Intellectual Property Protection

Unfair Competition Law

1. Introduction

2. Three paradigms

3. EU law: harmonised areas

4. Product imitation

5. Unfair advertising

• Two potential meanings of the term „competition law“

• Set of provisions ensuring that competition continues to exist antitrust law

• Rules of fair practice in an existing market unfair competition law

• Both areas are generally distinct but may overlap, examples: boycott, tying arrangements.

• Acts of competition • = acts done for the purpose of

selling goods or providing services.

• Unfair competition law addresses traders ...

- In proceedings concerning unfair competition the defendant is generally a trader.

• It may, however, protect consumers. – Some legal systems give locus standi to

consumer organisations in unfair competition proceedings.

– Other legal systems distinguish between unfair competition law and consumer protection law.

The concept of „fairness“ („honest

practices“, „boni mores“)

• Methodological problem of these terms:

extremely general and abstract,

impossible to define

• No precisely identifiable meaning

• How to apply this concept?

– Statutory list of examples

– Guidelines

– Balance of interests

Areas of unfair competition law

• Focus: consumer protection – Misleading advertising

– Aggressive advertising = Undue influence on consumers

– Cold calling, e-mail spamming, ect. (some jurisdictions only)

• Focus: protection of trade values - Damaging goodwill - Exploiting goodwill

- Interference with contractual relations - Misappropriation of trade secrets

- Product imitation?

The (Continental) European perspective • “Unfair commercial practices are

prohibited, if they are likely to significantly affect the interests of competitors, consumers or other market participants.” (§ 3 (1) German Act against UC)

• “Unfair commercial practices shall be prohibited.” (Art. 5 (1) EC Unfair Commercial Practices Directive)

The common law perspective • “The rejected complaint shows just how anti-

competitive a law of unfair competition would or might be. What one man calls "unfair" another calls "fair". (...) I think there are real difficulties in formulating a clear and rational line between that which is fair and that which is not, once one goes outside the requirement

• of no deception.” (L‘Oréal v Bellure, [2007] EWCA Civ 968 at paras 139, 140 per Jacob LJ)

• „This alleged tort really amounts to saying that there has been competition, and adding the old nusery cry: ‚It‘s unfair!‘ To that I would only cite my nanny‘s great nursery proposition: ‚The world is a very unfair place, and the sooner you get to know it, the better.‘ In my view, unfair competition is not a wrong known to the law.“ (Swedac v. Magnet & Southerns [1989] F.S.R. 243 at 249 per Harman J )

EU law: harmonised areas

European Community law (overview) (I)

• No consensus on ... - what unfair competition means - level of regulation - Administrative vs. private law model

• Harmonised areas

- Misleading and aggressive practices

- Comparative advertising

- TV advertising

- E-mail spamming

• Not yet harmonised

- Protection of goodwill

- Protection against imitation

- Trade secrets

- Interference with business / with contracts

EC law: the two main directives

• Model 1

• Example discussed in this course: Germany.

• Other examples: Austria, Switzerland, Belgium,

• Greece, Nordic countries

• Specific legislation against unfair competition.

• General tort of unfair competition, supplemented by specific torts.

• Ideal: Fair competition.

• „Integral concept“: unfair competition protects

• competitors, consumers and the general public.

• Private law actions against unfair competition – D: no administrative authority

– Many other EU countries: private law control supplemented by administrative authority

Model 2

• Example: France, Italy, (to some extent)

Netherlands.

• Unfair competition law as part of general tort

law.

• Tort of unfair competition and specific torts as

applications of general clause of tort law.

• Ideal: fair competition.

• Distinction between protection of competitors

(tort law) and consumer protection (criminal and administrative law).

Model 3 • Example: England, Scotland, Ireland, to some

extent US • No general prohibition of unfair competition. • Ideal: free competition. • Some areas of unfair competition law covered by

specific torts (examples: passing off, injurious falsehood, intimidation, interference with contractual relations).

• Distinction between protection of competitors (tort law) and consumer protection (criminal and administrative law).

• Strong role of self-regulation.

No European consensus on ...

• What „unfair competition“ means,

• How fairness in the market place should

be enforced,

• Whether there should be a general tort of

unfair competition,

• Whether the law of unfair competition

should protect (a) only competitors, (b)

only consumers or (c) both at the same time.

Product imitation

Theodore Levitt argues that a strategy of a product imitation might be as profitable as a strategy of product innovation.

- “Innovative Imitation” - the innovator bears the expense of the product.

- Achieve high profits.

- Creates a image of the product

“Conscious parallelism” are common in capital intensive and homogeneous product industry

– Product differentiation is low

– Price sensitivity runs high

– Offers similar to buyers by copying from leaders

– Must know how to retain old customers acquire new ones

• Advantages

Can achieve higher profits since it did not bear the innovation expense

Can sell the product in cheaper price and attract more customers

Since customers are already aware of the product the cost of educating the market is not required

Knowledge about the segment of the customers who use the product are available

• Disadvantages

Reward of all the work given to the market leader

It takes time to overtake the leader

The follower is often a major target of attack by challengers, it must keep its manufacturing costs low and its product quality and services high

Little innovation is needed to improve the product which can lead to increase in manufacturing cost.

The European perspective

• Harmonised IP law

• Unfair Commercial Practices Directive (art. 6)

– Product marketing which creates confusion = unfair

– But directive does not intend to reduce consumer choice by prohibiting the promotion of products which look similar to other products (recital 14)

• Misleading and Comparative Advertising Dir.

– Reference to original product may be comparative adv.

– Unfair if it (a) causes confusion, (b) takes unfair advantage of reputation of TM, (c) presents goods as imitations or replicas

Judgement of the Polish Supreme Court of 02.01.2007 (V CSK 311/06)

Judgement of the Polish Supreme Court of 06.05.2009 (II CSK 665/08)

Unfair Advertising

Misleading advertising

Misleading omissions

Misleading actions

Agressive practices

or against good morals or law

Starting points (I)

• Model of rational consumer choice: Consumer makes his / her choice on the basis of information.

• Unfair competition law protects - the basis of rational consumer choice: truthful product information = one of the most important conditions of the functioning of a free market whereas misleading advertising distorts rational consumer choice

- the process of rational consumer choice: the consumer should make his decision free from pressure and undue influence

• https://www.youtube.com/watch?v=8TnG7jyfoWI (Nike v. Addidas)

• https://www.youtube.com/watch?v=VohEkWMkbsI (BMW v. Audi)

• https://www.youtube.com/watch?v=DijFob8vxgI&list=RDDijFob8vxgI&t=4 (Pepsi v. Coca Cola)

• https://www.youtube.com/watch?v=4Klv1Map2UY (Samsung v. Iphone)

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• Criteria of fairness (article 4)

a) Comparative advertising must not be misleading. - Problem: Does the directive set a minimum or an exact standard? See C-44/01, Pippig v Hartlauer

b) Goods or services intended for the same purpose

- Test: Can the products be substituted one against the other? - Problem: Comparison of product selections, see C- 356/04, LIDL/Colruyt

(c) Objective comparison of material, relevant, verifiable and representative features

- Consequence: exclusion of image comparisons - Problem: verifiable by whom? C-356/04, LIDL/Colruyt: consumers must be given reasonable opportunity

Criteria of fairness (cont’d)

• (d) Comparative advertising must not discredit another competitor‘s business - Problem: every critical comparison tends to discredit the identified competitor.

- Solution: principle of proportionality

• (e) For products with designation of origin, only products with the same designation must be compared.

• (f) Comparative advertising must not take unfair advantage of a competitor‘s goodwill. - Problem: Every claim of equivalence tends to take advantage of a competitor‘s reputation.

- Solution: principle of proportionality

Advertising against good morals, law, dignity as an act of unfair competition

• Concerning advertising in sensitive areas

• In some jurisdictions (good morals / dignity)

- u.c. act on the basis of the general clause

- uc. act on the basis of named clause (Polish law Act 16 Section 1.1)

• https://www.youtube.com/watch?v=owGykVbfgUE

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Domain Name issues

DN issues

• Cybersquatting - preemptively registering someone else’s trademark as domain name

• Cyberjacking - registering a name similar to a well-known trademark to lure user to the registrant’s site

• Typosquatting - registering misspellings of third party trademarks

Negative business effects

• disrupt competitor’s communication

• attempt to attract internet users to online location by creating a likelihood of confusion with competitor’s business

Assesments - factors

• seniority of a DN

• imitation of the earlier DN

• similarity of the parties’ activities

• if the earlier DN is not entirely descriptive

• if there is or could be a likelihood of confusion for the public

• if the plaintiff has suffered a damage

• bad faith when registering a DN

Cybersquatting – case law • Polish Supreme Court, case III CSK 120/11

• Facts: – MEDianus sp. z o.o. and Medianus Agencja Reklamowa sp.

z o.o. are seated in the same city, at a location nearby; the first one uses medianus.net domain name and the second medianus.pl

– MEDianus sp. z o.o. argued the the use of the same company name caused many confusions with delivery of post or invoices.

• Held:

- cybersquatting is an unnamed delict (tort) under the Polish law on combating unfair competition

Polish Supreme Court, case IV CSK 191/13

• Facts: – The Polish company PASTA i BASTA Sp. z o.o. from Warszawasued

Restaurators Podlaszewscy Spółka Jawna from Toruń.

– PASTA i BASTA requested the court to prohibit Restaurators Podlaszewscy the use of restaurant name Pasta & Basta and to refrain from the use of Internet domain name pastaandbasta.com

• Held: – if the competitor uses Internet domain name identical or similar to a

registered trade mark, there may be trade mark infringement if such domain use may cause the likelihood of confusion as to the origin of the goods or services, or result in violation of the advertising function of the trade mark

Typosquatting - WIPO • Administrative panel decision; Sanofi v. Marek Zdanowicz; Case No.

D2016-2545

• Facts:

– disputed domain name

• Held:

– The disputed domain name is not identical to the Complainant's SANOFI trademark. The disputed domain name consists of the same letters as the SANOFI trademark, but reverses the positions of the letters "n" and "o".

– domain name is confusingly similar to the Complainant's SANOFI trademark : (i) SANOFI is a distinctive and invented word; (ii) the disputed domain name inverts two letters in the Complainant's trademark, which does not create any new word, or give the disputed domain name any distinctive meaning; (iii) the disputed domain name is a deliberate misspelling of the Complainant's SANOFI trademark; and (iv) visually the disputed domain name is so close to the Complainant's well-known SANOFI trademark that confusion is inevitable

Typosquatting - WIPO

• The disputed domain names , , and

• Facts: – The Complainant markets his services through several domain names;

featured in several news articles. He also regularly speaks and acts as a panelist at conferences worldwide. In July 24, 2015, the Complainant established a company in France called "Teman Michel„

– Dn were registered by the Respondent on August 8, 2016; used to resolve to websites that allege that the Complainant has committed financial crimes.

• Held: – The contents of the Websites are clearly intended to put users off

from doing business with the Complainant; the Panel finds that the DN were registered and are being used by the Respondent to disrupt the business, which in the circumstances amounts to bad faith

Domain name parking - Hosting webpages loaded with relevant pay-per-click ads, including on tasted DNs

Trade secret disclosure as an act of unfair competition

Definition – de-mystified

• information that derives its economic value from not being generally known

• not being readily ascertainable by others

• not being the subject of reasonable efforts to maintain its secrecy

• most valuable information

The Trade Secrets Directive

• In 2016, the EU took steps to harmonize EU law, to ensure businesses can protect their innovative work and preserve competitive gains

• seeks to address the uneven protection of trade secrets across the EU

• provides minimum standards for measures, procedures and remedies that holders of trade secrets can rely on in cases of unlawful acquisition, use, or disclosure

• contributes to the commitment to create a single market in the EU for intellectual property rights

Top changes (I)

• sets out a uniform definition of a trade secret

• the trade secret needs to be subject to reasonable protection measures (intent will no longer suffice)

• strengthens the position of employees – more freedom to bring any knowledge and experience gained during their tenure with a company to their next employer

Top changes (II)

• Reverse engineering will generally be allowed

• brings changes to the way trade secrets can be enforced in court proceedings

Brexit and the Trade Secrets Directive • In July 2017 the UK Government published the "European

Union (Withdrawal) Bill”

• 2 scenarios: – If the Directive is transposed into UK law before Brexit (i.e. before 'exit

day') by means of primary legislation, then it will be in force independently of the Great Repeal Bill

– If it is implemented by statutory instrument under the European Communities Act 1972, then it will be retained in UK domestic law under the Great Repeal Bill (assuming that the Bill is enacted in its current form)

• decisions of the CJEU interpreting the Trade Secrets Directive may still be influential for the UK Courts, even after Brexit date

• on 19/02/2018 to 16/03/2018

• The disclosure of a by a director or employee of a company or third party

- The theft of documents containing a trade secret,

- The misappropriation of documents containing a trade secret in order to make use of it in a way not anticipated;

- The use or disclosure of a trade secret, without authorisation, by a person to whom the proprietor has entrusted it;

- The unfair hiring away of a competitor’s employees with a view to obtaining trade secrets (industrial or commercial espionage)

The EU case-law • The community law has recognised the legitimate interest of companies

with regard to the protection of their trade secrets in the context of competition law proceedings (European Union Court of Justice (EUCJ) 24 June 1986, 53/85, Akzo Chemie, rec. EUCJ p. 1965) and of regulations with regard to public contracts

• [Walmart vs. Amazon.com] Walmart had filed a suit in a US Court against Amazon.com claiming that Amazon was attracting executives and employees of Walmart, together with their consultants, to access the trade secrets of Walmart. The case was settled in 1999. Under the terms of the settlement, Amazon agreed to reassign some of its employees where their knowledge of Walmart's operations would not be used. Limits were also placed on the projects to which the former Walmart workers are involved in Amazon's operations.