As is well known, the legal treatment of unjustified cease-and-desist letters depends on the legal basis on which the party issuing the letter bases its claims: A culpably unjustified cease-and-desist letter alleging a violation of an intellectual property right generally gives rise to a claim for injunctive relief under Section 823 (1) of the German Civil Code (BGB). This does not apply to an unjustified warning under the Unfair Competition Act (UWG), although claims under Section 4 (4) of the UWG are conceivable. Following the introduction of the Trade Secrets Act (GeschGehG), the question arises as to how to treat unjustified warnings regarding a breach of trade secrets, such as those that have recently come to light in the Julian Reichelt case (see here).
Overview
Since the 2005 ruling by the Grand Senate for Civil Matters, it has been established that unjustified warnings based on a property right may constitute an interference with an established and operating business under Section 823 (1) BGB. In that ruling, the court cited the constitutionally protected exclusionary effect of intellectual property rights. This must be balanced in favor of third parties to prevent the rights holder from making frivolous use of it (BGH, decision of July 15, 2005, Case No.: GSZ 1/04 – Unjustified Intellectual Property Warning). The risk of liability for an erroneous warning letter is thus, in effect, a counterbalance to the exclusionary function of intellectual property rights. Since the threshold for issuing a warning letter is generally significantly lower than that for filing a lawsuit (in particular, there is no cost risk), the business owner who has been wrongfully warned must be protected.
In a second decision, the Federal Court of Justice (BGH) clarifies its earlier case law, according to which an unjustified warning under competition law is unlawful only in exceptional cases. In its ruling, the BGH expressly rejects the granting of a claim for injunctive relief under Section 823 (1) BGB in favor of the party who received an unjustified warning. It justified this as follows: “The recipient of an unjustified warning under competition law can disregard it without significant risk, because such a warning is not typically accompanied by the far-reaching adverse effects usually associated with a warning regarding intellectual property rights.” (Federal Court of Justice, judgment of July 22, 2010, Case No. I ZR 139/08 – High Chairs for Children on the Internet, para. 69 et seq.).
Unjustified Cease-and-Desist Letter for a violation of the GeschGehG
As long as Sections 17-19 of the Unfair Competition Act (UWG) governed the protection of know-how, the classification of a cease-and-desist letter regarding an alleged violation of trade secrets was clear: A cease-and-desist letter under the UWG is generally not unlawful. Following the introduction of the GeschGehG, the question arises as to whether the alignment of trade secret protection with intellectual property law requires a reassessment.
From a historical perspective, there are good reasons to retain the older view and continue to equate a warning regarding an alleged trade secret infringement with a warning under competition law.
From a systematic perspective, however, this is not the case. The Federal Court of Justice justifies its distinction precisely by pointing to the different consequences of the cease-and-desist notices: Intellectual property rights have an absolute exclusionary effect, whereas the protection afforded by unfair competition law is relative in nature and, in addition to the right to injunctive relief, entails less drastic secondary claims. This is also known to those who have been wrongfully warned, so that failure to comply with a warning under the Unfair Competition Act (UWG) is more conceivable than failure to comply with a warning regarding intellectual property rights.
Furthermore, this assessment fails to consider that the consequences of an unjustified warning under the UWG can also be extremely serious. Finally, it is irrelevant to the recipient of the warning letter whether they suspend production in response to an allegation of design infringement or due to a claim under supplementary performance protection. However, it is correct to note that the ancillary claims under the UWG allow for much less efficient enforcement than those under intellectual property law. Yet it is precisely in this area that the GeschGehG has brought about a very significant tightening of the law.
As also expressly clarified by the Directive (see Recitals 7 and 30 of the Trade Secrets Directive), the protection of trade secrets is becoming more akin to the protection afforded by intellectual property law, a fact that is particularly evident in the ancillary claims: Section 7 GeschGehG now grants a right to destruction, surrender, and recall or removal from distribution channels – a right that was previously reserved solely for (genuine) intellectual property rights. Liability for the use of trade secrets that occurs through negligent ignorance of the infringing act – for example, by a supplier (Section 4 (3), sentence 2, GeschGehG) – also leads to a significant increase in risk. The lower risk faced by the recipient of a cease-and-desist letter can therefore no longer justify treating an unjustified cease-and-desist letter regarding an intellectual property infringement differently from one concerning a trade secret infringement. The question of whether the affected party complies with a cease-and-desist letter or resists it is ultimately of an equally economic nature in both cases and depends (solely) on the individual assessment of risk.
On the other hand, we must of course recognize that legal disputes over trade secrets often do not lead to situations in which the warning letter exerts significant pressure. When it comes to the (alleged) removal of a customer list, such an unjustified warning letter is unlikely to result in a halt to production. The situation only becomes delicate when it involves the (alleged) removal of design drawings, because in such cases there is a risk of seizure of products manufactured using those drawings.
The difficulty, therefore, lies in distinguishing between these cases. However, applying the right to an established and operating business as a framework law – based on a case-by-case balancing of interests – precisely allows for consideration of all the circumstances of the individual case. Case law should make use of this flexible approach and examine on a case-by-case basis whether an unjustified cease-and-desist letter constitutes an interference with an established and operating business. Unlike the previous categorical rejection of the applicability of Section 823 (1) BGB to cases under the UWG, this approach allows for different treatment of the facts depending on the severity of the case:
If, from the perspective of a prudent businessperson, the unjustified warning letter cannot have any relevant effects on the business, a violation should be ruled out. However, if a reasonably acting businessperson – who is not unusually cautious – takes serious measures such as halting production or similar actions as a result of the warning letter, a violation would be presumed.
Conclusion
There are therefore several – and, in our view, stronger – arguments in favor of subjecting an unjustified warning for a violation of the GeschGehG to the test under Section 823 (1) BGB. It remains to be seen whether the courts will undertake such a reassessment.