Unfair competition through copying or imitation

The active development of the economy contributes to the emergence of new niches and provides its participants with many different opportunities to develop their business. The Federal Law “On the Protection of Competition” defines “healthy” competition as “rivalry between economic entities, in which the independent actions of each of them exclude or limit the ability of each of them to unilaterally influence the general conditions of circulation of goods on the relevant product market.” Based on this definition, the competition of economic entities in itself by naturally limiting each other in one or another economic activity is not an illegal action, but, on the contrary, contributes to the development of the market, maintaining equality for all participants. However, in any case, every entrepreneur strives by all means to obtain the largest possible profit and maintain a leading position in the market. Since leadership in the market is ensured by the goods sold or services provided, often some of its participants, in pursuit of profit, including due to the desire to reduce costs for creating and promoting their own products, borrow successful elements that individualize a competing business entity and (or) its product, which can be qualified as an act of unfair competition.

In accordance with paragraph 9 of Article 4 of the Federal Law of July 26, 2006 No. 135-FZ “On the Protection of Competition”, “unfair competition is any actions of business entities (groups of persons) that are aimed at obtaining advantages in carrying out business activities, contradict the legislation of the Russian Federation, business customs, the requirements of integrity, reasonableness and fairness and have caused or may cause losses to other business entities - competitors or have caused or may cause harm to their business reputation.”

From the above definition of unfair competition it follows that in order to recognize the actions of a certain person as unfair competition, a set of conditions must be established, namely:

• relevant actions must be performed by competing economic entities;
• actions should be aimed at obtaining advantages in business activities;
• actions must contradict the legislation of the Russian Federation, business customs, the requirements of integrity, reasonableness and fairness;
• these actions have caused or may be capable of causing losses to another business entity - a competitor, or damage its business reputation.

Moreover, in addition to the indicated signs, for each of the elements of the violation it is necessary to establish special signs inherent in one or another type of unfair competition.

In accordance with paragraph 2 of Article 14.6 of the Law on Protection of Competition, “unfair competition is not allowed through the commission of actions (inaction) by an economic entity that could cause confusion with the activities of a competing economic entity or with goods or services introduced by a competing economic entity into civil circulation in the territory Russian Federation, including:

2) copying or imitation of the appearance of a product introduced into civil circulation by a competing business entity, the packaging of such a product, its label, name, color scheme, corporate identity as a whole (in the totality of branded clothing, design of the sales area, display case) or other elements that individualize the business owner competitor and (or) its product."

According to the explanations of the Federal Antimonopoly Service of the Russian Federation, presented in letter dated June 30, 2017 No. AK/44651/17 “On the practice of proving violations classified in accordance with paragraph 2 of Article 14.6 “On the Protection of Competition”, the determination of this form of unfair competition presupposes the establishment of the following circumstances:

• the presence of competitive relations between economic entities;
• fact of copying or imitation of the applicant’s goods;
• the likelihood of confusion between the applicant’s and the competitor’s goods;
• the presence of distinctiveness in the appearance of the applicant’s goods;
• causing or possibility of causing harm to the applicant.

Let's briefly consider each of the above circumstances.

1. Competitive relations between economic entities.

Based on the interpretation of the current legislation on the protection of competition, proving the existence of competitive relations between business entities requires documentary confirmation of the fact that the goods/services of these persons are interchangeable within the meaning of paragraph 3 of Article 4 of the Federal Law “On the Protection of Competition” and are introduced into civil circulation within the limits of coinciding geographical boundaries (Decision of the Tatarstan OFAS Russia dated March 28, 2022 in case No. 016/01/14.6-722/2021).

In order to determine whether certain persons are competitors, as a rule, an analysis of the state of competition in the product market is carried out, which includes the following steps:

a) determining the time interval for product market research;

b) determining the product boundaries of the product market;

c) determining the geographical boundaries of the product market;

d) determining the composition of business entities operating in the product market, to the extent of establishing actual competitive relations between the business entity (clause 10.6 of Order of the FAS Russia dated April 28, 2010 No. 220 “On approval of the Procedure for analyzing the state of competition in the product market”).

Based on the results of the above analysis, a brief report of the findings is compiled.

2. Copying or imitation of goods.

Due to the clarifications of the FAS Russia, set out in Letter No. AK/44651/17, “copying the appearance of a product is the reproduction of the appearance of a product of another business entity (entrepreneur) and introducing it into civil circulation. Imitation of the appearance of a product is a kind of imitation of a competitor’s product in order to create an impression among buyers that such products belong to the line of imitated goods.”

In the letter mentioned above, it was noted that the borrowing of individualizing elements can be visually established by the antimonopoly authority itself, however, nevertheless, it is still recommended to present in the case materials the results of an assessment of this issue by other persons, for example, within the framework of a sociological or marketing research, conclusion a specialist, including a patent attorney, qualified in the relevant field.

3. Likelihood of confusion.

To recognize a person’s actions as an act of unfair competition based on the violation in question, it is not enough to prove the fact of copying or imitation of elements that individualize a competing business entity and (or) its product; it is also necessary to justify that such actions lead to mixing of goods from different manufacturers, misleading the consumer and influencing the competitive environment between competing economic entities.

Current judicial practice generally understands confusion as a situation in which a consumer of one product (service) identifies it with another product (service) or allows, despite noticeable differences, the production of two specified goods (provision of services) by one person (Rulings of the Court on Intellectual Property rights dated May 24, 2023 in case No. A40-155358/2022, dated September 22, 2022 in case No. A28-3119/2021, dated December 14, 2021 in case No. A57-16460/2020, etc.).

When mixed, the products of an economic entity in one way or another are so similar to the products of a competitor that the consumer is able to mistake its product for the competitor’s product (Resolution of the Seventh Arbitration Court of Appeal dated October 20, 2022 in case No. A03-3330/2022, Resolution of the Thirteenth Arbitration Court of Appeal dated 18.09 .2022 in case No. A26-9980/2021, etc.).

However, for this circumstance, the antimonopoly authority also named some exceptions, namely when the selection of a product is made based solely on objective functional characteristics or with the participation of qualified specialists and for a specific brand/manufacturer/indications for use (clause 4 Letters No. AK/44651/17).

As a rule, the mixing of goods on the market is confirmed by relevant sociological or marketing research.

4. Distinctive ability of the appearance of the product.

In accordance with the Letter of the FAS Russia dated August 22, 2018 No. AD/66643/18 “On the issue of delimiting the application of Articles 14.2 and 14.6 of the Law on Protection of Competition”, “as an act of unfair competition in form of confusion considers the use of designations that are capable of carrying out the function of individualization: they have a distinctive ability or have acquired it due to use, that is, based on the perception of which the consumer identifies the product as belonging to a specific manufacturer or seller, and therefore the use of such designations can cause confusion for the purpose of obtaining by a competing economic entity imitating controversial elements of individualization, unjustified advantages when carrying out business activities.”

This point of view is based on the fact that the fact of mixing of goods can be established when the consumer identifies it as belonging to a specific manufacturer or seller, based on the perception of specific elements inherent in this particular product.

Taking into account the above, the antimonopoly authority rightly notes that elements of the product that are due to any objective reasons cannot cause confusion. As an example, the Federal Antimonopoly Service of Russia cites: a loaf of bread, a rectangular stick of butter, or the generally accepted color combination on ice cream packages due to flavoring additives: brown - chocolate, green - with nuts, etc.

In order to confirm this fact, the applicant may submit documents indicating the active promotion of goods with controversial elements long before the discovery of a violation, for example, commercial proposals, contracts for the provision of advertising services/supplies, participation in exhibitions, procurement, consumer surveys (clause 3 Letter No. AK/44651/17).

5. Causing or potential to cause harm.

Causing or the possibility of causing harm to the applicant determines the presence of an unfair purpose in the actions of the violating economic entity, which can be achieved, inter alia, by obtaining unjustified advantages.

The focus of the actions of an economic entity on obtaining advantages when carrying out business activities should be understood as their ability to improve the position of a competing economic entity in the market, including attracting consumer demand for their goods (works, services) and increasing the amount of profit received in relation to the amount of profit that could have been received by him in case of conscientious behavior (Resolutions of the Intellectual Rights Court dated June 30, 2022 in case No. A56-56615/2021, dated July 15, 2021 in case No. A27-5932/2020).

To confirm this circumstance, documents may be provided confirming the redistribution of demand in the market during the disputed period (for example, sales dynamics, accounting statements, etc.), as well as damage to the business reputation of the applicant (for example, consumer reviews) (paragraph 5 of Letter No. AK/44651/17 ).

To summarize, it should be noted that all of the above circumstances must be proven in their entirety, since the absence of confirmation of the presence of at least one of them entails the recognition of the absence of a violation in the form of unfair competition by copying or imitation of elements that individualize a competing business entity and (or) his product.