Protects Bertelsmann Class Action

25 June 2004

Dr. Felix Hauk LL.M.

The German Federal Supreme Court has recently handed down a judgment relating to a class action under New York law against the German company, Bertelsmann AG. This judgment has been the subject of much press attention.

A group of American songwriters and publishers filed a class action in New York for damages in the region of US$17 billion against Bertelsmann AG. The claimants alleged that Bertelsmann AG was responsible for the copyright infringements committed by the insolvent company Napster on account of its owning shares in Napster.

As a matter of procedural law, a claim form must be validly served on the defendant before proceedings can be commenced. The claimants tried to effect service of the claim form on Bertelsmann via the competent German authorities. The German authorities are obliged to accede to such requests under The Hague convention and this is usually a quick process. However, Bertelsmann refused to accept service of the claim form and responded by filing a request for a preliminary injunction in the German Federal Supreme Court.

The German Federal Supreme Court granted the preliminary injunction in favor of Bertelsmann AG. The German court decided that the German authorities can reject a request for service of a claim form if the objective of the foreign action violates fundamental principles of due process. The court decided that the claim had no basis in law and that the claimants’ main objective was to create public pressure and to intimidate the opposition. The merits of the case would therefore have to be ruled upon by the German court and until this had happened, the German court decided that Bertelsmann was entitled to protection against being dragged into an evidently unmeritorious class action.

The effect of this judgment is that German companies can protect themselves from unmeritorious claims issued in the US. However, there are loopholes which could reduce the judgment’s effect. In practice, service can only be prevented if service on the company in Germany was the only option, for example, the company could have an American subsidiary and service on this subsidiary would constitute valid service. Legally, it remains to be seen what conclusions the Federal German Supreme Court reaches on the merits and whether the New York court allows the German decision to prevent the class action proceeding in New York.