Unfair Competition (Consequences)

From Max-EuP 2012

by Olaf Sosnitza

1. Meaning

According to Art 119(1) TFEU/4(1) EC the European Union is bound by the principle of an open market economy with free competition. The guarantee of protection against unfair commercial practices is of vital importance for a pure and functioning competition. In connection with the consequences of violations of competition, the entitlements which result from an infringement of competition laws are of interest. Furthermore, it has to be assessed who is entitled to enforce these rights.

Neither EU law nor other treaties of international public law or international uniform law impose a specific system of combating unfair competition or concrete legal consequences. EU law creates substantive-law principles for fair competition and sets targets for law enforcement, whereas implementation and enforcement is a matter for the national legislature. Regulation 2006/2004 on Consumer Protection Cooperation (consumers and consumer protection law) is of importance for the enforcement of competition law along with Directive 2006/114 concerning Misleading and Comparative Advertising and Directive 2005/29 on Unfair Commercial Practices (UCP Directive, unfair competition (basic principles)) which belong to the enforceable directives intended by the regulation.

According to the regulation, among the enforcement powers that the competent authority must have are—under Art 4(3) and (6)—the powers to obtain from the violator an undertaking to cease the infringement (lit e), and to require him to make payments in the event of failure to comply with a decision (lit g). Article 11(1) UCP Directive solely obligates the Member States to ensure that adequate and effective means exist to combat unfair commercial practices. Article 13 UCP Directive substantiates the requirements to be met by the Member States to the effect that they shall lay down penalties for infringements of national provisions adopted in application of the directive and shall take all necessary measures to ensure that these are enforced. The penalties must be effective, proportionate and dissuasive.

Similarly, Art 10(1)bis of the Paris Convention for the Protection of Industrial Property (PCPIP) only generally regulates that the countries of the Union are bound to ensure that nationals of such countries receive effective protection against unfair competition. For this purpose, Art 10(1)ter PCPIP stipulates that the countries of the Union undertake to assure to nationals of the other countries of the Union ‘appropriate legal remedies’ effectively to repress unfair competition. Finally, Art 1(1) lit b of the WIPO Model Provisions against Unfair Competition of 1996 also abstains from naming specific sanctions (World Intellectual Property Organization (WIPO)).

The TRIPS and the Enforcement Directive 2004/48 are of relevance to the law of fair competition and intellectual property. The members of TRIPS are, according to Art 41 TRIPS, bound to ensure that certain civil and administrative judicial procedures are available (Art 42 ff TRIPS), these include provisional measures (Art 50 TRIPS), injunctions (Art 44 TRIPS) and the obligation to pay damages (Art 45 TRIPS). The Enforcement Directive contains, inter alia, concrete specifications on provisional and precautionary measures (Art 9), corrective measures (Art 10) and damages (Art 13).

Within the respective Member States there often exist, cumulatively or alternatively, civil and administrative as well as criminal law enforcement mechanisms. In part, for instance in Italy or in the Czech Republic, certain unfair commercial practices (eg violation of advertising rules) are pursued by administrative bodies, while other acts of unfair competition face civil sanctions. In Germany, the enforcement of fair competition law is subject to civil and criminal law. In contrast fair competition law in the Netherlands is regulated exclusively by civil law. In some countries, self-regulatory bodies of commerce play an important role in the sanctioning of unfair competition. The most prominent example is the UK Advertising Standards Authority which is provided with extensive powers.

2. Consequences

Amongst the consequences of unfair commercial practices, injunctive relief is of the utmost importance. Injunctive relief aims to prevent a concrete infringement from being committed in the future. It serves as legal protection against future infringements and assumes the form of preventive injunctive relief when the unfair commercial practice has not yet been carried out but is imminent (see Art 11(2)1(b) UCP Directive). A risk of recurrent infringement or, alternatively, a risk of first infringement is a precondition for injunctive relief, with the risk of recurrent infringement mostly being presumed regarding those infringements which are similar to an already carried-out unfair commercial practice. The risk of recurrent infringement can, for example, be eliminated by a solemn declaration of forbearance subject to punishment in the case of non-compliance.

Injunctive relief does not require the proof of intention or negligence on the part of the violator. In practice, the enforcement of injunctive relief by way of an accelerated procedure is of great importance. Where the legal protection is subject to civil law, the legal enforcement of the injunctive remedy is in some countries regulated by the common civil procedure provisions (eg Germany). There also exist special procedures such as the référe-proceeding in Belgium, which has to be instituted by the president of the Commercial Court. In cases where the fair competition law is subject to administrative law, public authorities can also be entitled to grant injunctive relief (eg Portugal and Italy).

A right to damages is possible if the infringer knew or reasonably ought to have known that he was engaging in an unfair commercial practice. In contrast to injunctive relief, the entitlement to damages does require a culpable act of the infringer. The culpable act must have caused a damage. In practice the computation of the actual amount of damage (which includes lost profit) is often problematic. In some countries determining the actual amount of the lost profit is within the court’s discretion (eg Great Britain and the Netherlands). In estimating the damages, reference is in part made to the profit realized by the infringer. In constellations relating to intellectual property rights there often exists the possibility of referring to the amount of royalties or fees which would have been due if the infringer had requested authorization to use the intellectual property right (fictitious licence fee, see also Art 13(1)2(b) Enforcement Directive).

Besides injunctive relief (the most relevant remedy in practice) and the right to damages, there also exist a number of other consequences of unfair commercial practices, such as the right to the abatement of the nuisance resulting from the unfair commercial practice. Injunctive relief and the right to abatement represent entitlements irrespective of culpability. The object of this entitlement depends on the nature and extent of the infringement. The most important applications of the entitlement to elimination are the entitlement to revocation of an unfair statement and the entitlement to publication of a corrective statement or a corrective advertisement. Also, the entitlement to publication of a final decision of the courts or administrative authorities competent for the sanctioning of unfair commercial practices (see Art 11(2)3(a) UCP Directive) serves the purpose of the removal of the nuisance.

In addition to the above-mentioned legal consequences, some European Member States provide for special sanctioning possibilities. Among these are, for example, the market disturbance penalty fee according to §§ 22 ff of the Swedish Marketing Practices Act, the confiscation of profits according to § 10 of the German Act Against Unfair Competition or the obligation to pay an adequate sum of money earmarked for a social goal (Art 18 of the Polish Act on Combating of Unfair Competition). Article 18 of the Spanish Act Against Unfair Competition provides the opportunity to take action for a declaratory judgment that a commercial practice is unfair.

Where certain unfair commercial practices are subject to criminal penalties, the competent law enforcement authorities institute the proceedings. They may act ex officio or only after a request for examination by the injured party. In some Member States proceedings are, in certain instances, only instituted after pre-investigation is undertaken by special authorities (eg the Direction générale de la concurrence et de la répression des fraudes in France). In other Member States such as Germany, Great Britain and Ireland the injured party can also bring a private suit before the criminal courts. Under the criminal provisions of competition law, unfair commercial practices can be sanctioned with a fine or imprisonment. In the case of enforcement by administrative bodies, the authorities can often impose—apart from an injunctive relief and an abatement order—an administrative fine for an unfair commercial practice.

3. Right to sue and standing to be sued

In order to answer the question of who is entitled to institute court or administrative proceedings against unfair commercial practices, a differentiation between individual and collective legal protection is necessary. If a trader engages in an unfair commercial practice, the competitors affected normally have the right to sue as individuals. There often exists—at least in theory—the possibility for consumers to take legal action against unfair commercial practices (consumers and consumer protection law). The provisions of secondary EU law state that means must exist under national law to combat unfair commercial practices for persons having a ‘legitimate interest’ in combating unfair commercial practices (see Art 11(1)2 UCP Directive; Art 5(1)2 Directive concerning Misleading and Comparative Advertising). In Scandinavian countries, the consumer ombudsman plays a special role in the enforcement of the law. The ombudsman is entitled to take legal action in the interest of consumers, yet he can also partially take measures and define guidelines against unfair commercial practices.

In the field of the collective prosecution of unfair commercial practices, consumers’ associations, commerce associations and other interest associations primarily have the right to sue. The collective action (collective litigation) is of particular relevance for the enforcement of fair competition law when individuals refrain from taking legal action or instituting proceedings because, for instance, they economically depend on the injurer or because the caused damage is only minor. The collective prosecution of a right to damages can be legally limited. Especially in criminal or administrative proceedings, specific public enforcement authorities can exclusively have the right to sue.

Anyone engaging in an unfair commercial practice either himself or through another person can be sued. Claims can also arise against a person who has contributed to an unfair commercial practice committed by another person, while restricting provisions can exist especially for the media, eg in the publication of advertisements constituting unfair commercial practices.

Literature

Frauke Henning-Bodewig and Gerhard Schricker (eds), Recht der Werbung in Europa (1995); Frauke Henning-Bodewig, ‘International Protection Against Unfair Competition—Art 10bis Paris Convention, TRIPS and WIPO Model Provisions’ [1999] IIC 166; Frauke Henning-Bodewig, Unfair Competition Law. European Union and Member States (2006); Hans-Wolfgang Micklitz, in Peter Heermann and Günter Hirsch (eds), Münchener Kommentar zum Lauterkeitsrecht, vol 1 (2006) EG F; Roger W de Vrey, Towards a European Unfair Competition Law. A Clash Between Legal Families (2006); Thomas MJ Möllers and Andreas Heinemann (eds), The Enforcement of Competition Law in Europe (2007); Otto Teplitzky, Wettbewerbsrechtliche Ansprüche und Verfahren (9th edn, 2007); Ansgar Ohly, ‘§§ 8 ff UWG’ in Henning Piper, Ansgar Ohly and Olaf Sosnitza (eds), Gesetz gegen den unlauteren Wettbewerb (5th edn, 2010); Helmut Köhler, ‘§§ 8 ff UWG’ in Helmut Köhler and Joachim Bornkamm (eds), Gesetz gegen den unlauteren Wettbewerb (29th edn, 2011).

Retrieved from Unfair Competition (Consequences) – Max-EuP 2012 on 19 May 2022.

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