What is a "cease-and-desist declaration with penalty clause"?

A pre-formulated declaration of cease and desist and obligation is usually attached to a warning letter in trademark law, competition law, design law, internet law, patent law, utility model law or copyright.

With the obligation to cease and desist under penalty law, the recipient of a warning declares to refrain from certain conduct (the "infringing act") in the future ("form of infringement"). In the event of a breach of this obligation, the dunned party promises an appropriate contractual penalty.

Purpose of a cease-and-desist declaration with penalty clause

If the dunned party undertakes to pay an appropriate contractual penalty in a declaration of cease and desist with criminal prosecution, the risk of repetition necessary for the right to cease and desist is eliminated: an action for an injunction or an application for a temporary injunction would be unfounded. Whether or not the person issuing the warning accepts the cease-and-desist declaration is irrelevant for the elimination of the risk of repetition. The actual purpose of the submission of a cease-and-desist declaration with penalty clause is the elimination of the risk of repetition and thus the avoidance of legal disputes.

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Typical structure of a cease-and-desist declaration with penalty clause

A cease-and-desist declaration with penalty is usually attached to a warning letter. From this pre-formulated declaration of cease and desist with penalty, the experienced practitioner knows whether the opposing lawyer understands his trade and whether he has worked carefully. It usually formulates claims for injunctive relief, information, determination of damages, reimbursement of warning costs and destruction of the infringing products.

"Form of infringement" ("Verletzungsform") and "infringing act" ("Verletzungshandlung")

The cease-and-desist obligation is generally the first pre-formulated obligation of the plant to issue a warning. It is the act of infringement poured into the concrete form of infringement. Here the person issuing the warning must describe exactly which action of the alleged infringer he would like to have omitted in the future. While the "infringing act" is the facts of the case, the "form of infringement" is what the warning party would like to see omit in the future.

In order not to expose himself to the risk of a negative declaratory action, he must also limit his prohibition to such future actions as are also prohibited by law. The right to cease and desist is often the most important and, because of the high value of the object, by far the most expensive claim for the person issuing the warning - besides the right to information. It does not presuppose any fault. The objection "I didn't know that" is therefore irrelevant.

Often the form of infringement in the warning is too broad. Many cautioners would like to receive with it a much further omission requirement by contract, than they would be entitled by law. The purpose: In future, the person issuing a warning should also pay a contractual penalty for such actions, which would not even be prohibited by law.

Example:
If you offer T-shirts with a trademarked name on eBay, you do not have to undertake to refrain from "importing" such T-shirts if you have not introduced them yourself.

If the dunned party submits to such a broad form of infringement, an effective cease-and-desist agreement has been concluded in principle. Limiting the form of infringement in such a way that it corresponds to the act of infringement prohibited by law is therefore the most important task of the admonitioner.

"In particular" formulations

Many pre-formulated cease and desist declarations contain a general description of a legally prohibited act followed by a "in particular" part. It then describes the infringing act. Such formulations are too vague for some Higher Regional Courts before the "in particular" part. The deletion of the "In particular" addition would therefore be a partial withdrawal of action (OLG München BeckRS 2009, 23375).

Cease and desist orders repeating the wording of the law

The text of the law is also quite often reproduced. In a court application, this would only be permissible in exceptional cases, namely only if the injunctive relief could not otherwise be formulated at all, so-called "orders repeating the wording of the law".

In most cases, the pre-formulated cease-and-desist declaration with penalty clause contains a more comprehensive ban than the law would grant the cease-and-desist letter. The purpose of the exercise is obvious: If the dunned party makes the pre-formulated declaration, a cease-and-desist agreement is concluded. For a future offence of the admonitioner it then only depends on whether the offence concerns an action, to whose omission the admonitioner has committed himself. Whether this action is illegal is then irrelevant. Thus, for example, the person issuing the warning may also demand contractual penalties for future minor infringements (see BGH v. 10.6.2009 - I ZR 37/07 - Unrichtige Aufsichtsbehörde).

The contractual penalty clause

Usually as a second obligation, the pre-formulated cease-and-desist declaration contains the promise to pay a certain contractual penalty in the event of a violation of the cease-and-desist declaration. Without such an obligation, the risk of repetition is generally not eliminated. Anyone who does not undertake to pay an appropriate contractual penalty must therefore expect a legal action - an action or a temporary injunction.

Exception 1: First infringement risk ("Erstbegehungsgefahr")

Something else only applies to the so-called "first infringement risk". No contractual penalty promise is required here. It is sufficient if the complainant declares simply to refrain from the disputed behaviour.

Exception 2: Notarial cease-and-desist declaration of discontinuance

The notarial cease-and-desist declaration is also made without a penalty clause. It is, so to speak, a hybrid between contract and judicial title and should be treated with caution.

"Abandonment of the continuity"?

The pre-formulated contractual penalty payment obligation regularly contains the phrase "waiving the objections of the continuation context" or a similar phrase. This should always be deleted. To eliminate the risk of repetition, it is not only not necessary to renounce the plea of continuation. If requested, this is an indication of an abuse of rights (see BGH v. 15.12.2011 - I ZR 174/10 - Bauheizgerät; to waive the objection of the continuation connection for systematic existence: BGH NJW 1993, 721 - Fortsetzungszusammenhang).

Fixed penalty or "Hamburg custom"?

Two wordings have become established as the amount of the contractual penalty. Either a fixed amount per infringement is demanded, e.g. because of the value in dispute of the district courts € 5,001.00. Or a contractual penalty according to the so-called "modified Hamburg custom" is demanded: For each infringement, the infringer shall pay an appropriate contractual penalty to be determined by the creditor, the appropriateness of which must be verified by the competent court in the event of a dispute. However, the amount of the contractual penalty may not be determined by the court. The court may only review a contractual penalty fixed by the creditor (BGH GRUR 1978, 192 - Hamburger Brauch).

Information, submission of invoices

The third pre-formulated obligation typically concerns the information of the infringer. On the one hand, it serves to reveal the origin of the infringing goods (independent claim for information) and to enable the infringing party to calculate his damage (dependent or accessory claim for information).

Since 1.10.2009 there is also the independent "third party information". In the event of an obvious infringement of rights or after an action has been brought, forwarding agents, warehouse keepers or the operators of online auction platforms may also be obliged to provide information.

Determination of the liability for damages

Usually as the next pre-formulated clause, the determination of the obligation to pay damages shall be acknowledged.

Destruction of infringing goods

In the event of an infringement of industrial property rights, a destruction of the infringing goods is often demanded. This claim can only be enforced if it is proportionate in the specific case.

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Thomas Seifried, Attorney at Law (Rechtsanwalt) and Specialist Lawyer for Intellectual Property (Fachanwalt für gewerblichen Rechtsschutz)

Model of a cease-and-desist declaration with penalty clause in competition law

Example: untrue assertion of facts according to § 4 No. 2 UWG

Company ...
- "DEBTOR"-

is committed to the

Company ...
- "CREDITOR" -

1. to refrain as a business act [now follows the so-called "form of infringement":] to claim against third parties that the creditor would assert untrue facts] if it happens as happened on[date] towards Mr....;

2. to pay a contractual penalty of € 10,000.00 (in words: ten thousand euros) to the creditor for each case of future infringement of the act described under item 1 and

3. to provide the creditor with information on the scope of the infringing act described under item 1;

4. to compensate the creditor jointly and severally for any damage caused or to be caused by the infringing act described under item 1;

5. to bear the costs incurred through the use of the lawyers... in accordance with a 1.3 fee in accordance with VV 2300 plus expenses from an object value of € 25,000.00.


[Place, date]


(Company .... )

Model of a cease-and-desist declaration with penalty in trademark law

Company ...
- "DEBTOR" -

is committed to the

Company ...
- "CREDITOR" -

1. to refrain in commercial dealings from offering, importing, placing on the market or possessing textiles for the aforementioned purposes marked with the designation "[BRAND XY] " [now follows the so-called "form of infringement":] unless these textiles are used with the consent of... GmbH into the European Union or into a Contracting State to the Agreement on the European Economic Area, in particular in the case of T-shirts, as shown in the following description
[here follows a picture of a T-shirt bearing the inscription"[BRAND XY]"]

2. to pay a contractual penalty to the creditor to be determined by the creditor for each case of future infringement of the act described in Clause 1 and to be reviewed by the District Court of Frankfurt am Main for its appropriateness in the event of a dispute, and

3. to inform the creditor of the origin and distribution channel of the illegally labelled textiles via the name and address of the manufacturer, the supplier and other previous owners; name and address of the commercial customers and sales outlets for whom the goods were intended; the number of textiles offered, imported and placed on the market, their purchase and sales prices and production costs; the net proceeds achieved and the profit made
by submitting copies of invoices and delivery notes from suppliers and commercial customers and copies of suitable banking and financial documents;

4. to compensate the creditor for any damage caused or to be caused by the infringing act described under item 1;

5. to immediately recall all illegally marked textiles and to return them to us by... - received by the signatories - to prove the recall in an appropriate form;

6. to destroy immediately all textiles in the possession of the debtor in accordance with item 1 and such textiles whose possession it has regained through the recall and to prove this to the creditor;

7. to bear the costs incurred through the use of the lawyers... in accordance with a 1.3 fee in accordance with VV 2300 plus expenses from an object value of € 100,000.00.

..............................................

[Place], [Date]

..............................................
(Debtor)

Model of a cease-and-desist declaration with penalty clause in design law

Example: Infringement of an Unregistered Community Design (in the case: jackets)

Company ...
- "DEBTOR" -

is committed to the

Company ...
- "CREDITOR" -

1. immediately cease to operate in the Community

To offer, sell, or otherwise place on the market, or possess for the purposes mentioned, jackets[for which there must be at least a risk of recurrence], which have the following design features

[Note: Whether one already specifies the characteristics determining the species in a possible subsequent court application depends on the court to be called. There are courts that consider the indication of characteristics in the application to be a limitation of the scope of protection]:

(1)[design feature 1 follows]
(2)[further design features to follow]
(3)   
(4)    
(5)   
(6)   

if it is designed as follows:
            
 [concrete form of injury follows]
 
2. for each individual case of violation of an obligation mentioned under item 1, the debtor undertakes to pay a contractual penalty in the amount of € 5,100.00 to the cease-and-desist creditor [note: a contractual penalty promise can also be formulated here according to "modified Hamburg custom"];

3. to provide complete information and invoices, including an ordered list and order confirmations, invoices and delivery notes on the names and addresses of commercial customers, the quantity of jackets ordered, received and sold, the prices paid for the garments concerned and, finally, the production costs broken down according to the individual cost factors and the profit made;

4. to return items of clothing in their direct or indirect possession or ownership pursuant to Clause 1 to the creditor or a bailiff appointed by the creditor for destruction;

5. to recall all items of clothing in accordance with Clause 1 and to remove them from the distribution channels;

6. to compensate for all damages incurred and still to be incurred as a result of the actions under item 1, in particular also to pay the costs of legal recourse in the amount of the business fee 2300 VV RVG, with an amount of 1.3 from an object value of € 200,000.00 plus lump-sum expenses.

…………………………………………………………………………………….

[Place, Date]


…………………………………………………………………………………….
(Debtor)

Author: Attorney at Law (Rechtsanwalt) for Trademark Law, Competition Law and Specialist Lawyer for Intellectual Property (Fachanwalt fuer gewerblichen Rechtsschutz) Thomas Seifried

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