Creating Fair Competition in Online Commerce
The FairCommerce initiative, founded in Germany by the Händlerbund in 2017, aims primarily to reduce the high number of cease and desist letters in online commerce and combat their misuse. These letters are used to penalize anti-competitive behavior in digital trade. Whether a cease and desist letter is justified depends on the specific reason for it.
The following factors often lead to cease and desist letters due to errors or omissions in an online shop:
- Illegally worded cancellation policies: If a cancellation policy does not comply with the applicable law, it is a very reliable reason for a cease and desist letter, as only minor deviations from legally defined standards are tolerated in this area.
- Unacceptable clauses in the “General Terms and Conditions”: The wording of the general terms and conditions must comply with consumer protection laws. The minimum standards for the general terms and conditions of an online shop are defined in §§ 305 ff of the German Civil Code (BGB).
- Violation of the imprint obligation: The imprint must always be complete, correct, and up-to-date. It must clearly state the registered office and the persons responsible for the online shop, as the contact details listed there are used as a reference in the event of a dispute.
- Information about the ordering process: The customer must have access to all relevant information throughout the entire ordering process. This includes information about the value and characteristics – the so-called “Unique Selling Points” (USPs) – of the goods.
- Incorrect labeling of order buttons or incorrectly displayed prices: The basis for the correct display of prices is the Price Indication Ordinance (PAngV), which stipulates that final prices including VAT must be displayed. Shipping costs must also be stated.
- Violation of information obligations regarding the product portfolio being marketed: Especially online shops that sell food, electrical appliances, and textiles digitally are obliged to fulfill detailed information obligations.
However, the implementation of the principles of action established by the FairCommerce initiative is not legally binding for companies. Instead, it is a voluntary commitment of the companies that have joined the initiative. An unjustified cease and desist letter – which may lead to a subsequent court case – can be costly for the company that receives it. Therefore, especially financially weak small businesses need special protection. Moreover, a spiral of cease and desist letters can develop.
For more fairness in e-commerce
The initiative advocates for more fairness both between the operators of an online shop and their customers and between the operators of an online shop and their direct digital competitors. The initiative is now supported by over 40,000 companies that adhere to clear rules of the game in online commerce and want to contribute to making e-commerce completely fair. Cease and desist letters were originally intended to provide a means of efficiently combating legal violations in online commerce. However, since it has become apparent that cease and desist letters are increasingly used as a means of pressure by competitors to intimidate retailers or even “extort” high payments from them, studies have shown that in 2016, every fourth online retailer received at least one cease and desist letter. Retailers therefore have to deal more and more with legal issues – time that they later lack to pursue their core competence of selling.
Since the issuance of cease and desist letters in e-commerce has taken on some rather bizarre forms, the FairCommerce initiative was launched by the Händlerbund. The clear goal of this initiative is to develop fair rules of conduct for dealing with cease and desist letters and to ensure that digital companies adhere to them. The supporters have made it their mission to seek direct contact with the affected competitor before a cease and desist letter is actually sent in case of (alleged) reasons for a cease and desist letter. In this way, online retailers come into direct contact and can discuss and resolve their problems before further legal steps are taken.
The “Law for Fair Competition”
The German government has recognized that the frequent issuance of cease and desist letters, a problem the FairCommerce initiative aims to address, leads to significant economic problems. In response, the Law Against the Abuse of Cease and Desist Letters, officially the “Law for Fair Competition,” came into effect on December 2, 2020. The main goal of this law is to protect small and medium-sized enterprises (SMEs) from unjustified cease and desist letters that can lead to severe financial difficulties. It incorporates the economic principles formulated in the FairCommerce initiative and toughens the requirements for fair competition.
This law provides a modern set of rules for the issuance of legally sound cease and desist letters to online shop operators. Overall, the law significantly tightens the formal rules to which cease and desist letters are subject. At the same time, the financial burden associated with a cease and desist letter is significantly reduced. Companies that receive an unjustified cease and desist letter can assert counterclaims. The contractual penalties associated with a cease and desist letter can be limited in terms of both amount and scope. The flying jurisdiction is abolished. Special rules apply to business associations. They must be registered in the “List of Qualified Business Associations” to obtain official authority to issue cease and desist letters, which is subject to specific conditions that the association must fully meet.
The tightening of regulations in the Law Against the Abuse of Cease and Desist Letters primarily relates to the prerequisites for issuing a cease and desist letter. Section 13 Paragraph 2 of the Act Against Unfair Competition (UWG) stipulates that issued cease and desist letters must be generally understandable. They must include the following information:
- The complete contact details of the company or person issuing the cease and desist letter
- The precise definition of the prerequisites for entitlement to claims
- The purpose of the cease and desist letter, including the specification of reimbursement claims and their amount
- A calculation of the claim for reimbursement
Companies or individuals issuing a cease and desist letter should implement these requirements correctly to avoid the cease and desist letter being considered abusive. The guidelines on the abuse of cease and desist letters set out in § 8c UWG should definitely not be fulfilled to avoid problems.
Special Case – Cease and Desist Letter Due to GDPR
In 2018, the General Data Protection Regulation (GDPR) came into force, an EU regulation aimed at harmonizing data protection across Europe and ensuring a uniform level of data protection for all EU citizens. Especially companies with a digital presence must comply with the strict rules of the GDPR. It deals with the formulation of the website’s privacy policy, user tracking, the use of social media, and email marketing.
Violations of the GDPR can take various forms. A significant reason for a cease and desist letter is the lack of consent to the processing of personal data by the data subject. A faulty privacy policy is considered a violation of the GDPR and thus a valid reason for a cease and desist letter. Even inadequate measures to ensure data security can lead to a cease and desist letter.
Micro-enterprises enjoy special protection from cease and desist letters, including those related to the enforcement of the GDPR. They do not have to pay any fees in the event of a cease and desist letter, making it unattractive for competitors to issue such letters. This special protection applies exclusively to registered associations and companies with an annual turnover of no more than two million euros and a maximum of ten employees.
Making Your Own Website Cease and Desist Proof
This article has highlighted the various points that can lead to a cease and desist letter and thus a financial burden on those affected. Even though the Law for Fair Competition has significantly reduced the abuse of cease and desist letters, it is important to make your own website cease and desist proof.
If you need professional support in designing your online shop to be cease and desist proof, please contact me for a further consultation.
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