Jurisdiction agreement in cease-and-desist declaration

Do serious doubts about the genuineness of a competition law cease-and-desist declaration arise when an infringer based abroad refuses to agree to German jurisdiction for the enforcement of contractual penalty claims? The Court of Appeal (Kammergericht) Berlin recently had to decide on this.

A competition association had sued an infringer based in the Netherlands for cessation of advertising statements for a dietary supplement. The firstcease-and-desist letter from the competition association, a cease-and-desist declaration subject to a contractual penalty was issued by the infringer, but it did not – as required by the competition association – relate to the German market; instead, it was limited to the Dutch market.

Subsequently, the infringer issued another cease-and-desist declaration subject to a contractual penalty that was materially identical to the first cease-and-desist declaration, but did not contain the restriction to the Dutch market. However, the infringer again did not agree to the jurisdiction agreement proposed by the competition association in the pre-formulated cease-and-desist declaration (Berlin).

In the competition association's view, neither the first nor the second cease-and-desist declaration had therefore eliminated the risk of repetition. The former was not suitable because it was restricted to the Dutch market, but the infringement occurred in Germany. The latter was insufficient because, contrary to the pre-formulated text of the cease-and-desist letter, no (international) jurisdiction agreement for the enforcement of the contractual penalty had been accepted. The refusal to agree to the jurisdiction agreement made it difficult for him to enforce the contractual penalty.

Court's decision

The Court of Appeal (KG) Berlin decided by judgment of 25.04.2014 – Az. 5 U 178/11 that serious doubts about the genuineness of a competition law cease-and-desist declaration can exist if the infringer based in the Netherlands refuses to agree to German jurisdiction for the enforcement of the contractual penalty.

Contrary to the Regional Court's (Landgericht) assumption, the Court of Appeal was of the opinion that the risk of repetition of the misleading advertising had not been eliminated even by the second cease-and-desist declaration. For, in view of the deletion made by the infringer of the jurisdiction agreement required by the competition association for the enforcement of the contractual penalty in Berlin, there were serious doubts about the genuineness of the cease-and-desist declaration – in particular given that the infringer is based in the Netherlands.
The genuineness of the willingness to submit includes the debtor's willingness to safeguard the creditor's interests worthy of protection. If the debtor therefore wishes to achieve in its own interest that the creditor refrains from procedural enforcement of its claim, it must be prepared to grant the creditor a legal arrangement that in the event of infringement is not far removed from that of a judgment creditor. If this willingness is absent, there are generally justified doubts about the genuineness of the declaration made or the willingness to submit.

Should it be the case – as the Court of Appeal further held – that the jurisdiction for the contractual penalty claim does not actually depend on the seat of the infringer in the Netherlands, but rather jurisdiction would exist at the seat of the competition association, then the jurisdiction clause would have only a declaratory significance anyway.

All the more so does the competition association have an urgent and worthy interest in the jurisdiction agreement if, without such an agreement, the contractual penalty claim would have to be brought before the court at the seat of the infringer in the Netherlands.

For the competition association, this would mean a very substantial additional burden – such as conducting legal proceedings before a foreign court with an unfamiliar procedural code and in an unfamiliar language, selecting and instructing a foreign lawyer unfamiliar to it, extensive translation work of the cease-and-desist declaration drawn up in the German language, etc. Legal proceedings to be conducted before the foreign court would also entail materially significant additional legal risks for the plaintiff.

Even if German law were to apply to the contractual penalty claim because the submission agreement, in light of all circumstances, has the closest connection to Germany, there would still remain – as the Court of Appeal held – not insignificant legal uncertainties as to the extent to which the Dutch court can understand and apply German law and German judicial practice. That the outcome of such proceedings before a foreign court is far more difficult to predict and conduct is obvious. Furthermore, there would be the risk that the competition association could be burdened with procedural costs in the Netherlands to an extent that could even exceed the appropriate amount of the contractual penalty.

Thus, through the submission declaration, the competition association would be in a substantially worse position in legal proceedings to be conducted in the Netherlands (regarding the contractual penalty claim) than if it had obtained a court order for cessation at its seat in Germany as the place of the unlawful act against the infringer and could conduct the enforcement proceedings precisely before that court in the event of renewed infringement.

The infringer has no legitimate interest of its own to object to the jurisdiction agreement in the present case. Rather, it is obvious to assume that it is speculating that the competition association will ultimately refrain from asserting a contractual penalty claim in view of the substantial difficulties. If the infringer therefore wishes to undermine precisely the most essential function of the cease-and-desist obligation, namely the leverage provided to the creditor thereby, then such a submission declaration cannot be regarded as genuine so as to definitively eliminate the presumption of risk of repetition.

Conclusion

The decision of the Court of Appeal continues the case law of the highest courts, according to which strict requirements are imposed on the elimination of the risk of repetition through the submission of a cease-and-desist declaration. If there are even only minor doubts about the content of the submission declaration, then it is generally insufficient to dispel the concern of a future competition law infringement.