreement to increase the
Capital of the Corporation.

In all cases the obligation to pay the outstanding amounts shall be notified to the partners or
published in the Official Bulletin of the Commercial Register.

Once payment has been made it shall be registered in a notarised document and inscribed in
the Commercial Register.

Once the time-limit for payment has passed, if the payment is still outstanding the shareholder
shall automatically be in default. This strips the shareholder of certain key rights and has a
number of consequences

1) The shareholder cannot vote

2) The value of the shareholder’s shares shall be deducted from the share capital of the
Corporation for the purposes of the calculation of the quorum for holding the General
Meeting.
3) The shareholder will not receive any dividends on her shares
4) The shareholder shall be unable to exercise her right to subscribe preferentially to
new share offers or convertible bonds.

If the shareholder pays up the outstanding amounts together with the interest payable for late
payment, she will be able to claim those dividends that have not prescribed.

However, she will not be eligible to subscribe to preferential shares once the time-limit for
subscription has passed (Article 83 CEA).

As a measure for guaranteeing the integrity of the Capital of the Corporation, when the
shareholder is in default the Corporation can demand the payment of outstanding amounts

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together with the legal interest on the outstanding amount and any damages to the patrimony
of the Corporation that it can demonstrate stem from nonpayment.

It can also take the step of selling the shares at the financial risk of the partner in default (
Article 84.1 CEA)

When the sale of the shares of the shareholder in default is carried out, the sale has to be
verified by a member of the secondary market on which the shares were admitted, or by a
public notary.

If the sale cannot be made the shares can be amortised, and the share capital of the
Corporation must be reduced accordingly. The Corporation shall retain the amounts already
paid by the shareholder in default (84.2 CEA).

10- UNDER WHAT CONDITIONS CAN A SHAREHOLDER IN DEFAULT TRANSMIT

SHARES?

The shareholder in default can transmit her shares but in that case the CEA imposes on the
acquirer and all the subsequent acquirers of the share a joint and several responsibility to pay
the outstanding amount. This will last a total of three years from the date of the respective
transmission.

Any pact made in contrary to this joint and several liability shall be null.

The buyer that has paid for the share (and satisfied the outstanding amount) can reclaim the
payment of the outstanding amount from the previous acquirers – 85.3 CEA.

11- WHAT IS MEANT BY ANCILLARY SERVICES? HOW MUST THEY BE

STIPULATED IN THE BY-LAWS? HOW CAN THESE ANCILLARY SERVICES BE
MOMDIFIED? HOW CAN STAKES OR SHARES WITH ANCILLARY SERVICES
ATTACHED BE TRANSMITTED?

Ancillary services are different from monetary contributions and so cannot form part of the
Capital of the Corporation (see Article 86.1 and 86.2 CEA).

Ancillary services can encompass any obligation to give, do or refrain from doing (as
expressed by Article 1088 of the Civil Code).

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Ancillary services must be stipulated in the by-laws of the Corporation, and these should
express:

1) Their content and description

2) Whether they are offered freely or remunerated. If they are remunerated the payment
the partners are to receive must be stated, and this cannot exceed the market value of
the service in question.
3) The penalty for not providing the service as agreed. Unless the statutes state
otherwise the partner cannot lose her status as partner (i.e be expelled from the
Corporation) for not complying with her obligation to provide ancillary services for
causes beyond her control.
4) Whether these services are obligatory for all or only some of the partners or if they
are attached to specific stakes or shares in the Corporation.

See Article 86.1 and 3, 87, 89.2 CEA

As ancillary services have to be recorded in the by-laws of the Corporation, any ancillary
services created after the Registration of the Corporation, or the modification or extinction of
these services must conform with the requisites for the modification of the by-laws/statutes.
Furthermore, the consent of the partners to perform these ancillary services must be obtained
(see 89.1 CEA).

The transmission of shares or stakes with ancillary services attached requires the permission
of the Corporation. Unless the statutes state otherwise this permission will be granted by the
General Meeting in the Joint Stock Company and by the Directors in the Limited Liability
Company.

In both cases if two months have passed since the presentation of the request for permission
to transfer the shares or stocks without the Corporation providing an answer, then permission
shall be considered to have been granted (see Article 88 CEA).

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EXTRA

The responsibility of the promoters in Successive Formation

The promoters respond jointly and severally to the Corporation and to third parties for the
veracity of:

A. The subscription lists presented to the General Meeting of the founding subscribers,
B. For the payments required by the foundational programme and the safekeeping or
investment of these payments,
C. The veracity of the statements made in the programme and in the share prospectus,
D. The integrity of any non-pecuniary contributions (see Article 54 CEA).

Special rights reserved to the promoters in Successive Formation

In the same way that the founders of a Corporation can reserve special rights to themselves, the
promoters can reserve to themselves special rights of an economic nature in the by-laws of the
Corporation.

However, once again, these cannot globally exceed 10% of the net benefits obtained according
to the balance of the Corporation, once the quota of the legal reserve has been deducted and
cannot exceed a period of 10 years.

Once again, the by-laws must contain a system for the liquidation of the economic content of
these rights should they be extinguished before their expiry, and the transmission of these rights
can be restricted by the by-laws (see Article 27 CEA).

The special regime applicable to good that make up at least 10% of the capital of the
corporation

As a measure to prevent fraud and to protect the interests of third parties and other shareholders,
the acquisition of goods, paid for by the Corporation from the moment that its deed of
Constitution was drawn up (or from the moment that it was transformed into a joint-stock
company), and up to two years since its inscription in the Commercial Register, has to be
approved by the General Meeting if its worth represents at least 10% of the total capital of the
Corporation, unless it was a good purchased in the ordinary business of the Corporation or it
was an operation that could be verified by an official secondary market (a stock exchange) or a
public auction.

With the announcement of the General Meeting the shareholders must have placed at their
disposition two reports:

1. One drawn up by the board of Directors justifying the acquisition

2. A second drawn up by independent experts regarding the valuation of the object in
question.

An authenticated copy of the report by the independent expert and by the Directors of the
company must be deposited with the Commercial Registry within a month of this acquisition.

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Reserved agreements

Reserved agreements are pacts made by the partners that are structurally autonomous with
respect to the Deed of Constitution. However, they consist in the regulation of a common
interest or a specific type of conduct.

These pacts are valid internally only, in the sense that they cannot restrict the rights of
third-parties (see Article 29 of the CEA). However, they can restrict the rights of the parties that
are signatories to them, for example, the right to freely transmit participations in the company.

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LESSON 3: SHARES AND STAKES

1- WHAT IS THE ESSENTIAL DIFFERENCE BETWEEN STAKES AND SHARES?

The essential difference between shares and stakes is that shares can be incorporated into a
negotiable instrument and sold on a secondary market. Stakes cannot.

2- WHAT IS THE ESSENTIAL SIMILARITY BETWEEN STAKES AND SHARES?

However: for the most part they are similar, and their fundamental similarity is that they both
attest to ownership of a part of the company that is a percentage of the company capital, and
that bestows a series of faculties, rights and obligations on the partner who holds it.

3- WHAT IS THE NOMINAL VALUE OF A STAKE OR SHARE REPRESENT?

As we have mentioned earlier both stakes and shares must represent a percentage of the social
capital (see Article 90 CEA). This will obviously be an exact sum. This exact sum is the
nominal value of the share or stake, and it must be expressed in the stake or share. A mere
reference to the percentage of the share capital that the stake or share represents is forbidden
(See Article 23.(d) CEA).

The law does not fix a maximum or a minimum value, and thus allows these values to be
fixed by the Corporations themselves. Neither does the law require that all shares have the
same nominal value, which allows Corporations to issue shares of different series (although
all shares of the same series should have the same nominal value – see Article 49.2 CEA).

With respect to Limited Liability Companies the law does not require that all participations
have the same nominal value.

The nominal value represents the minimum contribution that the partner has to pay out (or
undertakes to pay out) in order to acquire the condition of partner.

Stakes and shares that are not backed up by a financial contribution are null (see Article 59.1
CEA).

As mentioned in a previous lesson, stakes and shares cannot be issued for a price that is below
their nominal value (see Article 59.2 CEA).

It is, however, possible to issue stakes and shares with a premium (this additional value refers
to the patrimony of the Corporation and should be reflected in a separate entry from the
liabilities of the Corporation).

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4- WHAT DOES IT MEAN TO STATE THAT “STAKE AND SHARES ARE

INDIVISIBLE”?

Both shares and stakes are indivisible → This means that the partner cannot divide them up
and create stakes or shares that represent a smaller fraction of the Capital of the Corporation.
This is an operation that the Law reserves to the General Meeting via a modification of the
by-laws of the Corporation.

5- WHAT ARE THE BASIC RIGHTS OF THE HOLDERS OF STAKES AND SHARES?
IN WHAT SENSE ARE SOME OF THESE RIGHTS NOT ABSOLUTE?

The basic rights of the holders of stakes and shares are contained in Article 93 CEA.

- The right to participate in the earnings of the Corporation.

- The right to receive part of the remaining patrimony when the Corporation is
liquidated.
- The right to attend and vote in the General Meetings of the Corporation
- The right to challenge the agreements of the Corporation
- The right to information concerning the activities of the Corporation
- The preferential right to acquire new stakes or shares after a capital increase or to
acquire convertible bonds (bonds that can be converted into shares in the
Corporation).

Not all of these rights are absolute – as we shall see.

For example: In the Joint Stock Company:

I. The right of attendance to the General Meeting can be limited (179 CEA)
II. The right to vote can be limited (see Articles 188.3 and 527 CEA)

In both the Joint Stock Company and the Limited Liability Company it is possible to exclude
the right to vote completely by creating shares or stocks that do not grant the partner the right
to vote (see Articles 98 and 103 CEA).

The right to participate in the earnings of the Corporation is not absolute, as it requires the
fulfilment of additional criteria (as we shall see).

There also exists the possibility of creating stakes or shares that confer special privileges on
their holders: for example, preferential dividends (see Articles 95 and 498 and 499 CEA).

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6- WHAT ARE THE CONDITIONS FOR ISSUING NON-VOTING STAKES AND

SHARES? WHAT IS THE OBJECTIVE OF ISSUING NON-VOTING STAKES OR
SHARES?

The Limited Liability Company can create stakes without voting rights for a nominal value
that cannot be greater than 50% of the Capital of the Corporation.

The Joint Stock Company can issue shares without voting rights to a value that cannot exceed
half the Capital of the Corporation that has been fully paid up.

In recompense for not having the right to vote, the partners are given greater patrimonial
rights.

The function of non-voting stakes and shares is therefore to encourage investment in the
Corporation without losing or diluting control over the Corporation.

As the partners have no right to vote, there are unable to group together and appoint a
spokesperson to represent them on the board of Directors in accordance with the system of
proportional representation (something which we shall examine later).

The nominal value of their shares is not taken into account for the calculation of the exercise
of this vote by the rest of the partners (see Article 102.2 CEA).

As non-voting stakes and shares are privileged participations in the Corporation (given that
they receive certain patrimonial benefits), any modification of the by-laws which directly or
indirectly impinges on these privileges requires the agreement of the majority of the actions
or participations without a vote affected by the modification (see Article 103 CEA).

7- WHAT ARE THE BASIC PRIVILEGES ACCORDED TO HOLDERS OF

NON-VOTING OR SHARES?

The basic privileges of the partners without vote are:

- The right to a dividend

- The right to a quota of the funds resulting from the liquidation of the Corporation
- The amortisation of the stake or share if the Capital of the Corporation has to be
reduced in the case of losses

Dividends –The holder of the non-voting stake or share has the right to receive a minimum
annual dividend. The quantity may be fixed or variable depending on the by-laws.

Once the minimum dividend has been established, the partners who benefit from this right
will have the right to receive the same dividend as the other partners that hold stakes or
ordinary shares (those that do not come with a premium).

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However, if the company declares profits that can be distributed, the Corporation is obliged to
distribute the minimum annual dividend (see Articles 99.1 y 2 CEA).

In the case of Corporations whose shares are not traded on a stock exchange, if there are no
profits to be distributed, or if these are insufficient, the part of the minimum annual dividend
that was no

8- UNDER WHAT CIRCUMSTANCES MIGHT A NON-VOTING SHAREHOLDER

OBTAIN THE RIGHT TO VOTE?

While this right remains unsatisfied, the holders of non-voting stakes and shares shall have
the right to vote in the same conditions as ordinary shareholders and shall retain their
financial privileges (see Article 99.3 CEA).

However, in listed Corporations it is the by-laws (and not the law) that determine whether the
minimum annual dividend can be accumulated, and whether nonpayment results in the holder
obtaining the right to vote until she is paid in full (see Article 499.2 CEA).

• In the case of the liquidation of the Company, the holders of nonvoting stakes and shares
have the right to receive their quota of the company before it is distributed to any of the other
partners.

• In the Joint Stock Company this privilege extends to the return of the nominal value of all
the non-voting stakes or shares held (see Article 101 CEA).

• The holders of non-voting stakes or shares also have the privilege of being unaffected by the
reduction of the Capital of the Corporation as a result of losses, unless these losses are greater
than the nominal value of the remaining stakes and shares.

• If, due to the reduction, the nominal value of the non-voting stakes or shares, was greater
than half of the Capital of the limited Liability Company, or of the fully paid-up contributions
in the Joint Stock Company, the proportion must be restored within a maximum period of two
years. If this cannot or is not done, the Corporation must be dissolved.

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9- WHAT ARE THE FORMAL REQUISITES FOR THE TRANSMISSION OF

STAKES? WHAT IS THE CONSEQUENCE FOR THE NEW STAKEHOLDER OF A
TRANSMISSION THAT DOES NOT COMPLY WITH THESE REQUISITES?

Formal requisites

Stakes are not tradeable securities in the way that shares are. While shares can be traded on
secondary markets, stakes cannot.

The rules pertaining to the transmission of stakes are not contained solely in the CEA but are
also in Article 1526 (and in the following articles) of the Civil Code, which concern the
transmission of a contract between living subjects ( that is, not subject to the law of
inheritance).

In application of the Civil Code, the full transmission of the rights of the stake require a
contract that contains the essential requisites of Civil Law (1261 of the Civil Code).

For its part, the Corporate Enterprises Act requires that the transmission of stakes is carried
out via a notarised document (Article 106 CEA). The lack of this formal requirement does not
invalidate the transmission but results in the new partner being unable to legitimise her
position to the Company (i.e., she would not be recognised as a partner by the company with
respect to her rights as a partner) -112 CEA

How stakes and shares are represented

Stakes and shares can be represented physically, as certificates, or registered as book-entries.

In principle, the Corporation is free to determine the form of representation, but the
Government may establish the requirement to use a book-entry system in order to be admitted
to trading on a stock-market.

In Spain, Article 496 CEA requires that Corporations whose shares are sold on the stock
market use a book-entry system.

Substantial requisites

As we have had reason to mention previously, the nature of the Limited Liability Company is
that it is often a closed and personal company, in the sense that the partners are frequently
family members or people who have had a long-standing friendship or acquaintance.

It is for this reason that the law has granted the Limited Liability Company a significant
degree of freedom regarding the rules pertaining to the transmission of stakes (which it can
determine in its by-laws) and a subsidiary legal regime that is quite restrictive of
transmission.

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10- WHAT ARE THE SUBSIDIARY RULES REGARDIND THE TRANSMISSION OF

STAKES CONTAINED IN THE CORPORATE ENTERPRISES ACT? IN WHAT SENSE
THESE RULES ARE SUBSIDIARY?

Article 107 contains the subsidiary rules regarding the transmission of stakes

It determines that providing that bylaws do not state otherwise:

• The voluntary transmission of stakes between partners shall be free from restrictions

• The transmission of stakes by partners to their spouses, ascendants or descendants shall be

free from restrictions

• The transmission of stakes from one company to another shall be free from restrictions
when both companies belong to the same group.

The (subsidiary) procedure for the transmission of stakes

Article 107 CEA details the (subsidiary) procedure for the transmission of stakes. If the
by-laws do not state otherwise, then:

• The partner who proposes to transmit her stakes must inform the Directors of the Company
in writing. She must indicate the number and the characteristics of the stakes that she
proposes to transmit, the identity of the person who is to acquire the stakes, the price, and the
conditions attached to the transfer.

• The transmission shall require the permission of the Company. This should take the form of
an agreement by the General Meeting. The proposal to sell the shares must have been
included in the agenda for the General Meeting and the agreement must be reached by the
“ordinary majority” as established in the CEA.

• The Company can only withhold their consent if they communicate to the transmitter of the
stakes, via a written communication by a notary, the identity of one or various partners that
wish to acquire all of the stakes.

• No official communication to the partner who wishes to transmit her stakes shall be
necessary if she attended the General Meeting where the decision concerning the transmission
was taken. • The partners who attended the General Meeting shall have a preferential right to
acquire the stakes.

• If various partners wish to acquire the stakes, then they shall be distributed in proportion to
the Company Capital held by each partner.

If there is not a buyer, either one proposed by the company or an existing partner, for all the
stakes, the General Meeting can agree that the Company itself will purchase the stakes. In
accordance with Article 140 CEA.

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The price of the stakes, the form of payment and the general conditions of the sale shall be
agreed by the transmitter and communicated to the Company. If price was to be paid in
instalments, then the transmission shall require that a credit entity guarantees the full payment
of the purchase price.

If the partner three months have passed since the transmitter communicated her intention to
sell the stakes and the Company has not informed her of the identity of a purchaser for the
participations, then the partner can sell them to whomever she choses

11- WHAT RULES CANNOT BE INCLUDED IN THE BY-LAWS REGARDING THE

TRANSMISSION OF STAKES?

Article 108 CEA lists a series of clauses that cannot be put in the by-laws referring to the
transmission of stakes:

a. Clauses that allow for stakes to be transmitted practically without restrictions

b. Clauses which oblige the partner to transmit a different number of participations to
those she wishes to transmit
c. Clauses that forbid the voluntary transmission of stakes shall only be permitted if
they allow the partner the right to leave the Company (with the right to receive her
full investment) in a maximum period of five years from moment of the constitution
of the Corporation (or the notarised document that attested to an increase in Company
Capital).

12- WHAT ARE THE RULES CONCERNING THE FORCED TRANSMISSION OF

STAKES?

Stakes are obviously a type of patrimony, and as such can be seized by a Court in an
enforcement procedure. Article 109 describes the rules that apply in these circumstances:

The seizure of stakes as part of an enforcement procedure shall be notified to the Company
immediately by the presiding judge or the administrative authority that has authorised it,
identifying the subject that has seized the stakes and the stakes that have been seized. The
Company shall make a note of the seizure in its Company registry and shall send a copy of
the notification to all of the partners.

Once the auction of the stakes (or alternative procedure for the forced their forced sale) has
taken place, the adjudication of the stakes shall be suspended, and the Company shall be
notified of the result.

The partners of the company have a month, before the final adjudication of the stakes, to
subrogate themselves in the position of the acquirer of the stakes, paying this subject the full
price of the sale and any additional costs occasioned by the auction (or alternative procedure).

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In the case that the by-laws of the company have made a specific provision for this
circumstance, then the company may subrogate itself in the position of the buyer.

13- WHAT ARE THE RULES PERTAINING TO THE TRANSMISSION OF STAKES IN

THE CASE OF THE DEATH OF A PARTNER?

1. The acquisition of a stake as part of an inheritance of legacy confers on the recipient

the condition of partner. (Article 110 CEA).
2. However, the by-laws can establish, in favour of the surviving partners, the right to
acquire the stakes. The value at which these stakes shall be purchased shall refer to
the value that they had on the day on which the partner died.
3. The law refers to a “reasonable value” and requires that the full price of the stakes be
paid (the law states that this should be paid in cash).
4. The valuation should be reached following the same procedure as that used for those
who wish to leave the Company (to be seen in a later lesson), and this right has to be
exercised by the Company within three months of the Company being informed of
the inheritance of the stakes.

The legitimation of the new partner and the book of partners

Even when the conditions for the transmission of the stakes have been met, the acquirer of the
stakes is not legitimised as a partner until she is inscribed in the book of partners.

The Company therefore have to be informed of the transmission (Article 106.2 CEA) and be
inscribed in the book of partners (Article 104.2 CEA).

14- WHAT IS THE DIFFERENCE BETWEEN BEARER SHARES AND NOMINATIVE

SHARES?

Normative and bearer share - The transmission of bearer shares

Nominative shares are registered and made out to a certain person (natural or legal). In order
for a new acquirer of nominative shares to make her rights as a partner effective, she needs to
be inscribed in the book of partners.

Registered/ bearer shares are not registered in the name of a person and can be transferred by
their physical delivery to the acquirer, who can exercise her rights as a partner once the shares
are in her possession.

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Bearer shares are subject to Article 544 of the Code of Commerce, that stipulates that:

“Instruments payable to the bearer shall be transferred by their delivery to the acquirer” (…).
and Article 609 of the Civil Code that states that property can be transmitted by the delivery
of the object in question.

The transmission requires a contract of sale and the delivery of the shares.

In Spanish law the transfer of bearer shares requires the intervention of a notary or a Stock
Market Agency or a credit entity in order to make the transfer (see the Law on the Stock
Market). However, if this is not done, then the validity of the contract that transfers the shares
is not affected, as the parties can be compelled to comply (if the contract were null then there
would be no legal basis to compel the compliance of either party).

In order for the transmission to be effective, it has to be made by the titleholder of the bearer
share, or a person authorised to make the transmission on her behalf.

The possession of the bearer share is sufficient for the acquirer to legitimately exercise her
rights as a partner. The actual exhibition of the share certificate is not necessary. If the share
has been deposited with an authorised entity (Article 122 CEA) then the exhibition of the
certificate of the deposit is sufficient.

Normative and bearer share - The transmission of nominative shares

The transmission of nominative shares can be carried out in the same way as the transmission
of bearer shares, that is, a contract of sale and the delivery of the shares. They can also be
transmitted by endorsement, in the same manner as a security (see Article 120.2 CEA).

The endorsement is a clause contained on the share document itself and includes the signature
of the endorser (who transmits the nominative share) and the name of the acquirer.

As mentioned previously, for the new acquirer to assert her rights before the Company, her
name needs to be inscribed in the book/registry of nominative shares, as the Company only
recognises as partners those whose names are inscribed in this book (116.2 CEA).

The inscription in the book/registry of nominative shares is done by the Directors of the
Company, who are charged with the responsibility of maintaining the book and ensuring that
it is up to date.

The Directors have to ensure that the chain of endorsements has been followed correctly
(120.2 CEA). Once the inscription has been carried out, the Directors may only modify those
inscriptions that are false or incorrect, having first notified the interested party of the
modification, and providing that the interested party has not informed the Corporation of his
or her intention to oppose the modification within 30 days of receiving the notification of the
proposed modification (116.4 CEA).

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15- WHAT RESTRICTIONS CAND BE PLACED ON THE TRANSMISSION OF

NOMINATIVE SHARES?

The transmission of nominative shares can be restricted. This restriction has to obey two
requisites.

a) The first restriction is a formal one. The restriction must be included in the by-laws of the
company (Article 123.1 CEA). If the restriction is established as a result of a modification of
the by-laws, the nominative shareholders that are affected by the restriction and who did not
vote in favour of the agreement shall not be restricted by the terms of the agreement for the
first three months, counting from the publication of the agreement in the Official Bulletin of
the Commercial Registry (123.1 CEA).

b) The second restriction is one of substantive law. The law allows restrictions to the
transmission of nominative shares but given the essentially open nature of the Joint Stock
Company, these cannot eliminate the possibility of transmission completely, and any clauses
that make transmission impossible or almost impossible shall be null (123.2 CEA).

16- WHAT ARE THE THREE MAIN TYPES OF RESTRICTION THAT CAN BE
PLACED ON THE TRANSMISSION OF NOMINATIVE SHARES?

While there is quite an extensive range of clauses that can be introduced to restrict the
transmission of nominative shares, these can be reduced to essentially three types of clause:

a) Clauses that require the authorisation of the transmission

b) Clauses that establish a preferential right to purchase the nominative shares (for the
partners or the Corporation)

c) Clauses that determine the right of the partners or the Corporation to purchase the
nominative shares

17- THE RESTRICTIONS THAT CAN BE PLACED ON THE TRANSMISSION OF

NOMINATIVE SHARES ARE THEMSELVES SUBJECT TO RESTRICTIONS. WHAT
ARE THEY?

The restrictions placed on the transmission of nominative shares are subject, themselves, to
certain requisites:

1) The by-laws have to state the causes which allow the Corporation to deny the partner the
transmission of his or her nominative shares (123.3 CEA). Clauses which simply state that the
Corporation can withhold its permission without stating a motive are forbidden (123.2 of the
Regulation of the Commercial Registry), as are those that rely on a subsequent (but not
present) justification. Unless otherwise state in the by-laws, the authorisation shall be

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conceded or denied by the Directors of the Company (123.3 CEA). However, the statutes
cannot attribute to a third party the faculty of deciding whether permission can be granted.

2) The Corporation cannot keep the partner waiting indefinitely for an answer. If two months
have passed since the partner presented her request to transmit her nominative shares and the
Corporation have not responded, then her request will be automatically granted (Article 123.3
CEA)

18- WHAT ARE THE TWO TYPES OF CLAUSES BY WHICH THE CORPORATION
CAN CONFIGURE A RIGHT OF PREFERENCE TO PARTNERS WHO WISH TO
BUY SHARES OFFERED FOR SALE BY ANOTHER PARTNER?

The clauses that stipulate that the partner must offer her shares to another partner before
offering them to a third-party can be of two kinds.

a. A clause can state that an existing partner has the right to subrogate himself in the
position of a contract of sale for the nominative shares in the same conditions as the
third party.
b. The clause can also configure a mere right of preference. In this case the terms of the
sale can be negotiated between the transmitting partner and the partner who wishes to
acquire the shares.

The statutes can further establish that the value of the shares be determined by the auditor of
the Corporation, or, if there were no auditor, by an auditor appointed by the Commercial
Registry where the Corporation is domiciled (Regulation of the Commercial Registry Article
123).

Obligin the partner to transmit her shares to other partners or to the corporation

The by-laws can contain a clause that compels a partner to sell her nominative shares to
another partner or the Corporation itself given certain circumstances.

These circumstances must be clearly expressed in the by-laws of the Corporation.

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19- UNDER WHAT CONDITIONS CAN THE MORTIS CAUSA TRANSMISSION OF

NOMINATIVE SHARES BE RESTRICTED?

Restrictions on the transmission of shares that are passed on by inheritance. Restrictions can
only be applied to the transmission of shares “mortis causa” when the by-laws specifically
contemplate such a restriction.

In order to be able to refuse the inscription of the nominative shares in the book/registry of
partners the Corporation should have a buyer for the shares or offer to buy the shares itself for
a reasonable price in the moment in which the inheritor of the shares requested her
inscription.

A reasonable price means that is determined by an independent expert, distinct from the
auditor of the Corporation (124 CEA).

20- WHAT IS THE CONSEQUENCE OF AN INEFFECTIVE TRANSMISSION OF

STAKES OR SHARES?

The transmission of stakes or shares that have not followed the process stipulated by the law
does not produce any effects with respect to the Corporation (Article 112 CEA).

The Corporation is, in fact, obliged not to recognise such a transmission.

However, the transmission shall be effective between the contracting parties, providing the
necessary elements contained in Civil Law are satisfied (Article 1261 of the Civil Code).

Still, the contract, despite being valid, produces no effects, given that the assignor did not
freely dispose of the rights contained in the shares or participations, as they were subject to
the specific provisions of the Law and the by-laws.

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LESSON 4: EUROPEAN AND SPANISH

INTELLECTUAL PROPERTY LAW. PATENT LAW

INTRODUCTION.
THE CONCEPT AND DEFINITION OF INTELLECTUAL PROPERTY LAW

While material goods are composed of physical substances, immaterial goods are characterized
by their intangible and non-physical form.

The immaterial goods which are protected by Intellectual Property Rights (IPRs) are mostly the
product of creative, human mental activity in the industrial, scientific, literary and artistic fields.

Although these immaterial goods are generally embodied in some physical form such as a copy
of a book, or a washing machine the story told or the design of the way in which the drum of the
washing machine is operated, are clearly creations of the mind.

The property aspect of IPRs results from the fact that the law grants the holders of IPRs the
legal power to use and to exclude others from using the immaterial good in question. In this way
IPRs in intangible objects are modelled after property rights in tangible objects.

Intellectual property law

Despite any similarities between IPRs and tangible property rights, the most notable
difference is that IPRs are granted for a limited time.

Moreover, IPRs are much concerned with balancing: Proprietary (exclusionary) and
non-proprietary (non- exclusionary or access) interests than is traditional for property
rights attached to physical objects.

Categories of IPRs

The following categories of IPRs are normally distinguished:

● Copyright: pertaining to literary, artistic and scientific works.

● Related rights: (i.e., related to copyright) accorded to performing artists,

producers of phonograms and broadcasting organisations.

● Patents: granted to inventions.

● Industrial designs: protecting the “eye appeal” of products.

● Trademarks: used to identify the commercial source of goods or services.

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Some general characteristics of IPRs - substantive requirements:

Although the details of legal regulation are a matter for national legislatures the
fundamental features of protection requirements are largely the same in all countries (even
though the terminology might differ):

(a) In order to be patented, inventions must be novel, inventive (or non-obvious) and
industrially applicable.

(b) Works must own some degree of creativity or originality to attract copyright
protection.

(c) Trade marks must be distinctive in the sense that they identify and distinguish
goods or services originating from one commercial source from those originating
from another.

In addition to substantive requirements, some rights also need to be registered. This

concerns in particular patents and trademarks.

The registration requirement also applies to most other industrial property rights, such as:

(i) Industrial designs.

(ii) Utility models.

(iii) Plant varieties.

General characteristics - registration

In contrast – no registration is required for copyright, on the contrary , it is prohibited

under Article 5(2) of the Berne Convention (the Berne Convention for the Protection of
Literary and Artistic Works) to make copyright protection dependent on formalities.

The consequences of the distinction between registered and unregistered rights

The distinction between registered and unregistered rights has several consequences:

1. From the viewpoint of the individual applicant, registration rights require

additional activity (and strategic planning)

2. Regarding registered rights:

a. On the national level (or regional in the case of the EU) the law must
provide for the necessary infrastructure (usually by establishing and
maintaining patent offices), as well as the rules on how to apply for and
register an IPR.

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b. On the international level there must be a way to alleviate the burden of

filing in individual states by creating a harmonised procedure.

The economic case for IPRs

Aside from any moral considerations, the economic justification of IPRs rests mainly with
their function as incentives for investment in creation and innovation.

This is achieved by guaranteeing that a first mover has a legally secured time to recoup its
investment and reap the benefits of research and development.

In this sense economists note two important characteristics of IP goods:

A) Their ubiquity: an IP good is not confined to a particular place or moment but came be
used and consumed in many places simultaneously

B) Their non-rivalry: the consumption of an IP good does not exclude other users from
using the same IP and consuming the same IP good at the same time and does not
diminish its existence. Unlike say a bar of chocolate.

The problem with public goods

The lack of exclusivity of IP goods with regard to their use and consumption characterises
them as public goods, which can lead to overuse and neglect in investment due to lack of
incentives (the so-called tragedy of the commons).

This is overcome by creating an “artificial” (legal) exclusivity, entitling the holder to

make use of the protected goods and exclude others. A problem with this is that a balance
needs to be struck, so that a monopoly isn’t established which secures inefficient rents and
excludes potential competitors who might improve or perfect a product.

The risk of IP rights

By creating IP rights there is also the risk that too many people might invest in the
creation of basically the same IP good, and the market price for the IP goods produced
might exclude those who cannot afford the price asked.

So, both no protection and excessive protection are equally inefficient from an economic
(and social) perspective.

So IPR has to be a trade-off between too much and too little protection.

Principles of IP Law

Given that there is no such thing as an international law maker it is pertinent here to
remark how “international law” is derived.

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It comes from two main sources:

a) International treaties and conventions – including codes enacted by legislative

bodies designated as such by the members of the treaty system in which they
apply (for example the European Union).

b) Customary International Law – for example, freedom of the high seas, the
immunity of foreign envoys (this does not concern us in relation to IPRs.

Specific features of IP conventions - Territoriality

One of the most important elements of IP law is the principle of territoriality. According
to this principle, IP rights are not universal but are limited in their effect to the territory of
the state under the laws of which they have been granted.

However, this does not preclude nation states from recognising the effects which foreign
legislation or administrative authorities create within the boundaries of a particular foreign
country.

However, such mutual recognition outside of a specific treaty or agreement is rare.

The effects of the principle of territoriality:

1. All IPRs are of national character unless rights are created which take effects
through a particular territory, such as the EU.

2. A right granted in one country (such as a patent granted in country A) does not
confer any rights with regard to the patented invention in country B.

3. Consequently, if the inventor wants to be protected in country A and B she will

have to apply for a patent in country B as well. Absent such a patent any third
party is free to use the invention in country B, even though it has been patented in
country A.

4. However, despite the inventor not protecting her invention in country B but only
in country A, her patent allows her to prevent the import of goods that have been
legally manufactured in country B, if done without her permission. This is
because patents come with the right of distribution of the patented product.

Typical elements of international IP treaties

1. Member States have to declare under what conditions and to what extent they
promise to protect foreigners who are nationals of another contracting state. In
general, the principle which is most favourable to foreigners is the one of

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“national treatment”. According to this principle, a state promises to protect

foreigners in the same way that it protects its own nationals-

2. However, international treaties may also be based on the principle of reciprocity.

According to this principle, protection is only extended to foreigners if the foreign
state grants a similar or identical protection to the promising state’s own nationals.

3. Treaties must also define the beneficiaries of the protection granted under the
treaty.

4. Some treaties also contain rules on the enforcement of the treaty provisions.

THE EUROPEAN PATENT CONVENTION

The European Patent Convention established the European Patent Organisation and a
centralised system common to its contracting states for granting patents via a unitary
procedure before the European Patent Office, and on the basis of substantiative
patentability criteria.

EPC countries have transferred their sovereign right to examine a patent application and
to grant a patent that is effective within their territory to the European Patent Organisation.

However, each sovereign state remains responsible for the enforcement of those patent
rights.

The EPC offers the possibility of obtaining patent protection in up to 43 countries from a
single application filed or translated into English, French or German.

Once a European patent has been granted competence is transferred to the countries
designated by the applicant.

Yearly renewal fees for the European patent must be paid to the different states where the
patent holder wants to maintain her patent.

The European patent system allows applicants to limit their patent protection to those
states for which they think exclusive protection will be necessary.

For strategic and commercial reasons, it is often not necessary to obtain patent protection
in all EPC contracting states. Rather, protection need only be obtained in those states
where the invention in question can be manufactured and where there is a sufficient
market for the invention to be sold or used.

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PART I - EUROPEAN LAW

1- WHAT IS A PATENT?

A patent is granted for an invention, that is, a technical solution to a technical problem.
The subject matter claimed for the patent must therefore involve a “technical teaching”
– that is an instruction addressed to a skilled person as to how to solve a particular
technical problem using particular technical means.

The nature and terms of a patent

In more detailed legal terms, a patent is an:

i) Exclusive legal right.

ii) Granted by a state or a state like institution to an applicant who is usually the
inventor or her employer.

iii) Concerning a clearly defined technological product or process which must fulfil the
follow patentability criteria:

(a) It must be novel (new).

(b) It must be based on a non-obvious inventive step.

(c) It must be capable of industrial application (or otherwise useful).

The rights of the holder of a patent

The holder of a patent is entitled to exclude others from making, using, offering for
sale, selling or importing the invention for a limited period, in general 20 years from the
date of filing of the patent application.

The inventor’s interest in a patent right is thus the possibility of preventing unauthorised
persons from commercially exploiting the invention in the territory where the patent
takes effect.

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2- WHAT DOES THE APPLICATION FOR A PATENT CONSIST OF?

A patent consists of:

1. The claims.

2. A description.

3. Possibly some drawings.

4. An abstract.

5. Bibliographical information.

The claims

The claims define the extent of protection of the invention and from a legal perspective
are the most important part of a patent.

The description

The description includes a summary of the technology known to be the public (referred
to as the prior art), the problem the invention is supposed to solve, the solution to the
problem and how the invention is carried out or produced in practice.

Drawings

Drawings may be included to illustrate the claims of the description.

The abstract

The abstract summarises the claimed invention. Its main purpose is to help patent
examiners execute their searches by making use of the patent register and other
databases, in order to determine the relevant state of the art and render a decision on
patentability.

Biographic data

The bibliographic data includes (among other things), the name of the inventor, the
proprietor, the date of filing of the patent application and the patent classification.

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3- ACCORDING TO THE EUROPEAN PATENT CONVENTION WHAT ARE

THE ESSENTIAL REQUISITES FOR AWARDING PATENT PROTECTIONS?

Patentable Inventions

According to 52.1 EPC

Patents can be granted for inventions only. They must be:

1) New.

2) Involve an inventive step.

3) Susceptible of industrial application.

Industrial application

It is a general requirement that the description of a European patent application should

indicate the way in which the invention is capable of exploitation in industry.

A definition of industrial applicability is defined in Article 57 EPC.

An invention is susceptible to industrial application if it can be made or used in any

kind of industry.

It is therefore sufficient for an invention to have the potential for use in any kind of
industry, it does not already have to have been used.

Industrial is used in a very broad sense – it includes all possible field of modern
technology.

4- WHAT ARE THE EXEMPTIONS FROM PATENTABILITY ACCORDING TO

THE EPC?

Article 52.2 EPC exempts certain subject matter which is not regarded as patentable:

a) Discoveries, scientific theories and mathematical methods.

b) Aesthetic creations.

c) Schemes rules and methods for performing mental acts, playing games, doing
business or computer programs.

d) The presentation of information.

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One of the most important limitations on patentable subject matter revolves around
“discoveries” and their distinction from inventions.

In general, a discovery has no technical effect as such and merely signifies a law of
nature or a scientific principle.

In other words, one must clearly distinguish between knowledge and applied
knowledge.

It should be noted that the excluded subject matter is excluded to the extent that a
European patent application relates to it.

With regard to computer programs, while no patent protection is available for an

invention that claims a computer program, patent protection can be granted for an
invention that contains a computer program.

For example, computerised machine or a manufacturing and control process.

5- WHAT ARE THE EXCLUSIONS FROM PATENTABILITY ACCORDING TO

THE EPC?

Article 53 EPC excludes from patentability:

a) Inventions whose commercial exploitation is contrary to public order

b) Plant or animal varieties or biological processes for the production of plants and
animals (with the exception of microbiological processes).

c) Methods for the treatment of the human body or animal body by surgery or
therapy and diagnostic methods (with the exception of products used in these
methods).

Public order and morality

The purpose of this provision is to deny protection to inventions likely to induce public
disorder or to those which may involve criminal or other generally offensive use.

The exclusion of methods of diagnosis, therapy and surgery

The exclusion of methods of diagnosis, therapy and surgery is derived from

socio-ethical considerations: i.e the belief that medical or veterinary practitioners
should be free from being hampered by patents.

However, this does not stop the patenting of products to be used for such treatments.

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6- WHAT IS MEANT BY “AN ABSOLUTE NOVELTY STANDARD” WITH

REGARD TO PATENTS?

Absolute novelty standard is one of the patentability requirements.

This means that the novelty is destroyed if the technology has been used or known or if
it has already been published in written or oral form in any language of the world before
the filing date of the application.

The ultimate aim of the absolute novelty standard is to avoid a situation where two or
more patents are granted anywhere in the world for the same invention.

Checking to see if something is new

In order to determine whether something is new the examiner has to check whether
there was disclosure before the filing date of the application.

If there was no relevant “prior art” the invention can be qualified as novel.

However, if there is such prior art the examiner will continue to identify the technical
features of the invention as provided for in the claims and compare them with the
technical features of the disclosed prior art that is also in the claimed invention.

If the examiner qualifies the features as identical the invention is not new.

7- WHAT IS MEANT BY “THE STATE OF THE ART” WITH REGARD TO

PATENTS?

Article 54 of the European Patent Convention (EPC) provides that an invention shall be
considered new if it does not form part of the state of the art.

State of the art is held to comprise of everything made available to the public by any
means – a written or oral description, or in any other way before the filing of the
European patent application.

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8- IN WHAT CIRCUMSTANCES IS PRIOR DISCLOSURE NOT TAKEN INTO

ACCOUNT WHEN CONSIDERING THE PATENTABILITY OF AN
INVENTION?

The trade-off implicit in the granting of a patent

As a trade-off to the grant of an exclusive right, the inventor must disclose her invention
via the patent application. This principle of protection in exchange for disclosure
ensures that the technical knowledge embodied in the invention becomes publicly
available and can in general be used by anyone after the expiration of the patent right.

Generic drugs are a very prominent example where patented products are copied after
the expiration of the protection period. The disclosure requirements thus creates a
positive effect in that the public at large can profit from the technological development.

Disclosure of the invention

It is a fundamental requirement for the grant of a patent that an application discloses the
invention in a sufficiently clear and complete manner, so that it can be carried out by a
person skilled in that sector.

The description must therefore disclose any feature essential for carrying out the
invention in sufficient detail to render it apparent to the skilled person how to put the
invention into practice.

Abuse

Article 55 (1) EPC provides that for the application of novelty, a disclosure of the
invention shall not be taken into consideration if it occurred no earlier than six months
before the filing of the European patent application and it was due to, or in consequence
of, an evident abuse in relation to the applicant of her legal predecessor.

9- WHAT IS THE MEANING OF THE “INVENTIVE STEP” IN RELATION TO

PATENTABILITY?

Inventive step is the central point of any examination on whether a patent can be
granted for an invention.

Article 56 EPC says that an invention shall be regarded as including an inventive step if
– it is not obvious to a person skilled in the art.

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10- WHO IS “SKILLED IN THE ART” ACCORDING TO THE EPO

EXAMINATION GUIDELINES?

The EPO Examination guidelines state the following:

The person skilled in the art should be presumed to be a skilled practitioner in the
relevant field of technology, who is possessed of average knowledge in the art at the
relevant date.

She should also be presumed to have had access to everything in the state of the art, in
particular the documents cited in the search report, and to have had at her disposal the
means and capacity for routine work and experimentation which are normal for the field
of technology in question.

Obvious…

Once the examiner has determined the person skilled in the art, he must decide whether
the claimed invention was obvious to that person at the daye of filing of the application.

Obvious means that which does not go beyond the normal progress of technology but
merely follows plainly or logically from the prior art.

That is, something which does not involve the exercise of skill or ability beyond that to
be expected of the person skilled in the art.

11- HOW IS THE INVENTIVE STEP EXAMINED?

The examination of the inventive step is carried out in three steps:

a) Identification of the closest prior art by comparing the purpose and features of
the invention with the disclosures of the state of the art.

b) Definition of the technical effect by examining the difference between the

closest state of the art and the invention claimed, and the definition of the
problem to be solved.

c) Assessment of whether starting from the closest prior art, the skilled person
would have arrived at the solution claimed in the patent under examination with
the same effects.

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PART II - SPANISH LAW

INTRODUCTION

It is difficult to give a clear picture of the normal content of the protection of patents
without having a clear understanding of exactly how they are protected in a particular
jurisdiction.

As Spain is a fairly typical civil law jurisdiction it is useful to provide a brief description
of how patents are protected here, as the ideas are broadly appliable to most European
jurisdictions.

The Spanish System of Patent Protection

In Spanish Law the basic protection of patents is contained in Law 24/2015 of the 24th of
July (The Patent Law).

Spanish Patent Law, in line with the European Patent Convention, requires the three
requisites of :

1. Novelty

2. The inventive step

3. Industrial application

Spanish Patent Law

The Patent Law reiterates the exemptions contained in the EPC so that:

1. Mathematical methods.
2. Scientific theories.
3. Mental rules and methods for games and economic activities.
4. Computer programs and theme representation of information.
Cannot be patented.

However, this exclusion refers to the patenting of these subject matters when the patent
refers exclusively to any of them, not when they form part of an invention or process that
can be patented.

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Biological material

The simple discovery of biological material in its natural state cannot be patented.

Biological material means that it contains genetic information that can reproduce or is
reproducible as part of a biological system (Article 4.3).

However, biological material that is isolated from its natural state or produced by
technical means can be patentable.

Novelty

As with the EPC , the Spanish standard for novelty is absolute or worldwide.

This means that it does not form part of the current state of the art.

The state of the art is comprised of all the information accessible to the public in Spain
and abroad through an oral or written description, or through any Spanish patent office
either through the internal system or as a result of the patent treaties to which Spain is a
signatory.

The inventive step

As with the EPC, this requires that the object or process to be patented was not the result
of a step that would have been obvious to any expert familiar with the state of the art.

Industrial application

The invention or process has to have an industrial application. This means in practice:

1. That the average expert in the field can obtain the result described in the patent
claim by following the steps indicated, and that the resulting object or process is
suitable for satisfying a human need.

2. It also requires that the object or process can be made or applied to any type of
industry.

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Exclusions for patentability

Even if a patent meets the formal requirements of patentability, it cannot be patented if it

is subject to an exclusion.

1. The human body. This includes the simple discovery of one of its constitutive elements.

However, an isolated element of the human body or the complete or partial sequencing of
a gene can be considered as a patentable invention, even if the result is the same as it is in
nature (Article 5.5).

2. As with the EPC surgical treatments, therapeutic methods and methods of diagnosis are
excluded from patentability. Whether they apply to humans or animals.

This exclusion does not apply to substances or apparatus used as part of these methods
(Article 5.4).

3. Animal and plant varieties are excluded.

However, if the invention is not limited to only one animal or plant variety, then it can be
patented. (Article 5.2).

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EXTRA

The procedure for applying for a patent in Spain

The application for a patent must refer to a single invention, or a group of inventions that
make up a single inventive concept (Article 26). If it does not, then the inventor should
file a separate application for each invention.

The application consists of various documents (Article 23):

a) An application form addressed to the Director of the Patent Office.

b) A description of the invention for which a patent is requested and the rights that
the applicant is claiming.

c) A summary of the purpose of the invention together with any technical drawings
that illustrate its purpose.

d) In the case of biotechnology, the biological sequences that the applicant wishes to
patent.

e) If the patent refers to biological matter that originates from animal or plant life the
source of this matter must be included (where it is known).

The importance of the description and the claims 252

The invention has to be described sufficiently clearly and completely, so that an expert in
the field could produce the invention, or method (Article 27).

Certain biological material cannot be reproduced on the basis of a pure description.

Therefore, the law requires that, together with a description of the biotechnology
employed, the biological material needs to be deposited in an institution legally
recognised to this effect (Article 27.2).

The claims made for the invention specify the object of the invention and the conformity
of the invention with the criteria of novelty, inventive step and industrial application.
These also determine the content and extension of the protection that is claimed for the
patent. The drawings help to interpret the claims.

The summary is primarily for the purposes of identifying and classifying the patent.

The priority of claims

The claims need to be filed with the Spanish Office of Patents and Trademarks. This can
be done in person or online.

The Spanish Constitution determines that the decision-making competence for legislation
concerning Intellectual Property Rights resides with the Spanish State, rather than with the
Autonomous Communities (see Article 149.1.9 of the Constitution).

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However, the Autonomous Communities can assume competences for rules regarding the
enforcement of IP rights, and this includes the examination of Patent applicants.

The date of the presentation of the claim is obviously extremely important.

It determines who is the first inventor, and therefore the legitimate holder of the patent
(Article 30.3).

The date of the presentation will be taken as the moment in which the applicant presented
the documentation mentioned previously, if the documentation was initially incomplete,
the date when these errors were corrected (Article 33.2).

The content of the protection - the right to exploit the patent

The patent gives the holder the sole right to the economic exploitation of the object or
procedure protected.

In the case of the patent of a process, any product produced by this process is also covered
by the patent. The Law establishes a presumption iuris tantum (A Latin expression
meaning “of law and nothing more”, that refers to a rebuttable assumption established in
the absence of any contradictory evidence) that any product or substance that has the same
characteristics as that produced by the patented procedure, has been produced by that
procedure (Article 69.2).

All products and procedures that are commercially exploited shall obviously be subject to
the limitations of the law, public order and public health (see Article 66).

The titleholder of a patent cannot use this title to defend herself against the claim that she
had infringed a patent made held by someone who had filed her claim first(Article 64).

If the invention protected by a patent depends upon a prior patent (i.e incorporates this
patented object and relies upon it in order to function), then the right to exploit the newly
patented object shall require the permission of the holder of the prior patent.

The right to impede others from using the patented object or process

The holder of the patent can impede others from exploiting the patent, either directly or
indirectly, if they do not have the permission of the patent holder to do so.

The prohibition from exploiting the patented object or process directly encompasses all
the phases of its production and commercialisation (Article 59).

If it is a product then the production, offering, introduction onto the market, importation
into Spanish territory or holding stock for sale are all prohibited without the permission of
the patent holder.

If it is a process, then the titleholder can impede the use of this process, and the offering
for sale, importation or stockpiling for sale of the product directly obtained from this
process.

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Legal actions that can be taken to protect a patent

The Spanish Patent Law offers a series of actions that can be used by the patent holder
whose rights have been infringed.

1) The legal action to desist. This is employed to stop a subject from continuing to
carry out an action that infringes the patent.

2) The legal action to prohibit. This is employed before any action that would
infringe the patent has been carried out.

3) The embargo of goods or objects, either produced or imported that infringe the
patent.

Compensation for infringement of a patent

The titleholder can claim an indemnity for damages that she has suffered as a consequence
of the illicit economic exploitation of the patent.

The law configures an objective responsibility for those that manufacture or import the
object protected by a patent (it is not necessary to show that the manufacturers knew of
the patent existed) and a fault-based liability for those that carry out any other action that
economically exploits object protected by the patent (you need to show that the subject
knew or should have known to reasonable standard of diligence that the object was
protected by a patent.)

However, there is a presumption (iuris tantum) that the subjects that have infringed the
patent acted knowingly if they had been informed of the existence of the patent by its
holder.

All the actions designed to protect the patent prescribe in five years, counting from the
moment in which they could have been exercised by the titleholder of the patent (Article
78).

The patent as a legal object

The rights that a patent contains can be the object of legal traffic – either through
voluntary or involuntary acts (for example as the result of an embargo or insolvency
proceedings). These acts can result in the transference of ownership of the patent or the
temporary concession of the rights it contains.

A patent can be given in guarantee, or a mortgage can be constituted over the patent.

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The extinction and the modification of the right of the patent

The patent right extinguishes when the patent is declared null, by the revocation of the
patent and due to the expiry of the patent.

It can also be modified by the declaration of a limitation.

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12- IN SPANISH LAW, WHAT PRESUMPTION ACCOMPANIES THE FIRST

CLAIM OF A PATENT TO BE FILED?

Given that an invention is a creation of the human mind the titleholder of the right has
to be a physical person.

However, the right consists of two parts:

a) A personal part

b) A patrimonial part

a) Regarding the personal part of the right, the inventor has the right to be
considered as such. This is personal and non- transferable. If the invention is
the work of several people, then they hold the right jointly.

b) Concerning the patrimonial part of the right, the inventor has the right to the
concession of the patent. However, this right can be transferred, and legal
persons can apply for patents (Article 3).

Given that the Administration cannot be expected to investigate the story behind every
patent claim, there is a (rebuttable) presumption that the person who files for the patent
is entitled to it.

This presumption can be challenged by a mechanism termed “vindication”: both before

the concession of the patent (Article 11) and afterwards (Article 12).

13- ACORDING TO SPANISH PATENT LAW, IN THAT CIRCUMSTANCES

DOES A PATENT BELONG TO AN EMPLOYEE, AND IN WHAT
CIRCUMNSTANCES DOEST IT BELONG TO THE EMPLOYER? WHEN CAN
A PATENT BE APPROPRIATED BY AN EMPLOYER?

Spanish law contemplates three situations:

Inventions that belong to the person with an employment or service contract (Article
16)

Inventions that belong to the business (Article 15)

Inventions that can be appropriated by the business (Article 17)

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Does the invention belong to the employer or the employee?

Inventions created by the employee or service provider during the time of their contract
with their employer, for work that explicitly or implicitly was the object of that contract,
belong to the business.

In these cases, the employee or service provider shall not have the right to receive any
supplementary income from the invention, unless their personal contribution to the
invention and the importance of the invention to the company obviously surpassed the
explicit content of their labour or service contract (Article 15).

If the invention was not created as a result of work that formed part of their contract
either explicitly or implicitly, then the invention belongs to the employer, unless it is an
invention that can be appropriated by the business.

Inventions that can be appropriated by the business

The business has the right to appropriate the invention or reserve the right to the use of
the patent when the invention relates to the professional activity of the employee in the
business and the invention has been predominantly influenced by knowledge gained
through the business or the use of the means provided to the employee by the employer
(materials, equipment, team of experts).

If the business exercises its right to appropriate the invention, then the employee will
have the right to compensation. This compensation will be proportional to the means
and the knowledge provided to the employee by the business and the contribution of the
employee.

This compensation can take the form of participation in the benefits obtained by the
company due to the invention or participation in the benefits obtained from the
cessation of rights of the invention (Article 17).

14- WHEN DOES THE RIGHT OF THE EMPLOYEE TO APPROPRIATE A

PATENT EXPIRE?

Expiry of the right of the employee to appropriate the invention

If the employer does not communicate its intention to appropriate the patent to the
employee in the period indicated by The Law on Patents, the employee can file the
patent.

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If the employee communicates her intention to file the patent but does not file it within
a time limit agreed between her and the company, then the patent can only be filed in
the name of and in favour of the business (Article 18.2).

The loss of the right of the employee

The employee that invents something but does not inform her employee within the legal
time period provided will lose all the rights afforded to her by the Law on Patents.

15- WHAT RIGHTS DOES THE HOLDER OF A PATENT HAVE UNDER

SPANISH LAW?

The rights of the patent holder under Spanish Law

The holder of a patent has the exclusive right to the economic exploitation of her
invention. While this constitutes a clear limitation of free trade it is the compensation
that the law grants to the holder in return for furthering the technical progress of her
industry and is a way of incentivising future research and development that ultimately
will benefit society in general.

However, this protection is limited by place, time and object.

16- WHAT IS THE TIME-LIMIT PLACED ON THE PROTECTION OF A

PATENT UNDER SPANISH LAW?

The patent granted under Spanish Law can only be protected in Spain.

The time-limit placed on protection is 20 years (that cannot be extended, see Article
58).

The time-limit for this protection begins to count from the moment of the presentation
of the application to the patent office.

The object of the protection is that described in the claims (Article 68).

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17- WHAT ARE THE LIMITS TO THE RIGHTS AFFORDED TO THE HOLDER
OF THE PATENT UNDER SPANISH LAW?

1.The patent has to be exploited economically, and if it is not then the patent expires.
This can happen if the patented object or process is used purely for private purposes and
is not commercialised. (Article 61).

2. No legal action can be taken against those that, acting in good faith, were
economically exploiting the patented object or process before it was patented. (Article
63).

3. The patent is exhausted.

18- WHAT IS MEANT BY EXHAUSTION OF THE RIGHT OF THE PATENT

HOLDER?

The object of the patent is to recompense the title holder for her efforts and stimulate
her future economic activity.

This is achieved when the product has been placed in circulation in the European
Economic Area by the titleholder or with her consent.

Once this has been done, the holder of the patent cannot prevent the buyer of the
product that has been legitimately placed on the market, from using the product or
offering the product for re-sale (Article 61.2).

19- WHAT ARE THE DUTIES OF A PATENT HOLDER?

The content of the patent imposes upon its holder a series of obligations.

1. The holder of the payment has to pay an annual fee. Non-payment of the fee
would result in the expiration of the patent, which would then enter the public
domain, allowing anyone to exploit it for economic gain.

2. The holder of the patent is also obliged to commercialise it, either themselves
or by licensing its commercialisation. This commercial exploitation has to be
carried out within four years from the moment that the petition for the patent
was filed or three years from the moment when the concession of the patent

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was published. The shortest of these periods is applied automatically when

reached (Article 90). If the patent is not commercialised, then the sanction shall
either be the obligatory licensing of the patent to a third party or the expiry of
the patent.

20- WHAT LIMITATIONS CAN BE PLACED ON THE LICENSE FOR A

PATENT?

The license of the patent can be limited or unlimited.

The limits can refer to the:

1) Duration.

2) The territory (granting the licensee the right to exploit the patent in only part of
the territory in which it is protected).

3) The faculties granted to the licensee ( relating to the right to produce, sell,
export the product).

4) In the case of the patent of a process the limitation may refer to how the process
is used (Article 83.1).

21- WHAT IS MEANT BY A “LICENSE OF RIGHT”? EXPLAIN FULLY.

Through licenses a third party is licensed to exploit the patent economically, these
licenses can be voluntary, obligatory or licenses of right.

Voluntary licenses

Voluntary or contractual licenses originate in a pact between the licensor (the holder of
the patent) and a third party (the licensee), who is authorised to exercise the rights that
derive from the patent in exchange for payment.

The license can be over a patent that has been conceded or over the application for the
patent.

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The licensing of the patent

Spanish patent law demonstrates a preference for conceding the licence to a sole
licensee, rather than dividing the rights contained in the patent between various
licensees.

Article 84 determines that, unless there is a pact to the contrary, the titleholder of a
patent licence shall have the right to perform all the acts that constitute the commercial
exploitation of the patented object or process, in all of its possible applications,
throughout all Spanish territory and during the full term of the patent.

Non-exclusive and exclusive licenses

Spanish Patent Law also shows a preference for non-exclusive licences over exclusive
licenses.

Unless the parties have made a pact to the contrary licenses shall be understood to be
non-exclusive. This allows the licensee to concede licenses to other persons (whether
they are natural or legal persons) to commercially exploit the same invention (Article
83.5).

However, if the licence is an exclusive licence, this is reinforced to the point that not
even the licensor can commercially exploit the patented object or process, unless she
explicitly reserved this right to herself in the licensing contract (Article 83.6).

In either case the licensee can take all the legal actions that Spanish Patent Law grants
to the holder of the patent against third parties that infringe the patent (Article 117).

Licenses of right

A license of right comes into being as a consequence of a public declaration made by

the titleholder of a patent to the Spanish Patent and Trademark Office which registers
and publishes the declaration (Article 88.4).

In this declaration the titleholder declares that she will permit any interested party to
become the (non-exclusive) licensee of the patent in return for a fair price.

This offer shall remain in place throughout the life of the patent as long as it is not
withdrawn by the patentholder, or a third party communicates his intention to take up
the offer and commercially exploit the patent (Article 88.2).

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If no pact as to the price is made between the parties, the amount of compensation to be
received by the licensor shall be fixed by the Spanish Patent and Trademark Office
(Article 89.3).

Obligatory licences

Obligatory licences are granted without taking into consideration the will of the
titleholder, on whom the Spanish Patent and Trademark Office (SPTO) imposes the
obligation to contract. The SPTO also stipulates the terms and conditions of the licence
contract (Article 99).

These terms can be adjusted by the SPTO at the petition of the licensor or the licensee
when a change of circumstances justifies such a modification.

22- WHAT ARE THE CONDITIONS AND CAUSES OF OBLIGATORY

LICENSES?

The concession of obligatory licences by the SPTO is subject to two general requisites
and the concurrence of one of the causes contained in The Spanish Patent Law.

Conditions

(i) The interested party must show that they have tried to obtain from the titleholder of
the patent a license to exploit the patent under reasonable commercial conditions,
without success.

(ii) The interested party must also show that they have the means to carry out a genuine
and effective commercial exploitation of the patent (Article 98).

Causes

1. Lack of exploitation

One of causes for conceding an obligatory licence to an applicant is the lack of or the
insufficiency of the commercial exploitation of the patented product or process once the
time limit established by Spanish Patent Law to begin commercial exploitation has
expired, or the exploitation of the patented object or process has been interrupted for
more than a year (unless there is a legitimate cause for the delay or interruption).

The legitimate causes for a delay or interruption in the commercial exploitation of the
patented object or process are:

a) Objective technical difficulties

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b) Legal difficulties

That are beyond the control of the patentholder (see Articles 90 to 92).

2. Dependence between patents or between patents for plant varieties

When it is not possible to commercially exploit a patent without infringing a prior

patent, or a prior patent conceded to a plant variety, the titleholder of the subsequent
patent can apply for an obligatory licence for the commercial exploitation of the prior
patent.

If the object of the patent were the procedure for obtaining a chemical substance or a
pharmaceutical protected by an existing patent, the titleholder of the procedure or the
titleholder of the product has the right to claim an obligatory license over the patent of
the other.

An obligatory licence can only be granted if it is shown that the invention or plant
variety represents a significant technological advance of considerable economic
importance in relation to the invention protected by the prior patent or plant variety
(Article 93.4).

3. National or European Competition Law

The third cause for the concession of obligatory licences originates from the need to end
practices that have been declared contrary to national or European Competition Law by
a judicial or administrative decision that is not subject to appeal.

The judicial or administrative decision shall be communicated by the National

Commission for Markets and Competition or the Judge to the Spanish Trademark and
Patent Office, which shall publish it in the Official Bulletin of Industrial Property.

The necessity to end practices that have been declared anti-competitive can be taken
into account when determining the price paid for the licence (the canon).

4. Public Interest

The Spanish Patent Law also provides for obligatory licenses for the protection of the
public interest, when public health, national defence, economic or technological
development, or national supplies dictate an overwhelming need.

This type of license requires the intervention of the Government, who need to proclaim
the necessity by Royal Decree. The Royal Decree can obviate the application of the
conditions necessary for the other types of obligatory license.

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5. Patents concerning the production of pharmaceuticals to be exported to countries

with public health problems

These obligatory licenses shall be conceded by the Spanish Trademark and Patent
Office under the regime provided for in Regulation EC No 816/2006 on compulsory
licensing of patents relating to the manufacture of pharmaceutical products for export to
countries with public health problems.

This Regulation establishes a procedure for the grant of compulsory licenses in relation
to patents and supplementary protection certificates concerning the manufacture and
sale of pharmaceutical products, when such products are intended for export to eligible
importing countries in need of such products in order to address public health problems.

23- WHAT ARE THE CAUSES OF NULLITY OF A PATENT? BY WHOM CAN

THE ACTION FOR NULLITY BE EXERCISED?

Nullity

The causes of nullity are listed in Article 102. The Patent can be declared null due to:

1) A lack of any of the requisites for patentability.

2) When the description of the invention is not sufficiently detailed and so cannot
be reproduced by an expert in the field.

3) When the object of the protected right exceeds the content of the initial
application.

4) When, after the concession of the patent, the protection it confers has been
extended.

5) When the titleholder of the patent did not have the right to hold the patent
because she was not the inventor or legitimate owner of that right.

The legal action for the declaration of nullity

The legal action for the declaration of the nullity of the patent has to be exercised
through the judicial system. In Spain it is the Civil Courts that have jurisdiction
(Articles 116 and 117) and within them the Commercial Courts.

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The action to declare a patent null can be exercised by anyone, unless the action is
directed against the illegitimate holder of a patent, in which case it must be exercised by
the legitimate patent holder (Article 103.1).

The action must be directed against the titleholder inscribed in the Registry held by the
Spanish Trademark and Patent Office: however, all the holders of any rights over the
patent must be informed so that they have the opportunity to intervene in the
proceedings (Article 103.3).

The action for the declaration of the nullity of the patent can be exercised at any
moment during the life of the patent and during the five years following its expiry
(Article 103.2).

24- WHAT ARE THE EFFECTS OF THE DECLARATION OF THE NULLITY OF

A PATENT?

The declaration of the nullity of the patent produces effects “erga omnes”, that is,
against everybody.

The sentence that declares the nullity of the patent has retroactive effects, which means
that the patent shall be considered as never having been valid (Article 104.1).

However, without prejudice to any damages that might be awarded in the case that the
holder of the patent that has been declared null acted in bad faith, the judicial
declaration of the nullity of the patent does not have retroactive effects with respect to
any resolutions concerning the infringement of the patent that had been enforced prior
to the declaration of the nullity of the patent. Nor does it negatively affect contracts
concluded and carried out before the declaration of nullity. However, if justified by the
circumstances of the case, it may be possible to claim the devolution of any money paid
as a consequence of these contracts.

The nullity of the patent will result in the cancellation of its inscription in the Patent
Registry.

25- WHEN DOES A PATENT EXPIRE?

Article 108.1 enumerates five causes of the expiry of the patent.

1. The expiry of the time limit within which the patent could have been granted.

2. The failure to make the annual payment. In this case the expiry of the patent
does not come into effect until the payment has been due for six months.

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3. The title holder of the patent renounces it.

4. The patent is not exploited within two years following its concession.

5. The exploitation of the patent is insufficient.

LESSON 5: EUROPEAN TRADEMARK LAW

1-WHAT IS A TRADEMARK?

Trademarks are distinctive signs that are used to individualise and distinguish in the market
the goods and services of a business from other similar or identical goods and services.

2-WHAT ARE THEIR FUNCTIONS?

The principal characteristic of a trademark is that it distinguishes or differentiates between

goods and services. The right conferred on a business by having a trademark is the exclusive
use of this sign.

The function in the marketplace from the perspective of the consumer is that the product that
bears the trademark has not been subject to any outside interference without the consent of
the proprietor of the trademark.

It is therefore an indication of the quality of the product (or at least the quality associated with
that particular company), and that the products of the same type that bear this trademark are
homogeneous in nature.

3-WHAT CAN A TRADEMARK CONSIST OF?

Trademarks can be graphic and consist of a name, emblems, images, and drawings. However,
they can also be auditory: for example, the notes or melody that identify a radio show. It is
also possible to register olfactory or gustatory trademarks.

However a perfume (which has a use – to make things smell nicer) would not be subject to a
trademark, but rather a patent. In a trademark the smell is used to identify the product.

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Trademarks are not used for anything beyond this function of identification, something that
has a function would be subject to a patent.

4. WHAT IS THE PRINCIPLE OF COOPERATION BETWEEN NATIONAL

TRADEMARK LAW AND EU TRADEMARK LAW AS EXPRESSED IN RECITAL 8
OF REGULATION (EU) 2017/1001 ON THE EUROPEAN TRADEMARK?

The principle of cooperation - Recital 8

The principle of cooperation is expressed in Recital 8:

“National trademarks continue to be necessary for those undertakings which do not want
protection of their trademarks at Union level, or which are unable to obtain Union-wide
protection while national protection does not face any obstacles. It should be left to each
person seeking trademark protection to decide whether the protection is sought only as a
national trademark in one or more Member States, or any as an EU trademark, or both”.

5. WHAT ARE THE CONSEQUENCES OF THE CO-EXISTENCE OF NATIONAL

AND EUROPEAN TRADEMARK PROTECTION?

a. The equality of rights: National trademarks and European trademarks are equal in the
sense that they are mutually exclusive in the case of conflict. If a European trademark
conflicts with a prior national right, registration must be refused, or, if already
registered, the European Trademark will be declared invalid. Conversely European
trademarks are to be regarded as prior rights in all member states and will therefore
bar any subsequent conflicting signs from protection under national as well as under
Union Law.

b. Double Protection: As emphasised in recital 8, nothing in the European trademark

system prohibits registration of the same sign for the same proprietor (or another
person having the consent of the first proprietor) as a national trademark and a
European trademark. However, Article 136 of the Regulation imposes certain
restrictions against proprietors bringing double actions for infringement based on a
European trademark and an identical national mark in different fora.

c. Conversion and seniority: If an application for registration of a European trademark is

refused, or registration is cancelled, the proprietor can apply for conversion of the
European trademark into a national trademark in those member states where no
obstacle for protection exists. The trademark will then keep the same priority date as

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the European trademark application or registration. Furthermore, the European

trademark Regulation provides for the possibility of claiming seniority for a prior
national trademark (Articles 39 et seq). This has the effect that a person who has
surrendered an earlier national registration after having registered an identical sign as
a European trademark may still invoke the priority of that national mark in relation to
signs which have been acquired in the same national territory at a date preceding the
priority date of the European trademark, but subsequent to the priority date of the
earlier national registration.

6. WHAT ARE THE REQUIREMENTS FOR PROTECTION ACCORDING TO

ARTICLE 4 EUTMR (EUROPEAN TRADEMARK REGULATION)?

A definition of protectable subject matter is contained in Article 4 EUTM and Article 3 TMD.

The signs of which an EU trademark may consist of must be capable of:

a. Distinguishing the goods or services of one undertaking from those of other

undertakings
b. Being represented on the register in a manner which enables the competent
authorities and the public to determine the clear and precise subject matter of the
protection afforded to its proprietor.

In addition to those requirements, the provisions contain an exemplary, nonconclusive

catalogue of protectable forms of signs.

7. WHAT ARE THE ABSOLUTE GROUNDS FOR REFUSAL FOR GRANTING

TRADEMARK PROTECTION TO A SIGN ACCORDING TO ARTICLE 7 EUTMR?

Article 4 TMD and Article 7 EUTMR list the absolute grounds for refusal to register
European trademarks. As they are identical reference will be made only to Article 7 EUTMR.

Trademarks are excluded from protection if , among other causes, they:

a. Do not conform to the general requirements contained in Article 4

b. Are devoid of any distinctive character
c. Consist exclusively of signs or indications which may serve in trade, to designate the
kind, quality, quantity, intended purpose, value, geographical origin or the time of
production of goods or of rendering of the service, or other characteristics of the
goods or service.

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d. Trademarks which consist exclusively of signs or indications which have become

customary in the current language or in the bona fide and established practices of
trade.
e. Signs which consist exclusively of:
I. The shape, or other characteristic which results from the nature of the goods
themselves
II. The shape, or another characteristic, of goods, which is necessary to obtain a
technical result
III. The shape or other characteristic, which gives substantial value to the goods
f. Trademarks which are contrary to public policy or accepted principles of morality
g. Trademarks which are of such a nature as to deceive the public, for instance as to the
quality or geographical origin of the goods or service
h. Trademarks which have not been authorised by the competent authorities – (national
emblems, international organisations, autonomous regions etc…).

8. WHO ARE THE RELEVANT PUBLIC TO CONSIDER WHEN DETERMINING IF A

MARK HAS DISTINCTIVE CHARACTER OR NOT?

Trademarks which are devoid of any distinctive character may not be registered. This is to
exclude marks which are not capable of identifying the product as originating from a
particular undertaking.

In order to assess whether or not a trademark has any distinctive character, the overall
impression given by it must be considered.

A trademark’s distinctiveness is assessed by reference to the goods or services listed in the

application and to the perception of the relevant public

The relevant public consists of average consumers of the goods or services in question, who
are reasonably well informed and reasonably observant and circumspect.

There is also an element of public interest, aimed at ensuring that other traders offering the
same type of goods and services will not be unduly restricted.

The level of distinctiveness required is not challenging : the mark must be devoid of
distinctive character. There is no requirement that the sign should exhibit any particular level
of linguistic or artistic creativity. But the trademark must enable the relevant public to identify
the origin of the goods and services protected by it, and to distinguish them from other
undertakings.

If a mark is a compound mark, the whole of the mark must be assessed for distinctiveness.
The mere fact that each element considered separately is devoid of distinctive character does
not mean that their combination cannot present a distinctive character.

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Letters, numbers, geometric shapes – A plain numeral alone, without any unusual or fanciful
feature, will be regarded as devoid of distinctive character. It belongs in the public domain
and forms part of the store of signs available to all traders. Registration of an ordinary
exclamation mark with no additional graphic element or feature has likewise been refused as
devoid of distinctive character. Simple designs such as circles or squares, whether on their
own or in conjunction with descriptive elements, are generally considered to be devoid of
distinctive character. Numbers and letters may suggest to the average consumer that they are
model or catalogue numbers, in which case the sign will not function as a trademark, but as a
means of distinguishing the applicant’s various products from one another.

Colours: Though it may constitute a sign, normally a colour is a simple property of things.
Consumers are not accustomed to making assumptions about the origin of goods on the basis
of their colour or the colour of their packaging alone. Usually there is some additional graphic
or textual element. As a result, a colour per se is not normally distinctive.

In addition, the relevant public is rarely in a position directly to compare products in various
shades of colour, so the number of colours which it is capable of distinguishing is limited, and
so the number of different colours that are in fact available as potential trademarks to
distinguish goods or services is limited. A small number of trademark registrations for certain
services or goods could exhaust the entire range of colours available.

The ECJ has acknowledged that there is, in Community trademark law, a public interest in not
unduly restricting the availability of colours for other traders.

Shapes: The criteria for assessing the distinctiveness of the three-dimensional shapes of
product marks are no different from those to be applied to other trademarks.

However, while the public is accustomed to perceiving word and figurative marks as
identifying the trade origin of the goods, they may not regard shape as communicating
anything at all.

In Henkel ( an application was made to register a twolayer, bi-coloured dishwasher tablet. The
relevant public was the average consumer, although, because these were everyday goods, the
level of attention given to the shape and colours of such tablets was not expected to be high.

The shape was a basic geometrical shape, and an obvious one for such use. The use of basic
colours was commonplace for detergents. The ECJ observed:

“Only a trademark which departs significantly from the norm or customs of the sector and
thereby fulfils its essential function of indicating origin would not be devoid of distinctive
character”.

Variants of common shapes for a particular product are thus likely to be regarded as
non-distinctive.

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Names: In several member states the registration of common surnames has traditionally been
viewed with caution, unless accompanied by evidence of acquired distinctiveness.

However, the ECJ has stated unambiguously that the criteria for assessing the distinctiveness
of trademarks which were personal names were the same as those applicable to the other
categories of trademark, and that stricter general criteria for the assessment of names were not
permitted.

Slogans: Given that the relevant public may not tend to perceive slogans as identifying trade
origin, it may prove difficult to establish distinctiveness in such cases.

A figurative mark with the words “BEST BUY”, superimposed on the shape of a coloured
price tag was refused registration because the ECJ considered that it would be immediately
perceived as a mere promotional formula rather than an indication of the commercial origin of
the services applied for.

9. GIVE SOME EXAMPLES OF MARKS THAT WOULD GENERALLY BE

CONSIDERED TO BE DEVOID OF DISTINCTIVE CHARACTER.

Marks that are considered to be devoid of distinctive character are typically generic,
descriptive, or common in nature. They lack the uniqueness or distinctiveness required for
trademark protection. Here are some examples:

​ Generic Terms: Marks consisting of common names for goods or services that
directly describe the product or service itself. For example, using "Computer" for a
computer store.
​
​ Descriptive Terms: Marks that provide information about the characteristics, quality,
or intended purpose of the goods or services. For instance, using "Soft" for blankets.
​ Geographical Names: Marks that use names of geographic locations that are likely
associated with the origin of the goods or services. For example, "Paris Fashion" for
clothing.
​
​ Common Surnames: Marks that consist of common surnames are often considered
lacking in distinctive character. For instance, using "Smith's Bakery."
​ Purely Decorative or Functional Elements: Marks that are purely decorative or serve
a functional purpose without indicating the origin of the goods or services.
​
​ Laudatory Terms: Marks that praise the quality or characteristics of the goods or
services. For example, using "Best" for a product.
​ Color Alone: In some cases, a single color, without a specific design or distinctive
pattern, may lack distinctive character.
​
​ Shapes of Goods: Marks that consist of the shape of the actual goods themselves,
especially if the shape is common and necessary for the product.

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10. WHAT IS MEANT GENERALLY BY THE TERM “DESCRIPTIVE MARKS” AND

WHAT IS THE PUBLIC INTEREST JUSTIFICATION OF THEIR EXCLUSION FROM
PROTECTION?

Descriptive marks may not be registered. These are trademarks which consist exclusively of
signs or indications which may serve, in trade, to designate the kind, quality, quantity,
intended purpose, value, geographical origin, the time of production of goods, or the
rendering of services, or other characteristics of goods or services.

These exclusions have a public interest aim, to ensure that descriptive signs may be freely
used by all, unless they have become distinctive through use.

The relevant question is whether, given the meaning of the sign to the relevant public, there is
a sufficiently direct and specific relationship between the sign and the goods or services for
which it is to be registered.

A mark consisting of a neologism produced by a combination of elements will not be

regarded as descriptive merely because each of its components is descriptive. The mark as a
whole must be found to be descriptive in order to be refused registration.

However, to be registrable, there must be “a perceptible difference between the neologism

and the mere sum of its parts”.

This might occur because for the relevant goods or services the combination of elements is
sufficiently unusual that the word creates an impression which is sufficiently far removed
from that produced by the mere combination of meanings.

The elements of BABY DRY – did allude to the function of babies´ nappies, but their
syntactically unusual juxtaposition was not a familiar expression in the English language,
either for designating nappies or for describing their essential characteristic. When considered
as a whole: BABY DRY was not descriptive, but a lexical invention which rendered the mark
distinctive (Case 383/99 – Procter & Gamble Co v OHIM).

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In contrast DOUBLEMINT for chewing gum, simply indicated a doubling of the mint
flavour, so was unregistrable.

11. WHAT IS MEANT BY “ACQUIRED DISTINCTIVENESS” IN THE CONTEXT OF

A TRADEMARK?

There is an important exception to the rules regarding the last three absolute grounds for
refusal that we have examined (a mark devoid of distinctive character, descriptive or
customary).

This is when the mark becomes distinctive in relation to the goods or services for which
registration is requested in consequence of the use which has been made of it.

This recognises that, through use, an inherently unregistrable mark may become distinctive,
in fact, and thus registrable.

For distinctive character to have been acquired through use, “the mark must serve to identify
the product in respect of which registration is applied for as originating from a particular
undertaking, and thus to distinguish that product from goods of other undertakings”.

In other words, as always, the trademark must enable the relevant public to identify the origin
of goods and or services protected by it, and to distinguish them from those of other
undertakings.

12. WHAT IS THE JUSTIFICATION FOR EXCLUDING THE PROTECTION OF

SHAPES THAT ARE NECESSARY IN ORDER TO OBTAIN A TECHNICAL RESULT?

A problem with allowing certain shapes to be granted a trademark is that there is an obvious
danger that such marks will hamper other traders who legitimately wish to use similar shapes.

Shape marks, like other marks, must satisfy the general requirements for registrability,
including distinctiveness.

In addition, there are specific exclusions intended to prevent the registration of marks which
will give their proprietors a monopoly on technical solutions or functional characteristics of a
product, thus hampering competitors

The exclusions apply to signs which consist exclusively of the shape:

a. The shape which results from the nature of the goods themselves

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b. The shape of goods which is necessary to obtain a technical result

c. The shape which gives substantial value to the goods

Unlike the previous absolute grounds for refusal, they may not be overcome by showing that
they have acquired a distinctive character through use.

Not all goods possess an intrinsic shape. For example: liquids, powder, granules – must be
packaged in order to be marketed. The packaging chosen inevitably imposes its shape on the
goods.

If a trademark application involves goods of this sort, the ECJ has held that the packaging
must be assimilated to the shape of the product for the purposes of examining that application.

13. WHAT IS THE TEST FOR DETERMINING WHETHER A MARK IS CONTRARY

TO PUBLIC POLICY OR ACCEPTED PRINCIPLES OF MORALITY? HOW CAN
THIS CRITERION VARY ACCORDING TO THE PLACE OF SALE OR INTENDED
MARKET?

Trademarks which are contrary to public policy or to accepted principles of morality may not
be registered.

Public policy can be defined as: “the body of all legal rules that are necessary for a
functioning democratic society and a state of law”, and accepted principles of morality as:
“those that are absolutely necessary for the proper functioning of a society”.

This provision is not concerned with bad taste or protection of the feelings of individuals, but
trademarks which are directly against the basic norms of society. The rationale is to preclude
trademarks from registration where the grant of a monopoly would undermine the state of
law.

The test is: Would the trademark have a clear offensive impact on people of normal
sensitivity.

Blasphemous, racist or discriminatory phrases are excluded. But trademarks that might be
considered in poor taste are not.

Dick and Fanny – was registrable for clothing, even though it was found to have” a rather
smutty flavour” but fell short of being contrary to public policy or accepted principles of
morality.

In contrast - SCREW YOU – was refused for clothing and other ordinary items marketed in
outlets used by the general public but allowed for artificial breasts and sex toys likely to be
found only in sex shops or on websites specialising in sex products, because people using
such outlets were by definition “unlikely to be offended by a trademark which contains crude,
sexually charged language”.

Public morality:

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Different kind of offensive character was at stake in a decision by the General Court
regarding the state emblem of the former Soviet Union for fashion products.155 The mark
had been rejected at the EUIPO, inter alia because it clashed with a provision in Hungarian
criminal law which prohibits the public use of ‘symbols of despotism’, including the hammer
and sickle and the five-point red star which form part of the emblem. Accordingly, the
emblem is not registrable under the guidelines applied by the Hungarian patent office. The
appellant argued that rather than founding the decision on the specific situation in one
Member State, EUTMs should only be rejected as offensive or contrary to public order for
grounds that are ‘common’ to all Member States.156 The General Court refuted those
arguments, holding that: the perception of whether or not a mark is contrary to public policy
is influenced by the specific circumstances of the Member State in which the consumers who
form part of the relevant public are found. Therefore it is necessary to take account of not
only the circumstances common to all Member States but also of the particular circumstances
of the Member States which are likely to influence the perception of the relevant public
within those States.

The general public in the Community will sometimes encounter words on imported goods and
services which, if used conversationally in their own language, might be found shocking.

Nevertheless, the Board of Appeal has suggested that they will be understood for what they
are, ‘namely as neutral foreign words carrying an unfortunate meaning in the native tongue’.

An application to register a figurative mark containing the words REVA ELECTRIC CAR for
electric vehicles – the word ‘Reva’ being an acronym for ‘Revolutionary Electric Vehicle
Alternative’ – was refused by the examiner because it contained the Finnish word ‘Reva’,

Reva is a vulgar word for female genitalia. The Board of Appeal allowed the applicant’s
appeal: ‘No one in Finland is likely to believe that the applicant is intentionally trying to be
abusive – and by the way, potentially ruining its business prospects in the process – by putting
the word ‘reva’ on its cars . . . At worst the mark might carry an element of unintentional bad
taste, but nothing more.’

The provision also excludes all direct references to or incitements to commit criminal acts,
and names of terrorist organizations (as they would be perceived as a direct support for them):
both ETA and BIN LADEN have been refused.

OHIM has also rejected marks which name famous people without their consent; FIDEL
CASTRO, BILL CLINTON.

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14. WHAT IS MEANT BY DECEPTIVE MARKS, AND HOW HAS THE ECJ DEFINED
THIS CONCEPT? WHAT ARE SOME EXAMPLES OF DECEPTIVE MARKS
ACCORDING TO EUROPEAN CASE LAW

Trademarks which are of such a nature as to deceive the public, for instance as to the nature,
quality or geographical origin of the goods or services, may not be registered.

Normally this is because they contain an allusion which is inaccurate when the goods or
services registered are considered.

The ECJ has stated that there must be either actual deceit or a sufficiently serious risk that the
consumer will be deceived.

ARCADIA for wines was initially refused as descriptive, because Arcadia was a Greek region
known for its wine production.

- The applicant’s offer to limit the specification of goods to exclude Greek wines or to
include only Italian wines would have made the name deceptive, so it was not
registered.
- Similarly, TITAN for portable buildings would have deceived the relevant public as
to the nature of the goods. ‘Titan’ means ‘titanium’ in German, Swedish and Danish.
Titanium is a metallic element which is resistant to corrosion and often used in strong
lightweight alloys
- Use of the word TITAN would therefore lead the German speaking public to expect a
building which used titanium, instead of the conventional non - metallic materials
which were used in the applicant’s product.

Marks which falsely imply that they convey official approval will be regarded as deceptive.
INTERNATIONAL STAR REGISTRY was refused, because it was likely to mislead
consumers into believing that the applicant was an authoritative body empowered to give
names to stars. In fact, thenames it allocated to stars were not recognised by the astronomical
community. References to official recognition such as ‘by Royal Appointment’ will be
deceptive if the applicant cannot prove they are true, although the word‘Royal’ is not
regarded as promising any official status. In contrast, THE ECOMMERCE AUTHORITY for
services related to electronic commerce was regarded as merely laudatory, rather than likely
to deceive the public into believing that the applicant was an authorised regulatory body.

15. WHAT ARE MEANT BY RELATIVE GROUNDS FOR REFUSAL OF A

TRADEMARK?

Registration of a trademark is also refused if it conflicts with a prior right in a trademark or

other distinctive sign. The relevant provisions are found in Article 8 EUTMR and Article 5
TMD.

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In the EUTM system, the proprietors of such rights may file an opposition against an EUTM
application which has been published subsequent to examination of the absolute grounds for
refusal.

Regarding the national systems, it is left to Member States to decide whether prior rights are
examined ex officio, or only by way of opposition, which may take place either before or
after registration of the trademark.

Due to the unitary character of the EUTM, registration is refused in case of all prior rights,
irrespective of whether they are rights with Union-wide effect or only exist on the national
level. Vice versa, all prior EUTMs form grounds for refusal in relation to junior national
marks.

16. WHAT IS THE SCOPE OF TRADEMARK PROTECTION OFFERED BY

ARTICLE 8 OF THE EUTMR?

The scope of rights conferred by a trademark is defined in Articles 8 (1), (5) EUTMR and 5
(1), (3)(a) TMD (concerning trademarks as relative grounds for refusal) and in Articles 9 (2)
EUTMR and 10 (2) TMD (concerning infringement).

The registration of a trademark under the EUTMR confers on the proprietor the right to
prohibit unauthorized registration or use in the course of trade: of an identical mark in relation
to identical goods or services; of an identical or similar mark in relation to identical or similar
products, if this entails likelihood of confusion (including association) of an identical or
similar mark in relation to goods or services that are identical, similar, or non-similar to those
for which the mark is protected, if the mark has a reputation and if the use made of it takes
unfair advantage of or is detrimental to the reputation or the distinctive character of the mark

Infringement will only be found under the relevant provisions if a number of conditions are
met:

I. In principle the alleged infringer must have made active use of the sign (with certain
exceptions)
II. The use must have been made in the course of trade
III. The use must have been made in relation to goods or services
IV. The use must be such as to jeopardise the protected trademark functions, in particular
the essential function of guaranteeing commercial origin

17. WHAT CONDITIONS NEED TO BE MET IN ORDER FOR AN INFRINGEMENT

OF TRADEMARK LAW TO BE FOUND?

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Infringement cannot be found in principle if the alleged infringer has not made active use of
the sign. This became relevant in a decision of the CJEU in favour of the search engine
Google.

In keyword advertisements a search engine (such as Google), offers the possibility against
payment to appear with one’s advertisement when a keyword (in the relevant cases another
person’s trademark) is typed into the browser.

This involves two subject whose conducted may be judged differently:

a. The person buying he keyword and making use of it for its own commercial purposes
b. The search engine providing the technical infrastructure (the technical service
provider)

In its decision dealing with trademark infringement the CJEU declared that:

“use, by a third party, of a sign identical with, or similar to, the proprietor’s trademark
implies, at the very least, that the third party uses the sign in its own commercial
communication. A referencing service provider allows its clients to use signs which are
identical with, or similar to, trademarks, without itself using those signs.”.

Active use of the sign was therefore only found to have been made by the competitor using
the technique for positioning its own advertisements, but not by the search engine. (Joined
cases C-236/08 to C-238/08).

18. HOW HAS THE ECJ TREATED GOODS THAT CONTRAVENE EU TRADEMARK
LAW SOLD OVER THE INTERNET?

Use in relation to goods and services is denied if a sign is (solely) used to identify a business
rather than the goods or services offered by it. This principle has been expounded upon in a
number of decisions.

In Robeco (CJEU case C-23/01) the CJEU had been asked whether use of a similar sign in
order to identify a business could be considered as taking unfair advantage of or being
detrimental to a trademark’s reputation or distinctive character. The Court responded that
protection of a trademark’s distinctive character or reputation against use for other purposes
than to distinguish goods or services is not covered by the law.

Céline

This issue was treated in more detail in Céline. The signs in conflict were the trademark
Céline registered by a manufacturer of clothes and shoes, and the trade name Céline
registered by a clothes shop.

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The defendant had argued that it did not use the trade name in relation to “goods” and was
therefore not liable for trademark infringement. The CJEU took the opportunity to clarify its
position as follows:

“The purpose of a company, trade or shop name is not, of itself, to distinguish goods or
services. Accordingly, where the use of a company name, trade name or shop name is limited
to identifying a company or designating a business which is being carried on, such use cannot
be considered as being “in relation to goods or services”. Conversely there is use “in relation
to goods or services” where a third party affixes the sign constituting his company name,
trade name or shop name to the goods which he markets”.

19. HOW HAS THE ECJ TREATED SIGNS USED FOR TRADENAMES THAT
COINCIDE WITH A TRADEMARK?

- Private use vs commercial use

- According to the formula established in CJEU case law, use in the course of trade is
regularly found where it occurs in the context of a commercial activity with a view to
economic advantage, and not as a private matter.
- However, this is not so clear in the case of privately owned goods that are offered for
sale to a large audience on internet platforms.

L’Oreal vs Ebay

The CJEU stated in the case of L’Oreal vs Ebay that:

“When an individual sells a product bearing a trademark through an online marketplace and
the transaction does not take place in the context of a commercial activity, the proprietor of
the trademark cannot rely on his exclusive right. If, however, owing to their volume, their
frequency or other characteristics, the sales made on such a marketplace go beyond the realms
of a private activity, the seller will be acting in “the course of trade” within the meaning of
those provisions.

20. ACCORDING TO THE CJEU, WHEN IS A SIGN IDENTICAL WITH A

PROTECTED TRADEMARK?

This identity between the mark and the sign and the goods or services is of particular
relevance in cases when a mark is used in order to refer to the goods or services as originating
from the trademark owner (referential use), known as double identity cases.

The CJEU has developed the principle that infringement can only be found in double identity
cases if use of the mark jeopardises or risks jeopardising the protected mark functions, in
particular the essential function of guaranteeing origin.

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Opel v. Autec

In Opel v Autec, it was found in a dispute concerning scale models of toy cars on which the
emblem of the original had been affixed, that in spite of there being “double identity” (as the
car maker’s mark was also registered for toys), an infringement under the provision could not
be found because the commercial origin of the toy car, and thus the essential trademark
function, was not detrimentally affected. CJEU Case 48/05, Opel v. Autec

Arsenal v. Reed

However, the CJEU decided in Arsenal v. Reed that the essential trademark function was
jeopardised by displaying the emblem and logo of the football club on fan articles such as
scarves, even though the referring court submitted that the emblem was viewed by the
relevant public as a badge of loyalty and support rather than an indication of commercial
origin. CJEU C-206/01 Arsenal v. Reed

The identity of trademarks

Regarding the criterion of “identity”, which must exist for the application of Article 9(2) (a)
EUTMR – between the signs as well as between the respective goods or services, the CJEU
has held that:

“A sign is identical with a protected trademark if it reproduces, without any modification or

addition, all the elements constituting the trademark, or where, viewed as a whole, it contains
differences so insignificant that they may go unnoticed by the average consumer”. This means
that wherever the differences between the registered trademark and the allegedly infringing
sign are more than insubstantial the issue must be treated under 9 (2) (b) EUTMR – which
requires likelihood of confusion.

21. HOW IS A “LIKELIHOOD OF CONFUSION” ASSESSED IN TRADEMARK LAW?

In cases where either the marks or the goods or services (or both) are not identical with those
protected on the basis of the trademark, it must be shown that a likelihood of confusion is
caused thereby. This requires an assessment of the degree of similarity of the marks and the
goods and services, and an overall evaluation of the impression created on the relevant public.

The leading case establishing the standards of assessment is Sabél v. Puma

Sábel v. Puma

Sabél v. Puma concerned a conflict between a trademark consisting of the image of a leaping
cat of prey and a combination mark consisting of a word element and an image showing an
animal slightly resembling the one shown in the older mark.

The TJEU stated: “The perception of marks in the mind of the average consumer of the type
of goods or services in question plays a decisive role in the global appreciation of the
likelihood of confusion. The average consumer normally perceives a mark as a whole and

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does not proceed to analyse its various details. The more distinctive the earlier mark, the
greater will be the likelihood of confusion. It is therefore not impossible that the conceptual
similarity resulting from the fact that the two marks use images with analogous semantic
content may give rise to a likelihood of confusion where the earlier mark has a particularly
distinctive character, either per se or because of the reputation it enjoys with the public”.

22. WHAT EXTENDED PROTECTION IS GIVEN TO MARKS THAT HAVE A

REPUTATION?

In addition to indicating origin, marks can acquire intrinsic value as business assets due to
their capacity to symbolise prestige or lifestyle.

In response to that, protection of trademarks, protection of trademarks which enjoy a

reputation in the territory where protection is sought is not confined to conflicts giving rise to
a likelihood of confusion but may extend to situations where others take unfair advantage of,
or act in a manner that is detrimental to , the reputation or distinctive character of the mark.

An economic justification for that is found in the fact that the reputation enjoyed by a mark is
regularly the fruit of intense investment, for which further incentives are provided by the
additional protection granted.

23. WHAT IS THE ECONOMIC JUSTIFICATION FOR GRANTING EXTENDED

PROTECTION TO MARKS THAT HAVE A REPUTATION?

In addition to indicating origin, marks can acquire intrinsic value as business assets due to
their capacity to symbolise prestige or lifestyle.

In response to that, protection of trademarks, protection of trademarks which enjoy a

reputation in the territory where protection is sought is not confined to conflicts giving rise to
a likelihood of confusion but may extend to situations where others take unfair advantage of,
or act in a manner that is detrimental to , the reputation or distinctive character of the mark.

An economic justification for that is found in the fact that the reputation enjoyed by a mark is
regularly the fruit of intense investment, for which further incentives are provided by the
additional protection granted.

24. WHAT ARE SOME OF THE RELEVANT FACTORS FOR DETERMINING THE
SCOPE OF THE EXTENDED PROTECTION?

a. Can the mark claim reputation in a qualitative and quantitative sense?

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b. Does the reputation exist in the relevant territory?

c. Does the infringing sign evoke the reputed mark?
d. Is it detrimental to the distinctive character or reputation of the mark?
e. Does it take unfair advantage of the distinctive character or reputation of the mark?
f. Is the use made without due cause or can it be justified?

25. HOW MIGHT DETRIMENT TO THE REPUTATION OF A TRADEMARK BE

SHOWN ACCORDING TO THE CJEU?

Another type of injury occurs when a mark is used in a manner which could destroy or
jeopardise its positive perception by the public. For instance, this might be the case when a
perfume mark is displayed on sewage trucks.

The CJEU commented on detriment to reputation in the case Intel v. CPM: “ such detriment is
caused when the goods or services for which the identical or similar sign is used by the third
party may be perceived by the public in such a way that the trademark’s power of attraction is
reduced. The likelihood of such detriment may arise in particular from the fact that the goods
or services offered by the third party possess a characteristic or a quality which is liable to
have a negative impact on the image of the mark”.

26. WHAT IS MEANT BY “FREE RIDING” IN RELATION TO THE EXTENDED

PROTECTION GRANTED TO MARKS THAT HAVE A REPUTATION?

Free riding on the commercial value and attractiveness of reputed signs takes advantage of the
reputation or the distinctive character of a mark. As the CJEU indicated in Intel there is no
need for injury to occur.

L’ Oréal v. Bellure

The concept was further elaborated in L’Oréal v. Bellure. In addition to distributing

comparison lists to retailers, replicas of prestigious perfume brands had been sold in packages
and bottles evoking the originals, without getting close enough to cause a likelihood of
confusion. According to the referring court, there was no detriment to the prestige and the
market value of the famous brands. The question remained, nevertheless, whether unfair
advantage was taken of the perfume.

The response by the CJEU was that:

“Where a third-party attempts, through the use of a sign similar to a mark with a reputation, to
ride on the coat tails of that mark in order to benefit from its power of attraction, its reputation
and its prestige, and to exploit, without paying any financial compensation and without being

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required to make efforts of his own in that regard, the marketing effort expended by the
proprietor of that mark in order to create and maintain the image of that mark, the advantage
resulting from such use must be considered to be an advantage that has been unfairly taken of
the distinctive character and repute of that mark.” Case C-487/07

27. WHAT LIMITATIONS ARE IMPOSED ON THE PROTECTION OFFERED TO

TRADEMARKS IN THE EUTMR?

The limitations concern:

- Use of one’s own name or address (Article 14 (1) (a)).

- Use of signs or indications which are not distinctive, or which concern the kind,
quality, etc. or other characteristics of goods or services (Article 14 (1) (b)).
- The use of a sign to refer to the goods or services of the proprietor, in particular
where that is necessary to indicate the intended purpose (Article 14 (1) (c)).

Pursuant to paragraph (2) of both provisions, those limitations only apply if the use is made in
accordance with honest practice in industrial or commercial manners.

No reference is made in Article 14 to use of a mark in comparative advertising. However, due

to the fact that reference is made in Article 9 (3) (f) EUTMR and Article 10 (3) (f) TMD
respectively to Directive 2006/114/EC, it is clear that the conditions under which comparative
advertising is permitted are governing also in the context of trademark law.

28. WHEN DOES THE CJEU CONSIDER THAT REFERENTIAL USE OF A

TRADEMARK IS NECESSARY?

Article 14(1) (c) EUTMR and the TMD respectively permits use of a mark to refer in
commercial communication to goods and services as those of the proprietor (referential use).

The issue was addressed to some extent in Gillete v. La Laboratories concerning the
marketing of razor blades by emphasising their compatibility with the leading brand. The
CJEU was therefore asked whether the express reference to Gilette blades was to be
considered as necessary.

The CJEU replied: “Use of a trademark is necessary in cases where that information cannot in
practice be communicated to the public by a third party without use being made of the
trademark of which the latter is not the owner. That use must in practice be the only means of
providing such information. In order to determine whether other means of providing such
information may be used, it is necessary to take into consideration, for example, the possible
existence of technical standards or norms generally used for the type of product marketed by
the third party and known to the public for which that type of product is intended. Those
norms, or other characteristics, must be capable of providing that public with comprehensible
and full information on the intended purpose of the product marketed…”

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29. WHAT IS MEANT BY THE TERM “REGIONAL EXHAUSTION” IN THE

CONTEXT OF EUROPEAN TRADEMARK LAW? WHICH ACTS CONFER
EXHAUSTION?

Pursuant to Article 15 EUTMR the proprietor of a trademark cannot prohibit the use of the
mark in relation to goods which have been put on the market in the EEA by the proprietor or
with his consent

30. HOW IS ACQUIESCENCE A LIMIT TO THE PROTECTION OFFERED BY

TRADEMARK LAW?

Articles 9 TMD and 61 EUTMR encompass the principle that if a trademark owner
knowingly has tolerated the use of a registered, infringing mark for a period of five years, she
may not apply for a declaration of invalidity of the other mark, unless the application of the
younger mark was filed in bad faith.

Likewise, the use of such marks cannot be prohibited; the signs must coexist (see Article 16
(1) EUTMR). This rule follows from general considerations of equity and fairness.

In Case C-482/09 over the use of the trademark “Budweiser” the CJEU stated that: “The
concept of acquiescence must be interpreted as meaning that the proprietor of an earlier
trademark cannot be held to have acquiesced in the use of which he has long been aware, by a
third party, if that proprietor was not in any position to oppose that use”.

31. WHEN DOES LACK OF USE OF A TRADEMARK LEAD TO THE INABILITY TO

ENFORCE IT?

The use requirement

According to Article 18 EUTMR trademarks lose their legal validity and may no longer be
enforced if no genuine use has been made of them during a period of five consecutive years
any time after registration. It is sufficient for the requirement of use if the mark is used with
the consent of the proprietor (18.2 EUTMR) or for export purposes only (18.1 (b) EUTMR).

32. WHAT HAS THE CJEU STATED WITH RESPECT TO THE GENUINENESS OF
USE OF A TRADEMARK?

In the leading case decided by the CJEU, the owner of the Benelux trademark “Minimax” had
stopped selling the fire extinguishers for which the mark had been registered, and had used
the mark only in connection with repair services and sales of spare parts for those products, a

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German company using the same mark in Germany and wanting to expand its business to the
Benelux countries claimed revocation on the ground of no-use.

In response to the question of whether the use made of the trademark was genuine the CJEU
pointed out that:

“There is genuine use of a trademark where the mark is used in accordance with its essential
function. When assessing whether the use of the trademark is genuine, regard must be had to
all the facts and circumstances relevant to establishing whether the commercial exploitation
of the mark is real, particularly whether such use is viewed as warranted in the economic
sector concerned to maintain or create a share in the market for the goods and services
protected by the mark, the nature of the goods and services at issue, the characteristics of the
market and the scale and frequency of use of the mark. The fact that a mark that is not used
for goods newly available on the market but for goods that were sold in the past does not
mean that its use is not genuine, if the proprietor makes actual use of the same mark for
component parts that are integral to the make up or structure of such goods, or for goods or
services directly connected with the goods previously sold and intended to meet the needs of
customers of those goods”.

Freely distributed goods:

In Silberquelle v. Maselli (Case C-495/07) – the CJEU held that the use of a mark on goods
distributed “free” as promotional items, with other, unrelated goods, does not amount to
genuine use because:

“Those items are not distributed in any way with the aim of penetrating the market for goods
in the same class. In those circumstances, affixing the mark to those items does not contribute
to creating an outlet for those items or to distinguishing, in the interest of the consumer, those
items from the goods of other undertakings”.

However, the CJEU declared in Verein Radetzky Orden that services provided for free by
charitable institutions may satisfy the use requirement, because these associations “cannot be
accused of not making actual use of those marks when in fact they use them for those goods
or services”.

33. WHAT HAS THE CJEU STATED WITH RESPECT TO THE GENUINENESS OF
USE OF A TRADEMARK WITH RESPECT TO FREELY DISTRIBUTED GOODS
AND TO THE REGISTRATION OF VARIATIONS?

In the leading case decided by the CJEU, the owner of the Benelux trademark “Minimax” had
stopped selling the fire extinguishers for which the mark had been registered, and had used
the mark only in connection with repair services and sales of spare parts for those products, a

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German company using the same mark in Germany and wanting to expand its business to the
Benelux countries claimed revocation on the ground of no-use.

In response to the question of whether the use made of the trademark was genuine the CJEU
pointed out that:

“There is genuine use of a trademark where the mark is used in accordance with its essential
function. When assessing whether the use of the trademark is genuine, regard must be had to
all the facts and circumstances relevant to establishing whether the commercial exploitation
of the mark is real, particularly whether such use is viewed as warranted in the economic
sector concerned to maintain or create a share in the market for the goods and services
protected by the mark, the nature of the goods and services at issue, the characteristics of the
market and the scale and frequency of use of the mark. The fact that a mark that is not used
for goods newly available on the market but for goods that were sold in the past does not
mean that its use is not genuine, if the proprietor makes actual use of the same mark for
component parts that are integral to the make up or structure of such goods, or for goods or
services directly connected with the goods previously sold and intended to meet the needs of
customers of those goods”.

Freely distributed goods:

In Silberquelle v. Maselli (Case C-495/07) – the CJEU held that the use of a mark on goods
distributed “free” as promotional items, with other, unrelated goods, does not amount to
genuine use because:

“Those items are not distributed in any way with the aim of penetrating the market for goods
in the same class. In those circumstances, affixing the mark to those items does not contribute
to creating an outlet for those items or to distinguishing, in the interest of the consumer, those
items from the goods of other undertakings”.

However, the CJEU declared in Verein Radetzky Orden that services provided for free by
charitable institutions may satisfy the use requirement, because these associations “cannot be
accused of not making actual use of those marks when in fact they use them for those goods
or services”.

34. ARE THERE CIRCUMSTANCES IN WHICH THE NON-USE OF A TRADEMARK

CAN BE JUSTIFIED?

Non-use of a mark does not lead to invalidation where the owner can invoke proper reasons.
The issue was raised in a conflict concerning a trademark (Chef de cuisine) intended for
ready-made meals to be sold in the proprietor’s supermarkets. As justification for non-use, the
proprietor referred the bureaucratic obstacles he had to face in connection with the permission
to establish the supermarkets in the country of intended use.

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The CJEU determined that: “If an obstacle is such as to jeopardise the appropriate use of the
mark, its proprietor cannot reasonably be required to use it none the less. Thus, for example,
the proprietor of a trademark cannot reasonably be required to sell its goods in the sales
outlets of its competitors. It follows that only obstacles having a sufficiently direct
relationship with a trademark making its use impossible or unreasonable, and which arise
independently of the will of the proprietor of the mark, maybe described as “proper reasons
for non-use” of that mark.

35. WHEN IS A TRADEMARK LIABLE TO REVOCATION ACCORDING TO THE

EUTMR?

The substantive grounds for revocation and invalidation are the same under the EUTMR and
the TMD.

Revocation

A trademark is liable to revocation if:

a. It has not been put to use in the EU or in the Member State where the mark is
protected: Articles 19(1) TMD and 58(1) (a) EUTMR
b. In consequence of acts or activities of the proprietor, it has become generic: Articles
20 (a) TMD and 58(1) EUTMR
c. In consequence of the use by the proprietor or with her consent, it is liable to mislead
the public

Articles 20 (b) TMD and 58 (1) (c) EUTMR

36. HOW HAS THE CJEU DEFINED “BAD FAITH” WITH RESPECT TO THE
INVALIDATION OF A EUROPEAN TRADEMARK?

Bad faith as a ground for invalidation of an EUTM was addressed in the “Golden Bunny”
decision (Lindt v. Sprüngli v. Hauswirth). The plaintiff in the main case had registered as an
EUTM the three-dimensional shape of a sitting chocolate Easter bunny in gold wrapping.

The defendant counter-claimed for invalidation, arguing that the plaintiff at the time of
application had known that the defendant used, and held a valuable interest position in a
similar shape for his own products.

Being asked for the criteria to be established for finding bad faith, the CJEU declared that all
the relevant factors must be taken into consideration in order to assess bad faith in regard to
EUTM filings.

So what is “Bad faith”?

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In particular these comprise:

1. The fact that the applicant knows or must know that a third party is using, in at least
one Member State, an identical or similar sign for an identical or similar product
capable of being confused with the sign for which registration is sought.
2. The applicant’s intention to prevent that third party from continuing to use such a
sign, in particular if the applicant himself does not intend to make genuine use of the
sign
3. The degree of protection (legal or informal) enjoyed by the third party’s sign for
which registration is sought, including in particular the degree of reputation enjoyed
by the latter sign

Golden Bunny

With respect to the actual “Golden Bunny” case, the CJEU remarked that: “In a case where
the sign for which the registration is sought consists of the entire shape and presentation of a
product, the fact the applicant is acting in bad faith might be more readily established where
the competitor’s freedom to chose the shape of a product and its presentation is restricted by
technical or commercial factors, so that the trademark is able to prevent his competitors not
merely from using an identical or similar sign, but also from marketing comparable products”

It follows from that decision that the applicant’s knowledge of the existence of the prior mark,
whether in the same territory or abroad, is a necessary, but not sufficient requirement for
finding bad faith.

37. WHEN CAN INFRINGEMENT PROCEEDINGS BE BROUGHT AGAINST THE

LICENSEE OF A EUROPEAN TRADEMARK?

Licences are regulated in Articles 25 EUTMR and 25 TMD. The wording of the provision is
the same in both legal acts.

Licences can be exclusive or non-exclusive, and they can be granted for all or part of the
goods for which a mark is registered., and for the whole or part of the territory for which it is
protected (Article 25.1).

Claims for infringement may be raised against a licensee who violates certain fundamental
elements of the licence contract (Article 25.2).

Unless otherwise stipulated in the license contract, a licensee can only bring infringement
proceedings with the proprietor’s consent. However, the holder of an exclusive licence may

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bring such proceedings if the proprietor of the trademark, after formal notice, does not
himself bring infringement proceedings within an appropriate period (Article 25.3).

Pursuant to Article 25(2), infringement proceedings can be brought against a licensee who
contravenes a provision in the licence contract with regard to:

1. Its duration
2. The form in which the trademark may be used
3. The scope of the goods or services for which the licence is granted
4. The territory in which the trademark may be affixed
5. The quality of the goods manufactured or of the services provided by the licensee

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LESSON 6: INDUSTRIAL DESIGN

1. WHAT DOES IT MEAN TO STATE THAT COMMUNITY DESIGNS ARE UNITARY

RIGHTS THROUGHOUT THE EU?

Product design refers to the shape and ornamentation of commodities.

In EU legislation is protected by:

- Design Directive 71/1998

- Community Design Regulation 6/2002

Like EU Trademarks, Community Designs are unitary rights with equal effect throughout the
EU, meaning that they cannot be registered, transferred, surrendered or declared invalid save
in respect of the entire Union.

Design registrations on the EU level are administered by the EUIPO in Alicante.

Unlike trademarks, however, the Community Design Regulation (CDR) provides for
short-term EU wide protection of unregistered rights.

2.ACCORDING TO ARTICLE 3 OF THE CDR (COMMUNITY DESIGN

REGULATION) WHAT PROTECTION IS AFFORDED UNDER THE TITLE OF
DESIGN?

Pursuant to Article 3 (a) CDR the protection afforded under the title of design pertains to:

“The appearance of products, or parts of products, resulting the features of, in particular the
lines, contours, shape, texture and/or materials of the product itself and/or its
ornamentation.”

Article 3 (b) CDR stipulates that “product” must be interpreted broadly, as it means: “any
type of product, including parts of complex products, as well as graphic symbols and
typographic typefaces”. Computer programs are excluded from the notion of a product

Design protection may relate to “parts” in a double sense.

a. Detachable parts of complex products (spare parts)

b. Protection is only granted to certain “parts” of a product: for example, the handle of a
knife or the sole of a shoe.

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3. HOW SHOULD THE TERM “PRODUCT” BE INTERPRETED?

Article 3(b) CDR stipulates that “product” must be interpreted broadly, as it means: “any type
of product, including parts of complex products, as well as graphic symbols and typographic
typefaces”. Computer programs are excluded from the notion of a product.

4. WHAT IS THE JUSTIFICATION FOR EXCLUDING DESIGN PROTECTION

FROM PRODUCTS WHOSE DESIGN IS SOLELY DICTATED BY THEIR
TECHNICAL FUNCTION?

Designs are excluded from protection if they are contrary to public order or morality (Article
9 CDR). Similar to trademark law, the provision may apply to designs that are manifestly
obscene or repulsive or offensive to particular groups of the public. So far there is no
pertinent EU case law.
While the phrase “solely dictated by technical function” has not been defined anywhere in the
legal texts, guiding principles for an interpretation can be derived from Recital 10 to the CDR
which states that: (1) Technological innovation should not be hampered by granting design
protection to features dictated solely by a technical function (2) It is understood that this does
not entail that a design must have an aesthetic quality

5. WHAT ARE THE SUBSTANTIVE REQUIREMENTS FOR GRANTING

PROTECTION UNDER THE CDR?

The substantive requirements for protection are:

- Novelty
- Individual character
- Imp: articles 4-6 CDR

6. HOW SHOULD THE TERM “NOVELTY” BE INTERPRETED?

The substantive requirements for protection are novelty and individual character, novelty
refers to the identity of the design with what is already available to the public. Case law on
the novelty requirement is primarily concerned with the question of whether the design has
been disclosed.

7. WHAT IS MEANT BY AN “INFORMED USER” IN THE CDR?

By adopting the notion of the informed user, EU design legislation introduced a novel
concept. There is no guidance in the legal text itself as to the exact meaning of that criterion.

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→ It was treated in the case Pepisco (Case C-281):

“(The informed user)---must be understood as lying somewhere between that of the average
consumer, applicable in trademark matters, who need not have any specific knowledge and
who, as a rule, makes no direct comparison between the trademarks in conflict, and the
sectoral expert, who is an expert with detailed technical expertise. Thus, the concept of the
informed user may be understood as referring, not to a user of average attention, but to a
particularly observant one, either because of his personal experience or his extensive
knowledge of the sector in question.”

Furthermore, although the “informed user” is not supposed to be an expert: “--- the qualifier
informed suggests that the user knows the various designs which exist in the sector
concerned, possesses a certain degree of knowledge with regard to the features which those
designs normally include, and, as a result of his interest in the products concerned, shows a
relatively high degree of attention when he uses them”.

8. WHAT IS MEANT BY THE TERM “OVERALL IMPRESSION” IN THE CDR?

Overall impression – by making reference to the overall impression produced on an

informed user, it is made clear that two designs possibly conflicting with each other must be
juxtaposed in their entirety and cannot be broken down in individual parts being assessed
separately.

The CJEU has therefore emphasised that the examination must be conducted in relation to
one or more specific, individualised, defined and identified designs from among all the
designs which have been made available to the public previously.

9. WHY IS THE “FREEDOM OF THE DESIGNER” TAKEN INTO ACCOUNT WHEN

CONSIDERING WHETHER PROTECTION SHOULD BE GRANTED?

Freedom of the designer – Article 6(2) CDR stipulates that account must be taken of the
freedom of the designer when developing the design. This takes into consideration the fact
that protection should be available in fields where the room for manoeuvre for developing
new designs is curtailed by functional or technical restraints. Where that is the case, the
assessment must focus on those features that are not, or are to a lesser extent, subject to such
constraints.

This was expressed in an early decision of the Cancellation Division at the EUIPO concerning
the form of a bar stool:

- The degree of freedom of a designer is limited by the fact that stools of the type to which the
Directive relates necessarily comprise a base, a central column and a seat in order that the
stool fulfils its function

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- The informed user is familiar with the basic features of stools. When assessing the overall
impression of the design she takes into consideration the limitations to the freedom of the
designer and weighs the various features consequently. She will pay more attention to
similarities of non-necessary features and dissimilarities of necessary ones.

10. WHAT DOES “NORMAL USE” MEAN IN RELATION TO THE VISIBILITY OF

PARTS OF PRODUCTS THAT CAN CLAIM DESIGN PROTECTION?

Parts only attain protection to the extent that they remain visible during the normal use of the
complex product. “Normal use”, in this sense, means use by the end user only, excluding
service and repair (Article 4. 3 CDR).

11. WHAT ARE THE EXCEPTIONS TO THE PRINCIPLE THAT, IN ORDER TO

RECEIVE PROTECTION, DESIGNS CANNOT HAVE PREVIOUSLY BEEN
DISCLOSED?

There are two exceptions:

1. Prior publications are not detrimental if they were made by the designer within the 12
months preceding the filing date
2. Publications are not taken into consideration if they could not reasonably have become
known in the normal course of business to the circles specialised in the sector concerned.

12. WHICH PARTY HAS THE BURDEN OF PROVING THAT PRIOR DISCLOSURE
HAS BEEN MADE, AND WHICH PARTY HAS THE BURDEN OF PROVING THAT
SUCH DISCLOSURE DOES NOT PRECLUDE PROTECTION?

The burden of proving disclosure lies on the person challenging the validity of the design for
lack of novelty or individual character. Such proof cannot be provided by means of
probabilities or suppositions but has to be demonstrated by solid and objective evidence of
actual disclosure of the earlier design on the market. One such evidence has been adduced;
however, it is for the proprietor of the design to establish that the publication was of a kind
that could not have come to the attention of the circles specialised in the sector within the EU.

13. WHAT ARE THE GROUNDS FOR INVALIDATION OF DESIGN PROTECTION

UNDER ARTICLE 25 OF THE CDR?

Grounds for invalidation: Grounds for invalidation are set forth in Article 25 CDR. Pursuant
to 25(1) CDR a registered CD must be cancelled:

a. If the design does not correspond to the definition under Article 3(a)
b. If it does not fulfil the requirements of Articles 4 to 9 (referring to component parts,
novelty, individual character, disclosure, designs dictated by their technical functions,
and public order and morality).
c. If, by virtue of a court decision, the right holder is not entitled to the Community
design under Article 14 (i.e it belongs to the employer and not the employee).

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d. If the Community design is in conflict with a prior design which has been made
available to the public after the date of filing of the application, or, if a priority is
claimed
e. If a distinctive sign is used in used in a subsequent design, and Community law, or
the law of the member state governing that sign confers on the right holder of the sign
the right to prohibit such use
f. If the design constitutes an unauthorised use of a work protected under the copyright
law of a Member State
g. If the design constitutes an improper use of State Emblems or the Hallmarks of
International Organisations protected by the Paris Convention for the Protection of
Industrial Property

14. WHO HAS LEGAL STANDING TO REQUEST THE CANCELLATION OF

DESIGN PROTECTION PURSUANT TO ARTICLE 25 CDR?

Pursuant to Article 25 (2-4) CDR, requests for cancellation of the design can be filed by the
following:

a. In the case of violation of Article 14 only by the legitimate claimant

b. In case of conflict with prior rights only by the holders of the respective prior rights
c. In the case of signs or emblems protected by the Paris Convention, only the entity
concerned

Given that design protection may frequently overlap with other forms of protection, in
particular trademarks or copyright, the option for invalidation based on a conflict with other
prior IP rights is frequently used in practice. The examination of these cancellation claims
often involves two types of assessment:

a. Whether the visual appearance of prior trademarks or works protected under

copyright is so close to that of the design that the latter does not produce a different
overall impression on the informed user and must therefore be invalidated for lack of
novelty or individual character
b. Even if the overall impression produced by the design is sufficiently different from
preexisting signs or works, invalidation may still follow if a conflict is found on the
basis of the standards applied for measuring the scope of protection for trademarks or
copyright.

15. WHAT RIGHTS ARE CONFERRED ON THE HOLDER OF A COMMUNITY

DESIGN?

Following registration designs are protected for 5 years, with the possibility of prolongation
by further 5-year periods, up to a maximum period of 25 years.

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The design right confers on its holder protection against commercial exploitation of the same
or a similar design by a third party (Article 19 CDR).

Such use covers in particular:

Making Importign

Offering for sale Exporting

Putting on the market Stocking

16. WHEN DOES A COMMUNITY DESIGN BELONG TO THE EMPLOYER OF THE

DESIGNER?

Where a design is developed by an employee in the execution of his duties or following the
instructions given by his employer, the right to the Community design shall be held by the
employer, unless otherwise agreed or specified under national.

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LESSON 7: THE ORGANS OF CORPORATIONS

1. WHAT ARE THE PRINCIPAL ORGANS OF CORPORATIONS?

The Organs of corporations

Corporations are run by “organs”, institutions that take the major decisions about how the
company is governed and the economic decisions that it takes.

The principal organs of a corporation

The principal organs of a Corporation are the General Meeting and the Directors .

2. WHAT IS MEANT BY “THE GENERAL MEETING”? WHO ARE ITS MEMBERS?

The General Meeting

The General Meeting is not a permanent organ (in the sense that it doesn't sit permanently but
rather is called periodically). It is a decision-making organ that does not have exclusive
functions.

It is composed of the partners that have the right to attend, and these partners take decisions
adopted by a majority over those matters in which it has competence, and that appear on the
order of the day or agenda of the meeting (see Article 159.1 CEA). These decisions shall
affect all the partners of the Corporation, even if they did not attend the meeting (Article
159.2 CEA).

3. IN BROAD TERMS, WHAT ARE THE COMPETENCES ATTRIBUTED TO THE

GENERAL MEETING?

The competences of the General Meeting

In general terms the competences of the General Meeting are those pertaining to the most
important economic and legal decisions that face the Corporation.

In very broad terms these affect:

- The modification of the statutes

- Structural changes to the Corporation
- The acquisition or the sale of essential assets
- The designation and the removal of the members of the Board of Directors
- The control of the decisions made by the Board of Directors, particularly the approval
of the annual accounts

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4. HOW ARE THE POWERS OF THE GENERAL MEETING LIMITED?

Limitations of the powers of the General Meeting

However, the powers o f the general meeting are limited: by the individual rights of the
partners, the principle o f parity between those partners with equal rights , by the statutes
(which can be modified but not disobeyed) and above all by the faculties attributed to the
Board o f Directors .

5. WHAT ARE THE TWO TYPES OF SESSION OF THE GENERAL MEETING?

Types of session of the General Meeting

The General Meeting can hold two types of session. Ordinary and Extraordinary

sessions.

The Ordinary Session has to be held within the first six months of each financial year, in order
to approve the accounts o f the previous financial year and determine how the results of the
financial year are to be spent (164 .1 CEA) .

6. WHEN DOES AN ORDINARY SESSION OF THE GENERAL MEETING HAVE TO

BE HELD BY LAW AND WHAT IS ITS PRIMARY FUNCTION?

The General Meeting – the ordinary session.

Even i f i t is not held within the first six months o f the financial year, the ordinary session is
still valid (Article 164 .2 CEA) . All other sessions o f the General Meeting are extraordinary
(Article 165 CEA) .

7. WHO, NORMALLY, HAS THE COMPETENCE TO CALL SESSIONS OF THE

GENERAL MEETING?

The faculty of convening sessions of the General Meeting

The faculty of convening a session of the General Meeting corresponds to the Directors,
although, as we shall see, it can also be called by the liquidators of the Corporation (Article
166 CEA).

The Directors are obliged to convene (or call for) a session of the General Meeting on the
dates or periods that are determined by the Law and the statutes (Article 167 CEA), or when
partners that represent at least 5% of the Capital of the Company apply for a session to be
convened, providing that they express in their application the matters that are to be treated in
the session (see Article 168 CEA).

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If the Board of Directors do not convene a session of the General Meeting, then they can be
supplanted by the solicitor of the Administration of Justice or by the Registrar of the
Commercial Registry where the Corporation is domiciled. The decision to convene a session
of the General Meeting cannot be appealed in the following cases:

i) A request had been made by a partner after an audience had been held with the Directors of
the Corporation in the case of an ordinary session or one that was programmed by the by-laws
of the Corporation.

ii) A request vy partners that hold a minimum of five per cent of the Capital of the
Corporation, when the Directors had not responded to their request (Article 169.2 CEA).

iii) A request by any partner for the appointment of new Directors in the case that the
previous Directors have resigned or died (see Article 171 CEA).

8. WHO ELSE CAN HAVE THE AUTHORITY TO CALL FOR SESSIONS OF THE
GENERAL MEETING AND IN WHAT CIRCUMSTANCES? GIVE A DETAILED
ANSWER.

The faculty of convening sessions of the General Meeting

The faculty of convening a session of the General Meeting corresponds to the Directors,
although, as we shall see, it can also be called by the liquidators of the Corporation (Article
166 CEA).

The Directors are obliged to convene (or call for) a session of the General Meeting on the
dates or periods that are determined by the Law and the statutes (Article 167 CEA), or when
partners that represent at least 5% of the Capital of the Company apply for a session to be
convened, providing that they express in their application the matters that are to be treated in
the session (see Article 168 CEA).

If the Board of Directors do not convene a session of the General Meeting, then they can be
supplanted by the solicitor of the Administration of Justice or by the Registrar of the
Commercial Registry where the Corporation is domiciled. The decision to convene a session
of the General Meeting cannot be appealed in the following cases:

i) A request had been made by a partner after an audience had been held with the Directors of
the Corporation in the case of an ordinary session or one that was programmed by the by-laws
of the Corporation.

ii) A request vy partners that hold a minimum of five per cent of the Capital of the
Corporation, when the Directors had not responded to their request (Article 169.2 CEA).

iii) A request by any partner for the appointment of new Directors in the case that the
previous Directors have resigned or died (see Article 171 CEA).

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9. WHAT ARE THE FORMAL REQUISITES FOR THE CONVENING OF THE

GENERAL MEETING? HOW MAY THESE REQUISITES BE ALTERED BY THE
BY-LAWS?

The formal requisites for convening a session of the General Meeting

The formal requisites for the announcement of a session of the General Meeting are that it
should be published on the webpage of the Corporation (assuming it has one) or published in
the Official Bulletin of the Commercial Registry and one of the newspapers with the largest
circulation in the Province where the Corporation has its registered office.

However, the by-laws can substitute this system for any process by which the partners are
informed individually and in writing which guarantees that all the partners receive the
notification.

10. WHAT ARE THE FORMAL REQUISITES CONCERNING THE CONTENT OF

THE ANNOUNCEMENT THAT CONVENES THE GENERAL MEETING?

The requisites concerning the content of the announcement

The announcement must contain:

1. The name of the Corporation

2. The date and time of the session
3. The agenda of topics to be discussed taking care to specify these individually, clearly
and precisely) .
4. The position within the Corporation o f the person who has convened the session o f
the General Meeting .

See Article 174 CEA .

11. WHAT ARE THE SPECIAL REQUISITES FOR THE ANNOUNCEMENT OF THE
GENERAL MEETING FOR LISTED JOINT-STOCK COMPANIES?

The special requisites of the announcement for the Joint Stock Company listed on a
Stock Exchange

In the case of the Joint Stock Company whose shares are listed on the Stock Exchange the
law requires some further requisites:

a) The date by which shareholders must have their shares registered in their name in
order to attend and vote in the General Meeting.
b) The place and the form in which the shareholders can obtain copies of any proposed
agreements to be voted on and their accompanying documents

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c) Clear and precise instructions concerning the procedures that shareholders must
follow in order to vote

12. UNDER WHAT CIRCUMSTANCES CAN MINORITY SHAREHOLDERS ADD

ITEMS TO THE AGENDA OF THE GENERAL MEETING IN THE JOINT-STOCK
COMPANY? HOW MUST THIS RIGHT BE EXERCISED?

Rules that apply to the Joint Stock Company

In the Joint Stock Company, shareholders that represent at least 5% of the Capital of the
Corporation can solicit the publication of a complementary document to the announcement of
the session of the General Meeting in which one or more points are added to the agenda.

In order to exercise this right, the Corporation must be notified within 5 days of the
publication of the announcement. The complementary document must be published a
minimum of 15 days before the date of the session of the General Meeting. If it is not
published (having met the requisites established) it will constitute a cause for challenging the
holding of the session (Articles 172 and 519.2 CEA).

13. WHAT TIME MUST ELAPSE BETWEEN THE CALLING OF THE GENERAL
MEETING AND ITS CELEBRATION IN THE JOINT-STOCK COMPANY? WHAT
ARE THE TWO EXCEPTIONS TO THIS CONTEMPLATED IN THE CEA?

Requisites of space and time

In the Joint Stock Company between the calling of the General Meeting and the date
appointed for its celebration, there must be a minimum of a month (Article 176 CEA), except
in two cases:

1. When a complementary document has been published adding topics to the agenda in
the terms just explained.
2. In the case of a listed Joint Stock Company, when the company offers shareholders
the possibility of voting by electronic means, the extraordinary sessions of the
General Meeting can be announced a minimum of 15 days before the session. The
reduction of the time- period shall require an express agreement reached during an
ordinary session of the General Meeting, with two thirds of company capital with the
right to vote, voting in favour of the shorter period (Article 515 CEA).

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14. HOW MUCH TIME MUST ELAPSE BETWEEN THE FIRST AND SECOND
CALLING OF THE GENERAL MEETING IN THE JOINT-STOCK COMPANY?

The second calling

The announcement for the session can contain the date for a second session (if it might be
necessary , for example because there is a possibility that the quorum of attendance for
holding the meeting might not be reached).

Between the dates of the first meeting and the second meeting there has to be at least 24
hours.

If the session of the General Meeting at the first calling cannot be held, and there has been no
provision made for a second calling, then a second calling has to be held. This session must
be announced, with the same agenda and the same publicity requirements as the first calling,
within 15 days of the date of the first session of the General Meeting, and the announcement
must be at least 10 days before the session is to be held (Article 177 CEA).

15. WHERE MUST THE GENERAL MEETING BE HELD?

The place where the sessions of the General Meeting are held

Unless the by-laws state otherwise, the sessions of the General Meeting must be held in the
town or City where the Corporation has its registered office.

If the announcement of the session of the General Meeting does not state otherwise, then it
shall be assumed that the session will take place at the registered office (Article 175 CEA).

16. WHAT IS MEANT BY THE TERM “THE UNIVERSAL MEETING”?

The Universal Meeting

The Universal Meeting is an exception to the general rule regarding the need to announce
meetings of the partners. The Universal Meeting requires all the holders of the Capital of the
Corporation to be present, and the universal agreement of those present that the meeting
should be held in that moment.

If this is the case, then the meeting is constituted validly without the need for any prior
announcement (178 CEA).

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17. WHO HAS THE RIGHT TO ATTEND THE GENERAL MEETING? EXPLAIN THE
SITUATION FOR BOTH THE JOINT-STOCK COMPANY AND FOR THE
LIMITED-LIABILITY COMPANY, INCLUDING ANY LIMITATIONS THAT CAN BE
PLACED ON ATTENDANCE.

The attendance of the General Meeting – The Joint Stock Company

In contrast, in the Joint Stock Company, the by-laws can require, the possession of a
minimum number of shares in order to attend the General Meeting.

However, this number can never be greater than a thousandth part of the Capital of the
Corporation.

However, in order to be able to exercise their right to vote, the law allows for groups of
shareholders to be represented (Article 189.1 CEA).

In listed Joint Stock Companies (those who shares are traded on a stock exchange) , the
by-laws cannot require that partners who wish to attend a session of the General Meeting
have more than a thousand shares (Article 521 bis) .

18. UNDER WHAT CONDITIONS CAN THE GENERAL MEETING BE HELD

ONLINE?

The General Meeting can be held by internet

The by-laws can determine that attendance at the General Meeting is by Internet, or that
sessions are held exclusively in this manner (182 bis CEA).

There must be safeguards in place that allow the partners to identify themselves (182 CEA).

In the announcement of the session the Directors must describe how the partners can vote and
the manner in which they can intervene in real-time.

19. WHO CAN REPRESENT A PARTNER AT THE GENERAL MEETING OF THE

LIMITED-LIABILITY COMPANY? WHAT ARE THE REQUISITES FOR
EXERCISING THIS RIGHT OF REPRESENTATION?

The right to be represented

Once again, the closed nature of the Limited Liability Company explains why the partners
can only be represented at a session of the General Meeting by family members, by another
partner, or by a person that has a general power of representation over the absent partner
conferred on her by a public document that grants her faculties to administer all the partner’s
patrimony in Spain (183 CEA).

Only the by-laws can authorise the representation of the partner by other persons.

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The representation at a session o f the General Meeting o f the Limited Liability Company
must be given in writing, and, i f it is not the general representation granted in a public
document, the representation has to be specific for each session o f the General Meeting.

20. WHO CAN REPRESENT A PARTNER AT THE GENERAL MEETING OF THE

JOINT-STOCK COMPANY? WHAT ARE THE REQUISITES FOR EXERCISING THE
RIGHT OF REPRESENTATION? WHEN DO THESE REQUISITES NOT APPLY?
CAN THIS FACULTY OF REPRESENTATION BE LIMITED?

In the Joint Stock Company, the representation may be conferred by writing or by other
means of communication that comply with the requisites established in the CEA for the
exercise of the right to vote remotely (184.2 CEA).

The right to be represented must be conferred specifically for each session of the General
Meeting.

21. IN WHAT CIRCUMSTANCES DO PARTNERS NOT HAVE THE RIGHT TO VOTE

AT THE GENERAL MEETING?

The right to vote

In general, all the partners of a Corporation have the right to vote:

However; there are three exceptions:

•The CEA allows for the emission of shares and participations without the right to vote
attached (Articles 98 to 103 CEA).

•The right to vote can be suspended in certain cases. For example, if the shareholder has not
paid up her outstanding shares, or in the case of a Corporation purchasing its own shares.

•The right to vote is prohibited in certain situations in which there is a conflict of interests
(Article 190 CEA).(i)The partner cannot vote in cases where an agreement is being voted on
which could result in her transmitting shares or stakes on which a legal restriction or a
restriction contained in the by-laws is placed. (ii)Or on an agreement which could suspend her
from the Corporation, free her from an obligation, or provide her with any type of financial
assistance.

In the cases in which the partner cannot vote due to a conflict of interest, the shares or
participations of the partner shall be deducted from the Capital of the Corporation for the
calculation of the necessary majority.

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22. CAN THE NUMBER OF VOTES OF A SINGLE SHAREHOLDER OR A GROUP

OF COMPANIES BE LIMITED? IN LISTED JOINT-STOCK COMPANIES WHEN
DOES THIS RESTRICTION CEASE TO BE EFFECTIVE?

The limitation of the number of votes that can be emitted by one partner or group of
companies was designed, in principle, to reduce the influence of large shareholders in the
General Meeting. However, it has been used increasingly to prevent outsiders from taking
over the control of the Corporation, allowing them to obtain a majority of shares, but not the
majority of votes.

In listed Joint Stock Companies, the clauses of the by-laws that, directly or indirectly,
establish the maximum number of votes that can be emitted by a single shareholder,
companies that belong to the same group, or those that vote in a coordinated manner with
either of the above, shall no longer be effective when, after a public share offering, the subject
has obtained 70 percent or more of the voting capital (Article 527 CEA).

In listed Joint Stock Companies there is also the possibility of allowing shares with double the
normal votes, when they have been acquired by loyalty.
This situation is designed for shares that the same titleholder has held for two consecutive
years from the moment that they were inscribed in the registry of the partners (Article 527 ter
CEA).

23. IN LISTED JOINT STOCK COMPANIES THE VOTING RIGHTS OF

SHAREHOLDERS CAN BE INCREASED, WITHOUT THE SHAREHOLDERS
ACQUIRING MORE SHARES. EXPLAIN HOW.

In the Joint Stock Company voting rights are measured as a function of the nominal value of
the shares.

In fact, the creation of shares that, either directly or indirectly change the proportion between
the nominal value of the share and the right to vote is prohibited (Article 188.2 CEA).

However, this is subject to an exception. The CEA allows the by-laws to limit the number of
votes that a single shareholder or a group of companies that belong to the same group, can
emit (188.3 CEA).

The limitation of the number of votes that can be emitted by one partner or group of
companies was designed, in principle, to reduce the influence of large shareholders in the
General Meeting. However, it has been used increasingly to prevent outsiders from taking
over the control of the Corporation, allowing them to obtain a majority of shares, but not the
majority of votes.

In listed Joint Stock Companies, the clauses of the by-laws that, directly or indirectly,
establish the maximum number of votes that can be emitted by a single shareholder,
companies that belong to the same group, or those that vote in a coordinated manner with

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either of the above, shall no longer be effective when, after a public share offering, the subject
has obtained 70 percent or more of the voting capital (Article 527 CEA).

In listed Joint Stock Companies there is also the possibility of allowing shares with double the
normal votes, when they have been acquired by loyalty.
This situation is designed for shares that the same titleholder has held for two consecutive
years from the moment that they were inscribed in the registry of the partners (Article 527 ter
CEA).

24. HOW CAN THE PROPORTIONALITY BETWEEN THE PERCENTAGE OF

CAPITAL HELD AND VOTING RIGHTS BE ALTERED IN LIMITED- LIABILITY
COMPANIES?

In the Limited Liability Company changes to the direct proportionality between the
percentage of Capital held and voting rights are allowed as long as they are contained in the
by- laws of the Company. If no such rules exist, then each stake carries with it the right to
emit a vote

25. IN THE LIMITED-LIABILITY COMPANY HOW CAN THE RIGHT TO

INFORMATION OF THE PARTNERS BE EXERCISED? HOW MUST DIRECTORS
RESPOND TO THE EXERCISE OF THIS RIGHT?

In the Limited Liability Company, voting has to be done by attendance at the General
Meeting, either personally or through a representative.

26. IN LISTED JOINT-STOCK COMPANIES, WHAT MUST THE CORPORATION

PROVIDE THE PARTNERS WITH IN ORDER TO ATTEND TO THEIR RIGHT TO
RECEIVE INFORMATION?

Special rules for listed Joint Stock Companies

In listed Joint-Stock Companies, the Corporation is obliged to have a web page to attend to
the right of the partners to receive information, and to facilitate relevant information to the
partners in conformity with the legal requirements of the laws regarding the stock market.

Valid requests for information, clarifications, or questions submitted in writing and their
answers by the Board of Directors must also be included on the website (Article 520.2 CEA).
These should take the form of questions – answers.

Given that the Corporation has a special section of its website dedicated to the information
provided to the partners, the Board of Directors are not obliged
to respond to questions posed by the shareholders when this information is already clearly

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available on the website. In this case the Board of Directors can merely indicate where the
answer to the question can be found (Article 520.3 CEA).

27. WHAT INFORMATION ARE THE DIRECTORS NOT OBLIGED TO REVEAL TO

THE PARTNERS IN THE LIMITED-LIABILITY COMPANY? WHAT IS THE
EXCEPTION TO THIS LIMITATION?

The right to information should be distinguished from publicity produced by the Corporation
that is available to any third party.

The right to information grants the partner the faculty of requesting from the Directors
information or clarifications.

In the Limited Liability Company, the right to information is restricted to the items on the
agenda of the General Meeting (Article 196.1 CEA).

In the Limited Liability Company, questions may be formulated verbally, during the course of
a session of the General Meeting, or they may be written questions, presented to the Directors
before the date of the General Meeting.

The board of Directors are obliged to answer in either written or verbal form, the questions
made to them (Articles 196.1 and 196.2 CEA).

In the Joint Stock Company questions may be either written or oral.

The response to an oral question may be given at the time of asking, verbally, or in writing,
within seven days of the holding of the session of the General Meeting (Articles 197.1 and
197.2 CEA).

Exceptions to the right of information in the Limited Liability Company

In the Limited Liability Company, the Directors are not obliged to reveal information that
could damage the interests of the company. However, the exception (to this exception)is when
the request for the information is supported by partners that represent (at least) 25 % of the
capital of the Company (196.3 CEA).

28. WHEN CAN THE RIGHT OF INFORMATION BE LIMITED IN THE

JOINTSTOCK COMPANY? WHAT IS THE EXCEPTION TO THESE LIMITATIONS?

​Exceptions to the right of information in the Joint Stock Company

In the Joint Stock Company an exception to the right of information is contained in Article
197.3CEA, which determines that the right of the partner to information can be limited when:

(a)It is unnecessary for the protection of the rights of the partner

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(b)There are objective reasons for believing that the information could be used for ends that
are distinct from the objectives of the Company

(c) Making the information public could prejudice the interests of the Company or Companies
connected to it.

The information requested by the partners cannot be refused if they represent, at least, 25 %
of the Company Capital. The statutes can configure a lower percentage, but this cannot be
lower than 5% of the Company Capital (Article 197.4 CEA).

29. WHEN CAN THE PROVISION OF INACCURATE OR INSUFFICIENT

INFORMATION, OR THE REFUSAL TO PROVIDE ANY INFORMATION AT ALL,
CONSTITUTE A REASON FOR CHALLENGING AN AGREEMENT TAKEN AT THE
GENERAL MEETING IN THE JOINT-STOCK COMPANY? WHAT IS THE
DIFFERENCE IN THIS RESPECT BETWEEN INFORMATION REQUESTED
BEFORE AND DURING THE GENERAL MEETING?

The consequences of a refusal to provide information, or of providing inaccurate or

insufficient information in the Joint Stock Company

If the right to information was exercised before a session of the General Meeting, and the
information was refused, or that provided was inaccurate or insufficient when it was essential
in order for the partner to exercise her right to vote (or any other right of participation), it can
constitute a reason for challenging the pertinent agreement (s) reached during the session
(Article 204.3 b CEA).

If the information is requested during a session of the General Meeting, the refusal to provide
the information will only enable the partner to demand the information requested to be
provided to her, and to demand compensation for any damages that this refusal might
occasion to her patrimony. It does not constitute a reason for challenging the legitimacy of
agreements reached at the meeting (Article 197.5 CEA).

30. WHAT ARE THE QUORUMS FOR THE FIRST AND SECOND CALLING OF THE
GENERAL MEETING IN THE JOINT-STOCK COMPANY?

The quorums for the first and second calling of the General Meeting

Article 193 CEA determines that a session of the General Meeting shall be held validly at the
first calling when the shareholders present or represented constitute at least 25% of the
Capital with voting rights (although the by-laws can stipulate a higher percentage).

At the second calling, there will be no quorum unless the by- laws fix one, but this has to be
inferior to the quorum established by law for the first calling.

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31. WHEN IS THERE A REINFORCED QUORUM FOR THE HOLDING OF THE

GENERAL MEETING? WHAT ARE THESE REINFORCED QUORUMS AT THE
FIRST AND SECOND CALLING? CAN THE BY-LAWS ALTER THESE QUORUMS?

The first calling of the session of the General Meeting requires at least 50% of the Company
Capital with the right to vote to be present or represented.

At the second calling this figure falls to 25%.

The by-laws of the company can raise (but not lower) the percentages required at both the
first and the second calling.

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LESSON 8: THE DISSOLUTION, MODIFICATION AND

EXTINCTION OF CORPORATIONS.

1. WHAT ARE THE “AUTOMATIC” CAUSES FOR THE DISSOLUTION OF

CORPORATIONS CONTAINED IN THE CEA?

The automatic causes of dissolution - Legal dissolution

Causes of automatic/legal dissolution of Corporations:

1. The expiry of the term fixed for the duration of the Corporation in its by-laws, unless this
term is extended and inscribed in the Commercial Registry. The Registrar of the Commercial
Registry, either unilaterally or at the request of any interested party, will register the
dissolution of the Corporation in the Commercial Registry.

2. When a year has passed since the adoption of the agreement to lower the Company Capital
below the legal minimum as a consequence of compliance with the law, if the transformation
of the Corporation (into another type of Corporation) or the dissolution of the Corporation has
not been inscribed in the Commercial Registry, or the Capital of the Corporation has not been
raised to meet (at least) the legal minimum. If the transformation, dissolution, or capital
increase have not been inscribed in the Commercial Registry within a year, the directors shall
respond jointly and severally, together with the Corporation itself, for the debts of the
Corporation. Once again in this case the Registrar of the Commercial Registry, either
unilaterally or at the request of any interested party, will register the dissolution of the
Corporation in the Commercial Registry. (Article 360 CEA).

3. The opening of the liquidation stage of insolvency proceedings (Article 361.2 CEA). The
dissolution shall be ordered by the judge overseeing the insolvency proceedings.

4. In the case that there is a violation of trademark law confirmed by a judicial decision which
requires a change in the name of the Corporation, and this is not done within a year of the
judgement. In this case the Registrar of the Commercial Registry shall cancel the entry of the
Corporation in the Commercial Registry. Spanish Trademark Law 17/2001 (Additional
Disposition).

2. WHAT ARE THE LEGAL (RATHER THAN AUTOMATIC) CAUSES OF

DISSOLUTION OF CORPORATIONS. WHAT ACTION DO THEY REQUIRE FROM
THE GENERAL MEETING?

Dissolution in the case of the existence of a legal cause

The CEA (Article 363 CEA) contains a group of causes that result in the dissolution of
Corporations. These are not practiced automatically by a judge or registrar. They are:

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1. The Corporation stops carrying out the activity or activities for which it was constituted.
The activity shall be understood to have stopped completely when a year has passed without
any commercial activity.

2. The finalisation of the activity for which the Corporation was constituted.

3. The manifest impossibility of the Corporation to achieve its Corporate objective.

4. The paralysation of the Organs of the Corporation, resulting in the impossibility of the
Corporation to function.

5. Significant losses, that is, losses that result in the net patrimony of the Corporation being
inferior to half the Company Capital: unless – the net patrimony is raised, or the Company
Capital is lowered (but remains above its legal limit), providing that the Corporation is not
legally obliged to request the opening of insolvency proceedings.

6. The reduction of Company Capital below the legally established minimum when it was not
lowered as the result of direct compliance with a law.

7. The nominal value of the stakes without voting rights or the shares without voting rights
exceeding half of the Company Capital (or half of the paid-up Company Capital) when the
correct proportion is not restored within two years.

The Corporation cannot adopt agreements that override these causes of dissolution, if they
exist, then the Corporation must be dissolved.

However, the law does require that the Corporation is dissolved by an agreement of the
Corporation (Article 364 CEA) but given the obligatory nature of the cause of dissolution, the
agreement is merely declarative rather than constitutive. The agreement is required for the
sake of legal certainty, given that it is a form of publicity. The agreement to dissolve the
Corporation has to be inscribed in the Commercial Registry and published in the Official
Bulletin of the Commercial Registry (Article 369 CEA).

→ The agreement requires a simple majority vote ( Article 368 CEA).

3. IN WHAT TIMEFRAME MUST THE DIRECTORS CALL THE GENERAL

MEETING TO DISSOLVE THE CORPORATION? WHAT MUST THEY DO IN THE
CASE OF INSOLVENCY? WHAT MUST THE DIRECTORS DO IF THE GENERAL
MEETING IS NOT CALLED, OR IS CALLED BUT NOT HELD OR IF THE
AGREEMENT FOR THE DISSOLUTION OF THE CORPORATION IS NOT
REACHED?

Calling the General Meeting for the dissolution of the corporation

Calling the General Meeting to dissolve the Corporation:

1. From the moment that the Directors become aware of the existence of the cause of
dissolution , they have two months in which to call the General Meeting at which the

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agreement to dissolve the Corporation will be made. If the Corporation is insolvent (its debts
are greater than its patrimony) it must request the opening of insolvency proceedings.

2. Any of the partners can request the Directors to call the General Meeting, if they believe
that there is a cause for the dissolution of the Corporation, or that the Directors should request
the opening of insolvency proceedings.

If the General Meeting was not called, or it was called but was not held, or it was held but the
agreement for the dissolution of the Corporation was not made (and a cause for dissolution
existed), any interested party can apply to the Commercial Court in the domicile of the
Corporation for the dissolution of the Corporation.

However, if the General Meeting was held, and the agreement to reach the dissolution of the
Corporation could not be reached or the agreement made was opposed to the dissolution, then
the Directors themselves are obliged to apply to the Commercial Court in order to apply for
the order of dissolution.

4. IN WHAT CIRCUMSTANCES ARE THE DIRECTORS NOT OBLIGED TO CALL

THE GENERAL MEETING TO DISSOLVE THE CORPORATION?

The Directors are not obliged to call the General Meeting in order to dissolve the Corporation
if they have already made an application to the Commercial Court for the opening of
insolvency proceedings or have communicated to the competent Court the existence of a
restructuring plan made with the creditors of the Corporation (Article 366 CEA).

The existence of a restructuring plan, communicated to the competent Commercial Court,

also exempts the Directors from acquiring the joint and several responsibilities (together with
the Corporation itself) for the debts of the Corporation, which we will examine next.

5. WHAT CONSEQUENCES MAY BEFALL THE DIRECTORS IF THEY DO NOT

CALL THE GENERAL MEETING WHEN THEY HAVE THE OBLIGATION TO DO
SO? WHAT LEGAL PRESUMPTION EXISTS WITH RESPECT TO THE DEBTS OF
THE CORPORATION IF THE DIRECTORS HAVE NOT CALLED THE GENERAL
MEETING TO DISSOLVE THE CORPORATION WHEN THEY HAD THE
OBLIGATION TO DO SO?

The consequences for the directors of not calling the General Meeting

1.The Directors, who, having the obligation to call the General Meeting in order to issue the
agreement to dissolve the Corporation within two months of being aware of the cause of
dissolution and do not do so, acquire joint and several liability for the debts of the
Corporation contracted from the moment that the cause of dissolution existed.

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2. This joint and several liability is also acquired when the General Meeting is called but not
held, and, within the two months following the date set for its celebration, the Directors have
not applied to the Commercial Court for the dissolution of the Corporation, or, the opening of
insolvency proceedings.

3. This joint and several liability is also acquired when the General Meeting does not make
the agreement to dissolve the Corporation and (providing a cause of dissolution exists) the
agreement is not made, and the Directors do not, within two months of the session of the
General Meeting, ask the Court to dissolve the Corporation.

There is a legal presumption that any debts of the Corporation date from after the existence of
the cause of dissolution, and the Directors have the burden of proof to show that debts were
contracted before the cause of dissolution.

6. HOW CAN THE GENERAL MEETING VOLUNTARILY AGREE TO DISSOLVE

THE CORPORATION WITHOUT THE EXISTENCE OF A LEGAL CAUSE?

The dissolution of the corporation by mere agreement of the General Meeting

It is possible that, without the existence of an automatic legal cause of dissolution, or one of
the legal causes just mentioned that obliges the General Meeting of the Corporation to make
an agreement that dissolves the Corporation, the General Meeting may decide, of its own
volition, to dissolve the Corporation.

This agreement must be taken with the same reinforced quorum (in the Joint Stock Company)
and majorities (for the Limited Liability and Joint Stock Company) that are required for a
modification of the by-laws of the Corporation.

The agreement to dissolve the Corporation must by inscribed in the Commercial Registry and
published in the Official Bulletin of the Commercial Registry.

7. IN WHAT CIRCUMSTANCES CAN A CORPORATION THAT HAS BEEN

DISSOLVED BE “REACTIVATED”? WHAT FORMAL REQUIREMENTS MUST BE
MET?

The reactivation of the Corporation

The reactivation of the Corporation refers to the situation in which a Corporation has been
dissolved and has entered the phase of liquidation but returns to active functioning (Article
370 CEA).

In order for this to be possible it is imperative that:

• The cause of dissolution has disappeared, which means that it cannot be one of the legal
causes of automatic dissolution

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• The patrimony of the Corporation (as evidenced by the accounts of the Corporation) cannot
be lower than the Company Capital.

• The quotas of the liquidation of the Corporation cannot have been paid out to any of the
partners.

Formally, the reactivation of the Corporation requires an agreement of the General Meeting
that must be adopted with the requisites established for the modification of the statutes. This
is because the reactivation requires a change in the objective of the Corporation. From the
moment that the Corporation was dissolved its objective was the liquidation of the
Corporation, the reactivation means that the objective changes (back) to the previous
economic objective.

The partner that does not vote in favour of the reactivation has the right to exit the
Corporation.

8. WHAT IS THE PROCESS OF LIQUIDATION? HOW DOES IT AFFECT THE

OBJECTIVE OF THE CORPORATION? WHAT IS THE ROLE OF THE
LIQUIDATORS AND HOW ARE THEY GENERALLY APPOINTED? WHAT
RESPONSIBILITY DO THE LIQUIDATORS HAVE TO THE PARTNERS OF THE
CORPORATION AND ITS CREDITORS?

The liquidation extinguishes the legal bond between the partners and requires the disposal of
the patrimony of the Corporation, which is used first to pay off any remaining debts and is
then returned to the partners in proportion to their investment.

While the process of liquidation is being carried out, the Corporation retains its legal
personality. However, it should add “in liquidation” to its name, so that third parties are aware
of the change in its objective (Article 371.2 CEA).

While the Corporation is in liquidation it must observe the dispositions of the by-laws with
regard to the calling and the periodicity of the General Meeting, at which the liquidators shall
inform the partners of the progression of the process of liquidation (Article 371.3 CEA).

The liquidators

The liquidators are the organ that is responsible for the administration and representation of
the Corporation during the process of liquidation.

As soon as the process of liquidation is opened the directors cease in their functions (of
management and representation) and are replaced by the liquidators. The essential function of
the liquidators is to protect the patrimony of the Corporation so that it can be liquidated and
returned to the partners.

As a general rule, the position of liquidator is held by those that previously held the position
of Directors at the time when the Corporation was dissolved. This takes place without any
special dispensation on the part of the General Meeting. However, the by-laws can provide an

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alternative solution, and the session of the General Meeting that makes the agreement to
dissolve the Corporation can also appoint different liquidators (Article 376 CEA).

Unless the by-laws state otherwise the liquidators will remain in their position until the
process of liquidation has been completed, and their powers of representation shall extend to
all the operations that are necessary for the liquidation of the Corporation.

The liquidators shall be responsible to the partners of the Corporation and to its creditors for
any damage to the patrimony of the Corporation caused by malice or negligence while
carrying out their functions. (Article 397 CEA).

9. WHAT OPERATIONS ARE NECESSARY FOR THE LIQUIDATION OF THE

CORPORATION? WHAT RIGHT OF INFORMATION DO THE PARTNERS HAVE
DURING THE PROCESS OF LIQUIDATION?

The operations necessary for the liquidation of the corporation

The liquidators have to draw up an inventory of the patrimony of the Corporation and a
balance sheet of the Corporation’s finances (Article 384 CEA). They are responsible for the
conclusion of any on-going operations and for carrying out any other operations necessary for
the liquidation of the Corporation.

They must ensure that they receive any outstanding payments from partners (should they
exist) and debtors. When they begin to carry out the process of liquidation the proceeds must
be used first of all to make payments to the creditors of the Corporation (Article 385 CEA).

The liquidators are responsible for ensuring that the proper accounting books are kept and that
any other registries of the Corporation are kept in order (Article 386 CEA)

10. HOW IS THE PROCESS OF LIQUIDATION BROUGHT TO A CLOSE? WHAT IS

THE PROCESS FOR RETURNING GOODS OR NON-CASH CONTRIBUTIONS TO
PARTNERS?

The end of the liquidation process

- Once all the operations for the process of liquidation have been completed, the
liquidators shall present to the General Meeting a final balance and a detailed report
on all the operations that have been concluded and the proposal for the division of the
remaining money among the partners.
- The agreement to divide the money among the partners can be challenged by those
partners that voted against it within two months of its adoption.
- Unless the statutes state otherwise, the money shall be divided among the partners in
proportion to their share of Company Capital.

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Unless there is a unanimous agreement to the contrary, the right of the partners to receive
their quota of the liquidation entitles them to a cash payment.

However, the by-laws of the Corporation can establish, in favour of one or more partners, the
right for their quota of the liquidation to be satisfied by the return of the non-cash
contributions they made to the Corporation, or other goods belonging to the Corporation.

These goods shall be valued at the price they were worth at the moment the proposal for the
division of the patrimony of the Corporation was approved.

In this case, the liquidators shall first sell off the other patrimony of the Corporation and pay
off all its creditors. If the money left over was insufficient to pay the full liquidation quota to
the partners, then, the partners with the right to receive goods rather than money shall be
obliged to pay the remaining partners the difference between the money they have received
and the full quota they are entitled to receive (Article 393 CEA).

11. WHAT DECLARATIONS MUST THE NOTIFIED DOCUMENT FOR THE

EXTINCTION OF THE CORPORATION CONTAIN?

The extinction of the Corporation must be written up in a notified document and inscribed in
the Commercial Registry. Article 395 CEA states that the document that extinguishes the
Corporation must declare:

• That the time limit for challenging the agreement approving the final balance sheet of the
Corporation has passed without any challenges, or the judicial judgement that determined the
final balance sheet cannot be subject to any further legal challenges.

• That the creditors of the Corporation have been paid or their money has been placed in an
account for payment.

• That the partners have been paid their liquidation quota or the money has been placed in an
account for their payment.

The liquidators shall then deposit the account books of the Corporation with the Commercial
Registry and the Corporation shall be extinguished (Article 396 CEA).

12. WHAT IS THE PROCESS FOR DEALING WITH PATRIMONY OR DEBTS THAT
WERE NOT PREVIOUSLY ACCOUNTED FOR ONCE THE CORPORATION HAS
BECOME EXTINCT?

Patrimony or debts not previously accounted for

It might be the case that patrimony or debts, previously unaccounted for, become apparent
after the extinction of the Corporation.

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Patrimony - In the case of patrimony that was previously unaccounted for the liquidators
must return to the partners the additional quota that corresponds to them, once the goods have
been sold.

Debts – In the case of debts that were previously unaccounted for, the ex-partners shall
respond jointly and severally for the debts up to the limit of the liquidation quota that they
have received, without prejudice to any responsibility that the liquidators may have incurred
for malice or gross negligence (Article 399 CEA).

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