I. Introduction
Intellectual property (IP) owners can protect their IP rights by applying for patents, trademarks, utility models and designs. The maintenance of IP rights can be an arduous task for IP owners, especially if they have an extensive portfolio of IP rights. To attain effective global protection, different jurisdictions, fees and time limits must be taken into account. To avoid this administrative burden, IP owners often outsource this task to external service providers who offer IP management as a service.
As part of their IP management service, providers often have to collect IP fees from the IP right holders and pay them to the relevant recipient (e.g. a patent or trademark office). This activity may be subject to authorisation requirements. The payment of IP fees is offered as an additional service by a number of IP management service providers and patent attorney firms. PAVIS GmbH is such an IP management service provider and was therefore confronted with legal requirements with regard to the processing of payments relating to IP fees.
II. Potential obligation to obtain a licence under ZAG
First of all, there may be a duty to obtain a licence pursuant to § 10 ZAG. Pursuant to section 10 I 1 ZAG, a licence from BaFin is required for anyone who wants to provide payment services in Germany on a commercial basis or to an extent that requires a commercially established business operation, if the provider of the service does not have a more comprehensive licence (e.g. as a bank).
1. Domestic and commercial nature
The obligation to obtain a licence under Section 10 I 1 ZAG only applies to the provision of payment services in Germany. If a company does not have a registered office or a place of business in Germany, the question arises under which condition an activity provided by it is rendered in Germany. This will generally be the case if the company directs its services to the domestic market (Walz in Ellenberger/Findeisen/Nobbe/Böger, Kommentar zum Zahlungsverkehrsrecht / commentary on payment transfer law, 3rd ed. 2020, § 10 ZAG para no. 8). Payment services are provided on a commercial basis if they are intended to last for a certain period of time and are provided with the intention of making a profit (Findeisen in Ellenberger/Findeisen/Nobbe/Böger, Kommentar zum Zahlungsverkehrsrecht/commentary on payment transfer law, 3rd ed. 2020, § 1 ZAG para no. 114). The profit-making intention required for commercial activity does not necessarily have to relate to the payment services. It is sufficient if the payment services promote the intention to make a profit as part of the main business (Cologne regional court Market Abuse Directvie 2011, 815 [816]).
2. Existence of a payment service
In order to be subject to authorisation, the collection and forwarding of IP rights fees would have to be a payment service according to Section 1 I 2 ZAG.
a) Transfer transaction according to § 1 I 2 No. 3c) ZAG
The receipt and forwarding of IP right fees could be a payment transaction in the form of a payment transfer pursuant to section 1 I 2 no. 3c) ZAG. A payment transfer transaction exists when payment transactions are executed, including the transfer of funds to a payment account of the payment service provider of the payment service user or of another payment service provider, by executing payment transfers including standing orders. A company that - without maintaining payment accounts for the payer or the payee - instructs a bank to transfer funds to a payee's payment account on behalf of an IP right holder does not provide the transfer transaction because it does not execute the transfer but only initiates it with its bank pursuant to section 675f I German Civil Code (BaFin Federal Financial Supervisory Authority, Information leaflet – Notes regarding ZAG, as at 29 November 2017, point 2b), available at www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_111222_zag.html).
b) Financial transfer business according to § 1 I 2 No. 6 ZAG
There could also be a financial transfer transaction. The money transfer business pursuant to § 1 I 2 No. 6 Alt. 1 ZAG is a service in which payments are executed in the name of the payer or the payee without setting up a payment account. Insofar as the business activity of IP management service providers includes the receipt and forwarding of payment amounts to payees for the purpose of renewing industrial property rights, this fulfils the definition of a money transfer transaction if the transfer transaction is not already present.
c) Exceptions
Pursuant to Section 2 I ZAG, an activity is not a payment service despite the fulfilment of a factual requirement pursuant to Section 1 I 2 ZAG if one of the exceptional circumstances listed therein is relevant.
aa) Exemption under Section 2 I No. 2 ZAG for commercial agents
Payment transactions between payer and payee via a commercial agent who is authorised on the basis of an agreement to negotiate or conclude the sale or purchase of goods or services only on behalf of the payer or only on behalf of the payee are not payment services (cf. Section 2 I No. 2 ZAG).
Commercial agents in this sense are commercial representatives according to § 84 I German Commercial CodeHGB, i.e. persons who, as independent traders, are permanently entrusted with brokering legal transactions for another business person or concluding them in the latter's name. In addition, according to the administrative practice of the BaFin, all persons who are authorised to negotiate contracts for another party or to conclude contracts in the name of another party, i.e. by way of open representation, fall under the exemption according to § 2 I No. 2 ZAG.
The obligation to pay IP right fees results from a legal relationship under public law and not from a legal transaction under private law. Furthermore, the IP management service provider cannot "negotiate" the amount of the IP right fees because they are usually fixed by law. The element of "concluding" is not applicable because the renewal of an IP right is not a legal transaction. The IP management service provider therefore does not make any declarations of intent for the IP right holder. Pure messenger activities are not covered by the exception provision (BaFin, ZAG leaflet, no. 3b)). Consequently, the exception according to Section 2 I No. 2 ZAG for commercial agents is not applicable to the present situation.
bb) Exception for payment instruments for a very limited range of goods or services
According to Section 2 I No. 10b ZAG, services based on payment instruments that can be used for the purchase of a very limited range of goods or services are not payment services. A very limited range of goods or services exists if the goods and products offered can be assigned to a specific purpose (BaFin, ZAG Fact Sheet, No. 3j)). However, this exception is not available because there is no payment instrument as defined in Section 1 XX ZAG, which can only be used for the payment of IP right fees. The payment of IP right fees is usually made by means of bank transfers. However, bank transfers can be used for other payments as well, not just for the payment of IP right fees.
cc) Secondary activity prerogative
In its administrative practice, BaFin has recognised a few groups of circumstances in which it assumes that, despite the fulfilment of the criteria of a payment service and the absence of an exceptional circumstance according to § 2 I ZAG, no payment service which requires a licence exists. These circumstances include the acceptance and forwarding of funds within the scope of a mandate as a lawyer or tax advisor, the collection of overdue debts, cash on delivery payments and the collection of medical fees by private health providers (BaFin, ZAG bulletin, no. 2e)). The receipt and forwarding of IP right fees by companies that are not lawyers or tax advisors does not fall within these groups.
The catalogue of exceptions in Section 2 I ZAG is exhaustive. Neither does EU Directive 2015/2366 (Second Payment Services Directive) provide for a general secondary activity prerogative either (Reschke in Ellenberger/Findeisen/Nobbe/Böger, Commentary on Payment transaction law, 3rd ed. 2020, § 2 ZAG para 5). The payment service does not have to be the main purpose of a service in order to qualify as a payment service. It is sufficient if the payment services promote the profit-making intention of (another) main business (Cologne regional court MMR 2011, 815 [816]).
d) Interim result
The interim result is that IP management service providers who receive and forward IP right fees on behalf of IP right owners require a licence to provide payment services. Accordingly, this requirement also applied to PAVIS GmbH.
III. Potential obligation to obtain a licence under the German Banking Act (Kreditwesengesetz – KWG)
Additionally, a licensing obligation pursuant to § 32 I 1 KWG could apply. It stipulates that anyone who wants to conduct banking business or provide financial services in Germany on a commercial basis or to an extent that requires a commercially established business operation requires written permission from the competent supervisory authority. With regard to the characteristics of the domestic connection and the commercial nature, reference is made to the explanations in II. 1. Furthermore, a banking business would have to be present. In the current scenario, a deposit business according to § 1 I 2 No. 1 KWGcomes into consideration. This is the acceptance of third-party funds as deposits or other unconditionally repayable funds from the public, unless the repayment claim is securitised in bearer bonds or registered bonds.
With reference to the administrative practice of the BaFin, business management under civil law and the deposit business under banking supervision law are mutually exclusive, as long as the safekeeping of money is only a partial aspect of the other business management relationship and is clearly subordinate (BaFin, Fact Sheet Deposit Business, dated: 11.3.2014, No. I. 5d), available at www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_140311_tatbestand_einlagengeschaeft.html). In so-called on-lending cases, the service as a whole is to be regarded as an agency and not as a deposit transaction, as long as the fiduciary administration of the purchase price is merely a secondary purpose of the service and clearly subordinate. Such a case usually exists in these circumstances because the main purpose of the activity of IP management service providers is the performance of all required activities regarding the renewal of IP rights. Temporarily leaving the amount used to pay the IP right fee in a payment account of the IP management service provider is subordinate to this main purpose.
The interim result is that IP management service providers who receive and forward IP fees on behalf of IP right holders do not generally require a licence under Section 32 I 1 KWG.
IV. Legal consequences of the unauthorised provision of payment services
The legal consequences of the unauthorised provision of payment services range from a power of disclosure by the BaFin and the Deutsche Bundesbank, to cease-and-desist claims by e.g. competitors or consumer associations, to criminal sanctions. Anyone who provides payment services under the ZAG without a licence can also be punished with a prison sentence of up to five years or a fine under Section 63 of the ZAG.
V. Alternative solutions for IP management service providers
If a licence is required, the IP management service provider must, in order to be compliant, either have such a licence or cooperate with a payment service provider that has such a licence. PAVIS GmbH has decided to apply for a permit and has established PAVIS Payments GmbH for this purpose, which has assumed responsibility for processing of payments in relation to IP right fees.
1. Licence application
The necessary information and evidence for applying for a licence according to § 10 I 1 ZAG is described in § 10 II ZAG. § 2 ZAG Anzeigenverordnung (ZAGAnzV) specifies the requirements for licence applications. In addition, BaFin applies the guidelines of the European Banking Authority on authorisation and registration (EBA/GL/2017/09). The granting of a licence is subject to a fee. The legal basis for the fees is the Federal Financial Supervisory Authority Act (FinDAG) in conjunction with the Ordinance on the Collection of Fees and the Allocation of Costs under the Financial Services Supervision Act (FinDAG-KostV).
The preparation of the licence application takes considerable time and is costly. The documents and evidence provided by the applicants must be true, complete, precise and up-to-date and must be submitted to BaFin in duplicate. The requirements to obtain a licence include in particular a viable business plan, the professional competence and trustworthiness of the managing directors as well as the trustworthiness of the owners of significant shareholdings. The applicant must provide evidence of a proper business organisation, appropriate corporate management and internal control mechanisms. In addition, payment providers must safeguard customer funds entrusted to them against insolvency. In practice, payment providers secure customer funds by depositing them in open trust accounts.
2. Cooperation with a payment provider
Instead of applying for a permit to provide payment services, PAVIS GmbH could also have cooperated with already authorised payment service providers. In practice, this type of cooperation is often referred to as "permission lending". In the context of such cooperation, a direct payment service contract will exist between the payment service provider and the IP right holder. A subcontracting of the payment service provider by the IP management service provider is not sufficient. However, the payment service contract may exist alongside the IP management contract between the IP right holder and the IP management service provider. Depending on the commercial expectations of the parties involved, the IP management service provider may act in relation to the payment service provider either as a commercial agent or as a principal of a business concern under Section 675 of the German Civil Code.
VI. Conclusion
In view of the legal consequences of the unauthorised provision of payment services, IP management service providers should check whether they need a permit to provide payment services for their activities. If this is the case, the IP management service provider can either apply for such a permit itself or cooperate with a licenced payment service provider.
Not least because of the obligation of payment service providers to safeguard the funds entrusted to them against insolvency, IP right holders also have an interest in working with IP management service providers that have the necessary licences and are supervised by a competent authority.
