Legislation Update: The Law Amending Law on Obligations in Croatia

By Anamarija Stančić Petrovic, SD PETOSEVIC Croatia-Zagreb, with contribution from Vanja Caratan-Krenedić; Published in Eastern Europe Trademark World WORLD Focus, May 2006, pp. 17-19

The total value of counterfeit goods worldwide is estimated to amount to US$750 billion, corresponding to approx. 9% of total world trade. Although Croatia is a consumer of counterfeit products, it is not a producer. Most counterfeit goods that appear in Croatia (around 80%) originate from China. The largest portions of these products are in transit into the Balkans, via Croatians borders and ports, and destined for the EU market. Therefore, it is a very important and strategic move to protect and enforce your trademark portfolio in Croatia.

The total value of counterfeit goods world-wide is estimated to amount to US$750 billion, corresponding to approx. 9% of total world trade. Although Croatia is a consumer of counterfeit products, it is not a producer. Most counterfeit goods that appear in Croatia (around 80%) originate from China. The largest portions of these products are in transit into the Balkans, via Croatians borders and ports, and destined for the EU market. Therefore, it is a very important and strategic move to protect and enforce your trademark portfolio in Croatia.

As a signatory of the TRIPS Agreement within the World Trade Organization (WTO) system, Croatia has undertaken many international obligations and has established a legal and institutional framework for protecting intellectual property rights. There is still a considerable need for training of state officials and the public on the importance of fighting counterfeit goods, but progress has been made. As Croatia tries to increase its commercial activity and economic expansion to participate in the global market, local businesses and manufacturers will naturally increase their awareness of the importance of providing for intellectual property rights protection in this country.

Enforcing your IP Rights

The first step to protecting your IP rights in Croatia is to obtain a valid national registration. Once a registration has been obtained, Croatian legislation provides for certain protections and tools for enforcing an IP owner’s rights. While there have been numerous practical difficulties enforcing such rights in the past (due to lack of case law, and particularly for patent cases) legislative protection of IP rights has improved and continues to develop within the program of stabilization and accession of the Republic of Croatia to the EU in 2010. Croatian IP laws, as well as the Customs Law and Regulations on Customs Measures Related to Goods Infringing IP Rights, are now fully harmonized with EU legislation. Furthermore, the Croatian Government, through regulations and the vesting of authority to various bodies of executive power (State Inspectorate, Police, Customs) is trying to provide for a work force to address the problem of IP infringement and to enforce appropriate sanctions against the infringers. The State Inspectorate conducts inspection of goods on the market while the Police and Customs suspend the selling of goods violating IP rights through seizures.

Customs Procedures

One of the most effective tools against counterfeiting/counterfeiters is the filing of Customs Applications. ‘The Croatian Regulation on Customs Measures’ was enacted on 10 July 2003 and became effective as of 1 October 2003. The provisions of this Regulation follow the main provisions of EC Council Regulation No. 3295/94 of 22 December 1994.

The Croatian Regulation provides two types of measures or actions to be taken by the Croatian Customs Authorities. The first is surveillance based on Customs Watch applications filed by IP holders, and, the second is ex officio supervision. IP holders may file two types of application:

1. A general Customs Watch Application requesting Customs to stop any infringing goods found in any shipments.

2. A more “specific” application requesting Customs to stop a specific shipment.

The surveillance or Customs Watch is granted for one year and the term is extendable for a further year. After two years, it is necessary to file a new application.

Despite the existence of these possibilities for several years now, only a few trademark owners have taken advantage of the system and filed applications with Customs. Customs have made very few ex officio suspensions and when they have, in the majority of cases, the goods were released due to the failure of the trademark owners to take necessary actions within the prescribed time. Either the trademark holders were not interested in taking any action or the Customs officers were not able to locate the trademark holders. These problems can be avoided by filing a general Customs Watch Application.

Infringement actions

The most recent and important change in the Croatian legislation concerning enforcing IP rights through the courts, was the adoption of the Law Amending the Law on Obligations (the new Law) that came into force on 1 January 2006. Due to the changes to the law, a claim for damages in civil court procedures concerning intellectual property matters, has become a much more realistic and important part of the claim.

Pursuant to the Trademark Act and the new Law, a plaintiff (any individual and/or legal entity) may claim material and non-material damages (injury to reputation, goodwill etc.) in a claim for trademark infringement. The old Law on Obligations did not include a provision to allow a legal entity to claim nonmaterial damages. Only an individual was in the position to claim non-material damages and, the Law was not entirely clear about even that. Since the plaintiffs in most intellectual property cases were foreign legal entities, this meant that damages were not an option. During the 1990s, despite this omission in the old Law on Obligations, the Commercial Courts in Croatia issued many decisions ordering the defendant to pay the round sum of US$ 5000 for non-material damages where the plaintiff was a legal entity. However, in most cases such verdicts did not survive appeals before the High Commercial Court with respect to damages. The High Commercial Court strictly enforced the current Law on Obligations and was of the philosophy that it was impossible for a legal entity to suffer non-material damages such as pain, fear and injury to goodwill.

Although an order for material damages, was, and is, much easier to obtain then non-material damages, the value of material damages can be a very contentious issue in the proceedings. It usually requires the involvement of a financial expert, which can seriously extend and increase the cost of the proceedings. The claim for non-material damages, however, does not require such proof and the amount awarded is completely within the judges own discretion without any need for the submission of evidence to help quantify the damages.

The changes

The following are the relevant changes to the law:

The main change on the new Law on Obligations was made in respect of provisions of Article 1046, which now defines nonmaterial damage as the damage of the personal right.

Article 19(2) of the new law also stipulates that each individual or legal entity has the right to protect its personal rights. Subsection 2. of this Article also defines that the personal rights include the right to reputation (goodwill, honor, dignity, name, etc.).

Provisions of Article 19(3), now explicitly determines that a legal entity has the right to goodwill, honor, company name, etc.

Finally, the most important change was made within the meaning of the provisions of Article 1100(3) which provide that in case of injury to the personal rights of a legal entity, the court will consider the intensity of the injury and the circumstances of the case independently from the compensation for the material damage and even when there is no material damage at all.

In summary, under the new Law on Obligations, it is now possible to claim non-material damages if the plaintiff is a legal entity. The court may determine the amount of such compensation entirely at its own discretion. Since there has been no court practice on this issue under the new Law, we do not know yet how much this compensation is likely to be in each particular case. However, we believe that these new rules will be of considerable importance to intellectual property holders, especially foreign legal entities.

Published in Eastern Europe Trademark World WORLD Focus, May 2006, pp. 17-19

Published in SNIPER BULLETIN by Australian Government, IP Library, July 2006, pg. 27