Cease-and-Desist Declaration with Penalty Clause in Germany

A Cease-and-Desist Declaration with Penalty Clause (Unterlassungserklärung mit Vertragsstrafe) is a legal document used in Germany to stop and prevent the continuation of an alleged infringement of intellectual property rights, such as trademark infringement or copyright violation.

The legal basis for it is found in the German Civil Code (Bürgerliches Gesetzbuch or BGB) and the German Law Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb or UWG).

A Cease-and-Desist Declaration with Penalty Clause is a legal tool commonly used by rights holders, who believe their intellectual property rights have been violated, to demand that the alleged infringer immediately stop their infringing activities and undertake not to engage in similar activities in the future. The document typically includes a statement of the facts giving rise to the alleged infringement, a demand for the infringing activities to cease, and a threat of financial penalties if the infringer fails to comply.

Under the BGB, individuals and companies have the right to protect their intellectual property, including trademarks, patents, and copyrights. If someone infringes on these rights, the intellectual property owner can seek remedies, including damages and injunctive relief.

The UWG provides additional protection against unfair and deceptive business practices, including false advertising, unfair pricing, and misleading commercial practices. The law also prohibits acts of unfair competition that infringe on the intellectual property rights of others.

If the alleged infringer signs and complies with the Cease-and-Desist Declaration, they can avoid litigation and further penalties. However, if they do not comply with the Declaration, the rights holder can seek enforcement of the penalty clause through the courts.

It is essential to note that the Cease-and-Desist Declaration with Penalty Clause is a legally binding agreement and should be taken very seriously. If you receive one, seeking legal advice from German intellectual property before signing or responding to the document is advisable.

The document will typically outline the deadline for responding to the Cease-and-Desist Declaration with Penalty Clause. Deadlines vary depending on the case’s specific circumstances, but it is often between one and two weeks from the date of receipt.

Responding within the specified timeframe is essential, as failure to do so can result in a default judgment being entered against the person. Such a default judgment can make it more difficult for them to defend themselves in court. In addition, non-response can indicate non-compliance with the declaration, which can lead to the rights holder seeking enforcement of the penalty clause or taking legal action.

Persons affected should communicate directly with the rights holder or their legal representative if they need more time to respond to the declaration. Parties can negotiate a deadline extension in some situations.

Consulting with an intellectual property lawyer as soon as possible is advisable once you have received a Cease-and-Desist Declaration with Penalty Clause. Our lawyers will outline the essential legal and strategic considerations to consider in such cases.

Signing a Cease-and-Desist Declaration with Penalty Clause ensures that the parties are legally bound to comply with the agreement’s terms. Such terms may include specific obligations concerning acknowledging the validity of the intellectual property rights in question, confidentiality concerning the agreement, the duration of the agreement and a clause regarding future compliance.

Therefore, thoroughly analysing the Declaration before signing it is strongly recommended, as is seeking professional legal advice. Our intellectual property lawyers will outline your obligations and ensure you fully comprehend the potential consequences of non-compliance.

Non-compliance can have severe consequences, as the rights holder can enforce the penalty clause through the courts. Court actions can involve some of the following outcomes:

• Paying the penalty, i.e., a specified amount for each violation,
• Injunctions to prevent the party from engaging in a particular activity in the future,
• Legal action for damages or other forms of relief.

Court cases for breaching intellectual property can also bring about reputational damage to a company and thus harm its business. Failure to respond to a Cease-and-Desist Declaration can also result in a default judgment against you, making it more challenging to defend yourself in court.

Litigation can be an expensive and time-consuming manner of resolving disputes. There can also be negative consequences relating to reputational damage, which can significantly impact the relationship between the parties involved. However, other actions, including negotiation and arbitration, may be possible.

Negotiating outside of court can be preferable for a more time-efficient dispute resolution. Parties can directly communicate to resolve the dispute in a manner acceptable to both parties. Identifying the crucial issues at the heart of the conflict and developing a negotiation strategy in advance is essential.

Arbitration can also be utilised in cases where the parties want a binding decision made on their dispute. Arbitration involves a neutral third party, “the arbitrator,” who concludes the argument. It can be more beneficial than litigation for several reasons, including cost and time efficiency, and also because the arbitrator can be a person with specialised knowledge in that particular legal field. Such expertise allows them to reach a more practical resolution to the dispute.

Should all other options fail to resolve the matter, then litigation may be the best course of action to reach a final conclusion to the case.

In some cases, it may be possible to negotiate the penalty clause or have it removed from the Cease-and-Desist Declaration in Germany. However, whether this is possible will depend on the specific circumstances of your case and the negotiating position of the parties involved.

Suppose a party believes that the penalty clause is too onerous or that they have a solid defence to the infringement claim. In that case, they may be able to negotiate a reduction in the penalty or remove the clause altogether. However, the rights holder may be unwilling to make any concessions, especially if they believe they have a strong case and that the penalty clause is necessary to deter future infringement.

In any case, it is essential for those involved to approach any negotiations with caution and seek legal advice before making any concessions or agreeing to any terms. Our lawyers advise clients on the potential risks and benefits of negotiating the penalty clause or other terms of the Declaration. Furthermore, we can help them to develop a strategy for achieving their desired outcome.

Should the Cease-and-Desist Declaration with Penalty Clause have been issued in a non-legally compliant manner, it may be possible to challenge it in court. It can be challenged on procedural grounds in cases where it was not correctly served or issued without sufficient evidence of infringement. The exact grounds for challenging its validity will depend on the specific circumstances of your case.

It can also be challenged in cases where it was based on intellectual property rights that are not valid or that have expired. The rights holder cannot enforce the Declaration against another person if they do not have valid intellectual property rights.

Another route for challenging the penalty clause arises in cases where it is disproportionate or unconscionable. This ground can be challenging to demonstrate, and the courts in Germany generally uphold penalty clauses that are reasonable and proportionate to the harm caused by the infringement.

Should the impacted party believe that the rights holder exceeded their legal rights, acted unlawfully or made false claims, they may be able to claim damages for losses suffered due to the Cease-and-Desist Declaration with Penalty Clause. They may even be able to claim an injunction to prevent the rights holder from making false claims against you in the future. It may be the case that they have engaged in anti-competitive or other illegal practices.

If you are considering challenging such a declaration, please do not hesitate to consult with our intellectual property lawyers in advance.