In a ruling of 27 November 2013, the Federal Supreme Court dealt with the question as to whether third parties can be included into arbitral proceedings (group of companies doctrine) and as to which law governs such question. A Danish claimant and an Indian respondent both produced certain equipment. The director general (DG) and the only shareholder of the claimant owned a patent of a certain design. In 1999, the … Holdings Ltd based in Mauritius and represented by the DG, the owner of the patent, and the … Private Ltd based in India had entered into a license agreement for the patent. The agreement provided that Private Ltd had the right to use the new design. The license agreement ended in 2008; it contained an arbitration clause, the seat being in India.

The claimant alleged that the respondent presented the equipment in issue during the Hannover-Fair in 2010 and thereby infringed the patent. The claimant initiated court proceedings against the respondent. The claimant was entitled to bring the action based on the assignment and litigation authorization declaration by the patent owner of November 15, 2010 and from an oral agreement with the patent owner it reached in 1999; according to this oral agreement, the claimant had obtained an exclusive license for the territory of Germany.

The respondent argued that litigation proceedings would be inadmissible because of the arbitration clause contained in the license agreement of 1999 between Holdings Ltd. and Private Ltd.; according to the respondent, this agreement would also govern the parties in dispute. The respondent alleged to be a successor to the … Private Ltd. The claimant, so the respondent, would be bound by the arbitration clause because of the close connections between the … Holdings GmbH and the patent owner.

The court of first instance rejected the arbitration objection as unfounded. The Higher Regional Court Braunschweig confirmed the decision. It ruled that the claimant was not bound by the arbitration agreement concluded between the … Holdings Ltd and the … Private Ltd, because the group of companies doctrine was not recognized under the applicable Danish law and would be contrary to German public policy.

The Federal Supreme Court set aside the judgment and referred the case back. The Federal Supreme Court held that it would have to be decided in the first place whether the patent owner was bound by the arbitration agreement. This was the case, so the court, because the applicant derived its rights from those of the patent owner, based on the assignment and litigation authorization declaration of 2010. After all, the respondent was accused of having infringed the patent owner’s rights by its actions during the Hannover-Fair. After a detailed analysis of the applicable law, the Federal Supreme Court arrived at the result that Indian law should govern the issue. The Indian law, so the court, also governed the question whether the claimant was bound by the arbitration agreement because the claimant asserted rights assigned to it by the patent owner.

The Federal Supreme Court then turned to Article 6 of the Introductory Law to the German Civil Code (EGBGB). According to this article, foreign laws are not applicable if they lead to a result that is irreconcilable with German public policy. The court held that Article 6 EGBGB must not a priori prevent a court from analyzing and determine foreign law. The correct process is to first analyze the foreign law; only in a second step can it then be determined whether the application of the foreign law would violate German public policy.

BGH, III ZR 371/12, 27 November 2013