Mask yourself!

The debate about whether wearing face masks can really help in preventing the spread of COVID-19 or not is ongoing and hot. Fact is that in many of the affected areas - such as Austria, just to name one - masks have been made mandatory. The problem is: often masks are simply not available and pharmacies do not get enough supplies.

Do it yourself

For this reason, many people have enganged in often rather pittoresque attempts at fabricating their own masks using diverse materials, ranging from scarves to female absorbents. Also companies in some of the COVID-19 hotspots, such as Italy’s Calzedonia group or Spain’s Zara, have partly reconverted production to face masks. But are there any requirements when distributing face masks to public?

Face masks are medical devices

As per art. 1 par. 2 of the European Directive on medical devices no. 93/42/EEC any instrument that helps in preventing a disease is considered a “medical device”. The EU member states have passed national legislation to implement the directive. In the case of Germany, most provisions are to be found in the Medizinproduktegesetz (MPG). All in all, however, the legal framework is broadly comparable in all EU states.

In brief, considering face masks as medical devices means that before being put on the market (regardless of whether this happens for free or at a cost) they must be clinically tested and approved by the competent authorities. In addition, they must comply with a long list of safety and compatibility requirements and bare the well-known “CE” seal.

Under German law, producers of medical devices are also obliged to declare their activity to the competent authorities.

Finding a workaround

Quite obviously, companies whose main business is not the production of medical devices will hardly be capable of meeting all those requirements in such a short time as to be still useful to face the current emergency. In some cases (e.g. in Italy), governments have temporarily easened the requirements to put masks on the market in order to allow for a quicker response.

But wherever governmental action has not been taken, the only option is a workaround: face masks may be produced and sold (or given out for free) as by making sure that they are not advertised as “medical face masks”.

Details matter

It’s however not sufficient to simply declare that a mask is no “medical device”, if the way it’s advertised, including wording, pictures, context, descriptions etc. etc. clearly suggest that it helps in preventing contagion - because that would be exactly what a medical device is defined by.

Therefore, the utmost care must be used when describing the masks: no element may mislead customers into thinking that they are buying a disease-preventing instrument. Definitions such as “protective face mask” or “protective device”, let alone “medical mask”, may very well be regarded as misleading, while simply defining the product as “mask” or “face mask” should prove legally safe.

The same reasoning must be obviously applied to descriptions, pictures and any additional documentation: masks must basically be treated as standard clothing accessories, without any medical purpose or function.

Risks

Given the circumstances, offering masks to public may easily land in the limelight of public health, competition and consumer protection authorities and result in audits, sanctions or, as the case may be, even criminal investigations.

In addition, in Germany (and in any other country with a similar legal framework), competitors are entitled to exercise unfair competition claims: medical devices producers may therefore sue such newcomer masks producers for misleading the market, if the above-mentioned conditions are not met.

Financial aid against Corona

Alongside the dramatic effects of infections, deaths and the overload of public health systems on society, the coronavirus outbreak is already having a severe impact on the economy. This prompted the governments of the most affected countries to announce extraordinary measures to sustain businesses in overcoming the emergency.

Financial aid to businesses in Germany (and abroad)

One of the first emergency measures to be adopted by the German government is a set of business loans granted by the Kreditanstalt für den Wiederaufbau (KfW), Germany’s state-owned development bank, through cooperating banks. Technically, the conditions of some of the pre-existing loan schemes of KfW have been considerably eased up in order to be available to a greater audience. These programs are run through standard banks, which means that the respective application must be filed through them, which then cooperate with KfW in granting the loan. And here’s where one of the most decisive measures has been taken in light of the coronavirus emergency: KfW increased the indemnification of financing banks up to 80%. That is: in case of the borrower’s default KfW covers up to 80% of the bank’s loss, thereby making it decidedly less risky for banks to approve the loan.

The loan schemes

KfW has three loan schemes intended for established businesses (“business loan”), for startups (“startup loan”) and for growth (“loan for growth”). Note that both the business and the startup loans are available to companies and individuals, such as free-lance professionals or sole traders.

KfW-Unternehmerkredit (KfW business loan)

If you’ve already been on the market for more than 5 years, this is what you should look for. KfW lends up to 25 million EUR (and 100% of the total investment, i.e. borrowers are not expected to invest any own resources) at extremely favourable interest rates starting from 1% p.a. over a minimum term of 2 years. Costs covered by the loan include: investments in material and immaterial assets (machines, software, infrastructure, means of work, patents, licenses), office spaces, vehicles, operating resources (e.g. personnel costs, marketing measures, liquidity, consultancy etc.).

This programm is available to:

  • in Germany: national or foreign companies or self-employed individuals active on the German market since more than 5 years

  • abroad: foreign subsidiaries of German companies (or joint-ventures with a considerable German participation) for their activity in a foreign market

KfW-Gründerkredit (KfW startup loan)

The startup-version of the loan is basically equivalent to the above-mentioned business loan, with some peculiarities. First and foremost, it’s available to:

  • in Germany:

    • founders (“Existenzgründer”), also in case of takeover of a pre-existing business (“Unternehmensnachfolger”)

    • self-employed

    • SMEs active on the German market since less than 5 years

  • abroad: foreign subsidiaries of German companies (or joint-ventures with a considerable German participation) for their activity in a foreign market

Interest rates for loans in this category depend on various criteria and are finally agreed upon with the relevant bank.

KfW-Kredit für Wachstum (KfW loan for growth)

This is a different kind of loan that, unlike the other two, is thematically focussed on innovation and digitalisation. Several development projects, measures, investments and costs in these areas are covered by the loan, but it cannot be used to cover general and non innovation- or digitalisation-related expenditure (although: even this requirement has been somewhat softened-up given the current emergency).

This program is available to:

  • national and foreign companies with a yearly turnover up to 2 billion EUR

How to get it

All loand must be applied for through one of the participating regular banks (commercial banks, cooperatives, savings banks), which include all most common German banks, such as Deutsche Bank, Sparkasse, Volksbank, Commerzbank etc.
Three days ago Germany’s Finance Minister Olaf Scholz declared that the government is willing to grant unlimited loans to companies and that applications for financial aid will be “approved a priori” - one more reason to give it a try!

Force Majeure 1 - Does the coronavirus infect contracts?

Amidst the general turmoil caused by the unforeseen spread of the coronavirus across Europe, many companies and individuals find themselves in the uncomfortable position of not being able to perform contracts already closed, because certain goods cannot be delivered or certain places cannot be accessed.

consequences on business operations

Letting aside those extreme cases getting most media coverage, such as impossibility to deliver disinfectants, mouth masks or even to operate commercial flights, there are many cases in which the coronavirus is having indirect albeit widespread effects.

Take for instance contracts about the organisation of events, such as trade fairs, summits, fashion shows, conferences. Many of such events are being postponed or even cancelled completely over the risk of contagion, leaving organisers with the problem of how to deal with all contracts and agreements closed in light of the event as originally planned: what to do about the catering, the security personell hired ad-hoc, the supply of diverse goods and services (e.g. rented furniture, shuttle services etc.)?

force majeure will save your… or maybe not?

At first sight, these situations remind of schoolbook examples of the so-called principle of “force majeure”.

Roughly speaking, due to diverse reasons it may be or become impossible for one of the parties to a contract to perform it: this scenario is addressed - to name examples - by art. 1256 of the Italian Civil Code (“impossibilità sopravvenuta”) or § 275 of the German Civil Code (“Ausschluss der Leistungspflicht”). However, this does not automatically mean that the party whose performance has become impossible is released from any obligation: typically, the nonperforming (or malperforming) party must compensate the other party’s damage.

And this is where the force majeure principle comes into action: if the obliged party can prove that the impossibility to perform depends on an unforeseen and unforeseeable factor lying completely beyond its control, then no damages are due to the other party. This principle is by the way recognised also at an international level by art. 79 of the United Nations Convention on Contracts for the International Sale of Goods.

what is unforeseeable, unforeseen and beyond control?

Typical examples of force majeure cases are natural phenomena, such as earthquakes, floods or - yes - epidemies. These events are certainly beyond control - but are they also unforeseeable? The typical lawyer answer is: it depends. If you build a house next to a volcano the fact that it might erupt and destroy it would certainly be beyond control, but not unforeseeable.

Similarly, the coronavirus spreading to Europe is substantially beyond control, but was it really unforeseeable, in particular since the epidemy started in China months ago? As ever so often, there is no general answer to this question, because the devil is always in the detail.

My best guess would be that one would have to distinguish: the spread of the coronavirus in Europe per se is certainly not an unforeseeable event: we knew it would come on any of the many direct flights from China. We knew that it would start to spread organically across Europe starting in those places that have most frequent links to China. However, I don’t think anyone could have predicted a specifically extreme situation as notably that of (Northern) Italy, which for reasons yet to be fully understood has experienced a contagion rate almost higher of that of the whole rest of Europe. Entire towns have been isolated, flights cancelled, schools and universities closed down for weeks, important trade events - such as Milan’s design fair Salone del Mobile - have been cancelled or postponed. If a contract is affected by these particular circumstances, there would probably be a good chance to “get out” over force majeure and avoid having to pay damages.