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Disqualification of firms of lawyers and patent attorneys constituted as limited liability companies (GmbH) with dual admission violates freedom of occupation
Press Release No. 7/2014 of 05 February 2014
Order of 14 January 2014
1 BvR 2998/11
In a decision published today, the First Senate of the Federal Constitutional Court has found that the de facto refusal of simultaneous admission as a law firm and as a firm of patent attorneys for a limited liability company (GmbH), in which lawyers and patent attorneys have joined together to practise, constitutes a violation of the freedom of occupation. In stipulating that the professional group providing the firm name must hold the majority of shares and votes in the GmbH as well as having management authority and a majority of managing directors (Geschäftsführer), the relevant clauses of the Federal Lawyers' Code (Bundesrechtanwaltsordnung - BRAO) and the Patent Attorneys' Code (Patentanwaltsordnung - PAO) are unconstitutional and void. On this basis, the Senate reversed the decisions of the professional courts and remitted the matters to them.
Facts of the Case and Course of the Proceedings:
The complainant in both constitutional complaint proceedings is a limited liability company in formation. The founders and shareholders are two patent attorneys and one lawyer, who each hold equal shares in the share capital and are each managing directors with the authority to represent the company alone. The complainant is seeking dual admission to practise as a law firm and as a firm of patent attorneys. The relevant applications for admission were unsuccessful before the respective professional associations and all judicial instances. The constitutional complaints challenge these rejections. Key Considerations of the Senate:
The challenged decisions violate the complainant's fundamental right to freedom of occupation under Art. 12 sec. 1 GG. The provisions in §§ 59e sec. 2 sentence 1 and 59f sec. 1 BRAO, which were challenged indirectly, are void insofar as they prevent a firm in which both lawyers and patent attorneys practise their professions from trading as a firm of lawyers unless the lawyers hold the majority of shares and voting rights, exercise responsibility for management, and provide the majority of managing directors in the firm. The same applies analogously to § 52e sec. 2 sentence 1 and § 52f sec. 1 sentence 1 PAO, which similarly stipulate the precedence of patent attorneys for a firm of patent attorneys.
1. The complainant can invoke the fundamental right to freedom of occupation (Art. 12 sec. 1 GG). As a company with limited liability in formation, it meets the requirements for a legal entity pursuant to the constitutional meaning of Art. 19 sec. 3 GG. The complainant can, in any case, claim the protection of freedom of occupation to the degree that being "in formation" is a necessary preliminary stage for becoming the intended firm of lawyers and patent attorneys.
2. The decisions which are subject of the proceedings and the legal provisions they are based on interfere with the complainant's freedom of occupation. This interference is not justified. a) The legislature pursues legitimate aims with the challenged provisions insofar as they are intended to protect the independence of active professionals and the company, secure professional qualification requirements, and guarantee that the professional group primarily shaping the firm also carries a greater weight. On the other hand, protecting the public from being misled cannot be regarded as a legitimate aim in the situation under consideration.
b) The suitability of the challenged provisions for achieving these legitimate aims is irrelevant, since they are in any case not necessary for their achievement. There is no necessity if the legislature, as in this case, could have chosen other means that would have been equally effective without restricting the fundamental right or restricting it less heavily.
aa) The protection of professional independence is already ensured via statutory professional duties for the lawyers and patent attorneys involved, which are less onerous for those practising the profession than the challenged restrictions of company law. Thus, lawyers and patent attorneys, and firms of lawyers and patent attorneys formed for practising professional activities, are prohibited from entering into any kind of association that endangers their professional independence. This already comprehensively prohibits corporate structures which create or involve risks for the independence required by law for the two professions. Moreover, the rules governing their professions prohibit shareholders from influencing the professional activities of individual lawyers or patent attorneys. Any instructions contrary to this prohibition are void and may be disregarded. An inadmissible exertion of influence is also a violation of professional duties and subject to sanctions.
Inter-professional collaboration between lawyers and patent attorneys does not create any specific risks justifying additional interference with the freedom of occupation. In particular, because of the professional rules for the two groups, which are largely identical, there is no danger of members of one professional group violating the professional independence of the respective other group. Nor does the corporate organisational form point to any specific danger to this independence.
The effectiveness of these professional rules in maintaining professional independence is not less than what the challenged provisions can achieve. Unlike provisions intended to ensure the influence and decision-making power of one professional group, the prohibitions under the professional rules achieve the legislative aim directly by prohibiting specific associations which threaten professional independence. bb) Less onerous but equally suitable means are also available under the relevant professional rules insofar as the challenged provisions are intended to ensure qualification requirements.
In this regard, the comprehensive professional reservation applicable to both professional companies is already sufficient. The professional company itself is admitted to practise, may be briefed as counsel in proceedings, and is subject to the rights and duties of a lawyer or patent attorney when practising. However, carrying out the actual legal work is still reserved to natural persons who are admitted to practise as lawyers or patent attorneys and who must therefore each meet the qualification requirements. This means that in an inter-professional company consisting of lawyers and patent attorneys, advice and representation in legal matters outside of patent issues may only be provided by professionals who are admitted to legal practice.
cc) Nor are the challenged provisions necessary to protect against actions that violate professional rules. A milder means of ensuring this than the challenged provisions is that all professionals are personally bound by the professional rules applicable to the company. This regulation focusses directly on the relevant professional duties, thus avoiding further intervention with the inner company structures, which would only indirectly achieve the desired aim.
The direct approach is moreover justified by the presumption of at least equal if not increased effectiveness. This is attested by experience with firms of accountants or tax advisors. In these cases, the legislature considers that the members who belong to professions that are suitable for forming an association (sozietätsfähig) are sufficiently qualified to also meet "other" professional duties, even in case of inter-professional collaboration. There are no indications from practice which provide any cause for doubting this assessment.
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