Competition law forms the basis for the issuing of most cease-and-desist letters and for initiating court proceedings. It is meant to protect competitors, consumers and all other actors in the market from unfair business practices. It regulates the standards and rules of fair trading and gives each market participant the necessary orientation for correct behavior. At the same time, its regulations prohibit the procurance of unjust advantages by means of deceptive or aggressive business practices. The most important directives are found in the law against unfair competition (UWG); furthermore, there are numerous laws containing specific rules for competition and market behavior with regards to certain products, such as the law against illicit advertising of medicaments (HWG). Competition law is regularly monitored and privately enforced by means of cease-and-desist letters, temporary injunctions or restraining orders, and litigation.
The warning letter serves to alert the infringer with regards to his or her wrong conduct and to avoid court proceedings. The warning letter usually contains a claim for injunctive relief as well as claims for disclosure of information, compensation for damages, destruction of goods, and reimbursement for the costs of the warning letter, and a cease-and-desist declaration is enclosed to be signed by the infringer. While in most cases, a lawyer writes and sends the warning letter to a competitor on behalf of a client, certain associations are also entitled to do so.
In signing the cease-and-desist declaration, the infringer agrees to discontinue the deceptive or aggressive business practice as stated in the warning letter. The cease-and-desist declaration must be combined with the promise of paying a contractual penalty in case of non-compliance. Only then does it carry the same weight as a court judgment as the promise of a penalty payment ensures that the infringer is really serious about the declaration he makes.
In signing the cease-and-desist declaration, the infringer agrees to do everything necessary and in his power to avoid any repetition of the infringement in the future. This means that he not only agrees to refrain from committing the act ever again, but also to take action towards a third party, e.g., by informing his distribution partners about the discontinuation of an advertisement and by requesting them to stop using it immediately. For this, the rules set by the jurisdiction are very strict; e.g., it is required that the third party is notified in writing, at least per e-mail, not only of the discontinuation itself, but also of the consequences arising for the infringer in case of non-compliance. If the infringer does not keep to these obligations and infringes against the signed declaration, he must pay the promised penalty.
Abuse of Legal Rights
As part of our governing legislation, warning letters with cease and desist declarations have proven to be a highly effective system for taking action against unfair business practices. However, there have always been cases in which these warning letters are unfounded or abusive, for example, in cases of mass warnings based on the infringement of the duty to inform for online traders. If competition law is used for inappropriate reasons, i.e., to cause a competitor harm or to generate lawyer’s fees, this entails a right to legal protection in and out of court, in competition law as well as in other fields of law.
In December of 2020, the “Law to Promote Fair Competition“ became effective, aimed to prevent abusive warning letters with the following rules and regulations:
- A competitor must be actively trading in the relevant market
- Associations pursuing infringements of competition law must be registered on a list of so-called qualified trade associations from October 2021
- Victims of unjustified and abusive warning letters are entitled to a reimbursement for the costs incurred for their legal defense
- Costs for issuing a warning letter to a competitor cannot be claimed in cases of infringements against the duty to inform, labelling requirements or data protection regulations in case of online trading platforms
- Competitors are not entitled to claim penalties if a cease and desist declaration is demanded for the first time
- Penalties for infringements as well as the value in dispute for the court proceedings may not exceed a maximum of € 1,000 in straightforward cases
- The choice of a competent court is restricted if the violation took place online.
Infringements against Competition Law
Competition Law allows you to take action against any violation of a law regulating market behavior; i.e., not only the regulations contained in the UWG (law against unfair competition) are relevant, but also any other law setting directives for market participants on how to act in order to protect the interests of others – not only competitors, but also consumers, such as regulations pertaining to the safety and the labelling of products.
Furthermore, competition law also protects competitors, their trademarks and products from damaging statements and plagiarism.
Advertising is one of the most important aspects of competition law. Its regulations contain very precise directives as to when, where and how information must be disclosed in marketing campaigns such as lotteries, discount promotions and customer loyalty schemes, and it also regulates the measures that can be taken against common practices such as surreptitious, comparative, discrediting or discriminating advertisements.
Other rules contained in competition law concern the lawfulness of methods to acquire new customers and to entice employees or customers away, as well as methods of interaction with existing and prospective customers, such as rules to observe for e-mail-marketing and newsletters.
Liability for Violations of Competition Law
Characteristically, competition law is enforced through court rulings, which means that experience plays an important part in the development of one’s own advertising campaigns or in the decision to take legal action against a competitor’s unlawful marketing methods.
These legal questions of responsibility and liability for anti-competitive practices concern the company commissioning the advertisement just as much as the advertising agency. Vis-à-vis third parties, only the commissioning company and its executive bodies are to be held responsible for all inadmissible actions, but in the internal relationship, the advertising agency is dutybound to develop a lawful advertising campaign.