Discussions on possible changes to curb abusive warnings have been ongoing for some time. Now the changes are becoming effective: on 09 November 2020 the Bundesrat (Upper House of the German parliament) accepted the draft law introduced by the Federal Government to strengthen fair competition with only minor changes.
The amendments adopted in this way relate in particular to the locus standi of competitors and associations, the question of when warnings are abusive, in which cases the costs of the warning can be demanded for reimbursement or when the person being warned has a claim to reimbursement of expenses, which formal requirements must be observed in future when issuing warnings, whether and in what amount contractual penalties can be agreed and - last but not least - the question of which Court will be responsible for legal disputes under unfair competition law in future. What exactly will change?
Locus standi, Section 8 (3) UWG (German Unfair Competition Act)
The locus standi of competitors is restricted (Section 8 (3) no. 1 UWG). It is now no longer - as previously - every competitor who has the right to sue; instead, it is additionally required that the competitor “sells or demands goods or services to a not inconsiderable extent and not only occasionally”.
As the term “distribution” makes clear in this context, it is not sufficient if the competitor only offers identical or comparable goods. It is also not sufficient for the competitor to offer the same or similar goods “to a significant extent and not only occasionally”. Although, according to the explanatory memorandum to the law, this requirement as a whole should not be too stringent in terms of the scope and duration of distribution, evidence of the approximate turnover must be provided. The burden of presentation and proof thus lies with the competitor issuing the warning. The explanatory memorandum does not give examples of possible evidence; however, it should not be necessary to provide a tax consultant’s certificate or concrete turnover figures.
The locus standi of associations with legal capacity has also been specified (Section 8 (3) no. 2 UWG).
Only “those associations with legal capacity for the promotion of commercial or independent professional interests which are entered in the list of qualified economic associations pursuant to Section 8b UWG are now eligible for active membership, provided that they include a significant number of companies which sell goods or services of the same or related types on the same market and the infringement affects the interests of their members”.
Section 8b of the UWG referred to above lays down specific conditions for the inclusion of such associations in the list of qualified trade associations maintained by the Federal Ministry of Justice and published on its website. The purpose of the provision is to shift the examination of locus standi in this area to the Federal Ministry of Justice and thus to relieve the courts.
According to Section 8b UWG, only an association whose purpose is to promote the commercial or independent professional interests of its members can be registered. In this respect, it is necessary that the association acts in an advisory capacity in specific cases of questions relating to unfair competition law, whereby advice only for its own members is sufficient. However, the publication of general flyers or brochures or the provision of information on the website shall not be sufficient.
In addition, the association must have at least 75 members (possibly from different branches) and, due to its personnel, financial and spatial resources, must be in a position to carry out its statutory tasks - and must have actually fulfilled these tasks for at least one year.
It is also a prerequisite that the association concerned does not use its warning activities or the assertion of contractual penalties primarily to generate income and that members do not receive any payments from the association’s assets.
Locus standi according to Section 8a UWG, Art. 14 (3) and (4) VO (EU) 2019/1150
Prior to Section 8b UWG, the provision of Section 8a was inserted into the UWG by the Act amending the Telemedia Act and other laws. According to this provision, notwithstanding Section 8 (3) UWG, in the event of a violation of Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for commercial users of online intermediary services - the so-called “Platform to Business” or “P2B Regulation” - only those associations, organisations and public bodies that meet the requirements of Article 14 (3) and (4) of the Regulation have locus standi.
Since the Regulation constitutes a market conduct regulation within the meaning of Section 3a UWG and Article 14 (3) and (4) of the P2B Regulation lays down special conditions for the right to sue, Section 8a UWG had to be inserted into the UWG as an implementing provision. Organisations that are entitled to punish violations of the P2B Regulation must represent the collective interests of commercial users or users with corporate websites and must operate without the intention of making a profit.
The regulation, which has been in force since 12 July 2020, contains specific requirements that socalled online intermediary services must comply with in respect of their commercial users in the European Union. The online intermediary services include online marketplaces, hotel booking portals, app stores, social networks, price comparison portals and search engines, on whose activities micro-enterprises and also SMEs are increasingly dependent in practice. Such intermediary services will be required by the Regulation to be more transparent and fair in their general terms and conditions, in the establishment of rankings etc.
Prohibition of the abusive assertion of claims, Section 8c UWG
Under Section 8c (1) UWG, which follows on from the earlier provision in Section 8(4) of the UWG, unfair warning notices are inadmissible, irrespective of whether the act for which the warning notice has been issued is in fact unfair or not.
As before, whether a warning is abusive must be examined in the light of all the circumstances of the individual case. In this context, an abuse is deemed to exist in cases of doubt if
- the assertion of the claim serves primarily to give rise to a claim for reimbursement of expenses or costs of legal proceedings or a contractual penalty payment,
- a significant number of warnings are issued for violations of the same legal provision, if the number of warnings is disproportionate to the extent of the company’s own business activities, or if there is reason to believe that the person issuing the warning does not bear the economic risk of his action himself, or
- if an unreasonably high value is assumed for the warning or if an obviously excessive contractual penalty is to be agreed.
Furthermore, in cases of doubt, abuse of rights must also be assumed if
- a proposed injunction appears to go beyond the infringement for which a warning has been issued,
- a separate warning is issued for several infringements in several rather than one joint warning, or
- several infringers are not held jointly and severally liable for no objective reason.
In accordance with paragraph 3 of the regulation, in the event of the misuse of claims, the respondent can demand compensation from the claimant for the expenses required for his legal defence.
Further changes have been introduced, in particular with regard to the form and content of a warning letter, the amount of the contractual penalty, claims for reimbursement of costs and the place of jurisdiction.
Responsibility to send a warning letter, Section 13 (1) UWG
The provision in former Section 12 (1) UWG, according to which the debtor should be given the opportunity to settle the dispute before the commencement of judicial proceedings by submitting an obligation to cease and desist together with a reasonable contractual penalty, has been incorporated into the new Section 13 (1) UWG.
Requirements for the content of the warning letter, Section 13 (2) UWG
The law provides for specific requirements regarding the content of a warning letter. According to Section 13 (2) UWG, the following information must be provided in the warning notice in a clear and comprehensible manner:
- name or company name of the person issuing the warning notice/additionally of the representative, if applicable
- the requirements for eligibility for a claim under section 8(3) of the UWG
- whether there exists a claim for reimbursement of expenses, the amount and how this is calculated
- the infringement, stating the factual circumstances and, if applicable
- that the claim for reimbursement of expenses is excluded. Reimbursement of expenses and exclusion of reimbursement of expenses, section 13 (4) and (5)
In certain cases, competitors within the meaning of Section 8 (3) no. 1 UWG may not claim reimbursement of their expenses, namely for warnings in the event of violations of statutory information and labelling obligations committed in electronic business transactions or in tele media (Section 13 (4) No. 1 UWG) as well as for other violations of the General Data Protection Regulation and the Federal Data Protection Act by companies and commercial associations, provided that they generally employ fewer than 250 employees (Section 13 (4) no. 2 UWG).
The background to these changes is the rampant warning activity, which (alleged) competitors have asserted with regard to violations of statutory information and labelling obligations or the General Data Protection Regulation.
If the warning is unjustified, if the warning does not contain the prescribed information in a clear and comprehensible manner, or if the party issuing the warning claims such reimbursement of expenses regardless of the exclusion of reimbursement of expenses provided for by law, the party issuing the warning is entitled to reimbursement of the expenses necessary for its legal defense. This is limited to the amount of the claim for reimbursement of expenses asserted by the party issuing the warning (Section 13 (5) UWG).
However, the claim to reimbursement of the dunned party’s own defense costs is excluded in the case of an unjustified warning letter if the lack of justification was not apparent to the dunning party at the time of the warning letter. It remains to be seen what effect this exclusion will have in practice.
Provisions on contractual penalty, Section 13a UWG
A new section 13a UWG has been added for the assertion and amount of contractual penalties. Accordingly, the following circumstances must be taken into account when determining a reasonable contractual penalty:
- nature, extent and consequences of the infringement
- the culpability of the infringement and, where appropriate, the seriousness of the fault
- the size, market strength and competitiveness of the company being warned, and
- the economic interest of the person concerned in past and future infringements.
However, in the case of a first warning regarding violations of statutory information and labelling obligations in electronic business transactions or tele media and violations of the General Data Protection Regulation and the Federal Data Protection Act, competitors may not enter into such an agreement if the person being warned generally has fewer than 100 employees, Section 13a (2) UWG.
Furthermore, the law provides for a cap on the amount of the contractual penalty. Under Section 13a (3) UWG, a contractual penalty may not exceed EUR 1,000 if the nature, extent and consequences of the infringement only affect the interests of consumers, competitors and other market participants to an insignificant extent and if the person being warned generally has fewer than 100 employees. This provision also serves to protect against warnings with excessive contractual penalties for socalled minor infringements.
If, however, the person being warned promises an unreasonably high contractual penalty at the request of the person issuing the warning, that person only owes a contractual penalty of an appropriate amount (Section 13a (4) UWG).
In practice, promises of a contractual penalty provide either for a fixed amount or for the so-called Hamburg custom. The new UWG has introduced a provision according to which, in the case of unspecified contractual penalties, the person being warned may, in the event of disagreement as to the amount, call upon a conciliation body pursuant to Section 15 UWG even without the consent of the person giving the warning. The same applies if the person being warned only owes a contractual penalty of an appropriate amount (Section 13a (5) UWG).
“Flying place of jurisdiction”, Section 14 UWG
Finally, the so-called “flying place of jurisdiction” was restricted.
It is true that, in addition to the general jurisdiction of the defendant, the court in whose district the infringement was committed still has jurisdiction for all civil disputes in which a claim is asserted on the basis of the UWG (14 (2) sentence 2 UWG).
However, in the case of legal disputes arising from infringements in electronic business transactions or tele media or in the case of legal disputes asserted by associations, qualified institutions, chambers of industry and commerce and comparable organizations within the meaning of Section 8 (3) nos. 2 - 4 UWG, the court in whose district the defendant has its general place of jurisdiction shall remain competent, Section 14 (2) Sentence 2 UWG. The law only provides for an exception to this rule if the defendant does not have a general place of jurisdiction in Germany.