The Law to Strengthen Fair Competition ("Law against Warning Abuse") Was Passed in the German Federal Parliament

On September 10, 2020, the German Federal Parliament ("Bundestag") passed the law to strengthen fair competition. The law is intended to prevent abusive warnings, which do not focus on combating illegal behavior, but rather the generation of costs. The German Federal Council ("Bundesrat") approved the law on October 9, 2020.

Legislative history

After the law against dubious business practices, which came into force in 2013, failed to have the desired effect in combating abusive warning letters, the German government presented a new draft law in 2018 to curb the abuse of warning letters. Despite much criticism of the draft law, it has now been passed. With the exception of the amendments to the right of associations to file suit, it is expected to come into force in October 2020, having now passed the Bundesrat.

Content of the new regulations

The law contains only innovations relating to the formal assertion of competition violations. First, the requirements under which competitors and trade associations may issue warnings are increased. Competitors must prove that they distribute goods and services to a not inconsiderable extent and not only occasionally. Only those trade associations that are registered in the newly created list of qualified trade associations will be allowed to issue warning notices in the future.

In addition, the law now includes examples of rules in which an abusive warning notice can be assumed. This is the case, for example, if not the termination of the competition violation, but rather the generation of costs is the main focus of the warning or an obviously excessive contractual penalty is demanded. The assertion of counterclaims, in particular claims for reimbursement of the own lawyer's fees, should be made easier for those affected.

In order to reduce financial incentives for warnings, the claim for reimbursement of the costs for a warning is excluded if violations of information or labelling obligations on the Internet or violations of data protection law by companies with fewer than 250 employees are asserted. Conversely, the person who has been warned is now entitled to a claim for reimbursement of costs in the event that the warning was recognizably unjustified, does not meet the formal requirements for a warning or if a claim for reimbursement of costs is made without justification.

Finally, the so-called flying jurisdiction is abolished for violations on the Internet, i.e. the court at which a lawsuit is filed can no longer be freely chosen, but must be chosen at the defendant's domicile.

Evaluation

It remains to be seen whether the new regulations are really suitable to achieve their goal of preventing abusive warnings or whether they rather make it more difficult to issue warnings that are important for the elimination of competition violations. Contrary to the possibly different impression in the public, abusive warning notices are the exception, which could already be countered with the available means of jurisdiction.

Conversely, by abolishing the flying jurisdiction, the privileging of companies that are only active on the Internet is likely to increase the risk of dubious business practices by such companies. It is also incomprehensible in terms of legal policy why pure mail-order companies are put in a better position than such providers who also operate a store. With the abolition of the flying jurisdiction for infringements on the Internet, companies will also be deprived, at least for a significant area, of the opportunity to turn to such courts which have developed considerable expertise over many years in special matters such as pharmaceutical law and counterfeit protection. In fact, it would be of no help to anyone if courts had to familiarize themselves with complex legal matters from scratch. One might think of dubious offers on the Internet in connection with the Corona pandemic and the promises made in this respect, which can neither be kept nor are they permissible.

It is noteworthy that in connection with the limitation of the claim for reimbursement of costs, the legislator apparently presupposes that violations of data protection regulations can be reported by competitors. The courts have so far had different opinions on this. A final decision by the Federal Court of Justice is still pending. By the new regulation, the legislator recognizes however that such violations can be proceeded against by way of a warning. Although this is to be welcomed in principle, not least because of the importance of data for operating in competition, the actual goal of limiting warning notices will probably not be achieved.

Some new regulations, in particular those concerning the legal abuse of warnings, merely confirm the legal situation already in force. This would not have required a further legal regulation. Others are so openly formulated that it is to be expected that in the future - even in cases of justified warnings - disputes about the eligibility of claims and claims for reimbursement of costs will increase. For instance, it is not recognizable as to when a company competes with another company with goods and services "to a not inconsiderable extent".

Irrespective of the law now coming into force, the warning notice outside the so-called formal violations is and remains an effective and proven means of out-of-court dispute resolution in the case of competition violations. It is to be hoped that the law, due to its considerable weaknesses, will not contribute to weakening competition by making it more difficult to issue serious warnings at the expense of competitors and consumers.