You hiding a phone isn't the fault of the product type, and thus only your actions might be illegal, not phones themselves.
http://money.cnn.com/2014/06/06/technology/security/nsa-turn...
All phones have this mode; it's a feature to consume less battery by shutting off the display when you're not using it.
It's highly unlikely that anyone carries an active Microphone if they are not actively making a call with their phone.
I'm asking this mostly rhetorically, but just trying to point out that when most things these day are controlled by software that is remotely and automatically updated and installed (including firmware, baseband software, and background apps), it's nearly impossible to say something like "yes, this device has a microphone, but it's not 'listening' right now", let alone define it legally.
If the concern is individuals using their own devices intentionally for spying purposes...that's relatively easy for a non-technical person to do with a smartphone if they want to.
I don't feel like that actually applies here, but if it does it should also apply to the entire smartwatch category.
This isn't true for hybrid smartwatches and fitness trackers. Those devices don't have listening devices and require tethered cell phones for internet communication, which already enables GPS tracking. It'll be interesting to see if this has been written in such a way as to exclude those or lump them in with the devices being targeted.
In this case the sentence is taken from the english version of their press release regarding the cayla dolls:
https://www.bundesnetzagentur.de/SharedDocs/Pressemitteilung...
A list of translated laws can be found here, but I couldn't find the TKG among them:
https://www.gesetze-im-internet.de/Teilliste_translations.ht...