Topic 2: Unfair Competition

Lesson 2: Unfair Competition

• Unfair competition is a topic with historical and conceptual background involving regulation and antitrust violations.
• Early competition contexts, like the French Revolution, lacked rules, allowing aggressive and potentially unethical business practices.
• Regulation arose to address those issues, standardizing conduct and establishing consequences for unfair competition.
• European Union Directives (2005/29/CE and 2006/114/CE) govern unfair commercial practices and advertising across the EU.
• Specific Spanish Acts (Ley 3/1991 de competencia desleal (LCD) and Ley 34/1988 General de publicidad (LGP)) mirror and augment EU regulations.
• These laws define and prohibit misleading, aggressive, and unfair commercial practices, setting benchmarks and standards for consumer protection.
• These laws aim to create a fair and consistent market environment to protect consumers and maintain honest competition.

Historical and Conceptual Background

• Historical background starts with the French Revolution, showing the lack of regulation for competition.
• Competitors were very aggressive using imitation, false information, and impeding competitors concerning supplies.
• Rules requiring competitors to meet certain correctness standards while competing were needed. France and Germany were among the first countries to regulate competition
• Rules on extra-contractual liability and court-developed theories demonstrate historical development of rules concerning unfair competition.
• Specific rules were enacted in some countries.
• Conceptual background deals with competitive conducts that do not meet appropriateness standards, limiting economic agents in competition.
• Unfair competition is regulated with general rules on unfair commercial practices and rules on unfair advertising.

Regulation of Unfair Competition and Advertising

• Directive 2005/29/CE addresses unfair business-to-consumer commercial practices in the internal market.
• Directive 2019/2161 amended the earlier directive, harmonizing national laws for unfair commercial practices.
• Directive 2006/114/CE regulates advertising.
• Spanish legislation (Ley 29/2009) harmonizes the EU Directives on unfair commercial practices and advertising within Spain.
• These directives and acts are to protect consumers and create a level playing field for businesses.
• The directives/acts are structured with general clauses, misleading and aggressive practices and blacklists.

General Clause

• General Clause (art. 5.2) aims to catch unfair practices not covered by "misleading" or "aggressive" criteria.
• Criteria defined include professional diligence, (art. 5.2.a.) and material distortion of average consumer behavior (art. 5.2.b.).
• Professional diligence refers to skills, care, and market practices demonstrated in good faith.
• Material distortion of consumer behavior means using an action to noticeably hinder consumer ability to make well-informed decisions.

Misleading Practices

• Considered unfair according to art. 5.1.
• Can be either actions (regulated in art. 6) or omissions (regulated in art. 7).
• Actions and omissions are considered unfair if they cause or are likely to cause the average consumer to make a different transactional decision than they would have otherwise made.
• Misleading actions (art. 6.1) include false information which is untruthful or deceives or is likely to deceive the average consumer.
• Misleading actions (art. 6.2) include marketing related to a product that creates confusion with a competitor's product (or brands).

Misleading Omissions

• A commercial practice is misleading (art. 7.1) if it omits material information that the average consumer needs, from the context to make an informed decision.
• Misleading practices can also occur if information is hidden, unclear or delivered in a negative manner (art. 7.2)
• This would include hiding or presenting the information carelessly so that it is opaque or not understandable.

Aggressive Practices

• Considered unfair according to art. 5.4.b)
• A commercial practice is aggressive (art. 8) if it involves harassment, coercion, undue influence, or use of physical force.
• The conduct should significantly impair the average consumer's freedom of choice and lead them to make decisions they otherwise wouldn't have made
• Criteria for determining harassment, coercion, or undue influence are by timing, location, persistence, language used or behaviors (art.9).

Acts of Denigration (art. 9)

• Making or spreading statements about another party's business that is untrue, relating to facts, not opinions and must be true. If it is unfair but true, it is irrelevant.
• Statements about personal beliefs, circumstances, nationality etc are not relevant.

Acts of Comparison (art. 10)

• Public comparisons are permitted, including comparative advertising.
• The goods/services compared must be fit for the same purpose or meet the similar needs.
• The comparison should be objective, using explicit or implicit references to the competitor.

Acts of Imitation (art. 11)

• Imitation of a competitor's business or professional service is generally permitted unless the imitated item is protected by law.
• Imitation that leads the consumer to associate it with the original service or exploits the original service's reputation or effort is considered unfair under certain conditions.

Exploitation of Other Parties' Reputation (art. 12)

• Unduly profiting from another competitors reputation is a prohibited practice.
• Using another's reputation to gain business unfairly, such as falsely identifying your product as that of a competitor, is a violation.

Breach of Secrets (art. 13)

• This relates to confidential information of an organization which is not generally known and includes knowhow, financial data, technological know-how etc
• Breaching confidentiality or stealing trade secrets constitutes an unfair business practice.

Inducement to Breach of Contract (art. 14)

• Inducing a breach of contract is an unfair practice. This includes actions such as using tricks, bribery, or malicious lies.
• Intentionally trying to cause a competitor to breach contract (or benefit from the breach) can be unlawful.

Breach of Legal Rules (art. 15)

-Breaching legal rules to gain an unfair competitive advantage is a violation.

Discrimination and Economic Dependence (art. 16)

• Discrimination in setting prices or terms for different customer groups (or not providing equal terms), and abusing economic dependence, is considered unlawful.

Sales at a Loss (art. 17)

• Setting prices below costs, just to harm or discourage a competitor, is a prohibited practice.
• If the actions lead to misleading consumers about prices or the purpose of these prices or to eliminating a competitor, the action is considered unlawful.

Illegal Advertising (art. 18)

• Advertising that violates the General Advertising Act, is also considered unfair under the broader terms of unfair commercial practices.

Prohibited Commercial Practices with Consumers (art. 19-31)

• Unfair commercial practices directed towards consumers are prohibited (in these articles)
• These practices are similar to those already addressed in the previous articles, but they're focused specifically on consumer-facing activities.

Actions for Infringement (art. 32)

• These are the actions that can be taken to counteract the above breaches. Including injunctions, compensations etc.

General Advertising Act (Ley 34/1988)

• This act defines illegal advertising (publicidad ilícita) with multiple different possible manifestations.