Germany: Act against Improper Business Practices in force

by DLA Piper

The Act against Improper Business Practices (“the Act”), passed by the German legislator, came into force on 9 October 2013, although some of its provisions on collections will take effect on 1 November 2014. The Act contains several amendments to different laws and aims to protect consumers against certain business practices especially with regard to law enforcement.

The main changes emphasized by the legislator and legal literature concern the enforcement of copyright by means of warning letters and requests for cease and desist declaration.

The amendments to the German Copyright Act preserve the general principle that court actions generally require a warning letter which must offer the infringing party the opportunity to declare its cease and desist with respect to the infringing practice. Such declaration must be enforceable by a penalty. However, the content of the warning letter must now meet several expressly stipulated requirements:

  • the name or the firm of the infringed party must be provided, if the sender of the warning letter is not the infringed party (for example a law firm representing the infringed party);
  • the infringing action must be described precisely;
  • claims for payments must be broken down and legal grounds clearly indicated, i.e. compensation for damages and reimbursement of expenses; and
  • the warning letter must clearly state the extent to which the proposed declaration to cease and desist goes beyond the infringement which gave reason to the warning letter.

Moreover, the Act caps the amount of lawyers’ fees for the warning letter to be reimbursed by consumers who have not yet signed a cease and desist declaration or received a respective judgment or preliminary injunction. Based on the average fee, the cap allows maximum reimbursements up to EURO 124.00 net. The former provision of the German Copyright Act stipulated a maximum disbursement of lawyers’ fees of EURO 100.00 “for simple cases concerning minor infringements”. As a consequence, consumers had to evidence that these requirements were fulfilled and most right holders tried to prove the contrary.

Now the rule and exception relationship has been turned around. Lawyers’ fees are only disbursable to a very small amount, much below the average fees most law firms had previously claimed for their clients in cases of copyright infringement.

Exceptions are only valid if the fee is unreasonable “under the special circumstances of the case” and receivers of warning letters may claim for reimbursement of their legal fees in circumstances where the warning letter was not justified. However, this does not apply, if, at the time when the warning letter was sent, it was not foreseeable that the right holder’s warning letter was unjustified.

The Act further stipulates that for copyright claims against consumers, the courts at the residence of the consumer are competent. In contrast, for non-consumers the principle of itinerant tribunals applies. Hence, the infringed party may choose from different courts.

The Act contains some further amendments, among others, with respect to the stipulation of reduced value of disputes in unfair competition matters and special requirements for collections agencies. Such agencies must especially provide more detailed information on their principal and the composition of costs to the addressed consumers. However, in contrast to copyright holders, collections agencies are granted a transition period until November 2014.

Whether or not the measures contained in the Act suffice to efficiently protect consumers against improper business practices remains to be seen. Right holders and law firms, in particular, who have merely focused on warning letters to consumers, will likely be forced to change their business model. At the same time, it is beyond doubt that in many cases the enforcement of valid and valuable copyrights will become more cost intensive for  right holders as infringers will often be able to rely on the new legislation, leaving the costs with right holders.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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