Warning Letter

Copyright and competition infringements on websites are generally pursued with a so-called warning letter. The following information gives an overview of what a warning letter is and what the possibilities are for defending against such a letter. Even if you have already been stung, there is a good possibility that the damage caused can be limited and there is even a chance of avoiding the warning letter altogether.

What is a warning letter?

In contrast to employment law and the law of landlord and tenant, where warning letters constitute notices of intention to terminate a contract, under copyright and competition law a warning letter is designed to facilitate out-of-court dispute settlement.

The recipient of the warning letter is informed of their alleged illegal conduct, requested to immediately stop the activity and required to submit a declaration to cease and desist. According to consistent case law of the Federal Court of Justice (Bundesgerichtshof) such a declaration to cease and desist is only legally effective if it is underpinned by the promise to pay a contractual penalty, should the signee not fulfil their obligations. The use of a contractual penalty seeks to secure the assurances given. It only becomes payable in the event of a breach of the declaration.

What areas of business are affected by warning letters?

Warning letters are regularly sent for infringements of copyright and competition law, for breaches of trademark law and IT law, as well as for breaches of data protection and consumer protection law. Increasingly warning letters are being sent for copyright infringements in so-called file sharing cases. According to a report by “Trusted Shop” in 2009, warning letters were sent most regularly to online shops for the following reasons:

  1. Incorrect statements as to the deadline for exercising the right to cancel a purchase
  2. Infringements of trademark law
  3. Copyright infringements
  4. Incorrect information provided under legal notices
  5. The use of illegal clauses concerning the right to cancel a purchase.
  6. Incorrect pricing information
  7. The use of jurisdiction clauses and location performance clauses under general terms and conditions
  8. Incorrect information as to the commencement of the deadline to cancel a purchase
  9. Incorrect information as to the obligation to bear the costs of returning a product or as to other dangers concerning the cancellation of a purchase
  10. Incorrect guarantee clauses.

What are the options for reacting to a warning letter?

The consequences of reacting to a warning letter incorrectly can be far worse than those for committing the infringement in the first place.

  1. Doing nothing:This recommendation can regularly be found on internet forums. Even if this strategy is sometimes successful, it does not appreciate the serious of the situation. An unjustified warning letter is rarely sent and a right to demand the submission of a declaration to cease and desist often exists. If a declaration to cease and desist is not submitted within the given time frame, there is a risk that court proceedings will be commenced. Due to the cost involved in legal action, the patchy case law, and the fact that the party sending the warning letter can choose the court before which to bring a claim, it is best to avoid being taken to court.

    If the declaration to cease and desist is not submitted in a timely fashion, the party which sent the warning letter is entitled to commence summary injunction proceedings in order to bring the infringement to an end. Such proceedings are regularly brought in the area of competition law. Respondents to such actions a rarely invited to make oral submissions in court to defend their position. This is because it is necessary to bring about a speedy cessation of the infringement. The defendant can however submit a statement of defence (Schutzschrift) with the aim of preventing injunction proceedings being brought.

    Where a declaration to cease and desist has not been submitted or is insufficient, warning letters are regularly pursued out-of-court. The compensation demanded will often increase dramatically and can even double. Furthermore, the claimant could commission a debt collecting agency to rigorously pursue the claim.

  2. Submitting a declaration to cease and desist: 

    In most cases the recipient of a warning letter is obliged to submit a declaration to cease and desist within a reasonable time period. This legally ensures that the alleged illegal behaviour is not repeated.

    2.1 It would however be inadvisable to submit a declaration to cease and desist which has been drafted in advance by the opposition. Indeed, the recipient of a warning letter should fulfil the obligation to submit a declaration to cease and desist, but should not allow the opposition to dictate the content of the declaration. The declaration must be underpinned by a contractual penalty which in itself is unrelated to the original warning letter. As a result, it is extremely difficult to retract a declaration to cease and desist once it has been submitted.

    The pre-printed declarations received from the opposition are often drafted too widely and contain a range of disadvantages for the signees. Simply submitting the opposition’s declaration, for example, is often interpreted as being a direct recognition of the costs owed to the opposition. The contractual penalty contained in such declarations is often far too high; and the declarations often contain an admission of indebtedness which can be used in evidence in any subsequent court proceedings. Moreover, such a declaration is valid for 30 years, meaning that the person submitting the declaration is bound, even if the legal position changes through Act or case law.

    Where, for example, an internet shop receives a warning letter for having incorrectly informed its customers of their rights to cancel a purchase contract, the shop may be tempted to submit a declaration to cease and desist drafted by the opposition. Often these declarations are loosely formulated and include obligations to “only inform customers of their rights to cancel a purchase in a legally acceptable manner”. Such obligations are usually linked to a contractual penalty of €5,100 should the shop fail to fulfil its obligations. The question arises as to what exactly constitutes a “legally acceptable” cancellation notice. The case law is currently disputed on this point. To solve any dispute the person sending the warning letter would be able to choose the court before which it commences proceedings and subsequently demand payment of the contractual penalty before a favourable court.

    2.2 It is therefore strongly advisable to submit a modified declaration to cease and desist within the given deadline which not only fulfils the legal elements required to be effective, but also ensures that no unwanted legal obligations are created. Such modified declarations should be drafted by specialists lawyers in internet law and competition law.

    It should be ensured that the contractual penalty stated is set by the opposition on an equitable basis and that the penalty remains open to examination by the courts. Furthermore the declaration to cease and desist should take effect subject to future changes in the law.

    Should the opposition insist on both the submission of a declaration to cease and desist and on payment of compensation, this element of the claim can often be settled out of court. The negotiations for settlement should be led by an adequately qualified lawyer.

Illegal warning letters

With the rise of the use of the internet, has come the increased use of warning letters sent in batches. Hundreds of almost identical warning letters concerning similar cases with similar factual backgrounds for minor infractions of copyright law or competition law are sent simultaneously. In such situations, it can sometimes appear as if the lawyers sending the warning letters are not pursuing true legal infringements but rather using them as a source of income. It could also be that the rights holders concerned are not experiencing favourable business conditions. It is however the case, that the number of warning letters being sent has no bearing on their legality. It could be said that where mass infringements are committed, mass numbers warning letters can be sent.

In accordance with § 8 sub-paragraph 4 UWG, a warning letter is only considered to be illegal where the sender is asserting rights to which they have no connection whatsoever or for other irrelevant reasons (BGH GRUR 2006, 244, Rdn. 16; KG Berlin, Beschluss v. 08.07.2008, Az. 5 W 34/08). Irrelevant reasons would include: sending warning letters with the sole aim of demanding payment of fees or with the aim of overloading a competitor with costs for proceedings.

According to case law, mass sending of warning letters within a short period of time can be an initial indication of the illegal motives (see LG Bielefeld, Urteil vom 02.06.2006, Az. 15 O 53/06; LG Bonn, Urteil vom 03.01.2008, Az. 12 O 157/07). This can be the case where the number of warning letters sent, stands in no reasonable proportion to the actual business aims of a company, or where it can be objectively ascertained that in sending the warning letters for similar infringements, no obvious economic benefit is attained other than cashing in on the fees which can be demanded (LG Bückeburg, Urteil vom 22.04.2008, Az. 2 O 62/08). When assessing the legality of sending bulk warning letters, factors such as the number of warning letters, the income for the lawyer sending the warning letters, as well as the costs of sending such letters are taken into consideration.

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Christian Solmecke is a partner at the law firm WILDE BEUGER SOLMECKE. He is the author of numerous legal publications in the area of internet and IT law. He is also an associate lecturer for social media law at the Cologne University of Applied Sciences.

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