The scope of a claim to cease and desist under competition law – obligation of the person liable to cease and desist to recall delivered goods

It is not only since the judgment in the “Hot Sox” case (I ZR 109/14) that the BGH [Bundesgerichtshof – Federal Supreme Court] has been of the opinion that the obligation (under competition law) to cease and desist does not end with merely ceasing the inadmissible action. What is new, however, is that, according to the case law of the supreme courts, there is now also an obligation to recall products harmful to competition that have already reached the trade. This is justified by the fact that a claim to cease and desist under competition law includes all actions that are necessary and reasonable to eliminate the existing condition of injury. Using the example of a recent decision of the BGH of 4 May 2017, I ZR 208/15 (“Dehumidifier”), the risk that this amended law poses for especially manufacturers, is demonstrated.

Facts underlying the decision of the BGH of 04/05/2017, I ZR 208/15 (“Dehumidifier”)

The parties are competitors in the manufacture and distribution of dehumidifiers. The defendant had submitted a cease and desist declaration with penalty clause to the plaintiff because of the misleading advertising slogan “40% more effectiveness”. In it, they undertook to no longer include the offending statement in their advertising in the future. However, before submitting the cease and desist declaration, the defendant had already supplied products to the trade that include the advertising message on the packaging. They subsequently made no effort to prevent these products from being resold through a recall. The plaintiff considered this to represent multiple violations of the cease and desist obligation and claimed payment of a contractual penalty from the defendant.

Decision of the BGH

In continuation of the “Hot Sox” case law, the BGH states that the defendant had been under obligation to make every possible and reasonable effort to recover the delivered goods. That means that he had not complied with the plaintiff’s demand and was thus obliged to pay a contractual penalty. The BGH makes it clear that an obligation of the defendant to recall goods that have already been delivered does not imply that it could assert legal claims against its customers. Even if the manufacturer has no legally enforceable rights to have resale of the products ceased or the products returned, it has at least an obligation to reclaim the products.

Moreover, this obligation to recall or attempt to recall the product exists irrespective of whether the obligation to cease and desist were ordered by court order or contractually agreed. In addition, the obligation of product recall resulting from a cease and desist agreement would not require any explicit agreement.

Assessment

It is imperative for, in particular, manufacturers who are exposed to an increased risk of violation of competition law through product packaging (such as health-related advertising claims) to take note of this change in the case law of the BGH. They could face great financial losses and, above all, serious damage to their image if a large-scale recall of their products from the trade becomes necessary.

There is now usually a duty of recall when products violating competition law have reached the trade. It is irrelevant whether due to the violation of competition law, a preliminary injunction has been issued or a cease and desist declaration has been signed. It also does not matter whether the obligation of the party liable to cease and desist has any legal right over its customers to reclaim the goods. It is sufficient that there is a “de facto possibility of influence”, which would almost always exist in the relationship between manufacturer and dealers. The conditions for an obligation to recall are thus very low. If these are met, the party liable to cease and desist must strongly encourage the dealers not to sell the infringing products to end customers, but to exchange them for non-infringing goods. If the party liable to cease and desist does not comply with this, it represents an infringement of the preliminary injunction or cease and desist declaration, so that the court determines disciplinary sanctions or a contractual penalty is incurred. However, it is sufficient that an attempt to recall is made. If the customers then refuse to return goods that have already been delivered, the party liable to cease and desist has nevertheless fulfilled its obligations.

There are good reasons to criticize an extension of the obligation to cease and desist to an “obligation to recall”. However, the BGH has now in three decisions made it clear that it will pursue this line until further notice. There are thus also fears that the case law, which has until now been exclusively for claims to cease and desist under competition law, will in future also apply to claims under trademark, copyright or design law.

This recent development in the case law results in two practical consequences: Firstly, even more attention must be paid to ensure that your own products and their packaging are designed to comply with competition law. Secondly, the obligation to recall goods already delivered to the trade must be taken into account when deciding on the correct response to a warning concerning competition law. However, under certain circumstances it is possible to come to an agreement with the party who issued the warning, so that the products or advertising material already delivered need not be recalled.