In October 2011 the Stuttgart Public Prosecutor's Office filed an indictment against Volkswagen (VW) employees in connection with T-Systems' sponsorship of the VfL Wolfsburg football club. This has triggered ripples of concern. Employees of carmaker VW, which is the largest employer in Wolfsburg, allegedly refused to extend the contract with T-Systems – VW's telecommunications provider – unless T-Systems also agreed to continue sponsorship of the town's premier league football club. The Stuttgart Public Prosecutor's Office regards this as bribery of employees of a business, which is an offence under Section 299 of the Criminal Code. This raises the question: what are the wider legal implications of company sponsorship?
Under Section 299 of the Criminal Code, it is a criminal offence to demand, allow oneself to be promised or accept a benefit for oneself or another in a business transaction in exchange for according unfair preference over another in the competitive purchase of goods or commercial services. Likewise, it is an offence to offer, promise or grant a benefit to an employee, agent of a business or third party in exchange for unfair preference in the purchase of goods. In the VW case and similar cases, there are two primary questions to be answered, which – if the answer to both is no – will lead to criminal liability.
The first is whether the sponsorship agreement is part of legitimate business deal. In principle, the law does not prohibit two companies from entering into a single agreement for two or more products or services that are not directly linked, and which provides for one of the parties to render sponsorship services in favour of the other party or a third party. This was the outcome of a Federal Court of Justice case of May 26 2011(1), in which a photographic company had granted benefits to a school in connection with a contract for taking photographs of pupils and classes and was charged with making bribes to people in public office.(2) The Federal Court of Justice ruled that to prohibit a person in public office from making any secondary consideration (vertragliche Nebenpflicht) in the context of a contract would be contrary to the protective purpose of the law (margin 21 of the judgment). The court argued that it is important to distinguish between the purchase of a service which – despite being set out in a contractual agreement – actually constitutes an act of bribery or unfair competition and the many cases in which public servants enter into legitimate civil law contracts in fulfilment of their duties. In making such a distinction, the relevant criterion would be whether the public servant acted legitimately under administrative law. If this principle is applied to relations between private individuals, which fall within the scope of Section 299 of the Criminal Code, the criterion will be whether it is legally admissible for sponsorship to be included in a reciprocal agreement. The civil law principle of the freedom of contract will generally mean that this is admissible. Ultimately, this means that including sponsorship activities in a reciprocal agreement will not normally be a problem if it is done in an open and transparent manner. It will not then constitute unfair preference in competition, because any potential contractual partner will also be able to offer sponsorship activities.
The second question is whether, assuming that sponsorship does not already form part of a legitimate business deal, it can be viewed as admissible 'cultivation of business relations'. If the sponsorship was in fact a concealed secondary service without which the agreement would not have come about, it goes beyond the admissible bounds of cultivating business relations and constitutes a criminal offence. German lawyers refer to this as an 'agreement contrary to law' (Unrechtsvereinbarung) which is deemed to exist when the benefit of the sponsorship is accorded to unfair preference in a competitive context. Whether this is the case depends on the specific circumstances. It may be difficult to argue that a particular sponsorship falls into the category of admissible cultivation of business relations if the sponsorship was actively made a condition for the deal and if the value of the sponsorship was not commensurate with the advertising value. The principle that companies rarely give free benefits to others must also be borne in mind. Another indication of unfair preference in a business context is if the sponsorship appears to serve no economic purpose for the sponsor.
Whether the sponsorship constitutes a criminal offence depends on its purpose. Unless a confession has been made, the law will try to ascertain the purpose on the basis of the accompanying circumstances. As in any case based on circumstantial evidence, there may well be an element of legal uncertainty. Companies would therefore be well advised to examine their sponsorship agreements closely to minimise any risk of criminal liability.
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Endnotes
(1) Case 3 StR 492/10.
(2) Sections 331 and following of the Criminal Code.
