Marketing tool or legal risk? How to prevent prosecution for unfair competition

The use of comparison elements in advertising is one of the most visible marketing tools. Such a marketing move allows not only to demonstrate the advantages of a product or service, but also to form a consumer's perception of the market through comparison with other participants. In international and Russian practice, there are widely known examples when large brands use a comparative approach to attract consumers (for example, Pepsi and Coca-Cola, Audi and BMW, McDonald's and Burger King).

At the same time, comparative advertising requires preliminary verification for signs of incorrect comparison. Unlike neutral promotion, any comparison with a competitor affects their business reputation and can affect consumer behavior.

Most often, risks arise when using estimates or absolute statements without proper confirmation; incorrect choice of comparison criteria; formation of a negative image of the consumer as a competitor as a whole and of his products.

As a result, a creative advertising campaign can be qualified as unfair, which entails both legal and reputational consequences.

The purpose of this article is to determine the boundaries of the permissible use of comparative advertising and to formulate practical approaches that minimize the risks of liability.

Violation of business reputation

According to Article 150 of the Civil Code of the Russian Federation, business reputation is an intangible benefit protected in accordance with the Code and other laws in the cases and in the manner provided for by them.

In accordance with paragraph 7 of the Resolution of the Plenum of the Supreme Court of the Russian Federation dated 24.02.2005 No 3 "On Judicial Practice in Cases of Protection of the Honor and Dignity of Citizens, as well as the Business Reputation of Citizens and Legal Entities" (hereinafter referred to as the Resolution No 3), in cases of this category, it is necessary to bear in mind that the circumstances that are significant for the case by virtue of Article 152 of the Civil Code of the Russian Federation, which must be determined by the judge when accepting the statement of claim and preparing the case for trial, as well as during the trial, are:

• the fact of dissemination by the defendant of information about the plaintiff,
• the defamatory nature of this information, and
• their inconsistency with reality.

In the absence of at least one of these circumstances, the claim cannot be satisfied by the court.

Similar explanations are given in paragraph 17 of the preamble and paragraph 4 of the Overview of the practice of consideration by courts of cases on disputes on the protection of honor, dignity, and business reputation, approved by the Ministry of Justice, by the Presidium of the Supreme Court of the Russian Federation on 16.03.2016 (hereinafter referred to as the Overview).

At the same time, in accordance with the explanations contained in paragraph 9 of Resolution No 3, by virtue of paragraph 1 of Article 152 of the Civil Code of the Russian Federation, the obligation to prove the accuracy of the disseminated information lies with the defendant. The plaintiff is obliged to prove the fact of dissemination of information by the person against whom the claim is filed, as well as the defamatory nature of this information.

By virtue of paragraph 1 of Article 152 of the Civil Code of the Russian Federation, a citizen has the right to demand in court a refutation of information discrediting his honor, dignity, or business reputation, if the person who disseminated such information does not prove that it is true. The refutation must be made in the same way as the information about the citizen was disseminated, or in another similar way. The law recognizes the publication of a refutation in the same mass media as a way of protecting business reputation against the dissemination of defamatory and untrue information in the press (paragraph 2 of Article 152 of the Civil Code of the Russian Federation).

The rules of the said article on the protection of the business reputation of a citizen, with the exception of the provisions on compensation for moral damage, are accordingly applied to the protection of the business reputation of a legal entity (paragraph 11 of Article 152 of the Civil Code of the Russian Federation).

In these categories of cases, it is often necessary to involve persons with special knowledge in order to establish the fact of the falsity of information disseminated by another person.

According to the position set out in paragraph 5 of the Overview, when deciding whether the information disputed by the plaintiff is defamatory, as well as in order to assess their perception, taking into account the fact that the disseminated information may be brought to the attention of third parties in various ways (figuratively, allegorically, offensively, etc.), the courts, if necessary, should appoint an expert (for example, linguistic) or engage a specialist for consultation (for example, psychologist).

The likelihood of satisfying the claim for the protection of business reputation largely depends on whether the results of the psycholinguistic examination can establish the presence in the advertising materials of statements about the facts of a discrediting competitor.

In addition, it will also be important to take into account the fact that if the defendants provide that the disseminated information is true, they will be subject to exemption from liability.

Violation of the law on advertising

According to paragraph 1 of Article 3 of the Federal Law of 13.03.2006 No 38-FZ "On Advertising", advertising is information disseminated by any means, in any form and by any means, addressed to an indefinite circle of persons and aimed at attracting attention to the object of advertising, forming or maintaining interest in it, and its promotion in the market.

Paragraph 2 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated 08.10.2012 No 58 "On Certain Issues of the Practice of Application of the Federal Law "On Advertising" by Commercial Courts states that when analyzing information for the presence of signs of advertising in it, the courts must take into account that the placement of certain information that obviously evokes an association with a certain product in the consumer, aimed at attracting attention to the object of advertising, should be considered as an advertisement of this product, since in these cases an image of part of the information about the product (including the trademark) is sufficient to attract attention and maintain interest in the product.

In accordance with paragraph 1 of part 2 of Article 5 of the Law on Advertising, an advertisement that contains incorrect comparisons of the advertised product with goods in circulation that are produced by other manufacturers or sold by other sellers is recognized as unfair.

According to paragraph 2 of part 2 of Article 5 of the Law on Advertising, an advertisement that discredits the honor, dignity, or business reputation of a person, including a competitor, is recognized as unfair.

Paragraph 1 of Part 3 of Article 5 of the Law on Advertising stipulates that an advertisement that contains false information about the advantages of the advertised product over the goods in circulation that are produced by other manufacturers or sold by other sellers is recognized as unreliable.

According to paragraph 9 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated 08.10.2012 No 58 "On Certain Issues of the Practice of Application of the Federal Law "On Advertising" by Arbitration Courts, when comparing own products with competitors' products in advertising, a comparison based on incomparable criteria or an incomplete comparison of goods is not allowed, since this distorts the idea of the advertised product and does not allow an objective assessment of its properties.

To recognize the presence of a comparison (incorrect comparison) in the advertisement, it is not necessary to indicate or mention a competitor. Advertisers can use various linguistic techniques to maintain and form interest in the object of advertising by distinguishing it from other homogeneous products, that is, an incorrect comparison is contrary to the norms of business ethics.

Taking into account that the provisions of the Law on Advertising do not contain a definition of the concept of "incorrect comparison", in this regard, the antimonopoly authority, when considering cases related to the violation of the provisions of the Law on Advertising, is guided by the norms contained in the antimonopoly legislation, thereby applying the analogy of the law.

Incorrect Comparison as a Form of Unfair Competition

Within the meaning of the provisions of paragraph 7 of Article 4 of the Law on Protection of Competition, competition is a rivalry of economic entities, in which the independent actions of each of them exclude or limit the ability of each of them to unilaterally affect the general conditions of circulation of goods in the relevant product market.

Unfair competition is any actions of economic entities (group of persons) that are aimed at obtaining advantages in the implementation of entrepreneurial activities, are contrary to the legislation of the Russian Federation, business customs, requirements of decency, reasonableness and fairness, and have caused or may cause losses to other business entities - competitors or have caused or may cause damage to their business reputation (paragraph 9 of Article 4 of the Law on the Protection of competition).

It follows from the above definition of the concept of "unfair competition" that in order to recognize actions as unfair competition, they must simultaneously fulfill several conditions, namely: they must be committed by business entities; be aimed at obtaining advantages in entrepreneurial activity; contradict the legislation of the Russian Federation, business customs, the requirements of decency, reasonableness and justice; to cause or be capable of causing losses to another economic entity – competitor or to damage its business reputation (causing damage).

Comparison is the process of quantitative or qualitative comparison of different properties (similarities, differences, advantages, and disadvantages) of two or more objects.

According to paragraph 2 of Article 14.3 of the Law on Protection of Competition, unfair competition is not allowed by incorrect comparison of an economic entity and (or) its goods with another economic entity-competitor and (or) its goods, including: comparison with another economic entity-competitor and (or) its product, in which there is no indication of specific characteristics or parameters to be compared or the results of the comparison cannot be objectively verified; or contain a negative assessment of the activities of a competing business entity and (or) its product.

Thus, advertising products should not contain data, statements or other information, including comparisons, about the competitor's product or its properties, if this information does not disclose all the properties, characteristics and parameters of the competitor's product, but concerns only part of them or does not disclose them at all, and can somehow create for a person viewing advertising products, the impression that the competitor's product is clearly inferior in its quality and other properties to the product to which the advertisement is dedicated.

Otherwise, such advertising will be considered advertising based on an obviously incorrect comparison of the advertised goods with goods in circulation that are produced by other manufacturers or sold by other sellers, that is, unfair advertising in accordance with Article 5 of the Law on Advertising.

At the same time, such unfair advertising will contain signs of unfair competition by means of incorrect comparison, which is in accordance with Article 14.3 of the Law on Protection of Competition, therefore, the information contained therein must be refuted to the extent that they affect the goods or products of a competitor (Decision of the Judicial Chamber for Economic Disputes of the Supreme Court of the Russian Federation dated 20.03.2017 in case No 305-ES16-17606, A41-947/2016).

Conclusions

Taking into account the above, before launching advertising, especially those containing elements of comparison, it is worth checking it on key aspects.

1. Ensure the objectivity of the comparison criteria. Comparison should be based on characteristics that are essential for the consumer, which can be objectively assessed and can be verified. As a rule, such parameters include price, technical characteristics, terms of service, and terms of performance.

2. Be ready to confirm the correctness of statements. Any statement used in the comparison must have an evidentiary base. It is recommended to form and record materials confirming the correctness of the comparison in advance, including research results, analytical data, and calculation methods.

3. Exclude evaluative and absolute formulations without justification. The wording "best", "No. 1", "most profitable" is permissible only if there are objective criteria and confirmed results that allow them to be verified. Otherwise, such statements may be recognized as misleading.

4. To ensure the comparability of the objects of comparison. The goods or services being compared must be similar in their purpose and key characteristics.

5. Exclude elements of discrediting a competitor. Advertising materials should not contain statements or hints that could negatively affect the business reputation of a competitor. The comparison should be correct and aimed at demonstrating your own advantages.

6. Establish a procedure for preliminary legal verification. Practice shows that the greatest efficiency is provided by the preliminary legal examination of advertising materials.

Thus, comparative advertising can be used as an effective promotion tool, provided that the principles of objectivity, reliability, and correctness are observed. In order to avoid liability, advertisements should be thoroughly screened for potential violations before they are published.