Guide to contractual penalties in intellectual property law: basics, practice and defense strategies

Introduction
In the digital age and in view of the increasing complexity of intellectual property law, the contractual penalty plays a central role. Particularly in the case of warnings due to Trademark law-, Copyright- or competition law infringements, a cease-and-desist declaration with a penalty clause is often required. This comprehensive guide explains the term, the legal basis and the practical handling of contractual penalties - and shows you how to defend yourself in the best possible way and minimize risks in an emergency.

Principles of the contractual penalty
1.1 Concept and definition
1.2 Legal basis and historical development
Contractual penalty in intellectual property law
2.1 Areas of application in trademark, copyright, patent and competition law
Conclusion of the forbearance agreement
3.1 Offer and acceptance - pre-formulated vs. modified declarations
3.2 Practical examples and case law
Culpability and degree of fault
4.1 Definition: Intent and negligence
4.2 Significance of the degree of fault in practice
The amount of the contractual penalty: fixed vs. flexible contractual penalty
5.1 Features and examples
5.2 The Hamburg custom and judicial equity control
Measures to avoid and reduce the contractual penalty
6.1 Preventive strategies in day-to-day business
6.2 Acting quickly in the event of warnings
Defense strategies for contractual penalty claims
7.1 Examination of the effectiveness of the injunction agreement
7.2 Arguments for reducing the contractual penalty
7.3 Third-party liability and out-of-court settlements
Case studies from case law
8.1 Concise judgments and their justifications
8.2 Analysis of sample case studies
Conclusion and recommendations for action
9.1 Summary of the most important findings
9.2 Tips for affected companies and individuals

1. principles of the contractual penalty

1.1 Concept and definition

The Contractual penalty - also under the term Contractual penalty is a monetary payment expressly agreed in the contract that becomes due if a contracting party fails to fulfill its contractual obligations. Its main purpose is to ensure compliance with the contract and to prevent future breaches in advance.

Examples:

Cease and desist letter: Is agreed as part of a cease-and-desist agreement in order to sanction future infringements (e.g. of copyright).
Hedging function: It is intended to compensate for the economic loss in a lump sum and thus represent an effective deterrent.

1.2 Legal basis and historical development

The contractual agreement of penalty payments is based on general principles of contract law, primarily from the German Civil Code (BGB) and supplementary regulations, for example in the German Commercial Code (HGB) as well as special statutory provisions in competition and intellectual property law.
Historically, the contractual penalty has established itself as an instrument for creating a lump-sum settlement in the event of unclear claims for damages. This mechanism is regularly used in the area of intellectual property law in particular, where the amount of damages is often difficult to quantify.

2. contractual penalty in intellectual property law

2.1 Areas of application

In intellectual property law, contractual penalties are primarily used in the following areas:

Trademark law: Repeated unauthorized use of protected trademarks or logos.
Copyright: For example, in the case of the unlicensed publication of images, texts or videos after a cease-and-desist declaration has been issued.
Competition law: In the event of unfair behavior, such as misleading advertising or violations of price indication regulations, if a cease-and-desist declaration with penalty clause has already been issued.

The promise of a contractual penalty is intended to prevent the risk of repetition - the warning letter issuer wants to ensure that future infringements do not occur by paying a large sum of money.

2.2 Special features in the digital age

The risk of infringements is particularly high on the internet, where content can be distributed quickly. For example, images or texts that are used without a corresponding license are often published on social media or websites. In such cases, a contractual penalty can serve as an effective means of exerting pressure to persuade the infringer to remove the infringement immediately.

3. conclusion of the forbearance agreement

3.1 Offer and acceptance

An essential component of the contractual penalty in the context of cease-and-desist declarations is the conclusion of a Cease and desist agreement. This usually results from the following steps:

Offer: The warning letter sends the potentially infringing third party a pre-formulated declaration to cease and desist, which also specifies a contractual penalty in the event of infringement.
Acceptance: The warned party signs the declaration and sends it back - the contract is then deemed to have been concluded, even without the need for an express declaration of acceptance on the part of the warning party (see Section 151 BGB).

3.2 Pre-formulated vs. modified cease-and-desist declarations

Pre-formulated cease-and-desist declaration: This is the case if the person issuing the warning already sends a standard form. If this is signed without any changes to the content, the contract is automatically concluded.
Modified cease-and-desist declaration: If the declaration submitted deviates from this model - for example by specifying a more flexible contractual penalty - this constitutes a new contractual offer. This must be expressly accepted by the party issuing the warning or implied by conclusive behavior (e.g. subsequent assertion of a contractual penalty).

3.3 Practical examples and case law

The case law makes a clear distinction here:

When the pre-formulated declaration is signed, the contract is deemed to have been concluded.
Deviating declarations require renewed acceptance - otherwise no legally valid cease-and-desist agreement has been created and therefore no contractual penalty is due. But be careful: the injunction creditor can accept the cease-and-desist declaration at any time, even years later.

4. culpability and degree of fault

4.1 Definition: Intent and negligence

A central prerequisite for the contractual penalty becoming due is the culpable Violation of the cease-and-desist declaration. A distinction is made between two forms:

Endpaper: The perpetrator acts consciously and willfully in violation of the obligation.
Negligence: The breach occurs because the offender has not exercised the necessary care - in most cases this is sufficient to trigger a contractual penalty.

4.2 Significance of the degree of fault

The Degree of fault plays an important role, as it can influence the amount of the contractual penalty.

A higher contractual penalty is often imposed in cases of gross negligence or willful misconduct.
Slight negligence can be considered a mitigating circumstance - this should be taken into account in negotiations to reduce the penalty.

4.3 Liability of third parties

The infringement is often committed by employees or contracted service providers (e.g. internet agencies). In such cases, the party obliged to cease and desist is liable as the responsible party and can, if necessary, claim internal recourse - however, the full contractual penalty remains due to the party issuing the warning.

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

5 The amount of the contractual penalty: fixed vs. flexible contractual penalty

5.1 Features and examples

When determining the contractual penalty, a basic distinction is made between two models:

Fixed contractual penalty:
- A fixed amount is contractually agreed (often e.g. 5,001 or 5,100 euros).
- Advantages: Clarity and simple calculation.
- Disadvantages: Often not very flexible and may seem unreasonably high or low in certain cases.
Flexible contractual penalty:
- No specific amount is stated, but a basis of assessment or a margin of discretion is granted.
- Example: The so-called Hamburg customwhere the amount of the penalty in the event of an infringement depends on the degree of fault and the intensity of the infringement.
- Advantages: Enables dynamic adaptation to the specific situation.
- Disadvantages: Can lead to disputes about the actual amount and often requires judicial review.

5.2 The Hamburg custom and judicial equity control

The new Hamburg custom has established itself in practice because it allows for a flexible regulation that takes the individual case into account. The penalty is understood as lump-sum compensation - it should be calculated in such a way that it is significantly higher than the benefits that the infringer has achieved through his breach of contract.
In cases of dispute, the court reviews whether the contractual penalty set is still within the bounds of fairness. If the creditor exceeds the limits of reasonable discretion, the court can redetermine the amount itself.

6. measures to avoid and reduce the contractual penalty

6.1 Preventive strategies in day-to-day business

To minimize the risk of a contractual penalty, companies and individuals should act proactively:

Legal training: Sensitize your employees to copyright, trademark and competition law.
Internal checklists: Implement systems to check content for legal correctness before publication.

6.2 Acting quickly in the event of warnings

If you receive a warning letter demanding a contractual penalty, the following applies:

Adhere to deadlines: Respond immediately and do not let any deadlines pass.
Initial consultation: Take advantage of free initial consultations, for example with us, to have the facts of the case legally checked.
Active measures: Remove the offending content immediately and document all steps.

6.3 Cooperation with specialized lawyers

Particularly in the area of intellectual property law, early advice from a specialist lawyer for intellectual property or trademark law can be crucial.

An experienced lawyer examines the effectiveness of the cease and desist agreement, analyzes the degree of fault and conducts negotiations with the warning party.
The aim is not only to reduce the contractual penalty, but also to avoid possible follow-up costs (e.g. in the event of further warnings).

7. defense strategies for contractual penalty claims

7.1 Examination of the effectiveness of the injunction agreement

Formal requirements: Check whether the cease-and-desist declaration fulfills all the necessary legal requirements.
Offer and acceptance: Make sure that it is not a modified declaration that still requires explicit acceptance.

7.2 Arguments for reducing the contractual penalty

Mitigating circumstance: Specify the degree of negligence or lack of intent.
Disproportionality: Argue that the amount set is disproportionate to the benefit gained from the breach of contract.
Comparable cases: Refer to comparable judgments in which the contractual penalty was reduced.

7.3 Third-party liability and internal recourse claims

If employees or authorized third parties have committed the violation, check to what extent internal liability can be assumed.

This can help you to reduce the financial burden, even if the full penalty is due to the warning party.

7.4 Legal proceedings and out-of-court settlements

Out-of-court settlement: It often makes sense to negotiate an out-of-court settlement in order to avoid lengthy and costly court proceedings.
Judicial review: If it is not possible to reach an agreement, the next step is to go to court - in particular, the court's fairness review will be decisive in determining the penalty.

8. case studies from case law

8.1 Concise judgments and their justifications

Over the years, courts have repeatedly handed down exemplary rulings on contractual penalties. Here are a few examples:

BGH judgment of 04.05.2017 - 15 U 129/14:
The Federal Court of Justice confirmed the claim for a contractual penalty of EUR 5,100 in a case in which the party seeking injunctive relief had committed a clear and demonstrable breach of its obligations. The reasoning was based on the principle that the penalty must have a deterrent effect and should significantly exceed the benefit gained from the unlawful act.
OLG decisions (e.g. Hamm, Karlsruhe, Brandenburg):
In various cases, contractual penalties ranging from EUR 3,000 to EUR 5,500 were awarded. In particular, the degree of fault and the specific extent of the infringement were taken into account.

8.2 Analysis of sample case studies

Case Study 1:
A company used copyrighted images on its website without a license. After receiving the warning letter, the company signed a pre-formulated declaration to cease and desist, which provided for a fixed contractual penalty of EUR 5,100, but did not delete the images. A contractual penalty was demanded for each individual image. We were able to reach a settlement whereby the contractual penalty only had to be paid once.
Case Study 2:
An online retailer came into conflict with a trademark owner because it had used protected logos in advertisements. Initially, a flexible contractual penalty (according to Hamburg custom) was agreed. Later, when a new infringement was discovered, the warning letter significantly increased the penalty demanded. A successful defense was achieved by proving that although internal control systems were in place, they had not been properly implemented in this individual case - which led to a reduction in the penalty.

9 Conclusion and recommendations for action

9.1 Summary of the most important findings

Contractual penalty as an instrument:
The contractual penalty primarily serves as a deterrent and is intended to ensure that contractually agreed omissions are complied with.
Essential requirements:
An effective cease-and-desist agreement and a culpable (intentional or negligent) breach are the basis for a contractual penalty becoming due.
Amount of the penalty:
Depending on the agreement - fixed or flexible - and taking into account the degree of fault, the amount of the penalty is determined. Judicial intervention (equity review) can lead to adjustments.
Response strategies:
A quick response to warnings, reviewing the cease-and-desist declaration and working with specialized lawyers are essential to limit financial damage.

9.2 Tips for affected companies and individuals

Act preventively:
Establish internal review mechanisms and regularly train your employees on copyright and trademark law issues.
Immediate measures in the event of a warning:
React immediately, document all measures and seek legal advice at an early stage.
Contract review:
Before signing a cease-and-desist declaration, have it carefully checked - especially if it deviates from standard clauses.
Willingness to negotiate:
Try to work out potential reductions in negotiations with the person issuing the warning letter, especially if the economic advantage of the unlawful act is low.

Concluding words

The issue of contractual penalties in intellectual property law is complex and multi-layered. Especially in an environment in which digital content and online presences are playing an increasingly important role, even small mistakes can lead to considerable financial burdens. With this guide, we would like to give you a comprehensive overview that sheds light on both the legal background and practical strategies. Whether it is about the correct drafting of cease-and-desist declarations, the assessment of the degree of fault or effective defence strategies - a well-founded examination of this topic is essential in order to minimize legal risks in the long term.

If you are faced with a contractual penalty claim or would like preventative legal advice, do not hesitate to seek professional assistance. Early advice from a specialist lawyer for intellectual property or trademark law can not only help to solve existing problems, but also prevent future legal disputes.