In a recently published decision, the German Federal Supreme Court (BGH) gave an interesting ruling on the interplay between a provisionally invalid cease and desist undertaking and repeated infringements committed during the period of invalidity. The claimant was the previous owner of the "LA MARTINA" brand of high end clothing (the trademarks are owned since 2011 by Quilate Services SA).

In 2007, the defendant had sold items of clothing marked with the "LA MARTINA" trademark without consent of the claimant. The claimant accordingly requested the defendant to cease and desist, and in August 2007, the defendant submitted a cease and desist undertaking with a penalty payment clause. Under German law, such a unilateral undertaking has to be expressly accepted by the recipient, and so it was – by the claimant's outside counsel.

In spite of the undertaking, the defendant continued with infringing sales of the trademarked goods through a different entity. The claimant then brought an action for payment of a penalty for breach of the cease and desist undertaking. During the ongoing proceedings, the defendant raised the objection that the claimant's outside counsel in 2007 acted without proper power of attorney when they accepted the cease and desist undertaking on behalf of the claimant. This point of fact was contested by the claimant.

The previous instances had granted the payment claim. The lower courts argued that it was irrelevant whether or not there had been any valid power of attorney in 2007. Any such defect had been healed with retroactive effect when the claimant brought the infringement action through the same legal counsel that represented it in 2007. This step impliedly conferred a power of attorney for the entire preceding representation in the matter.

The German Federal Supreme Court rejected this view. It held that on the contrary, the success of the payment claim hinged on the question whether or not the power of attorney had already been validly granted in 2007. For if it had not, the cease and desist undertaking could not confer any binding obligations on the defendant for the time during which it was provisionally invalid. In other words: While the invalidity could be healed, the retroactive effect did not extend to the penalty payment obligation arising from the undertaking.

The Supreme Court therefore referred the case back to the appeal court. The appeal court will now have to make a final decision on whether or not the claimant's legal counsel had valid power of attorney when they accepted the cease and desist undertaking in 2007. Should the answer to that be no, the penalty payment claim must be dismissed.

A very unique case, showing one of the possible stumbling blocks of enforcing cease and desist undertakings. We cannot stress enough how important it is to find the right wording to make a cease and desist undertaking enforceable, and to follow it up by a valid notification of acceptance.

Case Reference: BGH, I ZR 97/13, decision of 17 November 2014.