What is unfair competition?
Specifically, unfair competition takes the form of behaviour that contravenes the principles of good faith, negatively impacting on people’s freedom to choose what to buy. Its purpose is often to influence the purchase of goods or services. This unfair behaviour is evaluated by analysing objective elements that determine whether an action conforms to good faith practices.
In this context, unfair advertising is intertwined with unfair competition, although its regulation in Spain falls under the General Advertising Law. While unfair competition is governed by the Antitrust Law and the Law on Unfair Competition.
Fair competition
In contrast to unfair competition, competitive loyalty proposes that companies attract their clientele through ‘competition based on their own services’. This practice consists of offering better characteristics and values than the competitor, encouraging innovation and continuous improvement. In parallel, it stimulates improvement in other aspects such as quality, safety, price, functionality or attractiveness of products and services, as well as good practices. Fair competition, in essence, promotes healthy and constructive competition.
What behaviours constitute unfair competition?
Law 3/1991, of 10 January, on Unfair Competition defines a set of clearly delimited behaviours that are considered illegal. We will briefly describe them below:
Acts of deceit
As the name suggests, acts of deception involve the transmission of false information with the aim of inducing an erroneous purchasing decision. This includes falsehoods about the nature of the service, its characteristics, after-sales assistance, compromises, price, the need for additional services, the characteristics of the service provider, consumer rights and adherence to codes of conduct. For example, imagine a clothing company that promotes its products as ‘made by local artisans’ even though they actually come from foreign factories.
Acts of confusion
Related to acts of deception, they seek to confuse consumers in relation to the provision or establishment of third parties. They are expressed through messages that generate an erroneous perception that affects decision-making.
Misleading omissions
These are acts that consist of hiding information that is relevant to consumers’ decision-making. The transmission of ambiguous or opaque information is also considered unfair competition. This would be the case of a cosmetics company that hides the use of substances that are potentially harmful to the skin in the manufacture of its products.
Aggressive practices, an unacceptable form of unfair competition
These include actions that seek to limit the freedom of consumer choice through coercion, harassment, undue influence and even the use of force. What would you think of a telecommunications company other than yours persistently calling you, offering misleading promotions and pressuring you to switch? That is unfair competition based on aggressiveness!
Denigrating acts
These messages do not negatively affect the reputation of a competitor when they lack accuracy, truthfulness and relevance. In other words, it is lawful to talk about the negative characteristics of a particular product or service of a competitor, as long as the information is true and not exaggerated. This is what a manufacturer of cleaning products does, for example, when it disseminates false information to discredit a competitor.
Acts of comparison
Comparisons are only lawful if they fulfil the same purpose as the benefits being compared and are based on objectivity. Comparisons of products with different designations of origin are also permissible. Otherwise, comparative messages are totally prohibited. An illustrative example would be a health food company making inaccurate, unscientific comparisons between its product and that of the competition. Such a campaign generates a misleading perception among consumers.
Imitation is also unfair competition
Clearly, imitating services protected by exclusive rights or systematically replicating the initiatives and strategies of another company constitute acts of unfair competition. The aim of the unfair competitor is for the public to associate them with the imitated trademark, exploiting its reputation. This is a common practice among clothing manufacturers who copy the design of garments and accessories from a recognised trademark. This generates confusion and affects the reputation of the original trademark.
Exploitation of the reputation of others
As we said, these acts are linked to imitation. The aforementioned Law on Unfair Competition penalises the undue exploitation of commercial advantages obtained by third parties and protects legally earned reputation in the market. Imagine a software development company that uses false testimonials from satisfied customers of its competitors to highlight unproven advantages and benefits. This exemplifies the exploitation of the reputation of others to generate trust in one’s own trademark.
Breach of confidentiality
Of course, the violation of professional secrets falls into the category of acts of unfair competition described by Law 3/1991. Although the protection of this information is regulated by the Law on Business Secrets, its illicit exploitation to develop similar products and obtain unfair competitive advantages is unacceptable. This is the case of a company that uses confidential information from employees hired from its competitors.
Induce breach of contract
Influencing or inducing interested parties to breach contractual obligations is also unfair competition. This includes workers, suppliers, customers and even researchers or developers. A telecommunications company that pressures customers of a competitor to switch to its own service, breaking the non-compete agreement, would be acting in this way. Even worse is when a company tries to get developers from a competing firm to reveal information about products that are about to be launched.
Violation of norms
Infringement of rules or laws for the purpose of obtaining commercial advantages is also considered unfair competition. Without a doubt, this behaviour has an impact on the integrity of the market and the legality of commercial practices.
Discrimination and economic dependence
Finally, the aforementioned law prohibits the discriminatory treatment of consumers and taking advantage of their economic situation in order to contract services. It also includes the prohibition of breaking off commercial relations without notice or threatening to do so if the contractual conditions are not changed. Incidentally, ‘dumping prices’ or setting prices below cost is also considered unfair.
The seriousness of unfair competition and how the law works
The seriousness of unfair competition lies in its ability to distort the market, impair consumer decision-making and undermine confidence in commercial transactions. As if that were not enough, the actions we analyse undermine business ethics and expose companies to serious legal implications. Even the economic repercussions of these unfair practices are often very negative.
For all these reasons, the Law on Unfair Competition establishes actions to combat these practices. Among them:
- Cessation or prohibition, to stop the unfair practice.
- Removal, with the aim of dismantling the effects of the illegal practice.
- Rectification, by requiring the correction of false information.
- Declaratory, which implies declaring a practice as unfair.
- Compensation, through the obligation to pay damages.
- Classification as illicit enrichment, with the intention of recovering income obtained through the violation of trademark and/or patent rights.
ISERN protects your trademark and patent rights against unfair competition
Throughout our 100-year history, at ISERN we go beyond providing advice and legal support for registering trademarks and patents. We have expert lawyers who are capable of taking the appropriate legal action to deal with cases of unfair competition. We effectively defend our clients’ trademark and patent rights in Spain and throughout the European Union.