No Copyright Protection for Birkenstock Sandals: A Significant Decision from the German Federal Court of Justice
On 20 February 2025, the German Federal Supreme Court (BGH) delivered a landmark ruling in a case concerning the copyright protection of Birkenstock sandals. In its decision, the BGH firmly rejected the claim that Birkenstock’s sandal designs qualify for copyright as “applied art” under German copyright law. This judgment not only clarifies the scope of protection for industrial design works but also contrasts with prior rulings from regional courts in Hamburg and Cologne, highlighting the challenges of determining what constitutes “creative” or “artistic” design in functional products.
The Case: Birkenstock’s Fight for Copyright Protection
The case arose when Birkenstock, a prominent footwear brand, sought copyright protection for several of its sandal models, arguing that the designs were works of applied art. The company pursued legal action against various defendants selling or manufacturing sandals that allegedly infringed its copyright. Birkenstock’s argument was based on the claim that its models exhibited a level of artistic creativity deserving of copyright under Section 2 of the German Copyright Act (UrhG), which protects works of applied art if they meet certain requirements.
In earlier proceedings, both the Hamburg District Court and the Cologne Higher Regional Court had taken differing stances on the matter, with one court finding that the sandals could indeed be protected under copyright, and the other dismissing such a claim. However, the BGH ultimately sided with the Cologne Higher District Court, confirming that the Birkenstock sandals did not meet the required threshold for copyright protection.
The BGH’s Reasoning
The BGH’s decision hinges on the fundamental principle that copyright protection is reserved for creations with a certain degree of artistic and creative originality. The court emphasised that applied artworks, such as footwear designs, must reflect a “free and creative” use of design space. When a product’s design is primarily driven by technical or functional constraints, such as the necessity for comfort or durability, it cannot qualify for copyright protection. This has been described by the Cologne Higher District Court (6 U 89/23) as follows:
‘Art tends to be characterised by its freedom of purpose, design by its orientation towards use. Art begins with an idea. Design begins with a task.’
According to the BGH, the designs in question lacked the “design freedom” required to be considered works of applied art. The court pointed out that any creative contribution to the sandal designs was too minimal to meet the necessary level of artistic originality. Essentially, Birkenstock’s sandals were seen as primarily utilitarian products, with the decorative aspects insufficient to elevate them to the level of artistic creation worthy of copyright protection.
Diverging Opinion from the Hamburg District Court
Interestingly, the Hamburg District Court had previously taken a different view on the matter. In the 2022 case (310 O 40/22), the Hamburg District Court ruled that Birkenstock sandals were indeed eligible for copyright protection, recognizing the designs as works of applied art. The court took a more lenient approach, arguing that the aesthetic aspects of the sandals, despite their functional purpose, exhibited enough individuality to warrant copyright recognition.
Conclusion
In fact, the BGH’s decision probably does not change much from a practical perspective when seen in context with the BGH’s reference for a preliminary ruling to the European Court of Justice (ECJ) in the USM Haller case (BGH: ECJ referral on the concept of a work under copyright law — USM Haller GRUR 2024, 132, marginals # 18, 20).
In this reference for a preliminary ruling to the ECJ, the BGH stated that it does not understand the “Cofemel” decision of the Court of Justice (ECJ GRUR 2019, 1185 para. 50–52 — Cofemel) to mean that copyright protection for works of applied art should be subject to stricter requirements than copyright protection for works of purpose free art.
Furthermore, the BGH takes the view that the examination of originality for all types of works must be carried out objectively and uniformly based on the specific work submitted. The subjective view of the author in the sense of creative intention or the awareness of free creative decisions, according to the BGH, should not be relevant (BGH: ECJ referral on the concept of a work under copyright law — USM Haller GRUR 2024, 132, marginal # 27).
The examination is carried out based on circumstances in which a possible creative intention of the creator is expressed in an objectively ascertainable manner. It cannot be inferred from the case law of the Court of Justice that, in addition to the finding that the author made an objectively unconstrained and thus free (creative) decision, it is necessary to establish that the author was aware that he was making a free (creative) decision in this sense.
The awareness of making a creative decision cannot be required either, because artistic achievements can also be made unconsciously or subconsciously (BGH: ECJ referral on the concept of a work under copyright law — USM Haller GRUR 2024, 132, marginal # 30). Insofar as the Court of Justice in the “Brompton Bicycle” decision referred to the factors and considerations that guided the creator in choosing the shape of the product (ECJ GRUR 2020, 736 para. 35 f — Brompton Bicycle), it does not follow from this, in the opinion of the BGH, that the assumption of originality presupposes the establishment of a “conscious” creative decision by the creator. Rather, it follows from the context of the grounds of the court’s decision in the “Brompton Bicycle” case that what matters is whether the result of the creative process constitutes an artistic achievement.
Thus, the national courts must determine whether the author of the product has expressed his creative ability in an independent manner by choosing its shape, by making free creative choices and by designing the product in such a way that it reflects his personality (ECJ GRUR 2020, 736 para. 34 — Brompton Bicycle) (BGH: ECJ referral on the concept of a work under copyright law — USM Haller GRUR 2024, 132, marginal # 31).
While Birkenstock’s iconic sandals are undoubtedly well-recognised globally for their design and comfort, the BGH made it clear that these features alone are not sufficient for protection as copyright. Birkenstock’s iconic sandals, in the view of the BGH, began with a task rather than with an idea. As such, they do not meet the threshold of required creativity. While this ruling contributes to the ongoing dialogue around the limits of intellectual property protection for designs that straddle the line between functionality and artistry, it will certainly not mark the end of this dialogue.
Unified Patent Court Publishes First Annual Report
The Unified Patent Court (UPC) and the Unitary Patent, which launched on June 1, 2023, marked a historic milestone, allowing for the enforcement of patents across borders via a single court. The UPC has now issued its first Annual Report.
Of note, since its inception, the UPC has handled a significant number of cases, with 633 actions filed by the end of 2024. This large influx of filings has enabled the Court to already develop a baseline comprehensive body of case law, enhancing legal certainty and predictability.
Of further note, looking ahead, the UPC plans to implement a new Case Management System by mid-2025, in collaboration with the European Patent Office, to address current system limitations. The Court also aims to establish the Patent Mediation and Arbitration Centre to enhance its dispute resolution capabilities, with a goal of allowing it to become operational this year. We will continue to monitor these new developments as the UPC continues to evolve as a pillar of the European patent system.
Venezuela TPS Update: 18 State Attorneys General File Amicus Brief Supporting Plaintiffs Challenging TPS Termination
On Feb. 19, 2025, the National TPS Alliance, an advocacy group for immigrants who have been granted Temporary Protected Status (TPS), and seven Venezuelans living in the United States, filed a lawsuit in U.S. District Court for the Northern District of California challenging the decision of Department of Homeland Security (DHS) Secretary Kristi Noem to terminate Venezuela TPS. Noem had decided not to extend the 2023 Venezuela TPS designation. That designation will expire April 7, 2025.
On March 7, 2025, the attorneys general of 18 states, including California, Massachusetts, and New York, filed an amicus brief in support of the plaintiffs. The attorneys general contend that Secretary Noem’s decision to terminate Venezuela TPS was “baseless and arbitrary” and founded on unsubstantiated claims that Venezuelans with TPS cost the United States billions in tax dollars and threaten the nation’s economy, safety, and public welfare.
The attorneys general argue, “The vacatur and termination at issue in this litigation, which aim to strip legal protection from a community that comprises more than 50 percent of all [temporary protected status] holders, rest largely on such erroneous and unsubstantiated assertions. … Far from being a burden or threat to our States, Venezuelan TPS holders are a resounding benefit.”
In response, DHS argues that the court lacks the authority to review its discretion to terminate Venezuela’s TPS designation and that the plaintiffs have failed to provide evidence demonstrating Secretary Noem’s decision to terminate the designation was motivated by discrimination or animus.
EU Omnibus Package: Proposed Changes to Reduce ESG Compliance Burdens for Businesses
On 26 February 2025, the European Commission (Commission) published the so-called “EU Omnibus Package” (Proposal). The Proposal aims to reduce the administrative burden for businesses operating in the EU by easing compliance requirements under several key EU environmental, social, and governance (ESG) laws, including the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). The Proposal must be read against the background of the “Draghi report” on European competitiveness published last year, which urged to reduce the administrative and regulatory burden within the EU, and the Commission’s target to reduce such burden by 25% overall and by at least 35% for SMEs. This GT Alert provides an overview of the most important proposed changes to these regulations.
Key Proposed Changes
Amendments to CSRD
Scope of application for EU companies: The CSRD’s scope of application would be limited to undertakings that have more than at least 1,000 employees and either a net turnover of at least EUR 50 million or a balance sheet total of at least EUR 25 million. In addition, publicly listed small and medium sized undertakings (SMEs) that do not meet these thresholds shall be completely removed from the scope of the CSRD. The Commission estimates that these changes would remove approximately 80% of the current in-scope companies from the scope of the CSRD. Currently, the CSRD still captures all “large” undertakings, being companies which meet two of the three following criteria: (i) average number of employees: 250; (ii) balance sheet total: EUR 25 million; and (iii) net turnover: EUR 50 million, as well as listed SMEs (regardless of their number of employees).
Scope of application for non-EU companies: The Proposal suggests to significantly increase the threshold for non-EU companies to be subject to reporting requirements under the CSRD. The reporting obligation for non-EU companies shall now only be triggered if the ultimate non-EU parent company has a total turnover in the EU of at least EUR 450 million at group level (now: EUR 150 million) and either a “large” EU-based subsidiary (meeting two out of three criteria referred to above) or a branch in the EU with a turnover of at least EUR 50 million (now: EUR 40 million). The employee threshold was not raised to 1,000 for EU subsidiaries of non-EU parent companies, which may have been an oversight.
Scope of reporting requirements: The scope of the reporting requirements set out in the European Sustainability Reporting Standards (ESRS) shall be simplified through a reduction of the number of data points to be reported in the CSRD report. The Proposal also removes the obligation for the European Commission to adopt delegated acts to supplement CSRD in order to, where appropriate, provide for reasonable assurance standards. This would mean that CSRD would, also in the future, only require an audit opinion about the compliance of the sustainability reporting based on limited assurance standards.
Timing of reporting: The Proposal suggests postponing the CSRD reporting requirements by two years for all so-called “wave 2” and “wave 3″ companies, i.e. companies which are currently required to report under the CSRD in 2026 (over the financial year 2025) or 2027 (over the financial year 2026). If the Proposal is adopted, these companies would only have to provide their first CSRD report in 2028 and 2029, respectively. On the contrary, the Proposal does not change the timing of the reporting for so-called “wave 1” companies (i.e. publicly listed EU companies, insurances and banks with an average number of employees during the financial year of at least 500) which are already required to do CSRD reporting in 2025 (for the financial year 2024). The Commission intends to fast-track this part of the Proposal to provide legal certainty for companies with looming reporting obligations in 2026, and to “win time” for adoption of the envisaged substantive changes (in particular the introduction of the 1,000-employee threshold). Should the substantive changes be adopted and become effective as they currently stand, the “wave 1” companies that do not meet the new scoping criteria (because they have more than 500 but less than 1,000 employees) would no longer be subject to the CSRD.
Amendments to CS3D
Timing of due diligence obligations: The Proposal leaves the thresholds for the applicability of the CS3D unchanged but proposes to postpone the deadline for Member States to transpose the CS3D into national law by one year to 26 July 2027. Consequently, the first phase of application of the new due diligence obligations (i.e. for large companies) would begin on 26 July 2028.
General limitation of due diligence obligations to direct business partners: The Proposal generally limits the due diligence obligations of in-scope companies to direct business partners. An exception (i.e. an obligation to conduct an in-depth assessment of adverse impacts at the level of indirect business partners) shall only apply in limited circumstances where the company has plausible information suggesting that adverse impacts have arisen or may arise at the level of the respective indirect business partner. Hence, it would no longer be required to monitor and assess the entire supply chain.
Greater intervals for monitoring: As another significant relief for in-scope companies, the Proposal suggests requiring companies to assess the adequacy of their supply chain due diligence measures only every five years instead of every 12 months.
Termination of business relationships: Under the Proposal, in-scope companies would no longer be required to terminate their entire business relationship with business partners towards which preventive or corrective measures have failed to address their adverse impacts on human rights or environmental objectives. Instead, they would only be required to terminate business relationships with respect to the activities concerned.
Other Proposals
The Proposal also includes:
measures to reduce the regulatory burden and scope of the Taxonomy Regulation, including by introducing materiality thresholds and reducing reporting templates by around 70%;
changes to the Carbon Border Adjustment Mechanism (CBAM), including by exempting small importers from CBAM obligations; and
an amendment to the InvestEU Regulation, involving reduced reporting requirements.
Outlook
It remains to be seen whether the Proposal will become law in its current form. It is still subject to approval by the European Parliament and the Council of the EU Member States. Generally, EU legislative procedures can last up to 18 months – which is why the Commission has asked to fast-track the changes, in particular regarding the postponement of CSRD deadlines.
Whilst some EU politicians have raised concerns that the Proposal would lead to a setback for the EU’s sustainability objectives, the Proposal would significantly reduce the compliance burden for companies and limit the CSRD’s scope of application. For this reason, the Proposal has found support in some key EU Member States (e.g. Germany). Further intense discussions can be expected as the legislative procedure moves along.
Considerations for Companies
Until the Proposal becomes final and is adopted, the existing ESG rules (including CSRD) will continue to apply. What steps should companies consider taking before then? In particular for the CSRD, the answer depends on the circumstances for each company:
Companies that are already required to report under CSRD (“wave 1” entities) in 2025 should continue to comply. Companies with more than 500 but less than 1,000 employees may no longer be required to comply after adoption of final rules, but whether those rules will indeed become effective in their current form remains to be seen.
For companies that are currently due to report under CSRD in 2026 and 2027 (“wave 2” and “wave 3” entities), the prudent approach is to continue preparing for CSRD on the basis of the existing rules.
Non-EU parent companies of EU subsidiaries or branches should reconsider applicability of the scope to determine whether they will be required to report in 2029.
All companies are advised to monitor the development of upcoming rules.
FCA’s Private Market Valuations Review – Good Practice but Room for Improvement
Background
On 5 March 2025, the United Kingdom’s Financial Conduct Authority (“FCA”) published the findings of its multi-firm review of valuation processes for private market assets (the “Review”). The Review covered a firms operating in range of private asset classes, including: venture capital, infrastructure (equity and debt), private equity and private debt.
As detailed by the FCA, private market assets are not subject to external valuations that are typically carried out within the public markets (that are subject to frequent trading and pricing). The Review set out to analyse whether private market firms had robust valuation processes in place, to ensure fairness and confidence in the industry.
The FCA noted that firms generally demonstrated good practice, but there is room for improvement.
Key Findings
The key findings from the Review are:
1. Governance arrangements
Whilst nearly all firms reviewed had specific governance arrangements in place for valuations (with many incorporating valuation committees responsible for valuation decisions), the FCA noted that in some cases, there were inadequate records to note how these valuation decisions were reached and that valuation committee members could not describe examples in practice.
Key Recommendation: Firms should have a clear accountability regime for valuations, including detailed record-keeping of how valuation decisions are reached.
2. Conflicts
While firms identified conflicts in their valuation process around fees and remuneration, and in many cases had limited these through fee structures and remuneration policies, other potential conflicts were only partly identified and documented.
The FCA noted that conflicts could arise where valuations are linked to investor fees and employee remuneration. In addition, firms are incentivised to determine favourable valuations as part of investor marketing, asset transfers (such as continuation funds) and secured borrowing arrangements (such as NAV facilities).
Key Recommendation: Firms should consider if these valuation-related conflicts are relevant and if they are, for firms to document and take steps to mitigate or manage them.
3. Functional independence and expertise
The FCA observed that whilst some firms demonstrated functional independence (citing the use of a dedicated function to lead on valuations, preparing models and recommendations) that other firms demonstrated insufficient expertise in their functions (citing the inability to describe assets, valuation models and the structure of the valuation committee voting membership).
Key Recommendation: Firms should assess whether they have sufficient independence in their valuation function and the voting membership of their valuation committees are measured to ensure effective control and expert challenge.
4. Policies, procedures and documentation
The FCA focused on appropriate policies and procedures relating to valuation policies, valuation models, auditors and back-testing. They found that whilst all firms had valuation policies outlining the process, some firms did not provide further detailed rationale for selecting specific methodologies and safeguards for functional independence.
Key Recommendation: Firms should ensure that their valuation policies are sufficiently comprehensive and clear. Moreover, the FCA also advised that firms should consider whether they can make investments in technology to improve consistency and reduce the risk of human error in their valuation processes.
5. Frequency and Ad hoc valuations
The FCA noted that less frequent valuations could risk a “stale” valuation, which does not accurately reflect the condition of an investor’s holdings.
For most alternative assets, the industry has predominantly converged to quarterly valuation cycles, although debt assets also had monthly valuation cycles. Firms reviewed by the FCA argued those frequencies were usually appropriate, given the resource-intensive nature of valuing private assets, the alignment with financial reporting frequency and infrequent changes to the value of the underlying asset.
Key Recommendation: Firms should incorporate a defined process for ad hoc valuations which would mitigate the risk of “stale” valuations.
6. Transparency to investors
The FCA found that reporting varied across firms, but that most firms were providing regular quantitative and qualitative updates to investors.
Key Recommendation: Firms should consider where they can improve their reporting to and engagement with investors in relation to valuations, including providing detail on fund-level and asset-level performance to increase transparency and investors’ confidence.
7. Application of valuation methodologies
The FCA reported that methodologies varied across asset classes, with the most common methodologies being:
Market approach: which uses prices and other relevant information that have been generated by market transactions that involve identical or comparable assets. This can involve valuation multiples derived from quoted prices of public companies or prices from merger and acquisition transactions.
Income approach: which converts future amounts (for example, cash flows or income and expenses) to a single current (discounted) amount. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts.
The FCA found that the challenges most firms faced was inconsistency. Some firms discussed the challenge of identifying comparable companies or assets, particularly when the portfolio company or asset had unique attributes and firms also had different approaches to reflect public market volatility.
Key Recommendation: Firms should apply valuation methodologies and assumptions consistently, and to make valuation adjustments solely on the basis of fair value. Where relevant, firms should consider using industry guidelines to ensure their approach is in line with standard market practice.
8. Use of third-party valuation advisers
The FCA noted that third-party valuation advisers can provide additional independence and expertise, although sufficient oversight is required.
Key Recommendation: When using a third-party valuation adviser, they should be appropriately overseen, and potential commercial conflicts need to be identified and managed. Firms should consider the strengths and limitations of the service provided and disclose the nature of the services used to investors.
Next Steps
Following the Review, the FCA will engage with firms and industry bodies to discuss the challenges faced by the industry and potential opportunities to further enhance valuation practices within private markets. They also note that the findings from the Review will be considered as they assess the Alternative Investment Fund Managers Directive (“AIFMD”), as currently onshored in the United Kingdom.
Key Takeaway for Non-UK Fund Sponsors
Although the findings from the Review are aimed at firms regulated by the FCA, the United States Securities and Exchange Commission (“SEC”) has regularly commented issues relating to the valuation processes of firms within their remit over the last few years. The findings from the Review and the associated recommendations are valuable for non-FCA regulated fund sponsors as well, as it provides a baseline as to common, good practice across the private assets market, which the SEC may look to when determining whether or not to cite a U.S. fund manager’s valuation policies and procedures for a deficiency.
UK Sanctions Update: OFSI Releases Financial Services Threat Assessment – Part 1
In February 2025, the UK’s Office of Financial Sanctions Implementation’s (“OFSI”) issued a report outlining its assessment of the sanctions-related threats posed to the UK by firms operating in the UK’s financial services sector. As to be expected, the report focuses on the risks associated with transactions since February 24, 2022, when Russia invaded Ukraine and countries around the world, including the UK, responded with an unprecedented expansion of financial sanctions. However, while OFSI acknowledges that compliance with Russia sanctions must remain a priority for UK financial services firms, it simultaneously makes sure to remind firms that they must strictly comply with all UK sanctions, and many of the insights in the OFSI report are of broader relevance to sanctions compliance.
In our two-part article, we first outline the key threats that OFSI identified in its report, and then we set forth the steps that financial services firms can and should take to address those threats when developing or enhancing their sanctions compliance programs.
Key Threats
Analyzing the period January 2022 through March 2024, OFSI identified the following six key threats or “judgments” in its “Threat Assessment” report[1]:
Failures to self-disclose all suspected breaches to OFSI.OFSI considers that it is likely that UK financial services firms have not disclosed all suspected breaches to OFSI. However, OFSI notes that the disclosures that were made tended to be made in a timely manner. Of the breaches reported to OFSI, 55% were reported by banks, 27% by non-bank payment service providers (“NBPSPs”), 4% by insurance firms, and 14% by other firms, including auditors and accountants.
Improper maintenance of frozen assets and breaches of licence conditions.OFSI considers that it is highly likely that most instances of non-compliance by UK financial services firms occurred due to common compliance issues such as:– Intentional and unintentional debits from accounts of Russian Designated Persons (“DPs”) at UK banks and NBPSPs, which may relate to pre-existing insurance policies or other contracts, particularly those linked to UK residential properties.– Breaches of OFSI licence conditions, which typically are due to expired licences or failures to comply with related reporting requirements.– Failures to identify entities owned by Russian DPs, including subsidiaries of Russian conglomerates that are themselves designated or that are majority owned by an individual Russian DP.– Failures to notice the involvement of UK natural or legal persons in transactions and misunderstandings of the differences between the UK, EU, and US sanctions regimes.
Usage of new professional and non-professional enablers to evade sanctions.OFSI considers that it is almost certain that Russian DPs have turned to new professional and non-professional enablers, such as wealth managers and family members or other proxies, respectively, in their attempts to avoid UK financial sanctions. OFSI defines an “enabler” as any individual or entity providing services or assistance on behalf of or for the benefit of a DP to breach UK financial sanctions prohibitions, and concludes that it has observed a significant increase in enabler activity since 2023.
Usage of enablers to make the payments necessary to maintain a DP’s lifestyle and assets.OFSI considers that, since February 2022, the greatest enabler activity links to Russian DP’s lifestyles and assets. Considering the liquidity issues caused by UK (and other) sanctions, OFSI considers that it is highly likely that many DPs have relied on enablers, and particularly NBPSPs, to make payments necessary to maintain their assets and continue their lifestyles. Examples include payments related to the maintenance and upkeep of their superyachts and real estate, the salaries of their bodyguards or concierges, and their purchases of high-value goods. Without OFSI licences, all such payments may violate UK financial sanctions. OFSI notes that perpetrators tend to be smaller firms with historical UK nexuses and whose relationships with DPs predate the designations, or non-professional enablers such as family members, particularly children, spouses, ex-spouses and in-laws.
Enablers “fronting” for Russian DPs and claiming ownership of frozen assets.OFSI considers that it is likely that professional enablers are attempting to front for Russian DPs by claiming ownership of their frozen assets. This is particularly the case where the ownership or control of assets frozen under Russia sanctions is unclear, for example because of insolvency or complicated corporate structures that obfuscate a DP’s ownership or control of an asset.
Usage of alternative payment methods and intermediary countries.OFSI considers that it is almost certain that professional enablers have assisted DPs to breach UK financial sanctions through a variety of other means, including alternative payment methods, and particularly the use of crypto assets, and the use of intermediary jurisdictions. As an example of the former, OFSI highlights that in December 2024, an investigation led by the UK’s National Crime Agency (NCA) identified a Russian money laundering network that utilized cash-to-crypto exchanges to breach UK financial sanctions and to launder funds. Regarding the latter, OFSI has been following the growing involvement of other jurisdictions in breaches of UK financial sanctions and confirms that, since February 2022, over 25% of suspected breaches reported to OFSI by UK financial services firms included reference to intermediary jurisdictions. The countries flagged to date include the British Virgin Islands, the Cayman Islands, Cyprus, Guernsey, the Isle of Man, Luxembourg, Switzerland, Turkey, and the United Arab Emirates.
Additional Considerations
Given the severe criminal, civil and reputation harm that flow from sanctions violations, it is critical that UK financial services firms take heed of the report and study whether their existing sanctions compliance programs and controls are fit for purpose, or whether there is scope for enhancement.
In the second of our two-part article, which is due imminently, we will look in more detail at how the UK’s financial services sector should respond to the report.
[1] UK Government, Financial Services Threat Assessment, (February 2025).
Transfer Pricing and Tariffs: Finding Certainty in Trade Uncertainty
The current administration’s whipsaw of imposed and withdrawn tariffs continues to rattle financial markets and industries across the United States.
In New England, annual trade of goods and services with Canada exceeds $42 billion. A 25% on Canadian imported goods would dramatically impact New England’s trade relationship with that country.
Especially hard hit would be Maine, where Canada is the state’s largest trading partner. Each year, Maine imports $5.1 billion in goods and exports $1.4 billion in goods to Canada.
For example, a U.S. entity and its Canadian subsidiary have a transfer pricing methodology that sets a $100 price per good imported from its Canadian subsidiary. Without tariffs, the U.S. entity imports the $100 good and then sells the good in the U.S. for $130, resulting in $30 U.S. taxable income.
If a 25% tariff is imposed, the U.S. entity imports the $100 good plus pays a $25 tariff (25% * $100). It then sells the good in the U.S. for $130, resulting in $5 U.S. taxable income (assuming the sale price is not raised on its U.S. customers).
However, if the transfer pricing methodology is adjusted or changed to set the import price to $80, then the U.S. entity imports the good at $80 plus a $20 tariff (25% * $80). The U.S. entity then sells the good for $130, resulting in $30 taxable income – demonstrating that, despite the tariffs, the right transfer pricing methodology can help businesses maintain the status quo without raising costs to its customers.
China’s Supreme People’s Court Work Report – Number of Punitive Damages Awards Up 44%
On March 8, 2025, at the third session of the 14th National People’s Congress, Zhang Jun, President of the Supreme People’s Court (SPC), delivered the SPC’s annual work report. President Zhang highlighted the increase in punitive damages awarded in intellectual property cases including the 640 million RMB award in an electric vehicle trade secret case (although only the non-monetary portion of the judgement has been satisfied as the unnamed defendant is bankrupt). Punitive damages were awarded in 460 cases of malicious infringement with serious circumstances, an increase of 44.2% year-on-year. Overall, 494,000 intellectual property cases were concluded, an increase of 0.9% year-on-year.
Excerpts related to intellectual property from the work report follow.
II. Serving high-quality development with strict and fair justice
Serve the construction of a unified national market. Strengthen anti-monopoly and anti-unfair competition judicial work. The SPC issued judicial interpretations on anti-monopoly civil litigation, and identified 31 cases of monopoly, a year-on-year increase of 2.1 times. 10,000 cases of unfair competition such as infringement of trade secrets and collusion in bidding were concluded, a year-on-year increase of 0.7%. In one case, Sun and others set up a peer company in anonymity and misappropriated the technical secrets of the original unit for more than 10 years. The court applied punitive damages and ordered the company and Sun and others to pay joint compensation of 160 million RMB.
Serve the development of new quality productivity. 494,000 intellectual property cases were concluded, an increase of 0.9% year-on-year. Serve the key core technology research and industrial development. Strengthen judicial protection of intellectual property rights in the fields of new generation information technology, high-end equipment, biomedicine, new materials, etc., and promote the transformation of innovative achievements. In the six years since its establishment, the Intellectual Property Court of the Supreme People’s Court has concluded nearly 20,000 technical intellectual property appeals, among which the number and proportion of cases involving strategic emerging industries have increased year by year, reaching 1,233 in 2024, accounting for 32.3%. Properly handle cases involving artificial intelligence disputes in accordance with the law, support the legal application of artificial intelligence; punish infringements using artificial intelligence technology, and promote standardized and orderly development. Strictly protect innovation in accordance with the law. Punitive damages were applied to 460 cases of malicious infringement with serious circumstances, an increase of 44.2% year-on-year. The “new energy vehicle chassis” technical secret infringement case was heard in accordance with the law, and punitive damages of 640 million RMB were awarded. The infringer was ordered to stop the infringement, and the calculation standard of delayed performance fee was clarified to encourage its automatic performance. Explore the information disclosure mechanism of related cases and punish those who disrupt the innovation order in the name of rights protection. A company maliciously registered and hoarded trademarks in large quantities based on the business names and main identifying parts of trademarks that were used previously by others, and made profits by suing others for infringement. The Hunan Court ruled to dismiss the lawsuit and imposed a fine of 100,000 RMB as punishment.
Serving the expansion of high-level opening-up.
…In a patent infringement case, based on an urgent application by a domestic science and technology enterprise, the court made the first behavior preservation ruling in the field of intellectual property rights in China in accordance with the law with an anti-antisuit injunction, supporting the right holder’s legitimate rights protection. Subsequently, Chinese and foreign parties reached a package settlement on 16 lawsuits involving 6 courts at home and abroad.
Work Plan for 2025
First, seek progress while maintaining stability, and perform duties and responsibilities in line with the promotion of Chinese-style modernization.
…Strengthen anti-monopoly and anti-unfair competition justice. Guarantee innovation and creation in accordance with the law, and help develop new quality productivity.
Third, strict management and loving care, forging a loyal, clean and responsible iron army of the courts in the new era.
…Build a professional trial personnel pool for intellectual property, finance, bankruptcy, foreign-related, maritime, environmental resources, etc., improve the medium- and long-term training plan for outstanding personnel, and jointly cultivate socialist rule of law talents with universities.
The full text is available here (Chinese only).
China’s Supreme People’s Procuratorate Releases 2025 Work Report – 21,000 People Prosecuted For IP Crimes
On March 8, 2025, China’s Supreme People’s Procuratorate (SPP) released its 2025 Work Report at the 14th National People’s Congress. Regarding intellectual property, the SPC states that 21,000 people we prosecuted for IP crimes in 2024 and highlighted the trade secret case of Zhang, who was prosecuted under China’s version of the Economic Espionage Act. Other significant criminal IP cases were surprisingly not highlighted, like the 9-year prison sentence for criminal copyright infringement of Lego bricks.
The opening ceremony of the third session of the 14th National People’s Congress was held in the Great Hall of the People in Beijing.
The IP section from the SPP’s work report follows:
Serve innovation-driven development. Strengthen judicial protection of intellectual property rights, promote the cultivation and growth of emerging industries such as artificial intelligence and biomedicine, assist in the transformation and upgrading of traditional industries, and protect the development of new quality productivity in accordance with local conditions. We prosecuted 21,000 people for crimes such as infringement of trademark rights, patent rights, copyrights and trade secrets. In one case, Zhang and others illegally obtained a company’s core chip technology, and the Shanghai Procuratorate filed a public prosecution for suspected infringement of trade secrets. We handled 4,219 civil, administrative and public interest litigation cases involving intellectual property rights, protect the legitimate rights and interests of scientific and technological innovation entities in accordance with the law, and serve high-level scientific and technological self-reliance.
The full text is available here (Chinese only)
ECHA Updates Annual Evaluation Statistics and Recommendations to Registrants on Improving Dossiers
The European Chemicals Agency (ECHA) announced on February 26, 2025, that it has updated its annual statistics on evaluation progress. According to ECHA, between 2009 and 2024, it checked the compliance of 15,500 Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation registrations, representing 23 percent of all submitted registration dossiers and covering 3,200 substances. For high-volume chemicals registered at quantities of 100 metric tons or more per year, ECHA has checked 34 percent of the registrations. ECHA notes that based on the evaluations, it updated its recommendations to registrants on how to improve their dossiers.
In 2024, ECHA carried out 313 compliance checks, covering almost 2,000 registrations and addressing 272 individual substances. ECHA notes that these checks focused on those registration dossiers that may have data gaps. As a result, ECHA sent 208 decisions to companies, requesting additional data to clarify long-term effects of chemicals on human health or the environment. ECHA states that it also examined 161 testing proposals and sent out 92 decisions, addressing the tests proposed by industry to ensure the safe use of the substance.
To follow up information requests sent to companies, ECHA states that it checks whether the provided information complies with the REACH requirements. In 2024, ECHA concluded this evaluation for 241 substances. According to ECHA, in about 70 percent of the cases, companies provided the requested information. ECHA notified the remaining 30 percent to European Union (EU) member states for enforcement and will follow up. ECHA also adopted three substance evaluation decisions prepared by EU member states, requesting further information to assess the safety of substances of potential concern.
Supreme People’s Court Presiding Judge Chen Wenquan Elaborates on 640 Million RMB Trade Secret Case
On March 7, 2025, Judge CHEN Wenquan, the Supreme People’s Court judge that presided over the case that yielded the largest intellectual property damages in China’s history, elaborated on the case. In decision （2023）最高法知民终1590号 released June 14, 2024, the SPC applied 2X punitive damages on appeal in a dispute between two well-known (and unnamed) domestic automotive companies regarding new energy vehicle chassis technical trade secrets that were misappropriated in a personnel poaching scheme. The plaintiff is believed to be Geely Holding Group and the defendant is WM Motor. Note that WM Motor is reportedly insolvent so collection is unlikely. Below, Judge Chen only mentioned the non-monetary obligations were fulfilled.
Judge Chen stated:
To build a strong country in science and technology, it is necessary to encourage and protect fair competition. In recent years, disputes over technical secrets caused by employee “job hopping” have occurred frequently, especially some newly established enterprises have illegally seized other people’s technology, personnel and resources in order to gain competitive advantages quickly, seriously disrupting the market order. The right holder in this case is one of the largest private automobile companies in my country. As early as 2014, it used its traditional models to develop, trial-produce, and produce hybrid and pure electric vehicles, made huge R&D investments, and has achieved initial R&D results. In order to gain competitive advantages quickly, competitors have poached senior management and technical R&D personnel related to the right holder on a large scale, and used the technical secrets mastered by the right holder’s former employees to apply for patents, manufacture and sell related models.
The outstanding feature of this case is that it is a case of infringement of technical secrets caused by the organized and planned large-scale poaching of new energy vehicle technical personnel and technical resources by improper means. On the basis of the overall judgment of the infringement of technical secrets, the People’s Court applied double punitive damages in accordance with the law and awarded more than 640 million RMB, setting a new record for the amount of compensation awarded in domestic intellectual property infringement lawsuit. More importantly, the trial of this case has always been based on the judicial concept of protecting innovation in an innovative way, and has made pioneering explorations in the specific way, content, scope of civil liability for stopping infringement, and the calculation standard of delayed performance of non-monetary payment obligations. After the judgment was made, the infringer took the initiative to perform the non-monetary obligations determined by the judgment on time. As a typical case of the People’s Court protecting scientific and technological innovation in accordance with the law, this case not only effectively cracked down on malicious infringement of intellectual property rights, actively regulated and guided enterprises to operate in good faith and in accordance with the law, but also helped to stimulate the innovation and creation of enterprises, help develop new quality productivity, promote high-quality development of new industries and new fields, and promote the creation of a business environment that respects originality, legal operation, and fair competition.
The original text is available here (Chinese only).
USTR Set to Impose Fees on Chinese Ships
Go-To Guide:
The USTR has proposed significant fees, restrictions, and incentives to restore a maritime industry that China dominated for nearly 30 years.
The public comment period opened Feb. 21, 2025, with comments due by March 24, 2025.
To address concerns about China’s impact on U.S. maritime industries, the Office of the United States Trade Representative (USTR) has laid out multiple proactive measures designed to promote fair competition and reduce dependence on China’s dominance in these sectors.
Section 301 Investigation and the USTR’s Proposed Action
The USTR announced a request for public comment and a public hearing for its proposed trade actions in response to the Section 301 investigation, which exposed China’s targeting of the maritime, logistics, and shipbuilding sectors. Once implemented, the additional fees on Chinese ships or Chinese-operated ships entering U.S. ports will further increase costs on imported merchandise, in addition to the supplemental tariffs recently imposed by the Trump administration.
In March 2024, five labor unions filed a petition of Section 301 of the Trade Act of 1974, asserting that China’s policies and practices in these sectors are unfair, unreasonable, and harmful to U.S. commerce. USTR’s investigation revealed that, for nearly 30 years, China has employed market manipulation through industrial planning and policies for the purpose of global domination. For instance, China’s share of the shipbuilding market grew from less than 5% in 1999 to over 50% in 2023. As of today, China controls 95% of shipping container production and 86% of intermodal chassis. U.S. businesses have suffered a loss of competition and increased economic risks as a result of China’s actions.
In response, the USTR proposes fees on Chinese-operated and Chinese-built vessels visiting U.S. ports, up to $1,500,000, to curb China’s dominance and restore fair competition. This includes service fees for Chinese maritime transport operators, usage of Chinese-built vessels, and maritime transport operators with prospective orders for Chinese-built vessels. In addition to the fees, the USTR proposed the following:
Requirements for U.S. goods to be increasingly transported on U.S.-built vessels.
Restricted access on China’s National Transportation and Logistics Public Information Platform of U.S. shipping data.
Potential negotiations with allied countries to counter China’s policies and reduce reliance on Chinese-dominated maritime sectors.
Request for Public Comment
A public hearing will be conducted on Thursday, May 29, 2025. Requests to appear at the hearing must be submitted by Monday, March 10, 2025.
The USTR is currently soliciting public comments that must be submitted by Monday, March 24, 2025. There will be a specific focus on the extent of China’s burden on U.S. commerce. Details, including the Section 301 investigation, can be accessed through the USTR’s website.