Unfair competition

 

Author Definition

 

Definition

Unfair competition is conduct by a market participant which gains or seeks to gain an advantage over its rivals through misleading, deceptive, dishonest, fraudulent, coercive or unconscionable conduct in trade or commerce.

 

Commentary

Dishonest, inequitable, deceptive, fraudulent or coercive commercial and trade practices have long been proscribed by legislators or sanctioned by Courts of law in many jurisdictions. This jurisprudence is reflected in the concept of unfair competition in the 1883 Paris Convention for the Protection of Industrial Property, which has as its object [among others] “the repression of unfair competition’’ constituted by “any act of competition contrary to honest practices in industrial or commercial matters.”

The Paris Convention specifies certain acts as requiring prohibition, including false allegations discrediting a competitor, and indications or allegations in the course of trade which are liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods.

Over 170 countries are now parties to the Paris Convention. Its obligations have usually been implemented in national and sub-national legislation by the parties. In jurisdictions with codified laws, those codes are used to incorporate unfair competition provisions. For example, in France, the Consumer Code has provisions dealing with prohibited commercial practices such as unfair commercial practices and deceptive marketing practices. This legislation often sits apart from and is administered or enforced by agencies separate from competition agencies. In other jurisdictions unfair competition is dealt with alongside antitrust or competition law and is enforced by a common agency; Australia, New Zealand, Canada, Colombia, Chinese Taipei, Denmark, Kenya, Panama, Peru, the United States, Singapore, and Vietnam are examples of this approach.

Unfair Competition laws in Australia

In Australia, sections 33 and 34 of the Australian Consumer Law (ACL), which is part of the Competition and Consumer Act 2010 (Cth), implement part of the Paris Convention by prohibiting conduct by a corporation in trade or commerce that is liable to mislead the public about the nature, manufacturing process (in respect of goods), characteristics, suitability for purpose or quality of goods or services.

The ACL is a national law which has been also incorporated into the law of each Australian state and territory. Much of the conduct addressed by the ACL could lead to an ‘unfair competitive advantage’ in a market. It deals with business to consumer transactions, as well as businesses to business transactions.

Many of the concepts which are embodied in the ACL are based on equitable principles developed by the English Court of Chancery over centuries, and subsequently applied and developed by the Australian Courts. Misleading or deceptive conduct is prohibited generally by section 18 (but without penalty, although other remedies including damages can be granted); and specific forms of false or misleading conduct or unfair practices are prohibited and subject to penalty, without requiring intention or fault. This can be seen to reflect the notion of fraud in equity, in which many activities regarded as fraudulent were not done with an intention to cheat and deceive.

The equitable concept of unconscionable conduct is also the subject of ACL prohibitions which attract a penalty and other remedies. One of the ACL provisions dealing with unconscionable conduct simply adopts the equitable concept of unconscionable conduct: where one party has a special disadvantage of which the stronger party takes unconscientious advantage. The other form of proscribed statutory unconscionable conduct is not limited by the unwritten law, and involves an evaluative inquiry as to whether the conduct is beyond conscience in all of the circumstances.

Unfair contract terms in standard form contracts with consumers and small businesses are rendered void by the ACL, although at present the ACL does not prohibit or penalise a corporation which includes and relies on those terms.

Other specific unfair practices that may constitute a form of unfair competition are prohibited by the ACL, including:

  1. offering rebates, gifts and prizes with the intention of not providing them (section 32);
  2. bait advertising (section 35);
  3. wrongly accepting payment when not intending to supply the goods or services paid for (section 36); and
  4. the use of physical force or undue harassment and coercion in connection with the sale or possible sale of or payment for goods or services or land (section 50).

Unfair competition in Europe

In the European Union, the Unfair Commercial Practices Directive 2005/29/EC regulates unfair trading practices which then requires corresponding laws to be passed that incorporate it into each member state’s legal system. The Directive is concerned mainly with the standards of behaviour required of traders. Proscribed conduct includes a general prohibition on unfair business to consumer commercial practices in Articles 3 and 5 and then more specific prohibitions. It is important to note that it does not seek to harmonise within the European Union commercial practices which, although not harming consumers, may hurt competitors and business customers.

Complementary directives also tackle ‘unfair competition’. They are Directive 93/13/EEC of 5 April 1993 on unfair contract terms in consumer contracts and a recent directive that is being implemented called the Enforcement and Modernisation Directive (EU) 2019/2161.

Unfair competition in the United States

In the United States unfair competition is governed by state and federal statute law as well as the common law, with unfair competition recognised as a tort giving rise to a cause of action. United States Law also has specific prohibitions contained in state statutes reflecting the Uniform Deceptive Trade Practices Act (UDTPA). That legislation prohibits three specific types of representations: (1) false representations that goods or services have certain characteristics, ingredients, uses, benefits, or quantities; (2) false representations that goods or services are new or original; and (3) false representations that goods or services are of a particular grade, standard, or quality.

United States Federal Law includes ‘unfair competition’ provisions in the Federal Trade Commission Act (FTC Act) and rules made under that law. Section 5(a) of the FTC Act provides that “unfair methods of competition” and “unfair or deceptive acts or practices in or affecting commerce . . . are . . . declared unlawful.”

The FTC explains that: “Deceptive” practices are defined in the Commission’s ‘Policy Statement on Deception’ as involving a material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances. An act or practice is “unfair” if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. Sec. 45(n).

In addition, the Commission enforces a variety of other consumer protection statutes that prohibit specifically defined practices. These statutes generally specify that violations are to be treated as if they were “unfair or deceptive” acts or practices under Section 5(a); many also provide that violations are to be treated as if they were violations of a trade regulation rule issued under Section 18 of the FTC Act (and thus subject to civil penalties).”

Other jurisdictions

Many jurisdictions now have statutes that address unfair competition. Usually those statutes define the conduct as including misrepresentation, deception, fraud, unfairness and unconscionable conduct in business affairs and particularly in dealings with competitors. Apart from those jurisdictions already described, others with such a law include Germany, Japan, China, Turkey, India, Korea, Canada, Peru, Kenya.

Conduct outside the scope of this definition

Conduct which also amounts to a cartel, an abuse of dominance or some other form of horizontal or unilateral anti-competitive behaviour is covered by other definitions. Conduct leading to competitive advantage conferred or obtained as a consequence of government regulation or state aid may be regarded as ‘unfair competition’ in some jurisdictions, but there are often separate regulatory regimes in place to promote ‘competitive neutrality’ or govern ‘state aid’.

 

Bibliography

Henning-Bodewig, F., International Handbook on Unfair Competition, Hart, 2013

Paris Convention for the Protection of International Property

Coorey, A., Australian Consumer Law, Lexis Nexis

Guidance on the Implementation/Application of Directive 2005/29/EC on Unfair Commercial Practices, European Commission Staff Working Document, 2016

Summary of the Unfair Commercial Practices Directive 2005/29

Summaries of the statutes giving the FTC enforcement powers

FTC Policy Statement on Deception, 1983

Outline of the Japanese Unfair Competition Prevention Law – published by the Japan Patent Office

This article is being reviewed by the Editors of the Dictionary.

Author

  • Australian Competition and Consumer Commission (Canberra)

Quotation

Rod Sims, Unfair competition, Global Dictionary of Competition Law, Concurrences, Art. N° 89138

Visites 1545

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

The law of unfair competition concerns the relationship between two undertakings considered individually; its purpose is to protect one of them against the manoeuvres of the other, which, by transgressing the rules of fair trade, seeks to divert customers from its competitors. It should be distinguished from rules protecting industrial property titles (patents, trademarks, registered designs) against counterfeiting or imitation: although the purpose of rules in this category is also to protect customers (through the protection of the means of production or identification of products belonging to an enterprise), they constitute a particular branch of law. Encyclopaedia Universalis

 
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