Cease-and-Desist Declarations and Delimitation-Agreements as a Risk

Cease-and-desist declarations and delimitation-agreements can limit a company’s ability to advertise and/or obtain intellectual property rights. It is therefore indispensable to ensure such agreements are known to all stakeholders of a company.

Cease-and-desist declarations and delimitations create ongoing obligations, adherence to which is most of the time secured by contractual penalties. Companies must therefore ensure that such agreements are accessible, so that in case of changes in the workforce or organizational changes the risk of violations and thus the risk of liabilities or law-suits are minimized.

Risks of Acts of Unfair Competition or Trademark- and Design-Infringements

Companies with large volumes of advertising or large intellectual property portfolios are prone to face a greater risk of legal conflicts based on (alleged) trademark- or design-infringement or activities considered as constituting unfair competition. Depending on the respective industry, product or service offered, demands for cease and desist declarations may occur almost on a daily basis.

Delimitation-Agreements and Cease-and-Desist-Declarations to Avoid Conflicts

To avoid litigious conflicts, depending on the facts at hand, it may be prudent for a company to conclude delimitation-agreements or agree to give a (unilateral) cease-and-desist declaration. This may be in particular the case where the matter at hand is insignificant from a company-perspective or in case where the demanding party pursues a clearly legitimate interest. A delimitation for instance will define in disputes over trademarks or design-rights, which future uses of particular signs or layouts either party may make, and which are not allowed. With a cease-and-desist declaration, a party declares not to repeat a certain commercial behavior (typically not to repeat an advertisement, i.e. use a slogan or certain descriptive texts). In both cases it is customary – in case of cease-and-desist declarations according to German law also mandatory – to include a contractual penalty clause. Such penalties, which typically amount to a couple of thousand Euros per future violation of the agreement are intended to ensure the parties’ compliance with the contract.

Risk of Future Violations of the Agreement – Penalties and Law-Suits

While such agreements end or help to avoid an imminent conflict, the obligations are ongoing – potentially indefinitely. One has to keep in mind as well, that while such agreements concern one precise advertisement or usage of a sign or design, they cover more. In general, also certain deviations from the original sign, design or advertisement can be prohibited, if the slightly changed usage at its “kernel” still makes use of the original and prohibited elements. An agreement’s applicability must therefore be assessed anew, constantly. It is therefore insufficient to only refrain from repeating an identical action. Future projects must be scrutinized, as even only similar uses can constitute a violation of an agreement and can therefore trigger penalties or legal actions.

Due Diligence of Agreements Prior to Conclusion and Effective Management of Agreements Thereafter

Against this backdrop is it indispensable – an mostly well working practice in many companies – to diligently scrutinize cease-and-desist declaration or delimitation-agreements prior to agreeing to them. At this junction already proper decisions can minimize future risks of a violation and help to maintain the largest possible leeway for future advertisements and procurement of intellectual property rights.

It is equally important, however, to establish a system in which cease-and-desist declarations which were given and delimitation-agreements entered into are captured and maintained in a way that their content is retrievable for all stakeholders in a company. It must be ensured that irrespective of the potential movement of employees, also their respective successors can ascertain the existence and scope of potentially limiting agreements. The same holds true with regard to organizational changes within an enterprise, such as a merger or acquisition. Obligations from cease and desist declarations or delimitation agreements will more often than not also bind legal successors. Those and their stakeholders as well must be properly informed to be able to comply with any existing obligations and to avoid penalty payments or law-suits.

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Tags: #Cease-and-Desist Declarations, #Delimitation-Agreements, #Intellectual Property, #Medica 2017

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