Competition Law Basics

Competition Law

• Article 38 of the Spanish Constitution recognizes the freedom of enterprise within a market economy
• In a competitive market, businesses compete for consumers, who then freely choose the best offers
• Free competition forms the base of a market economy by ensuring efficiency, encouraging innovation, and offering consumer benefits

Limitations to Free Competition

• Competition is desirable but faces several restrictions, and is never absolute
• Government planning regulates some sectors even in free-market economies, like price controls and licensing requirements
• Deregulation efforts have been made in telecommunications, energy, and transport
• Monopolies and oligopolies eliminate competition through state establishments
• Through past Salt and Match monopolies in Spain monopolies eliminate competition
• Oligopolies can act like monopolies if they work together to limit competition

Anticompetitive Conduct

• Collusive agreements are where businesses coordinate to avoid competition, such as price-fixing
• Abuse of a dominant position occurs when a market leader engages in unfair practices to eliminate competition

Competition Defense vs Unfair Competition

• Competition defense laws (Antitrust) protect market competition in general
• Unfair competition laws protect individual businesses from dishonest competitors
• Antitrust laws involve state enforcement via administrative penalties and may allow private claims for damages
• Unfair competition laws entail private lawsuits for civil claims for damages

Competition Authorities

• The authorities operate at national and EU levels
• The European Commission enforces competition rules, however, some critics find the decisions politically motivated
• Since 2004 (Regulation 1/2003), national competition authorities can also enforce EU competition law
• Competition law enforcement in Spain was centralized under the National Markets and Competition Commission (CNMC) in 2013
• Regional authorities in some regions possess limited powers

CNMC Powers

• CNMC investigates and fines companies for antitrust violations
• CNMC reviews mergers and acquisitions to prevent market dominance
• It works independently, but major cases go to the Council of Ministers

Collusive Practices

• Article 101 TFUE and Article 1 LDC (Spanish competition law) prohibit collusion
• Price-fixing agreements, like cement manufacturers agreeing on prices, are prohibited
• Production or distribution limits that restrict product availability are illegal
• Market sharing, such as dividing customer territories is not allowed
• Applying unfair conditions to buyers/suppliers constitutes collusion

Consequences of Collusion

• CNMC or the EU Commission can legally impose fines of up to 10% of a company's global revenue
• Contracts resulting from collusion are considered void
• Since Directive 2014/104/EU, victims, including consumers and rival businesses, can take legal action for damages

Abuse of Dominant Position

• Legal framework applies to the dominant company
• Dominance is not illegal. Abuse of the position is
• Article 102 TFUE and Article 2 LDC prohibit unfair pricing, which is either too high or too low
• Discriminatory pricing, or different prices for equivalent transactions are prohibited
• Tying contracts that force buyers to purchase an unwanted product, are also against the law
• Refusing to supply essential goods/services is illegal

Notable Cases

• Microsoft was fined €497 million in an EU case for bundling Windows Media Player with Windows

Mergers and Acquisitions

• The rationale for regulation is that mergers can improve efficiency but may decrease competition
• The EU and Spain regulate mergers to prevent monopolistic power
• EU and Spanish rules exist regarding mergers
• Under Regulation 139/2004 (EU), the European Commission reviews large, multi-country mergers
• Under Spanish Law (LDC Article 8), CNMC reviews mergers that would control +30% of the market, or those that involve +€240M in combined sales in Spain

Approval Process

• Companies must notify CNMC or the EU commission of mergers
• Authorities analyze market impact
• Authorities have a choice of rejection, conditional approval by selling of assets, or approval
• A controversial case of Antena 3 & La Sexta (2013) saw the CNMC opposing the merger while the Spanish Government approved it

Unfair Competition and Advertising

• General principles are guided by LCD: Ley de Competencia Desleal
• LCD: Ley de Derecho de Competencia
• Good faith is a fundamental principle in contractual relations defined by Article 57 of the Spanish Commercial Code and Article 1258 of the Civil Code
• Fair competition applies to market behavior and interactions between competitors
• Spain adheres to international standards, like Article 10 bis of the Paris Convention
• Article 10 bis of the Paris Convention defines unfair competition as conduct contrary to honest commercial practices
• The LCD differs from Competition Defense Law (LDC)
• The LDC protects market efficiency and allows government sanctions against antitrust violations
• The LCD allows businesses to seek civil remedies instead of administrative sanctions

Legal Framework in Spain

• The LCD remains the primary law governing unfair competition, complemented by Article 10 bis of the Paris Convention
• Article 10 bis of the Paris Convention applies to international disputes but has limited use domestically
• The LCD’s structure includes a general clause prohibiting acts against good faith and a list of specific unfair competition acts
• Specific unfair competition acts include misleading advertising, denigration, and imitation
• The legislation adapts to EU legislation

Types of Unfair Competition

• Acts taking advantages of competitors are unfair competition
• Deception (Article 5 LCD) involves misleading claims that induce consumers into error
• Confusion (Article 6 LCD) creates market confusion by imitating a competitor’s branding, store design, or slogans
• Omissions (Article 7 LCD) refers to failing to provide key product information or presenting it in an unclear way
• Aggressive practices (Article 8 LCD) use harassment, coercion, or undue influence to manipulate consumer behavior
• The general rule is: Imitation is legal unless it infringes an exclusive right, creates consumer confusion, or unfairly exploits another’s efforts
• Exploiting a competitor’s reputation, or false designation of origin, or deceptive branding are illegal
• Denigration (Article 9 LCD) involves spreading misleading information about competitors

Comparative Advertising

• Comparative advertising (Article 10 LCD) is allowed if it is based on verifiable, relevant, and non-misleading information
• Exploiting a business’s dependency (Article 16 LCD) consists of taking advantage of a supplier/franchisee who lacks alternative options
• Unfair termination of commercial relationships without six months’ written notice is not allowed
• Threatening to break business ties to pressure for better conditions is an example of an economic abuse
• Predatory pricing (dumping) involves selling below cost to eliminate competition

Pricing and Trade Secrets

• Predatory pricing is illegal only if intended to harm competition
• Discriminatory pricing (Article 16.1 LCD) is offering different prices without justification
• Misuse of trade secrets (Article 13 LCD) includes industrial espionage and unauthorized disclosure of business strategies
• Breaking legal regulations to gain an advantage (Article 15 LCD), like avoiding labor laws to reduce costs, is prohibited
• Inducing employees or customers to break contracts (Article 14 LCD) is illegal

Unfair Consumer Practices

• Examples of unfair consumer practices are misleading promotions (e.g. “bait and switch”), false endorsements, pyramid schemes, and coercive selling tactics
• Unfair consumer practices include pressure sales that target vulnerable groups like minors

Actions Against Unfair Competition

• Victims of unfair competition have several legal remedies as per Article 32 LCD
• Declaratory judgment is where a court formally declares the act unfair
• Injunctions consist of courts ordering businesses to stop unfair practices
• Restitution involves reversing the effects of the unfair act
• Correction of misleading information is a remedy
• Damages are compensation for harm suffered
• Unjust enrichment claims aim to recover profits gained through unfair competition

Statute of Limitations and Illegal Advertising

• The statute of limitations: is one year from when the victim became aware of the act and responsible party, or three years from the end of the unfair practice
• Excessive or deceptive advertising is illegal
• General Advertising Law (LGP) defines illegal advertising
• Advertising that violates dignity or fundamental rights, such as sexist or racist ads, is illegal
• Advertising aimed at minors that exploits their inexperience is illegal
• Other illegal forms of advertising include subliminal, false or misleading, and deceptive omission of information
• Comparative advertising that misleads consumers is considered illegal
• CNMC enforces advertising laws
• Autocontrol provides voluntary compliance mechanisms

Trademarks and IP Rights

• Industrial property includes innovations and distinctive signs owned by businesses, and differs from intellectual property
• Patents grant temporary exclusive rights to investors
• Trademarks offer indefinite exclusive rights over brand names and symbols and protect businesses from plagiarism
• There is inherent tension between competition law and industrial property law
• Trademark protection benefits businesses and consumers as it facilitates brand recognition and product comparison

Trademarks Legal Framework

• Spain’s Trademark Law (Law 17/2001) aligns with EU Directive 2015/2436 to standardize registration and protection
• Protection is granted at national, European, and international levels
• Spanish trademarks are registered with the Spanish Patent and Trademark Office (OEPM)
• The EU Trademark (EUTM) provides protection across all EU states
• Treaties like the Paris Convention (1883) and Madrid Agreement (1891) allow for multi-country trademark registration

Trademark Definition and Function

• A trademark distinguishes a companies products/services from competitors and should be distinctive and registrable
• It can be a word, image, shape, or sound
• Trademarks indicate origin, ensure quality, build reputation, and drive sales

Trademark Rights

• The right to a trademark is granted upon official registration through a two-phase process
• The two phases are: formal examination and substantive examination
• Trademarks are classified into 42 product/service categories under the Nice Agreement (1957)
• A trademark is valid for 10 years, renewable indefinitely

Trademark Infringement and Enforcement

• A registered trademark grants exclusive use rights that allows the owner to prohibit 3rd party use of similar marks
• The "Exhaustion of Trademark Rights” principle states that once a product is sold in the EU, the trademark holder cannot control its resale
• Remedies for infringement include: ceasing the infringing activity, paying financial compensation, destruction of counterfeit products, and publicizing court rulings

Tradenames

• A tradename identifies a business entity and differs from a trademark
• Tradenames identify a company’s activities and presence and should be unique, non-deceptive, and consistently used
• The right to a trade name is given through registration with the OEPM
• Trade names are usually transferable

Internet Domain Names

• Domain names, like Nike.com, function as digital trademarks
• Registration is managed by ICANN
• Spain’s National Domain Name Plan (PNND) regulated “.es” domains
• UDRP handles legal disputes over domain names, like cybersquatting

Patents Legal Framework

• Patents are exclusive rights granted to an inventor for a new product, process, or technical solution for 20 years in exchange for public disclosure
• The Spanish Patent Law 24/2015 governs patents nationally, European: The ensures that the Munich Convention allows for European patents, valid in multiple designated countries
• The Paris Convention (1883) ensures priority rights for patent applications
• The Patent Cooperation Treaty (PCT, 1970) facilitates international patent applications
• The TRIPS Agreement (WTO, 1994) sets global patent protection standards

Patent Requirments

• An invention must be novel, inventive, and industrially applicable
• Non-patentable subjects include: scientific theories, mathematical methods, software, and biological processes for plants/animals
• Patent owners can block competitors use the invention
• The exhaustion principle states that product resales cannot be controlled once sold in the EU
• Prior user rights allow a company using the invention before patent approval to continue using it

Patent Enforcement Actions

• Civil actions for infringements include stop orders, claims for damages and seizures
• Criminal penalties may apply
• Infringement is punishable under Article 274 of the Spanish Penal Code
• Compulsory licensing requires third parties to request a forced license to use a patent that's not used within a certain period
• Royalties are set by the Spanish Patent Office (OEPM)

Utility Models (Mini Patents)

• Utility models protect minor technical improvements and are valid for 10 years
• They have less stringent novelty requirements

Industrial Design Protection

• Industrial design protection protects the appearance of products
• Three protection rules are: Spanish industrial design law (National), EU community design regulation (EU countries), and the Hague agreement (international)
• Products must be visible and distinctive

Mercantile Companies

• Entrepreneurship can be classified into individual entrepreneurs and corporate entities
• Individual entrepreneurship is mainly limited to small retail businesses
• Corporate entities are the prevalent form of entrepreneurship in situations where large capital investment is necessary, legal requirements dictate it, limited liability is needed, and tax advantages prevail

Companies Features

• Companies are legally separated from its owners, feature limited liability, can own assets/sign contracts, and have legal names and nationalities
• A mercantile company contract is regulated by Articles 116-124 of the Commercial Code and articles 1665-1708 of the Civil Code
• Mercantile societies feature multiple parties that contribute capital, share a business interest, and purpose of profit generation

Civil vs Mercantile operations

• Mercantile companies must assume a specific legal form (SA, SL, etc.)
• Exceptions to the need for a specific legal form exist for mutual insurance companies and cooperatives
• The 2010 LSC Reform made Sociedades Anónimas (SA), Sociedades Limitadas (SL), and Sociedades Comanditarias por Acciones (SCA) mercantile

Sociedad de Responsabilidad Limitada (SL):

• Small/medium enterprises with limited partner liability

Sociedad Anónima (SA):

• Used for large businesses, with shares freely transferable

Sociedad Comanditaria por Acciones (SCA):

• Less common; a hybrid between partnerships and corporations

General Capital features

• Capital Companies feature separate legal standing from its owners and it is limited liability
• Capital structures allow for Shares and participations
• Governance features Administrators and general assembly

Key Differences between (SA) vs (SL)

Capital required for SA = €60,000 (€15000 paid upfront) Capital required for SL = €3,000 (€3000 paid upfront)

Incorporation of capital companies includes

• Public deed, commercial registry, statutes of operation

Denomination includes

• The company name must unique, follow legal form abreviation for SL or SA and be registered

Requirements for Nationality

• A company is considered Spanish if incorporated under Spanish Law and registered in the Spanish Mercantile Registry

Legal Framework and Domicile Details

• Spanish companies must be subject to Spanish Law but are free to operate abroad
• The business must have a registereed address in Spain
• A change in domicile is possible by shareholder and registrary approval

Irregular Capital Framework

• It must register within a year to legitimize
• A lack of registration results in debt, liabilities, and bypassing action
• SA/SL companies with a single shareholder must register the owner in LSC

Consequences of not registering includes

• Owner liabilities
• Piercing corporate protection is possible under allegations of: asset crimes, debt avoidance and fraud

Contributions

• The LSC protects assets and shareholder shares
• All contributions must be euro based and have certificates
• The commercial registry must protect any shares with overvalued valuations
• Shareholders are always liable except when appraisal is done via expert

Guarantees

• Guarantees must be applied to shares that deal with contracts, real estate, and rights payments

Oustanding Payments

• At least 25% of nominal value must be paid on shares
• There are dire consequences to failure to pay to shareholders include: losing rights, shares, and dividends
• All shareholders are subject to a 3 year guarantee post selling of transfers

Considerations

• You can default payment contributions within 5 years to avoid depriciation
• S.L.F.S created via 14/2013 law provides a lower €3,000 capital limit with more risk to creditors

Accessory contributions include

• The provision of items that can/cannot be added to companies capital

• This can include good supplies, or professional business and requires detail from bylaw

• Shares can/not have transfers

• Modifications always require shareholder consent of obligation