In its ruling of October 27, 2022 (Case No. I ZR 141/21), the German Federal Court of Justice (FCJ) made it clear that the regular limitation period in a claim for payment of a contractual penalty under the so-called “Hamburg custom” does not begin until the creditor has determined the specific amount of the contractual penalty payable by the debtor and the contractual penalty has thus become due.
By means of a pre-court warning letter, the debtor in disputes relating to industrial property rights is afforded the opportunity to avoid legal proceedings by signing a so-called cease-and-desist declaration. But such a promise by the debtor to cease and desist only eliminates the risk of repetition if it is subject to contractual penalties. This can either be agreed by way of a fixed amount (so-called fixed penalty), or in such a way that the creditor informally determines the amount of the penalty in the event of a violation on the part of the debtor by way of a unilateral declaration (conditional on acknowledgement of receipt by the other party), and in accordance with reasonably exercised discretion (so-called “Hamburg custom”). This determination in the specific case can be reviewed by a court pursuant to section 315 (3) BGB.
The advantages of a contractual penalty promise in line with the “Hamburg custom” are obvious: Instead of a predetermined contractual penalty, the “Hamburg custom” permits better allowance to be made for the specific circumstances of the individual case, so that a serious breach will result in a higher contractual penalty than a breach that may only be the result of minor negligence. For avoidance of uncertainty about the amount of a contractual penalty that might have to be paid, both a minimum amount and a maximum amount can be agreed, although according to established case law the maximum amount must be significantly higher than a reasonable fixed amount (usually about twice the amount). One argument in favor of agreeing on a fixed contractual penalty, however, is the risk that the creditor will have to bear part of the costs if, in the event of a lawsuit, it turns out that the contractual penalty demanded by him has been set too high when following the “Hamburg custom”.
In the original copyright case, the defendant had used a photo made by the plaintiff for a sales offer on eBay without obtaining prior permission. After having been requested by the plaintiff to show his entitlement to use the photo, the defendant initially signed a cease-and-desist declaration on 19 June 2013, in which the infringement fine was to be fixed in the case of dispute (Hamburg custom), but the photo nevertheless remained accessible on eBay until May 2014. By registered letter of 22 December 2016, the plaintiff therefore called on the defendant to pay a contractual penalty of 3,600 euros. The defendant refused acceptance of the letter and also did not respond to subsequent written requests for payment whereupon, on 23 December 2019, the plaintiff brought an action before the district court for payment of a contractual penalty of 3,250 euros as well as attorneys’ fees, in each case plus interest, which was served on the defendant on 23 January 2020.
Because the action did not reach the courts until 2020, the defendant invoked the statute of limitations on the grounds that the three-year limitation period under Section 199 of the German Civil Code had already expired owing to the infringement having taken place in 2014, i.e. the claim had become time-barred.
The district court dismissed the claim, and the plaintiff’s appeal failed. In the final appeal, the FCJ disagreed: The decisive factor in determining when the limitation period begins is when the demand (i.e. the contractual penalty in this case) becomes due. However, the contractual penalty only became due when a sufficiently specific performance is owing. Due to the contractual penalty promise according to the Hamburg custom, this only came into existence when the specific contractual penalty was determined in 2016 and not before. It was only from this moment that the creditor could demand performance pursuant to section 271 of the German Civil Code and suspend the limitation period by bringing an action pursuant to section 204(1) No. 1 of the German Civil Code.
Accordingly, pursuant to section 199 (1) of the German Civil Code, the limitation period did not begin until the end of 2016. This also did not place the debtor in an unreasonable limbo situation because if there is a need for clarification he can seek a judicial decision for specification of performance in accordance with section 315 (3) sentence 2 of the German Civil Code, so that he himself has the possibility to determine when the demand becomes due and thus the start of the statute of limitations.
Thus, the limitation period did not expire at the end of 2017, but at the earliest at the end of 2019. As a result of the filing of the action, the limitation period was also suspended in accordance with section 204 (1) No. 1 of the German Civil Code and the defense of limitation cannot be raised against the claim.
With this decision, the FCJ has clarified with regard to the previously contentious question that the due date of the demand and thus the start of the limitation period are only established with the actual fixing of the contractual penalty. This should make the application of the Hamburg custom even more attractive for IP owners in the future.