UNFAIR COMPETITIONUNFAIR COMPETITION

SanjeevSanjeev Kumar Kumar ChaswalChaswal

LL.M. LL.M. (IPR & ARB)(IPR & ARB)

M.S. M.S. Cyber Security & Cyber lawCyber Security & Cyber law

• A market economy allows and encourages competitionbetween industrial and commercial organisations. Ascompetitors are out to win, they may sometimes betempted to use malicious means to gain an unfairadvantage such as making a direct attack against acompetitor or misleading the public to the detriment ofa competitor.

• Self-regulation, via associations of organisations, canplay an important role by setting up a code of conductplay an important role by setting up a code of conductor controlling practices, however, it often fails to berespected by participants or followed by judicialauthorities.

• In 1900, at the Brussels Diplomatic Conference for theRevision of the Paris Convention, Article 10 bis wasadded to the Convention to try and prevent unfaircompetition.

What is Unfair competitionWhat is Unfair competition• As a general rule, any act or practice carried out in the

course of industrial or commercial activities contraryto honest practices constitutes an act of unfaircompetition; the decisive criterion being “contrary tohonest practices”. In Belgium and Luxembourg honestpractices are sometimes referred to as “honest tradepractices”, in Switzerland and Spain as “the principlepractices”, in Switzerland and Spain as “the principleof good faith” and in Italy as “professionalcorrectness”.

• It is not easy to find a clear-cut and worldwidedefinition of what constitutes an act contrary to honestpractices. Standards of ‘honesty’ and ‘fairness’ maydiffer from country to country to reflect the economic,sociological and moral concepts of a given society

BehaviourBehaviour classified as unfair classified as unfair competitioncompetition

• To prevent unfair practice certain actions arelimited by law. Article 10 bis of the ParisConvention classifies unfair business practicesinto three broad categories:

• Acts causing confusion.

• Acts that are misleading.

• Acts damaging goodwill or reputation.• t.

Acts causing confusion.

• An act or practice, in the course of industrial orcommercial activities, that causes, or is likely to cause,confusion with respect to another’s enterprise or itsactivities, in particular, the products or services offere dby such an enterprise constitutes an act of unfaircompetition.

• Even the likelihood of confusion having a detrimental• Even the likelihood of confusion having a detrimentaleffect comparable to actual confusion constitutes anact of unfair competition and this widely enlarges thescope of protection. For instance, a trademark, whetherregistered or not, or a product’s appearance may leadto confusion. Appearance of a product includespackaging, shape or other non-functionalcharacteristic features of the products.

Acts that are misleading

• A misleading act can create a false impression of acompetitor’s product or services leading to theconsumer, acting on false information, sufferingfinancial damage.

• Misleading acts can take the form of a statement giving• Misleading acts can take the form of a statement givingincorrect indications or allegations about an enterpriseor its products or services.

• For example, misleading statements concerning themanufacturing process of a product may relate to aproduct’s safety and create a false impression.

Acts damaging goodwill or reputationActs damaging goodwill or reputation

• Reducing the distinctive character, appearance, value orthe reputation attached to a product could damageanother’s goodwill or reputation. For instance, any actthat dilutes the effect of a trademark is consideredunfair as it could destroy the originality and distinctivecharacter of a trademark .character of a trademark .

• Other acts that could be classified as causing unfaircompetition include discrediting another’s enterprise orits activities, industrial or commercial espionage, andacting unfairly with respect to confidential informationsuch as breach of contract or breach of confidence.

Protection against unfair competition• Protection against unfair competition is an ever-evolving

notion that has to adapt to the evolution of trade, and thedevelopment of new principles and obligations forparticipants in the business market. Originally designed t oprotect the ‘honest businessman’, the scope of protectionagainst unfair competition has now been enlarged toinclude protection of the customer. Nowadays lawsagainst unfair competition aim to ensure fair competitionagainst unfair competition aim to ensure fair competitionin the interests of all concerned.

• Under the Paris Convention, Member States are obliged toprovide protection against unfair competition. Thisobligation is reinforcedreinforced byby ArticleArticle 22 ofof thethe TradeTrade--RelatedRelatedAspectsAspects ofof IntellectualIntellectual PropertyProperty RightsRights (TRIPS)(TRIPS) thatthatobligesobliges membersmembers ofof thethe WTOWTO toto complycomply withwith thethe ParisParisConventionConvention..

What is Unfair Competition Law• Two potential meanings of the term „competitioncompetition lawlaw“• Set of provisions ensuring that competition continues to

exist in anti-trust law• Rules of fair practice in an existing market - unfair

competition law. Both areas are generally distinct.• What is acts of competition:• The Acts done for the purpose of selling goods or

providing services .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.

What is Unfair Competition LawWhat is Unfair Competition Law• Areas of unfair competition law

–– Focus: consumer protectionFocus: consumer protection– Misleading advertising– Aggressive advertising = Undue influence on consumers– Cold calling, e-mail spamming, ect. (some jurisdictions

only)

–– Focus: protection of trade valuesFocus: protection of trade values– Damaging goodwill– Exploiting goodwill– Interference with contractual relations– Misappropriation of trade secrets– Product imitation

The Unfair competition and IP legal The Unfair competition and IP legal

frameworkframework•• UnfairUnfair competitioncompetition andand intellectualintellectual propertyproperty ::

– Theory:– Unfair competition law is a specific branch of tort law. It prohibits

certain acts without granting rights.– Example: Art. 10bis of the Paris Convention aims at the prevention of

prevent misleading advertising without protecting a competitor‘s orconsumer‘s subjective right.consumer‘s subjective right.

– Practice:– Some areas of unfair competition law do protect rights. There is no

clear dividing line between unfair competition and intellectualproperty law.

– Examples:– protection of trade secrets, protection of goodwill against acts

causing confusion• Open (and debated) question: Should unfair competition law be

allowed to fill gaps in the intellectual property system.

The Unfair competition and IP legal The Unfair competition and IP legal

frameworkframework

Geographical indications

• Trade secret protection

IP UC• Trade secret protection

• Unregistered TMs

• Misappropriation of reputation

• Product imitation

The international legal frameworkThe international legal framework•• ArticleArticle 1010bisbis ParisParis ConventionConvention::• (1) The countries of the Union are bound to assure to nationals of

such countries effective protection against unfair competition.• (2) Any act of competition contrary to honest practices in industrial

or commercial matters constitutes an act of unfair competition.• (3) The following in particular shall be prohibited:• 1. all acts of such a nature as to create confusion by any means• 1. all acts of such a nature as to create confusion by any means

whatever with the establishment, the goods, or the industrial orcommercial activities, of a competitor;

• 2. false allegations in the course of trade of such a nature as todiscredit the establishment, the goods, or the industrial orcommercial activities, of a competitor;

• 3. indications or allegations the use of which in the course of tradeis liable to mislead the public as to the nature, the manufacturingprocess, the characteristics, the suitability for their purpose, or thequantity, of the goods.

The international legal frameworkThe international legal framework

• Provisions on unfair competition in the TRIPSagreement?

• No consensus on the question of a general tort of unfaircompetition.

• (Art. 22) Protection of geographical indications.• (Art. 22) Protection of geographical indications.• (Art. 39) undisclosed information,• borderline areas between intellectual property and unfair

competition

The international legal framework

• Examples of unfair competition according to WIPO Model Provisions:

• Causing confusion

• Damaging another‘s goodwill or reputation• Damaging another‘s goodwill or reputation

• Misleading the public

• Discrediting another‘s business

• Disclosing or misappropriating trade secrets

The international legal framework• European Community law (overview)

– No consensus on …what unfair competition means– level of regulation– Administrative v. private law model– Harmonised areas– Misleading and aggressive practices– Comparative advertising– Comparative advertising– TV advertising– E-mail spamming– Not yet harmonised– Protection of goodwill– Protection against imitation– Trade secrets– Interference with business / with contracts

U.K. Law•• SomeSome historyhistory onon UKUK LawLaw::• 1888 - 90:• Mogul Steamship v. McGregor and related decisions –

rejection of general tort of unfair competition.• Early 19th century: origins of passing off action• 1966: first Code of Advertising Practice• 1980: Erven Warnink v. Townend (Advocaat case)• 1981: Cadbury-Schweppes v. Pub Squash• 1988: Control of Misleading Advertisements Regulations• 2008: Consumer Protection from Unfair Trading Regulations

/ Business Protection from Misleading Marketing

Regulations 2008

The LegislationThe Legislation• There is no statute in the UK relating to unfair competition

as such. There is, however, protection for a trader whosecompetitor seeks to mislead customers as to whose goodsthe customer is buying. In the UK, this concept is called"passing off", and in the context of trade marks, the law andprinciples of Equity have evolved over time by (primarily)the High Court of England & Wales (although the Scottishand Northern Ireland Courts, follow to a large degree, theand Northern Ireland Courts, follow to a large degree, theapproach of the English Court. They are not, it should benoted, precisely the same, and do constitute a differentjurisdiction). In essence, therefore, the law is "judge made"and hence why it is referred to as "the common law tort ofpassing off”.

U.K. Law

• Three meanings attributed to the term „unfaircompetition“ ( see Moorgate Tobacco v. Philip Morris)

• synonym of passing off• generic term for all causes of action available against

unlawful acts done by a competitor• general tort of misappropriation of trade values

• Arguments advanced against the introduction of a general „tort of unfair competition“

• Difficulties in forming clear line between fair and unfair• lack of legal certainty• judicial law-making• interference with freedom of trade

U.K. Law

• Three layers of protection against (what a continentallawyer would call) unfair competition:

• Tort law:• specific economic torts protect traders against some

types of unfair behaviour of competitors.

• Consumer protection:• criminal and administrative sanctions against

misleading advertising

• Self-regulation:• British Code of Advertising, Sales Promotion and

Advertising Practice (and other codes of practice)

U.K. LawU.K. Law

•• TheThe torttort ofof passingpassing offoff• protection of goodwill against misrepresentations

misleading the public as to the origin or the quality ofgoods or services

• „Misappropriation by misrepresentation“– Elements Claimant– Elements Claimant– owner of goodwill– Misrepresentation– defendant misleads public as to trade origin or

quality …– Thereby causing damage to claimant.

U.K. LawU.K. Law

• Torts protecting competitors against acts of „unfair competition“.

• passing off.•• injuriousinjurious falsehoodfalsehood::• protection against malicious false statements about a

competitor.competitor.• breach of confidence: (doctrinal basis disputed):

protection of confidential information against disclosure byperson who is under a duty of confidence.

• Conspiracy.• Intimidation.• interference with contractual relations.

• Example discussed in this course: U.K.

• • Other examples: 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,• (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.

UNFAIR COMPETITION LAWS IN USUNFAIR COMPETITION LAWS IN US• In 2008, the total cost of tort liability in the United States

was more than $255 billion, which is equivalent to an $838yearly tort tax on every American or $3,340 for a family offour. Another study puts the cost at $9,827 for a family offour if all the indirect costs are included.

• Since 1990, commercial torts against business haveincreased more than personal torts against individuals, andSmall Business bears a disproportionate amount of liabilitySmall Business bears a disproportionate amount of liabilitycosts. It is the small business — perhaps a family-runbusiness or a tech startup or a local business employing ahandful of people — that bears the biggest burden.

• A single tort suit can cripple a small business, especially aself-insured business. It is no wonder that more than three-quarters of small business owners say they are concernedabout the threat of unfair lawsuits

• Increasingly, the plaintiffs in tort suits against smallbusiness are other businesses (often, big businesses)making tort claims to recover economic, businessdamages. These business-versus-business tort claims areoften called economic or business torts and areincreasingly based on state law, not federal law.

• Typically, these business lawsuits are intentionaltorts because the defendant intentionally caused sometorts because the defendant intentionally caused someharm to the plaintiff. These cases do not necessarilyinvolve injury directly committed against a person orproperty, but rather involve losses related to intangiblebusiness assets, including economic interests, businessrelationships, and assets of good will and businessreputation. Business torts include an ever lengthening listof civil wrongs, such as:

• Civil Conspiracy-Copyright infringement.

• Fraud and fraud in the inducement-Injurious falsehood

• Interference with contract- Interference with

prospective economic advantage

• Misappropriation of trade secrets-Negligence and

negligent misrepresentationnegligent misrepresentation

• Product disparagement- Slander and slander of title

• Trade libel or disparagement- Trademark infringement

• Trade name infringement-Unfair competition and

trade practices

Federal Unfair Competition Federal Unfair Competition Law Law Under LANHAM Act.Under LANHAM Act.

• The trademark infringement and trademark dilution, whichare two areas of the law falling within the broader scope ofunfair competition law.

• The false designations of origin and false descriptions ascovered by Section 43(a) of the Lanham Act.covered by Section 43(a) of the Lanham Act.

• While the Lanham Act, in general, focuses primarily onobtaining, maintaining, and enforcing trademark andservice mark rights, Section 43(a) has frequently beenreferred to as a federal unfair competition provision.

• The section 43(a) available to challenge certain unfaircompetition practices under this portion of the Lanham Act

• Section 43(a), in part, states• "Any person who, on or in connection with any goods or

services, or any container for goods, uses in commerce anyword, term, name, symbol, or device, or any combinationthereof, or any false designation of origin, false or misleadingdescription of fact, or false or misleading representation of fact,which:

• (A) is likely to cause confusion, or to cause mistake, or todeceive as to the affiliation, connection, or association of suchdeceive as to the affiliation, connection, or association of suchperson with another person, or as to the origin, sponsorship, orapproval of his or her goods, services, or commercial activitiesby another person, or

• (B) in commercial advertising or promotion, misrepresents thenature, characteristics, qualities or geographic origin of his orher or another person's goods, services or commercialactivities, shall be liable in a civil action by any person whobelieves that he or she is or is likely to be damaged by suchact."

Examples under Lanham ActExamples under Lanham Act• Paragraph A, the conduct must be likely to cause

confusion or mistake or deceive regarding affiliation withanother person or origin, sponsorship, or approval of thegoods, services, or commercial activities by anotherperson. For example, conduct must give the impressionthat there was such an affiliation or that the origin,sponsorship, or approval emanated from another person

.when, in fact, it did not.• Paragraph B focuses specifically on commercial advertising

or promotion and has two prohibitions. The nature,characteristics, qualities, or geographic origin of goods,services, or commercial activities cannot bemisrepresented. Such misrepresentations also cannot bemade with respect to another's goods, services, orcommercial activities

• A further area of protection under Section 43(a) involvesthe trade dress of a product. For example, the uniqueshape of the Coca-Cola bottle is readily recognizable by ahigh percentage of people as identifying the Coca-Colaproduct. The trade dress, in order to be protectable underSection 43(a), must either be inherently distinctive or haveacquired secondary meaning through usage.

• It is not necessary to have a trademark registration inorder to enforce rights under Section 43(a). One must,order to enforce rights under Section 43(a). One must,however, have "standing to sue" in order to seek reliefunder the law. Among the factors considered in evaluatingthis issue are the nature of the conduct alleged to be inviolation of Section 43(a), the manner in which the personseeking relief has been or is likely to be damaged by suchconduct, and whether the damage is of the type sought tobe protected by the act

OTHER UNFAIR OTHER UNFAIR COMPETITION LAWS IN US COMPETITION LAWS IN US

AN OVERVIEWAN OVERVIEW•• BusinessBusiness TortsTorts -- CommercialCommercial DisparagementDisparagement

• Since 1990, commercial torts against business have• Since 1990, commercial torts against business haveincreased more than personal torts against individuals,and small business bears a disproportionate amount of

• liability costs. It is the small business — perhaps afamily-run business, a tech startup, or a local businessemploying a handful of people — that bears the biggest

• burden.

Federal Trade Commission Act Federal Trade Commission Act -- Unfair or Unfair or

Deceptive Acts or PracticesDeceptive Acts or Practices

• The Federal Trade Commission ("FTC ") is anindependent agency established by Congress in1914 to enforce the Federal Trade CommissionAct ("FTC Act").

• (1)Section 5 of the FTC Act prohibits "unfair• (1)Section 5 of the FTC Act prohibits "unfairmethods of competition," and was amended in1938 also to prohibit "unfair or deceptive acts orpractices.“

• (2) TheCommission enforces a variety of otherantitrust and consumer protection laws as well.

Federal Trade Commission Federal Trade Commission -- Bureau of Bureau of

CompetitionCompetition• The Federal Trade Commission's Bureau of Competition

champions the rights of American consumers by promotingand protecting free and vigorous competition. The

• Bureau: reviews mergers and acquisitions, and challengesthose that would likely lead to higher prices, fewer choices,or less innovation; seeks out and challengesanticompetitive conduct in the marketplace, includinganticompetitive conduct in the marketplace, includingmonopolization and agreements between competitors;promotes competition in industries where consumer impactis high, such as health care, real estate, oil & gas,technology, and consumer goods; * provides information,and holds conferences and workshops, for consumers,businesses, and policy makers on competition issues andmarket analysis

Federal Trade C Federal Trade C ommission'sommission'sInvestigative and Law Enforcement Investigative and Law Enforcement

AuthorityAuthority

• The Commission's specific investigative powers are definedin Sections 6, 9, and 20 of the FTC Act, 15 U.S.C . Sec’s.46, 49, and 57b-1, which authorize investigations andvarious forms of compulsory process. In addition,

• the premerger notification provisions in Section 7A of theClayton Act, 15 U.S.C . Sec. 18a, prohibit consummation ofcovered acquisitions until the requested information isprovided, thus effectively enabling the Commission to obtaininformation regarding such acquisitions.

Unfair Competition Unfair Competition -- FTC Act FTC Act --Sherman Act Sherman Act -- Clayton ActClayton Act

• Federal antitrust laws apply to virtually allindustries and to every level of business,including manufacturing, transportation,distribution, and marketing. They prohibit avariety of practices that restrain trade, such asvariety of practices that restrain trade, such asprice-fixing conspiracies, corporate mergerslikely to reduce the competitive vigor of particularmarkets, and predatory acts designed to achieveor maintain monopoly power.

•

Federal Trade Commission ("FTC“)Federal Trade Commission ("FTC“)• The Federal Trade Commission ("FTC") is an independent

agency established by Congress in 1914 to enforce theFederal Trade Commission Act ("FTC Act").

• The Section 5 of the FTC Act prohibits "unfair methods ofcompetition," and was amended in 1938 also to prohibit"unfair or deceptive acts or practices.”

• The Commission enforces a variety of other antitrust andconsumer protection laws as well. The FTC Act provides aconsumer protection laws as well. The FTC Act provides acomprehensive framework for carrying out theCommission's law enforcement initiatives.

• Under Section 5, the Commission has determined that arepresentation, omission, or practice is deceptive if:

• (1) it is likely to mislead consumers acting reasonablyunder the circumstances; and

• (2) it is material, that is, likely to affect consumers' conduct

or decisions with respect to the product at issue.

• In executing its antitrust law enforcement responsibilities, theCommission relies upon both Section 5 of the FTC Act -- whichprohibits unfair methods of competition -- and a number of otherantitrust statutes

• As a general proposition, practices that constitute unfairmethods of competition include at least practices that violatethe Sherman Act and the Clayton Act.

• Thus, for example, although the Commission cannot directly• Thus, for example, although the Commission cannot directlyenforce the Sherman Act, it can prohibit -- as unfair methods ofcompetition -- practices that (1) violate Section 1 of theSherman Act because they constitute a "contract, combination .

• . . , or conspiracy, in restraint of trade or commerce;" or (2)violate Section 2 of the Sherman Act because they constitutemonopolization of, an attempt to monopolize, or a conspiracy tomonopolize a particular market.

Sherman ActSherman Act•• 1515 UU..SS..CC.. §§ 11.. Trusts,Trusts, etcetc..,, inin restraintrestraint ofof tradetrade illegalillegal;;

penaltypenalty..

• Every contract, combination in the form of trust or otherwise,or conspiracy, in restraint of trade or commerce among theseveral States, or with foreign nations, is declared to beillegal.illegal.

• Every person who shall make any contract or engage in anycombination or conspiracy hereby declared to be illegal shallbe deemed guilty of a felony, and, on conviction thereof,shall be punished by fine not exceeding $10,000,000 if acorporation, or, if any other person, $350,000, or byimprisonment not exceeding three years, or by both saidpunishments, in the discretion of the court.

15 U.S.C. 15 U.S.C. §§ 2. Monopolization; penalty2. Monopolization; penalty

• Every person who shall monopolize, or attempt tomonopolize, or combine or conspire with any otherperson or persons, to monopolize any part of the trade orcommerce among the several States, or with foreignnations, shall be deemed guilty of a felony, and, onconviction thereof, shall be punished by fine notexceeding $10,000,000.exceeding $10,000,000.

• if a corporation, or, if any other person, $350,000, or byimprisonment not exceeding three years, or by both saidpunishments, in the discretion of the court.

Clayton ActClayton Act

• 15 U.S.C. § 18. Acquisition by one corporation of st ock of another

• No person engaged in commerce or in any activity affectingcommerce shall acquire, directly or indirectly, the whole orany part of the stock or other share capital and no personsubject to the jurisdiction of the Federal Trade Commissionshall acquire the whole or any part of the assets of anothershall acquire the whole or any part of the assets of anotherperson engaged also in commerce or in any activityaffecting commerce,

• where in any line of commerce or in any activity affectingcommerce in any section of the country, the effect of suchacquisition may be substantially to lessen competition, or to

tend to create a monopoly.•

NEW UNFAIR COMPETITION LAWS IN USNEW UNFAIR COMPETITION LAWS IN US

• The States of Washington & Louisiana already havefull‐fledged Unfair Competition Laws and on 4th November2011, 36 States & 3 U.S. Territories came together to writea strong memorandum to the Federal Trade Commission(FTC) and Bureau of Competition, seeking a federal law onfederal Unfair Competition law.

• Further, 24th January 2012, U.S. President, Mr. BarackObama, in his State of the Union Address, announced thecreation of the Trade Enforcement unit which wouldinvestigate cases of unfair competition in manufacturing byway of IP infringement

• One of the first states to introduce such specific legislationwas the state of Louisiana in 2010. 0ther states havefollowed closely behind and introduced their own measuresthat take aim at IT and fair competition.

• That Washington is one of the more trade-dependent statesin the United States and its volume of manufactured importsin 2011 was more than 30% higher than that of other states

• The State of Washington’s Unfair Competition Act, a similar• The State of Washington’s Unfair Competition Act, a similarpiece of legislation that took effect in July 2011.

• The laws’ requirements are very clear and simple. Theyobligate and mandate the manufacturers, who export toU.S., to show by way of poof of licenses or necessarycertifications provided by the software publishers orindustry, that they are only using genuine and licensedsoftware for their entire business operations.

• The laws also provide for injunction against sales,seizure of products and monetary damages, if amanufacturer does not follow the law and remainsnon‐compliant.

• The exporter doing exports its products to U.S., directlyor indirectly, then it must ensure that their usages of IT(software products) in their business operations are(software products) in their business operations aregenuine, legal and licensed. They should preferably geta compliance certificate from the software publishers byundertaking a Software Asset Management (SAM)Review led by a third party consultant or obtain anIndustry level ISO aligned SAM certification such asprovided by BSA | The Software Alliance (BSA)

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