Market & Free Competition

Concept of Market and Free Competition

• Article 38 of the Spanish Constitution protects the freedom of enterprise within a market economy
• Businesses compete for consumers in competitive markets
• Consumers are free to choose the best offers
• Free competition is key to a market economy, promoting efficiency, innovation, and consumer benefits

Limitations to Free Competition

• Competition is not absolute and faces restrictions
• Government planning regulates sectors (e.g., price control, licensing) even in free-market economies
• Deregulation efforts have occurred in telecommunications, energy, and transport
• Monopolies eliminate competition, sometimes by state establishment (e.g., historical monopolies in Spain)
• Oligopolies may act like monopolies through collusion

Anticompetitive Conduct by Businesses

• Collusive agreements involve businesses coordinating to avoid competition, for instance, through price-fixing
• Abuse of dominant position occurs when a leading firm uses unfair practices to eliminate competitors

Competition Defense vs Unfair Competition

• Competition defense laws (Antitrust) protect the market as a whole
• Unfair competition laws protect individual businesses from dishonest competitors
• Antitrust laws involve state enforcement and administrative penalties, and allow private actions for damages
• Unfair competition laws involve private lawsuits for civil damages

Competition Authorities

• Both national and EU authorities oversee competition
• The European Commission enforces competition rules, but faces criticism for politicized decisions
• Since 2004 (Regulation 1/2003), national competition authorities can enforce EU competition law
• In Spain, competition law enforcement is centralized under the National Markets and Competition Commission (CNMC) since 2013
• Regional authorities in Spain have limited powers
• CNMC can investigate and fine companies for antitrust violations, review mergers, and operates independently
• Major cases may go to the Council of Ministers

Collusive Practices (Cartels and Agreements)

• Article 101 TFUE and Article 1 LDC (Spanish competition law) prohibit collusion
• Prohibited practices: price-fixing (e.g., cement manufacturers), production limits, market sharing, and unfair conditions for buyers/suppliers

Consequences of Collusion

• Legal consequences can include fines from CNMC or EU Commission (up to 10% of global revenue)
• Contracts from collusion are void
• Victims (consumers, rival businesses) have rights to private enforcement and can sue for damages since Directive 2014/104/EU

Abuse of Dominant Position Legal Framework

• Applies to dominant companies
• Dominance itself is not illegal, but abuse of dominance is illegal
• Article 102 TFUE and Article 2 LDC prohibit unfair pricing, discriminatory pricing, tying contracts, and refusing to supply essential goods/services
• Microsoft faced a €497 million fine for bundling Windows Media Player with Windows

Mergers and Acquisitions (Control of Economic Concentrations)

• Rationale for regulation: Mergers may improve efficiency but can reduce competition
• The EU and Spain regulate mergers to curb monopolistic power
• EU Regulation 139/2004: The European Commission reviews large, multi-country mergers
• Spanish Law (LDC Article 8): CNMC reviews mergers if new company would control +30% of the market or if the companies involved have +€240M in combined sales in Spain

Approval Process

• Companies must notify CNMC or the EU Commission of mergers
• Authorities analyze the market impact
• Authorities have the choice of rejection, approval with conditions, or approval

Unfair Competition and Advertising

• LCD stands for Ley de Competencia Desleal and Ley de Derecho de Competencia
• Good faith is a fundamental principle in contractual relations as stated in Article 57 of the Spanish Commercial Code and Article 1258 of the Civil Code
• Fair competition applies to market behavior
• Spain follows international standards like Article 10 bis of the Paris Convention, defining unfair competition
• LCD protects market efficiency and is an administrative law allowing sanctions against antitrust violations
• LCD protects businesses against unfair actions, allowing civil remedies

Legal Framework in Spain

• LCD is the primary law governing unfair competition
• It is complemented by Article 10 bis of the Paris Convention (limited domestic use)
• LCD's structure includes a general clause against bad faith acts and a list of unfair competition acts
• It adapts to EU legislation

Types of Unfair Competition Conduct

• Acts involve taking advantages of competitors
• Deception (Article 5 LCD): Misleading claims
• Confusion (Article 6 LCD): Imitating branding
• Omissions (Article 7 LCD): Failing to provide information
• Aggressive practices (Article 8 LCD): Manipulation of consumer behavior
• Imitating and exploiting reputation is regulated

General Rule

• Imitation is legal unless it infringes exclusive rights (patents), creates confusion or unfairly exploits efforts
• Exploiting a competitor's reputation is illegal
• Denigration (Article 9 LCD) includes spreading misleading information
• Comparative advertising (Article 10 LCD) is allowed if verifiable
• Exploiting business dependency (Article 16 LCD) is an abusive practice
• Unfair termination requires six months' notice
• Threatening to break ties for better conditions is prohibited

Pricing and Market Manipulation

• Predatory pricing (dumping) is illegal if intended to harm competition
• Discriminatory pricing (Article 16.1 LCD) requires justification
• Misuse of trade secrets (Article 13 LCD) includes espionage
• Breaking regulations (Article 15 LCD) gains an advantage
• Inducing contract breaches (Article 14 LCD) is regulated

Unfair Consumer Practices

• Misleading promotions are prohibited
• False endorsements and pyramid schemes
• Coercive selling tactics and targeting vulnerable groups is wrong

Actions Against Unfair Competition

• Victims have remedies (Article 32 LCD)
• Declaratory judgment: an act is declared unfair
• Injunctions: Courts order to stop
• Restitution: Reversing effects
• Correction of information must be done
• Damages are compensation received
• An unjust enrichment claim recovers profits

Statute of Limitations

• Victims have one year from awareness
• A three-year window exists from the end of the practice

Illegal Advertising

• Advertising is essential, but illegal if excessive or deceptive
• The General Advertising Law (LGP) defines illegal advertising, including ads that violate dignity, exploit minors, subliminal ads, false or misleading ads, deceptive omissions, and comparative ads that mislead
• Regulatory bodies include CNMC and Autocontrol

Trademarks and IP Rights

• Industrial property: innovations and distinctive signs
• Intellectual property: artistic, literary, and software creations
• Patents offer temporary exclusive rights
• Trademarks offer indefinite rights

Tension Between Competition and IP Laws

• Tension exists between competition law (opposes monopolies) and industrial property law (grants exclusivity)
• Trademark protection benefits businesses and consumers through facilitating brand recognition

Trademarks: Legal Framework

• Spain's Trademark Law (Law 17/2001) aligns with EU Directive 2015/2436, standardizing protection
• Protection: Granted at national, European, and international levels
  • National: Registered with the Spanish Patent and Trademark Office (OEPM)
  • European: EU Trademark (EUTM) provides protection across all EU states
  • International: Regulated under treaties like the Paris Convention (1883) and Madrid Agreement (1891)

Trademarks: Definition and Functions

• Must be a sign to distinguish a company's services or products
• Includes words, shape, image, or sound and registered

Trademarks Purposes

• Serve to indicate producer origin
• Ensure that consumers associate brands with consistent quality
• Building a brand is to increase customer loyalty
• Drives consumer sales

Registration and Acquisition

• Enforced when official registration is acquired
• Involves a two-phased process; formal and substantive examination
• Trademarks are classified into 42 product/service categories
• Protected validity lasts for ten years and is indefinitely renewable

Trademark Infringement and Enforcement

• Registered trademarks grants exclusive usage to owners
• The “Exhaustion of Trademark Rights” provides products once sold cannot be controlled
• Remedies include ceasing activity, seeking for financial compensation, product destructions, and court ruling protection

Tradenames

• Identify a business, not products like a trademark
• Must have unique use in the market, function as a name, and be non-deceptive

Registration

• Requires registration to be transferred through OEPM
• Can now be transferred independently from business

Internet Domain Names

• Function as digital trademarks
• ICANN oversees the registration and management with national authorities
• Disputes are handled through arbitration
• Spain manages regulated domain

Patents

• Patents are exclusive rights to an inventor of technical products
• Invention exploitation grants to disclosure for innovation

Patents: Legal Framework

• Spanish Patent Law 24/2015 governs this
• The Munich Convention (1973) grants designated countries patents
• International, Paris Convention (1883), and TRIPS are legal rights for protection

Patents: Requirements

• Must be part of innovation
• Is non-obvious
• Requires industrial application
• Scientific, mathematical, or biological theories are not patentable

Exclusive Rights

• Excludes external interference or other processes
• “Exhaustion principle” has a resale exception, where as continued use and a prior use is allowed during patent

Enforcement Actions

• Civil actions claim termination or damages
• Penalties are enforced under Article 274

Licensing

• Third parties are under compulsory licensing for a 3/4 year time frame

Utility Models-Mini Patents

• Protect technical improvement with simple innovation
• Valids for ten years

Industrial Design Protection

• Protects appearance and style
• Consists of industrial EU design law in 2003, EU law in 2001, and Hague agreement in 1934
• Functions as new and is a visible element

Mercantile Companies-Introduction

• Classifies as sole proprietorship or corporate entities
• Corporate entities hold legal requirements, capital investment, advantages, or limited liability

Mercantile Company Characteristics

• Is distinguished from owners
• Holds limited liability
• Owns assets
• Is a legal nationality

Mercantile Company Contract

• Business entities with regulation
• Key elements of society include: a common interest, contribution, capital, and labor assets
• Requires distinguishing properties

Civil and Mercantile

• Takes legal form
• Insurance and cooperatives are exceptions
• LSC Reform in 2010 made Anónimas, Limitadas, and Sociedades mercantile regardless of activities

Sociedad Companies

• Sociedad de Limitada: small to medium enterprises with partnership liability
• Anónima: for freely transferred shares to large businesses
• Comanditaria por Acciones: hybrid

Capital Company Charactertistics

• Legal, shares are liable to contributions managed under legal persons

In SA

• The minumun capital is 60,00 euros
• At least 25% is needed before incorporation

In SL

• Has euro 3,000

Incorporation

• Formalizes the process of incorporation
• Commercial registry
• Defines and regulates companies under article 33

Denomination

• Company naming must be unique and include legal names

Nationality

• Is to be considered if followed through Spanish legislation
• Subject to Spanish regulations

Domicile

• Must be registered in an address and registered by shareholders

Irregular Companies

• The date extends prior to one-year corporation
• Creditors can take legal action for debt

Sole and Legal Article 12

• Allowed for article with all person shares or one person incorporates

Veil Piercing

• Shield cases occur when commingling of fraudulent control of debts occur

Contributions of Companies Introduction

• Assets, rights, and limited labors are contributed
• This is to corporation and limited liability

Share Capital

• Is determined by quotas or acciones
• Serves a legal importance in creditor
• Must be in euros
• The minimum requirements as article, state to 60,000 to 3,000euros

Legal Characteristics of Capital and Friends

• Is identified and stated precisle
• Requires contribution and stable pay
• Shares and Disbursement follows

Subscription vs Disbursement

• Share capital is in bylaws
• Company assets is determined by properties on total assets

Types of Contributions

• Most require euros
• And a proofing certificate
• Non Monterey's assets requires registry expert appointed

Additional Legal Safeguards

• Holds the S.L. monetary valuations
• If in real estate, contributors has a right to proper legitimacy

Outstanding Payments in Law

• 25% Is requied upon share subscription
• This allows payments to occur
• And will not receive dividends or rights in the near
• Sells, cancels, or payment occurs

Additional Considerations

• Transfers through SA is given for protection

Successive Formation Successiva Limited Companies

• Was created to form protection to shareholders

Accessory

• Requires obligations by shareholders
• As give, supply, or action performance occurs
• A content and bylaws determines the payment and termination occurs
• This enforces further transferability of shareholders