Liability of managing directors in unfair competition
In the past, German courts regularly affirmed the liability of people for acts of unfair competition where these people had knowingly and causally contributed to such an act. Under this so-called ‘Störerhaftung’ rule, which can be roughly translated as the liability of the ‘disquieter’ or ‘disrupter’, the courts regularly ruled in favour of plaintiffs who sought relief from managing directors for acts of unfair competition they did not commit themselves, but which were committed by others under their responsibility as representatives of the company.
In practice, the courts often went so far as to almost automatically award claims against managing directors if the managing directors were sued alongside the company for the same unfair competition act. These were mostly cases in which the managing director had knowledge of the acts but simply failed to stop them.
That rule has now been ended, at least in the area of unfair competition law. The Federal Supreme Court re-emphasised in a 2010 decision that the legal basis for claims for unfair competition was the notion of ‘illegal behaviour’. As a consequence, claims for unfair competition required that the person liable had acted him or herself as an offender (Täter) or as a participant (aide), both of which are categories of criminal law.
Simply having contributed to the unfair competition act was no longer regarded as sufficient. An area of law where Störerhaftung was maintained is IP law (eg, copyright law), where people can be held to be liable in certain cases in which they would never be classified as offenders or aides. An example in point is the existing liability of owners of internet connections for illegal downloads or file-sharing made over those connections if the owner has not implemented common security measures to protect against third parties unwantedly using the connection.
Manager’s responsibility
In a decision handed down by the Supreme Court in June 2014, the circumstances under which a managing director may be considered an offender or aide in unfair competition cases came under scrutiny again.
A company selling gas supply contracts had been sued by a competitor for acts committed by freelancers working for the company who made misleading statements to potential customers they had visited at home. Alongside the company, its managing director had also been sued. The first instance court had ruled against both defendants, while the appeals court dismissed the action as far as the managing director was concerned. The Supreme Court has now upheld the appeals court’s ruling.
The Supreme Court re-emphasises the new rule that only those people who can be regarded as either offenders or aides under the normal rules of tort (which correspond to criminal law categories) are liable for acts of unfair competition. Simple knowledge of such an act is of itself not sufficient to give rise to liability.
"Only in exceptional cases may a duty on the part of the managing director to act be established in unfair competition cases."
In those rare cases where the unfair competition is based on an act that, from its outward appearance, must be attributed to the managing director, a liability is established by implication, eg where the firm name of a company is concerned, or the general web appearance or marketing strategy, which are all based on decisions typically reserved for the level of managing directors.
Acts of omission may give rise to liability only if the law recognises a specific duty to act under the circumstances of the case at hand. The position of directorship of itself does not give rise to such a duty. Also the outsourcing of certain jobs (eg, selling contracts in homes) to sub-contractors does not automatically give rise to a duty to control whether the sub-contractor acts in accordance with unfair competition law.
Sub-contracting in itself is not an act that contains the inherent risk that the law of unfair competition will be breached. Only in exceptional cases may a duty on the part of the managing director to act be established in unfair competition cases.
More than in the past, the liability of managing directors for acts of unfair competition in their companies will depend on the particular circumstances of each case.
Jens Künzel, LLM, is a partner at Krieger Mes & Graf v. der Groeben. He can be contacted at: jens.kuenzel@krieger-mes.de
