You surely do remember a period marked by news covers about “fake Plazma biscuits” after the suspect was arrested on suspicion of unauthorized possession of a biscuit production plant that was placed on the market under the brand of the well-known domestic producer “Bambi”. A certain time before that, we published a blog post about a successful dispute where the judge ruled in favour of Petroprocess, a company whose former director founded his own company under the business name Petroprocess Solutions, immediately upon leaving the company. News regarding the seizure of great quantities of counterfeit clothing, Michael Kors counterfeit handbags, or Prada sunglasses come on the regular.
What’s in common for all of these and many other examples is that they are all examples of unfair competition. That is why this time we are dealing with the question of how to get protection from this practice, in the broadest sense – from prevention to court disputes.
Protection from the unfair competition is closely related to numerous areas whose end goal is essentially the same: to enable fair conditions in the market and to provide protection to owners of intellectual property rights. In a broader sense, it means that the purpose is to protect the entire business (ownership rights, trade secrets, business reputation, etc.) of companies that operate fairly. That is why the prohibition of unfair competition should prevent and sanction practices that are contrary to good business practices, customs, and business morals. Unfair competition is inextricably linked to the violation of non-compete clauses and the disclosure of trade secrets and other confidential information. Furthermore, even when none of the above is the case, unfair competition exists even if one company releases information about their competitor to discredit them to clients (consumers) and harm their business reputation.
Finally, the legal concept of unfair competition is connected to the rules of prevention of the restrictive business practice (for example, prohibition of restrictive agreements) because their collective goal is fair trade, which encompasses free, but fair competition, and protects consumers’ interests.
That is why regulations forbid all formations of cartels (for example, an agreement between competing companies about price-fixing or dividing territories) or the abuse of a dominant market position.
However, the focal point of this blog will not be the practice that is part of competition law (primarily regulated by the Law on Protection of Competition), instead, the focus will be placed on different forms of anti-competitive practices between the companies, by which we mean intentional infliction of damage by one company to a competing company contrary to the good industry practice, good business practice, and corporate ethics.
What is Considered Unfair Competition?
Law on Trade[1] also calls unfair competition – unfair market competition, which is primarily understood as an action that violates the basic principles of fair trade. As such, it is strictly prohibited by law. The law defines it as an act of one company (a seller or a service provider) against the other (competitor), which violates the business moral code and good business practices, and which causes or may cause damage to another company (competitor).
Since this is an overly general definition that could be (too) broadly interpreted, the legislator saw the need to list specific (the most frequent and the most memorable) anti-competitive practices. This makes it easier for companies to recognize these actions in practice, as well as for courts to make decisions in litigations for unfair competition.
These are the actions that are especially regarded as anti-competitive practices:
- making false and insulting claims about another company;
- disclosure of data on another company or its goods or services, which are aimed at damaging the reputation and business of that company;
- the sale of goods with markings, data, or form, which justifiably creates confusion among consumers regarding the source, quality, and other properties of those goods or services – above mentioned Michael Kors bags are a great example;
- the acquisition, use, and disclosure of a trade secret without the consent of its owner, in order to aggravate your position on the market;
- the promise of, or giving gifts of higher value, property, or other benefits to other companies, in order to gain an advantage over competitors;
- an unauthorized display of a quality mark, trust mark, or similar mark by a company.
Examples from Practice
What Options are there in Case of an Infringement?
Several laws provide protection from unfair competition. General protection is provided by the Law on Trade, while protection against specific forms of unfair competition is provided by special laws, of which we are specifically going to clarify the Law on Trade Secret Protection, the Law on Trademarks, the Company Law, the Labor Law and the Law on Legal Protection of Industrial Design.
1. Protection Under the Law On Trade
In case you were subject to damage due to anti-competitive practice, you are entitled to compensation for that damage under the Law on Trade. For this purpose, a lawsuit is filed for unfair market competition (unfair competition), which may require:
- determining the action of unfair market competition,
- prohibition of further execution of this act,
- elimination of the consequences, as well as
- previously mentioned compensation for the damage.
The damages that can be claimed are:
- material damages, and
- non-material damages due to reputational damage
Therefore, if you suffer damage due to another subject’s unfair competition act, you can ask not only for the lost profit and eventual expenses you had as a result but also for the compensation for damage to your reputation, name and brand.
What is the Deadline for Filing a Lawsuit?
The lawsuit can be filed within six months after you discover the damage and who caused it, but no later than three years from the termination of the anti-competitive (unfair) practice.
2. Unfair Competition and Trade Secrets
From the very definition given by the Law on Trade, unauthorized actions related to trade secrets[5] are acts of unfair competition.
International TRIPS Agreement[6] recognizes trade secrets as an intellectual property right. The link between trade secrets and unfair competition is perfectly illustrated by Article 39 of the TRIPS Agreement, which obligates the Member States to provide for legal remedies to protect trade secrets to ensure protection against unfair competition.
Despite the new Law on Trade Secrets (linguistically) modifying the provision regulating the illegal acquisition, use, and disclosure of trade secrets (the previous law explicitly (linguistically) mentioned unfair competition), such acts certainly continue to be considered acts of unfair market competition. In that sense, the Law on Trade Secret stipulates that obtaining a trade secret without the consent of the holder of the trade secret will be considered illegal as well as if it is done, in such a way that according to the given circumstances it can be considered contrary to good business customs. That is exactly what the Law on Trade considered an act of unfair competition. On the other hand, the definition is left to interpretation, broad enough so that in practice it can apply to all the necessary cases in which trade secret is breached in an unfair way.
The prevention of trade secrets being a victim of unfair competition mainly asks for concluding Non-Disclosure Agreements as well as ensuring other measures are in place in order to achieve a positive outcome in the eventual dispute. Basically, you are the first line of treating your confidential information as such – otherwise, it is debatable whether the court would recognize them as confidential while deciding on your legal request.
3. Trademark Infringement by an Act of Unfair Competition
The Law on Trademarks[7] stipulates that a trademark cannot protect a mark (relative reason for refusing protection) that, regardless of the goods or services, is identical or similar to the previously protected trademark of another person, which is undoubtedly known as a mark of high reputation among the participants in trade in the Republic of Serbia (the so-called well-known trademark), if the use of such mark would undermine the gain from the reputation of the famous trademark or would be detrimental to its distinctive character or reputation.
The Law on Trademarks specifically protects the well-known trademark by providing for an exception to the general rule that the trademark owner may not prohibit another person from using the same or similar mark to mark goods/services of another type.
For example, if you have an XY trademark for marking disinfectants, where it is not a well-known trademark, you could not prohibit another market participant from using the XY sign to mark sneakers, as these are goods of a different kind. However, when well-known marks are in question, such as Coca-Cola, Nike, etc., without the consent of the owner, you could not use them even to mark the completely different types of goods/services than the ones that they have been registered as – for instance, gardening tools. The significance of this is to prevent the unfair gain of the benefits from the acquired reputation of the well-known trademark, but also not to allow damage to the distinctive character or reputation of the famous trademark.
Even though this provision directly links unfair competition with a well-known mark, it should be noted that in a broader sense, every misleading use of a mark that creates misconception as to the origin of such mark (economic links with the trademark and such) can be considered an act of unfair competition. In practice, trademark owners most often rely on the mechanisms prescribed by the Law on Trademarks to protect their rights, but the provisions of the Law on Trade should not be overlooked either, for more comprehensive protection.
Precisely because more comprehensive and stronger legal protection is provided to trademark owners than those who have not registered their trade name or mark, trademark registration is the preventive protection against unfair competition, which later significantly facilitates the fight against competitors on the market, who intend to use the same or similar marks for the same or similar goods or services. By registering a trademark, you open up the possibility of filing lawsuits under the Law on Trademarks and initiating proceedings before courts specialized in the protection of intellectual property rights.
4. Unfair Competition and Business Name
Like cases of trademark infringement, a situation may occur where one company wants to call itself by the same or similar name as its competitor if, for example, that name is already established and well-known on the market. In that case, there is a classic unprincipled intention to use the reputation of a competitor, which simultaneously harms the competitor.
We have previously written about a successfully ended dispute in favour of our client Petroprocess, which was conducted specifically because of the unfair competition due to the similarity of the business name. In this procedure, the court found that due to the identical names of companies, there was confusion on the market, and prohibited the defendant from using part of the name in the form of the word “Petroprocess” in his business name. This decision created a new case law, not only in the area of unfair competition but within the area of intellectual property rights as well. This is because the trade name is considered part of industrial property in accordance with Article 8 of the Paris Convention for the Protection of Industrial Property[8], regardless of whether it has been officially registered in a particular register.
Nevertheless, unlike disputes over trademark infringement and other intellectual property rights, disputes regarding the protection of a business name are conducted before the applicable courts in accordance with general regulations, and not before the competent Commercial Court in Belgrade (that is, the Higher Court in Belgrade). This remains a problem in practice, given that the business (trade) name belongs to the area of intellectual property, therefore the need to entrust the resolution of these disputes to courts that specialize in intellectual property rights is justified.
Company Law[9] explicitly stipulates that the name of one company must not be the same as the name of another company, which is natural given that the name itself is a distinctive part of the company’s business name differing from that company from the others. In order to establish fair market competition, but also to protect consumers and their right to truthful informing, the name of one company must differ from another to the extent that it does not mislead about the identity of that other company.
However, due to different rules and criteria when deciding on sufficient differences between two company names compared to differences in trademarks, it is not uncommon for the Business Registers Agency to allow the registration of a company whose name violates the name of a competitor. Therefore, a competitor as an interested party may file a lawsuit against a company that has chosen the name unfairly and request it to change the name of that company and/or compensate for the damage.
This lawsuit is time-limited, and it is necessary to make sure that it is filed within three years from the day of registration of the name of the company that violates the stated rules.
Finally, Company Law clearly brings rules about naming the company into connection with unfair market competition, by clearly stating that this provision does not affect the rights of a conscientious and fair company to exercise its rights under the regulations on unfair competition (Law on Trade) and provisions on regulations on the protection of intellectual property rights (namely, trademarks and the Law on Trademarks).
5. Prohibition of Unfair Competition and Non-Compete Clause in Employment Agreements
Unfair market competition, as a legal concept, is inextricably linked with the concept of the non-compete clause, which we wrote about in more detail in the blog post Everything You Need To Know About The Non-Compete Clause. Its purpose is to prevent the employee (or former employee) from becoming a competitor to the employer or from being hired by the competitor employer, contrary to the rules established primarily by the employment contract.
The employment contract may determine the jobs that the employee cannot perform (independently or for others) without the consent of the employer, during the employment, and the ban may be extended even after the employment relationship ends (subject to payment of compensation). Labor Law[10] specifies that the prohibition of competition can be determined only if there are conditions for the employee during their work with the employer to acquire new, especially important technological knowledge, a wide range of business partners, or to learn important trade information and secrets. This definition further proves an unbreakable connection between:
- prohibition of unfair competition
- protection of trade secrets, and
- non-compete clause.
In general, it can be stated that the violation of the trade secrets protection and non-compete clauses is an act of unfair market competition. The importance of sanctioning these actions is best reflected in the fact that these actions are prohibited under several laws.
The protection starts as soon as the employment contract is concluded, or any other such contractual legal contracts in which a non-compete clause may also be present are concluded. It is necessary that the non-compete clause is properly regulated first in the contract, and then in the general acts, taking into account that, that way, the probability of success in case of potential dispute exponentially grows.
6. Unfair Competition and Industrial Design
Likewise, the Law on Legal Protection of Industrial Design[11] emphasizes the importance of fair market competition by expressly stipulating that the holder of an industrial design right may not prohibit the third party from reproducing for the purpose of teaching or citing, provided that such actions are in accordance with the practice of fair competition and do not unduly jeopardize normal exploitation of industrial design, as well as the state where the industrial design was taken from.
As a result, similarly to the trademark, the first step towards ensuring that you will be able to file a claim to protect your design (if necessary) is its registration before the Intellectual Property Office.
7. Sanctioning – Inspection Supervision
There is a Department for the Prevention of Unfair Competition and Consumer Protection within the Ministry of Trade, Tourism, and Telecommunications. The key role in any inspection is certainly played by competent inspectors.
To prevent unfair competition, the market inspector has various powers at their disposal in performing inspections, such as inspecting business premises and vehicles, inspecting business records and other business documentation, taking statements from persons performing trade, photographing and recording premises, and goods, taking samples of goods, ordering inventories of goods, etc. Additionally, both the court and the police may assist the inspector at the request of the inspector. In that sense, the inspector may ask the court to allow an on-site inspection or issue a search warrant.
What can a Market Inspector Determine?
It should particularly have in mind that the Law on Trade prescribes penalties for persons who act contrary to the regulations, depending on the specific violation. Penalties can be imposed on a legal entity, a responsible person within a legal entity (e.g., a managing director), an entrepreneur, and a natural person, and they range up to 2,000,000.00 RSD. In addition to fines, a protective measure prohibiting the performance of a certain activity for a certain duration (even up to two years) can be imposed.
Is Unfair Competition a Criminal Offense?
Although Criminal Code[12] does not explicitly deem unfair competition as a criminal offense, such practice certainly constitutes elements of a certain number of criminal offenses, such as e.g., the criminal offense of revealing a trade secret, the criminal offense of unauthorized use of another’s business name and other special marks of goods or services, the criminal offense of violating business reputation and creditworthiness, etc. Lastly, other than the aforementioned offenses, anti-competitive practices represent economic offenses as well.
As a result, those who are exposed to acts of unfair competition have at their disposal criminal and other reports to the competent authorities, in order to protect their rights, in addition to the previously mentioned litigation procedures initiated by a lawsuit.
