Unfair competition vs. other disputes: don't get confused!

Has a competitor denigrated your services on social networks? A former business partner is breaching a non-competition clause? A company copies your flagship product, which is protected by a patent? In the business world, conflicts can take many forms. When faced with a contentious situation, the first reaction is often indignation, followed by a crucial question: what can we do? What is the exact nature of the legal problem you are facing? It is not always easy to distinguish between unfair competition and other types of dispute such as anti-competitive practices, simple breach of contract or counterfeiting. Yet this distinction is fundamental, as it determines the strategy to adopt, the evidence to gather, the competent court and the penalties you can hope to obtain. This article aims to clarify these boundaries to help you better identify the nature of the dispute and effectively guide your action.

Unfair competition and anti-competitive practices: two different approaches

These two concepts do belong to "competition law" in the broadest sense, but they do not have the same objectives and do not follow the same rules. Understanding their differences is essential.

La unfair competitionwhich we have already discussed fundamental principlesThis is a form of liability for wrongful conduct on the part of one company towards another (or several others). It is based on the general principle of tort liability, enshrined in article 1240 of the French Civil Code. Its primary aim is to protecting loyalty in commercial and industrial relations compensation for individual loss suffered by the victim of the unfair act. The focus here is on resources used in the competition: are they honest, do they conform to custom? The action usually takes place before the civil or commercial courts.

The anti-competitive practicesare aimed at behaviour that harm to the overall functioning of the marketregardless of the intrinsic fairness of the methods used. These are mainly agreements (agreements between companies aimed at restricting competition, such as fixing prices together) and abuse of a dominant position (when a very powerful company on a market abuses its power to oust competitors or impose unfair conditions). These practices are prohibited by Book IV of the French Commercial Code and European Union law. The aim here is not so much to repair an individual loss (although that is possible afterwards) as to maintain effective and healthy competition on the market as a whole. The procedure is specific: it often involves theFrench Competition Authoritywhich can conduct investigations and impose heavy penalties (fines), and specialised courts.

To illustrate simply: if a competitor tells lies about your products in order to steal customers, this is potentially unfair competition. If you agree with all your competitors to raise your prices simultaneously, that's an anti-competitive agreement.

Beware, however, that the boundaries are not always watertight. An act of unfair competition, such as the systematic denigration of a small competitor by a company in a dominant position, may also constitute an abuse of that position and therefore an anti-competitive practice. Conversely, a company that has been the victim of a cartel or abuse of a dominant position may, once the infringement has been established by the Competition Authority, bring an action before the civil courts to obtain compensation for its individual loss, based on the fault constituted by the infringement of the competition rules.

Unfair competition and breach of contract (anti-contractual competition): tort vs. contractual fault

Another frequent confusion is that between unfair competition and breach of an obligation arising from a contract. The distinction is based on the source of the obligation breached.

La unfair competition sanctions the violation of a general duty of loyalty which applies to all economic players, whether or not they are bound by a contract. The fault is said to be tortious (or quasi-delict if unintentional), as defined in article 1240 of the French Civil Code. What is being criticised is the manner unfair competition (confusion, denigration, parasitism, etc.).

La anti-contractual competitionis used to punish the violation of a specific obligation arising from a contract. More often than not, this involves a non-competition clause (in an employment contract after it has been terminated, in a contract for the sale of a business, in a shareholders' agreement, etc.) or a legal non-competition obligation attached to certain contracts (such as the guarantee obligation of the vendor of a business). The fault here is contractual. What is being criticised is not the way in which the company competes, but its even to compete when the contract prohibited it. Competition carried out with the fairest methods in the world will be at fault if it violates a contractual obligation not to compete.

Why is this distinction important in practice?

• The proof For unfair competition, it is necessary to prove the fault (the unfair process), the prejudice and the link. For anti-contractual competition, it is sufficient to prove the existence of the non-competition obligation and the fact that the other party is engaged in a prohibited competing activity.
• Jurisdiction If the anti-contractual competition stems from an employment contract (non-competition clause of a former employee), only the industrial tribunal (Conseil de prud'hommes) has jurisdiction. If it arises from a commercial contract, the Commercial Court will have jurisdiction. Unfair competition proceedings, on the other hand, generally come under the jurisdiction of the Commercial Court (between traders) or the Court of First Instance. It is therefore essential to identify the nature of the dispute so that you can bring it before the right judge.
• Penalties In the event of a breach of a non-competition obligation, the judge may order the pure and simple cessation of the prohibited competing activity. In cases of unfair competition, the judge will order the cessation of the prohibited activities. resources unfair, but not the cessation of the activity itself (since freedom of competition remains the principle).

A particularly interesting case is that of third party accomplice. If a company hires an employee knowing full well that he is bound by a valid non-competition clause with his former employer, the new employer (the third party to the initial contract) is at fault. The former employer may be held liable, not on contractual grounds (he did not sign anything), but on the grounds of tortiousfor unfair competition as a result of its complicity in the breach of the clause.

Finally, the two mechanisms can sometimes complement each other. If a non-competition clause is declared null and void by a judge (for example, for lack of financial compensation for an employee), the former employee regains his freedom to compete. However, if he uses unfair practices to compete with his former employer (misappropriation of customer files, denigration, etc.), the latter may still take action against him, not on the basis of the null and void clause, but on the grounds of unfair competition (article 1240).

Unfair competition and counterfeiting: protecting a creation vs. punishing a method

The last important distinction concerns counterfeiting. This is a specific concept that punishes the infringement of an intellectual property right. intellectual property rights (IP). These are the exclusive rights that the law grants to creators over their inventions (patents), their distinctive signs (trademarks), their aesthetic creations (registered designs) or their intellectual works (copyright over text, music, software, etc.). Using, reproducing or imitating an item protected by an IP right without authorisation constitutes an infringement. These actions are governed by the French Intellectual Property Code and by specialised courts.

La unfair competitionis not conditional on the existence of an IP right. Its role is different: it sanctions a misconduct in the exercise of competitiona behaviour contrary to loyalty.

How do the two fit together?

• Situation 1: The item copied is protected by an IP right (e.g. a registered trademark, a patented product). The main action is theinfringement action. The mere fact of copying or using the protected material without authorisation is sufficient to constitute copyright infringement. Can also Can I sue for unfair competition? Yes, but on one strict condition: you have to prove that there has been distinct fault simple infringement. For example, if a competitor copies your brand (counterfeiting) AND also systematically disparages your products, you can take action for both counterfeiting (for brand copying) and unfair competition (for disparagement). The two actions are based on different facts.
• Situation 2: The item copied is NOT protected by an IP right (e.g. a banal product shape, an advertising idea, a trade name not registered as a trademark, etc.). L'infringement action is impossible. This is where theaction for unfair competition can play an essential role, known as "suppletive". The simple copying of an unprotected element is, in principle, free (freedom of trade and industry). However, such copying becomes wrongful and may be punished as unfair competition if it is accompanied by a fault, in particular:
  • If it creates a risk of confusion in customers' minds about the origin of the product or service.
  • If it constitutes a parasitic actionIn other words, if the copier seeks to follow in the footsteps of the copied company in order to benefit unduly from its reputation or its investments without spending anything (we'll come back to this in a later article).

In short, counterfeiting protects an exclusive right to a specific creation. Unfair competition sanctions an unfair method of competition, including the wrongful copying of unprotected elements.

Distinguishing between these different concepts - unfair competition, anti-competitive practices, anti-contractual competition, counterfeiting - is more than just a legal subtlety. It is a crucial step in understanding the exact nature of the problem you are facing, choosing the right course of action, gathering the relevant evidence and, ultimately, effectively defending your company's interests.

Correctly identifying the nature of the dispute is essential to choosing the right legal strategy. Our firm can help you to analyse your situation and determine the best course of action. Contact us to discuss your situation.

Sources

• Civil Code: Article 1240, Article 1241.
• French Commercial Code: Articles L410-1 et seq. (Freedom of pricing and competition), L420-1 (Cartels), L420-2 (Abuse of a dominant position), L442-1, L442-2 (Restrictive practices, liability).
• Intellectual Property Code (general reference to infringement, e.g. Art. L713-5 for well-known trademarks).