Cease-and-Desist Declaration with Penalty Clause – Problem Solved with a Plain Signature?

Have you received a warning letter due to a patent- or trademark infringement? Then probably there is a pre-formulated cease-and-desist declaration with penalty clause enclosed. This is sometimes also referred to as ?declaration of discontinuance?.

At the first moment this might seem inviting for you: Just an easy signature and you elude an expensive lawsuit.

But watch out! A hasty and imprudent signature could easily cause financial risks. In the following we will give our recommendations for such a situation.

First of All: What Exactly Is a Cease-and-Desist Declaration? And Which Consequences Has a Signature on It?

If you?ve been urged because of a patent- or trademark infringement, you declare to omit a certain behavior which you were accused of (infringing activity) by signing the cease-and-desist declaration. In order that the promise is kept, you as the warned person sign to pay an appropriate penalty in case of infringement of the obligation.

Thus the declaration to cease and desist clears up the danger of repetition and furthermore the fight between the parties is allocated. This is a big advantage, but indeed:

The most laypersons aren?t conscious of the extensive consequences of a cease-and-desist declaration with penalty clause.

With an imprudent signature you risk vast financial risks which might arise in certain situations.

1. Usually it isn?t visible at the first sight how high the contractual penalty might turn out, for instance in the case of a cease-and-desist declaration according to the so called ?Hamburger Brauch?. In this kind of declarations the creditor can determine the contractual penalty according to reasonable discretion. This means that, unless the determined penalty would be unreasonably high, the creditor can define any penalty he wants. Indeed in case of a dispute the fairness of the penalty can be examined by the court.
2. A layperson might also overlook the exclusion of connection with any previous act which applies to possible future infringing actions. In practice this would mean that for each single infringing product that has been sold the promised penalty has to be paid, and not only for the infringement itself.
3. Additionally a cease-and-desist declaration ties you throughout life as long as there isn?t an adequate dissolving term included.

Our Advice

1. The most important principle for you is: In case of a warning letter, you should always take legal advice! Do not sign the cease-and-desist declaration unauthorized without any previous consultation.
2. Don’t call the admonishing attorney with the aim to debate on your own! Inconsiderate statements could be used against you later on.
3. Don’t rely on tips from online forums or other offers from the internet. The information could be outdated, solely assumptions or factoids.
4. It should be checked whether the asserted patent or trademark infringement has actually taken place and whether the alleged demands can really be operatively enforced. You should especially let an attorney check whether the assumed dispute values and the involved costs for the warning letter are justified.
5. Depending on the case and only under extreme caution, it might be appropriate, if a competent audit has been conducted, to deliver a modified cease-and-desist declaration with penalty clause. This requires that the pre-formulated declaration of discontinuance shouldn?t be just signed but modified.

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