Unfair Competition PDF

LESSON 2 UNFAIR COMPETITION 1. Historical and conceptual background 2. Regulation of Unfair Competition and Advertising 3. Unfair conducts considered as antitrust violations  1. Historical and conceptual background A) Historical background: French Revolution:...

LESSON 2 UNFAIR COMPETITION 1. Historical and conceptual background 2. Regulation of Unfair Competition and Advertising 3. Unfair conducts considered as antitrust violations  1. Historical and conceptual background A) Historical background: French Revolution: end of the guild system à freedom of enterprise: possible for any citizen to start an economic activity But no rules on competition: competitors were very aggressive, e.g. Imitation of competitors trademarks; Harming competitors’ reputation with false information; Impeding competitors to have access to supplies, etc. Therefore, need for regulation: rules requiring competitors to meet certain correctness standards while competing and punishing unfair commercial practices France and Germany, first countries to start regulation in this field: Historical development: rules on extra-contractual liability courts developed the theory on unfair competition specific rules were enacted (in some countries) 2  1. Historical and conceptual background B) Conceptual background: Unfair competition law deals with competitive conducts that do not meet a correctness standard: it establishes certain limits as to the way economic agents compete Unfair competition is regulated both with general rules on unfair commercial practices, and rules on unfair advertising European Union: Directives Directive 2005/29/CE (unfair commercial practices; amended by Directive 2019/2161 [OJ L 328, 18.12.2019, p. 7–28]) Directive 2006/114/CE (advertising) In Spain, both transposed by means of Ley 29/2009 Spain: specific Acts Ley 3/1991 de competencia desleal (LCD) Ley 34/1988 General de publicidad (LGP) Both as modified by Ley 29/2009 3  2. Regulation of Unfair Competition and Advertising — A) Directive 2005/29/CE — Directive 2005/29/CE concerning unfair business-to-consumer commercial practices in the internal market (OJEU L 149/22) — amended by Directive 2019/2161 [OJ L 328, 18.12.2019, p. 7–28] — The main aim is to harmonize all national legislation on unfair commercial practices, both to — protect consumers, and — make it easier for companies to market their products all over Europe (level playing field) — The Directive is based on the prohibition of unfair commercial practices: art. 5.1 — Structure of the Directive: — 1. General clause: art. 5.2 — 2. Misleading practices (either actions or omissions): art. 6-7 — 3. Aggressive practices: art. 8-9 — 4. Black list: Annex I 4  2. Regulation of Unfair Competition and Advertising 1. General clause (art. 5.2): Aimed to ensure that future practices that may not fall under the criteria of “misleading” or “aggressive” can be caught under this regulation if they are unfair. The general clause contains 2 defining criteria: Art. 5.2.a): The practice is contrary to the requirement of professional diligence According to art. 2.h) of the Directive, professional diligence is “the special skill and care which a trader may reasonably be expected to exercise, commensurate with honest market practices and/or general principle of good faith in the trader’s field of activity” Art. 5.2.b): The practice materially distorts or is likely to materially distort the average consumer’s economic behaviour According to art. 2.e) of the Directive, this means using a commercial practice “to appreciably impair the average consumer’s ability to make an informed decision, thereby causing her/him to take a transactional decision that s/he would not have otherwise taken” 5  2. Regulation of Unfair Competition and Advertising Transactional decision: defined in art. 2.k) any decision taken by a consumer concerning whether, how and on what terms to purchase, make payment in whole or in part for, retain or dispose of a product or to exercise a contractual right in relation to the product, whether the consumer decides to act or to refrain from acting Average consumer: standard developed by ECJ a consumer who is “reasonably well-informed and reasonably observant and circumspect”, taking into account social, cultural and linguistic factors (Case C-210/96 Gut Springenheide and Tusky ECR I-4657, § 31) if a commercial practice is directed at a particular group of consumers, then an average member of that group is the benchmark: the fairness or unfairness of a commercial practice is then assessed against this benchmark 6  2. Regulation of Unfair Competition and Advertising — 2. Misleading practices: — Considered as unfair in art. 5.4.a) and thus prohibited according to art. 5.1 — They can be either actions (regulated in art. 6) or omissions (regulated in art. 7) — In both cases (actions or omissions), it is required that the actions causes or is likely to cause the average consumer to take a transactional decision that they would have otherwise not taken. 7  2. Regulation of Unfair Competition and Advertising — Misleading actions: art. 6 — Art. 6.1: an action is misleading if it — contains false information and is therefore untruthful, or — in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is correct — Art. 6.2: an action is also misleading if it includes — marketing of a product which creates confusion with any products, trade marks, trade names or other distinguishing marks of a competitor; — non-compliance by the trader with codes of conduct by which they’ve undertaken to be bound — marketing of a good, in one Member State, as being identical to a good marketed in other Member States, while that good has significantly different composition or characteristics — It is required that the actions causes or is likely to cause the average consumer to take a transactional decision that they would have otherwise not taken. 8  2. Regulation of Unfair Competition and Advertising Misleading omissions: Art. 7.1: a commercial practice is misleading if it omits material information that the average consumer needs, according to the context, to take an informed transactional decision; Art. 7.2: a commercial practice is also misleading if it hides or provides material information in an unclear, unintelligible, ambiguous or untimely manner; or it fails to identify the commercial intent of the commercial practice if not already apparent from the context. In both cases, it is required that the actions causes or is likely to cause the average consumer to take a transactional decision that he/she would have otherwise not taken. Art. 7.4, 7.5, 7.6 and Annex II give examples of information considered to be material (non- exhaustive list). 9  2. Regulation of Unfair Competition and Advertising 3. Aggressive practices: art. 8 and 9 Considered as unfair in art. 5.4.b) Art. 8: A commercial practice is aggressive if Using harassment, coercion, including the use of physical force, or undue influence, It significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct and thereby causes or is likely to cause him/her to take a transactional decision that he/she would not have taken otherwise. Art. 9: criteria to determine where harassment, coercion or undue influence are used à e.g. timing, location, nature or persistence use of threatening or abusive language or behaviour threat to take any action that cannot legally be taken … 10  2. Regulation of Unfair Competition and Advertising B) Advertising: Directive 2006/114/CE Directive 2006/114/CE concerning misleading and comparative advertising (OJEU L 376/21): Replaces Directive 84/450/CE More limited scope than Directive 2005/29/CE: covers B2B misleading advertising and comparative advertising which may harm a competitor but where there is no direct consumer detriment (e.g. denigration): art. 1 of the Directive 2006/114/CE Defines advertising very broadly: art. 2(a) any communication or representation to promote goods and services à includes both classical advertising and other types of marketing practices 11  2. Regulation of Unfair Competition and Advertising Art. 2.b): ‘misleading advertising’ any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor Art. 2.c): ‘comparative advertising’ any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor The Directive establishes a minimum legal standard of protection applying to misleading and comparative advertising in any B2B transaction across the EU, BUT different standard for each type of advertising: misleading advertising à prohibited: arts. 1 and 5 comparative advertising à permitted (arts. 1 and 5) under certain conditions (art. 4) 12  2. Regulation of Unfair Competition and Advertising Art. 1: “The purpose of this Directive is to protect traders against misleading advertising and the unfair consequences thereof and to lay down the conditions under which comparative advertising is permitted” Art. 5.1: “Member States shall ensure that adequate and effective means exist to combat misleading advertising and enforce compliance with the provisions on comparative advertising in the interests of traders and competitors” Misleading advertising: Defined in art. 2.b) Assessment factors in art. 3 Comparative advertising: Defined in art. 2.c) Conditions to be permitted in art. 4 13  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (LCD) modified by Ley 29/2009 Enforcement by Juzgados de lo Mercantil à Judicial review by Audiencias Provinciales (apelación) & by Tribunal Supremo (casación) 1) Structure of LCD: General clause: Art. 4 Specific prohibited conducts Art. 5-18: specific unfair acts prohibited by Law (B2B) Art. 19-31: commercial acts directed to the consumers (B2C) Actions: art. 32-36 Codes of Conduct: art. 37-39 14  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) 2) General Clause: 1. Any behaviour that is objectively contrary to the requirements of good faith shall be deemed unfair. In relations with consumers and users, entrepreneurs or professionals shall be deemed to be in breach of the requirements of good faith where their conduct is in breach of professional diligence, the latter meaning the standard of special skill and care which an entrepreneur may reasonably be expected to exercise towards consumers, commensurate with honest market practice, and significantly distorts or could significantly distort the economic behaviour of the average consumer or of the average member of the target group of the practice in question if the latter is a commercial practice targeting a particular group of consumers. 15  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) The General Clause contains 2 standards of unfairness: (i) “objectively contrary to the requirements of good faith” (traditional Spanish concept of unfairness in LCD, before the 2009 reform) à this is an objective standard, fixed by courts in contractual relationships (ii) “breach of professional diligence” + “significant distortion of economic behaviour of consumer” (included in 2009, to incorporate the standard of Directive 2005/29/CE) à art. 4.1 LCD defines the following concepts according to the Directive: professional diligence economic behaviour of average consumer significantly distorting the economic behaviour Art. 4.2 and 4.3 specify the yardstick for evaluating unfair practices: “average consumer” and “specific benchmarks” 16  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) professional diligence: standard of special skill and care which an entrepreneur may reasonably be expected to exercise towards consumers, commensurate with honest market practice economic behaviour of consumers or users: any decision taken by the latter to act or refrain from acting having regard to: a) The selection of an offer or offeror. b) The engagement of a good or service and, if relevant, the way in which and under what conditions it is engaged. c) Payment of the price, total or partial, or any other form of payment. d) The conservation of the good or service. e) The exercise of contractual rights having regard to goods and services. significantly distorting the economic behaviour of the average consumer using a commercial practice to appreciably impair consumers' capacity to adopt an informed decision thus causing them to make a decision on their economic behaviour which they otherwise would not have made 17  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) art. 4.2 LCD: “average consumer”: standard developed by ECJ: a consumer who is “reasonably well-informed and reasonably observant and circumspect”, taking into account social, cultural and linguistic factors (Case C- 210/96 Gut Springenheide and Tusky ECR I-4657, § 31) art. 4.3 LCD: “specific benchmarks” if a commercial practice is directed at a particular group of consumers, then an average member of that group is the benchmark: the fairness or unfairness of a commercial practice is then assessed against this benchmark specific cases (art. 4.3 LCD): “clearly identifiable group of consumers or users who are especially vulnerable to these practices or to the good or service to which they refer, due to a disability, to a weakened capacity for understanding, to their age or to their gullibility”: practices shall be evaluated from the perspective of the average member of such a group. 18  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) 3) General Prohibitions (“actos de competencia desleal”, arts. 5-18): B2B Arts. 5 y 7 (misleading practices: actions or omissions) Art. 6: confusion Art. 8: aggressive practices Art. 9: denigration Art. 10: comparison Art. 11: imitation Art. 12: exploitation of other parties’ reputation Art. 13: breach of secrets Art. 14: induction to breach of contract Art. 15: breach of legal rules Art. 16: discrimination and economic dependence Art. 17: sales at a loss Art. 18: illegal advertising 19  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 5. Misleading acts 1. Any conduct entailing false information or information that although true, by virtue of its content or presentation leads or could lead its targets to an error in judgement and is liable to alter their economic behaviour provided that it has an impact on certain aspects (specified in in the Law): for example, the existence, nature or main characteristics of the good or service; after-sale customer assistance and complaint handling; nature of the commercial transaction or contract; price or the manner in which the price is calculated, etc. 2. When the entrepreneur or professional indicates that the commercial practice is linked to a code of conduct, failure to adhere to the commitments assumed in that code is considered unfair, provided that the commitment is firm and can be verified, and in its factual context this conduct is liable to significantly distort the economic behaviour of its targets. 3. To market a good in one MS as being identical to a good marketed in other MS, while that good has significantly different composition or characteristics 20  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 7. Misleading omissions. Art. 7.1: omission or concealment of information necessary for the recipient to adopt or be able to adopt a prior informed decision information furnished but unclear, unintelligible, ambiguous, information not offered at the right time, commercial purpose not revealed (if not evident from the context) art. 7.2: assessment of misleading omissions factual context of acts, taking account of all of their characteristics and circumstances and the limitations of the media employed, shall be considered when the media used imposes space or time limitations, such limitations shall be taken into account along with all the steps taken by the entrepreneur or professional to convey the necessary information through other channels 21  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 6. Acts of confusion refers to conducts that lead to an error regarding the origin of the good or service: “activity, performance or establishment” (NOT to its existence, nature or main characteristics , etc. like in art. 5 on misleading acts) Direct confusion – Indirect confusion – Risk of association: direct confusion: consumer thinks the 2 products are the same indirect confusion: consumer distinguishes both products but thinks they both come from the same producer association: consumer is aware the products come from different producers but thinks that they have some kind of relationship (e.g. same group of companies or other economic links) Relationship with other unfair acts art. 11: imitation / art. 12: exploitation of other parties’ reputation: art. 6 can encompass both (it is wider since it refers to “any behaviour”) provided that there is confusion when imitating or exploiting other parties’ reputation art. 20 LDC is for B2C while art. 6 is for B2B 22  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 8. Aggressive practices art. 8.1.: “any conduct which by virtue of its characteristics and circumstances is likely to significantly impair the target's freedom of choice or conduct with regard to the good or service by means of harassment, coercion, including the use of physical force, or undue influence, and thereby affects or could affect their economic behaviour” VIP: “likely to significantly impair the target's freedom of choice” + “affects or could affect their economic behaviour” (NOT all direct marketing) harassment: aggressive pressure or intimidation; to pursue, urge, or importune someone with requirements coercion: persuading someone to do something by using force or threats undue influence: art. 8.1 LDC: “use of a position of authority over the target to exert pressure, even in the absence of physical force or the threat of physical force” art. 8.2: circumstances to be taken into account when assessing aggressive practices 23  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 9. Acts of denigration to make or disseminate statements regarding the activity, performance, establishment or business relations of a third party, that are able to undermine his/her credit in the market, unless these statements are exact, true, and pertinent ("exceptio veritatis”) exact: relating to facts, not mere opinions true: able to be correctly interpreted pertinent: justified and proportionated à statements about the nationality, beliefs or ideology, private life or any other personal circumstances are NEVER pertinent 24  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 10. Acts of comparison Public comparison is allowed in principle, including comparative advertising by means of an explicit or implicit reference to a competitor BUT certain requirements must be met: a) The goods or services compared are intended for the same purpose or meet the same needs. b) An objective comparison is made between one or more material, relevant, verifiable and representative features of those goods and services, which may include price. c) In the case of products protected by a designation of origin or a geographical indication, specific denomination or guaranteed traditional speciality, the comparison may only be made with products of the same denomination. d) Goods or services may not be presented as imitations or replicas of goods or services bearing a protected trade mark or trade name. e) The comparison may not infringe the provisions of Articles 5, 7, 9, 12 or 20 25  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Article 11. Acts of imitation art. 11.1 (general principle): Imitation of the business or professional services and initiatives of others is freely allowed unless these are protected by an exclusive right granted by law. art. 11.2 (unfairness): if the imitation is likely to lead consumers to associate the imitation with the third party’s service or entails undue utilisation of another's reputation or effort. A practice shall not be considered unfair if the said risks of association or of the use of another's reputation are unavoidable. art. 11.3 (systematic imitation): unfair when such a strategy is directly intended to prevent or hinder his establishment in the market and exceeds what could in the given circumstances be conceived as a natural market response 26  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Art. 12: exploitation of other parties’ reputation The essence of the prohibition is related to the fact of unduly profiting from the reputation of another competitor who has won a reputation in the market sometimes called "parasitic" exploitation of the reputation of others. examples in the second paragraph: the use of distinctive signs or false appellations of origin accompanied by the indication of the true origin of the product, or the use of expressions such as "model", "system", "type", "class”… 27  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Art. 13: breach of secrets: Referral to Ley 1/2019 , de 20 de febrero, de Secretos Empresariales à specific regulation of business secrets (harmonisation of Directive 2016/943 on trade secrets) art. 1.1.: concept of trade secrets à any information or knowledge (technological, scientific, industrial, commercial, organisational, financial) that is not known and not easily accessible; of entrepreneurial value; measures to keep it secret art. 3: infringements 3.1. à illegal obtention: by unauthorised access, appropriation or copy, or by any other unfair practice 3.2. à illegal use or disclosure: if illegally obtained, or breach of confidentiality agreement or other contractual obligation art. 9 for civil actions art. 10 calculation of damages 28  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Art. 14: inducement to breach of contract art. 14.1 refers to breach of basic contractual duties; applied in cases of induction through tricks or wiles (e.g. bribery, malicious lies…) art. 14.2 refers to regular termination of a contract, or benefiting from a the breach of contract à unfair when aimed at disclosing or exploiting of industrial or business secrets, or additional circumstances, like using machinations or having the intention of eliminating a competitor, are present 29  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Art. 15: breach of legal rules art. 15.1 refers not to the mere breach of legal rules, but to take benefit from a competitive advantage acquired by means of that breach art. 15.2 specifies that in case of competition law rules, the mere breach of law is considered unfair art. 15.3 à specific case of employing foreign workers in breach of the immigration rules art. 15.4 à specific case of breach of rules on late payments 30  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Art. 16: discrimination and economic dependence art. 16.1. Discrimination: undertakings are free to set their prices à different prices for different customers are allowed if the have an objective cause art. 16.2. Abuse of economic dependence: when a counterpart has no equivalent alternative to carry out their business they are economically dependent on the other part à in this case, abusing this dependence is considered unfair art. 16.3. Specific cases of unfairness related to the abuse of economic dependence breach of a commercial relationship without 6 months prior notice obtaining new commercial conditions by means of threatening to terminate the contract 31  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) Art. 17: sales at a loss since undertakings are free to set their prices (art. 17.1) sales at a loss (i.e. below costs or acquisition price) are only considered unfair by art. 17.2 when the low price a) misleads clients as to the level of prices of the rest of products or services b) is aimed at discrediting a competitor’s product or establishment c) is part of a strategy to eliminate a competitor or group of competitors Art. 18: illegal advertising Advertising considered unlawful under the General Advertising Act is also unfair 32  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) 4) Commercial practices prohibited for consumer protection (“Practicas comerciales con los consumidores o usuarios”, arts. 19-31): Art. 19: Unfair commercial practices with consumers those in art. 19-31 LCD and also art. 4, 5, 7 and 8 LCD (ex Directive 2005/29/CE) Misleading practices: art. 20-27 (connected to art. 5 y 7) Aggressive practices: art. 28-31 (connected to art. 8) Most of these specific practices reflect those in Annex I of Directive 2005/29/CE 33  2. Regulation of Unfair Competition and Advertising C) Ley 3/1991 de competencia desleal (cont.) 5) Actions for infringement of Ley 3/1991: Art. 32 LCD: 6 civil actions Acción declarativa de deslealtad Acción de cesación Acción de remoción de los efectos producidos Acción de rectificación de las informaciones engañosas, incorrectas o falsas Acción de resarcimiento de los daños y perjuicios Acción de enriquecimiento injusto Plaintiff’s legal standing: art. 33 Defendant’s legal standing: art. 34 Prescription: art. 35 34  2. Regulation of Unfair Competition and Advertising D) Ley 34/1988 general de publicidad (LGP) modified by Ley 29/2009 The core concept is the“publicidad ilícita” (illegal advertising): art. 3 LGP Illegal advertising can take several forms, described in art. 3 (some of them developed in further articles) 35  2. Regulation of Unfair Competition and Advertising Art. 3.a): advertising which is against human dignity and constitutional rights Special reference publicity against women’s dignity or promoting gender violence (L.O. 1/2004 de Medidas de Protección Integral contra la Violencia de Género), or discrimination of any kind (age, race, sexual orientation or identity, disabilities…) Art. 3.b): advertising directed to people under age may be illegal under certain circumstances (exploitation of their inexperience or credulity; presented as persuading parents to buy; misleading as to the characteristics or safety of the products…) Art. 3.c): subliminal advertising à defined in art. 4 as “not consciously perceived” Art. 3.d): advertising which infringes specific advertising regulations for some products (medicines, alcohol…) à rules developed in art. 5 Art. 3. e): misleading, unfair and aggressive advertising, which will be considered unfair competition acts and will fall under LCD Actions for infringement: those of LCD (according to art. 6 LGP) 36  3. Unfair conducts considered as antitrust violations Article 3 of Ley 15/2007 de Defensa de la Competencia (LDC): Falseamiento de la libre competencia por actos desleales: “La Comisión Nacional de la Competencia o los órganos competentes de las Comunidades Autónomas conocerán, en los términos que la presente Ley establece para las conductas prohibidas, de los actos de competencia desleal que por falsear la libre competencia afecten al interés público” Unfair competition conducts that distort competition and therefor affect public interest This rule connects LCD (unfair) to LDC (antitrust): Unfair competition acts can be investigated and punished by Antitrust authorities when they have an impact on free competition in the market (protection of public interest on the maintenance of competition, as the basic aim of LDC) Prohibition: Two requirements Existence of an “unfair competition act”: one of those typified in LCD (same standard of evaluation used to assess unfairness in the application of LCD) Affects public interest because it distorts free competition (evaluated according to the antitrust standards used by Antitrust Authorities when applying LDC) If both requirements are met, the action infringes art. 3 LDC à Antitrust authorities can punish them (order of cessation + fines): AND they can still be analysed by civil courts as unfair competition infringements of LCD 37