A cease-and-desist letter (e.g. in competition law, trademark law or copyright law – keyword filesharing) is regularly accompanied by a demand for a cease-and-desist declaration with a penalty clause. With this declaration, the warned party is supposed to promise to refrain from an alleged infringement in the future, and to do so by avoiding a contractual penalty due for each case of infringement.
What is a declaration of cease and desist?
With few exceptions, a declaration of cease-and-desist with a penalty clause is required in every cease-and-desist letter under trade mark law, competition law or copyright law. In most cases, the issuance of a cease-and-desist declaration with a penalty clause is necessary for the person issuing the warning. This is the only way for the person issuing the cease-and-desist letter to ensure that the action challenged in the cease-and-desist letter will not be carried out in the future.
In legal terms, this is referred to as eliminating the risk of repetition (danger of recurrence). In principle, a danger of recurrence arises from a previous infringement of a copyright, trademark right, right to a name or competition law. If a so-called danger of recurrence has arisen due to one of the aforementioned infringements, this danger can generally only be eliminated by the warned party by submitting a declaration of cease and desist (cease and desist letter).
Penalty-based declaration of cease and desist – note before submission
The submission of a declaration of cease and desist with a penalty clause and its acceptance by the person issuing the cease-and-desist letter constitutes a cease-and-desist agreement for an unlimited period of time, with which the person issuing the cease-and-desist letter is promised a contractual penalty in the event of a repetition of the infringing act for which a warning has been issued. In plain language, this means that a cease-and-desist obligation is generally valid for life.
A cease-and-desist declaration with a penalty clause is subject to various conditions of effectiveness. For example, the declaration must be unambiguous and sufficiently specific in order to eliminate a danger of recurrance once it has arisen. In addition, the declaration must show the serious intention of the warned party to refrain from committing the act in question. This requires that the cease-and-desist declaration contains an appropriate promise of a contractual penalty. Furthermore, the declaration of cease-and-desist must fully cover the actually existing statutory cease-and-desist claim in terms of content and scope.
Finally, the cease-and-desist declaration must be unconditional, irrevocable, unconditional and unlimited in time. In addition, the cease-and-desist declaration must be in writing. Upon request, the original of the cease-and-desist declaration must also be handed over to the person issuing the warning.
It is important for the person being warned to carefully examine the requested cease-and-desist declaration with a penalty clause. Often the warning party demands a cease-and-desist declaration that is too far-reaching. In many cases, the cease-and-desist claim goes too far. On the other hand, an excessive contractual penalty is sometimes demanded. If an overly broad cease-and-desist declaration is issued, this can result in an overly broad cease-and-desist claim, which in turn can lead to the forfeiture of a sensitive contractual penalty and also a considerable hindrance to one’s own ability to do business.
declaration of cease and desist – Modification
In most cases, we recommend not signing the pre-formulated cease-and-desist declaration, but instead submitting a modified cease-and-desist declaration. If the cease-and-desist declaration is too extensive – for example, if the contractual penalty is too high or the prohibition is too broad – a modification of the cease-and-desist declaration is necessary. For the amount of the contractual penalty, the custom “Hamburg” can be used, with which the determination of the contractual penalty is left to the discretion of the person issuing the cease-and-desist letter, but can be reviewed by the competent court in the event of a dispute. Remember, a cease-and-desist declaration may be valid for life.
In principle, the cease-and-desist declaration should always be issued without recognition of a legal obligation. However, the Federal Court of Justice (Bundesgerichtshof, BGH) ruled in a decision in 2013 that a declaration to cease and desist is not an admission of guilt.
The declaration of cease-and-desist must contain a promise of a contractual penalty. This means that a contractual penalty is promised in the event of a breach of the cease-and-desist declaration. The amount of the contractual penalty must be such that it is suitable to eliminate the risk of repetition caused by the infringement and the person warned will refrain from further infringements in the future. A contractual penalty that is too low leads to a lack of seriousness, so that the danger of repetition is not eliminated. On the other hand, a contractual penalty demanded by the warning party that is too high can be an indication of an abusive warning.
When is a cease and desist letter unjustified
A claim for the issuance of a cease-and-desist declaration with a penalty clause does not exist in particular if the cease-and-desist claim does not exist, i.e. the person warned has not committed a legal offence. This may be the case, for example, if
- if the alleged and allegedly infringed right does not exist or does not exist in the alleged form;
- the asserted claim is already time-barred (especially in the area of unfair competition)
- the warning notice is abusive of the law
- or there is no risk of repetition (e.g. only a so-called risk of first offence).
If the warning is unjustified and there is no infringement, the pre-formulated cease-and-desist declaration should not be signed.
What happens if a declaration to cease and desist is not submitted with a penalty clause?
If a cease-and-desist declaration is not made or is made ineffectively, the person issuing the cease-and-desist letter can assert his or her claims in court. On the one hand, he can try to obtain an interim injunction from a court in urgent cases. In addition, he can also assert the claims in normal court proceedings by filing a lawsuit. In the field of industrial property protection, the costs incurred are usually very high (read more about the costs of an interim injunction here).
The costs of proceedings in these cases are calculated on the basis of the value in dispute. This is usually very high. For example, the value in dispute in trade mark disputes regularly amounts to 50,000.00 EUR and more. In a main action (normal action or injunction) with oral proceedings, costs of approximately 10,000 EUR are easily incurred, which are imposed on the losing party according to the proportion of the loss.
If the cease-and-desist letter is unjustified
If you have been wrongly warned with a request to submit a cease-and-desist letter with a penalty clause, you should not submit a cease-and-desist declaration under any circumstances. In this case, you do not have to react as the person being warned. However, it is regularly advisable to take action as the person issuing the cease-and-desist letter, as otherwise it cannot be ruled out that, for example, an interim injunction will be issued even though the claim for a cease-and-desist letter does not exist.
It is therefore advisable to react to every warning, for example by sending a qualified reply.
Alternatively, a so-called protective letter can be filed. A protective letter is a kind of “statement of defence” which is filed in the register of protective letters in anticipation of the filing of an application for an injunction. The courts generally examine protective pleadings before issuing an interim injunction.
Another way to defend oneself against a warning notice is to file a action for a declaration of non-infringement, with which the person being warned can go to court to have the unlawfulness of the warning notice established.
cease and desist letter – costs
If the warning is justified, the warned party must bear the costs of the warning and reimburse them to the warning party. The person issuing the warning has a claim for reimbursement of costs.
Which costs are reimbursable?
If the cease and desist letter is justified, the costs of the warning must be reimbursed in particular if the person issuing the warning was represented by a lawyer. In Germany, the Lawyers’ Fees Act (Rechtsanwaltsvergütungsgesetz) applies. According to this, a 1.3 fee is to pay, which is calculated from the value in dispute.
There are various assessment criteria for determining the value in dispute. In trade mark disputes the amount in dispute is often 50,000 EUR and more. In the case of copyright infringements, however, small amounts in dispute may also be appropriate.