Unfair competition through incorrect comparison

In the conditions of active development of the economy and overcrowding of market sectors, its participants seek to distinguish their product or service from others in order to increase demand and, accordingly, profit. This is achieved, among other things, by promoting their own brand, which, as a rule, is an already registered trademark.

By registering a trademark in his own name, a person receives the exclusive right to use it in any way that does not contradict the law, due to which an individualizing function is achieved that allows one to isolate one's own product. However, owning the exclusive right to a trademark, especially one that is widely known, may entail the need to protect it from individuals seeking to take advantage of the reputation built around such a trademark and the goods marked by it. In order to ensure the legitimate interests of copyright holders and suppress the illegal actions of violators, the current civil legislation provides for effective measures of protection and liability. However, in order to apply such protection and liability measures, certain conditions must still be met.

Thus, by virtue of paragraph 3 of Article 1484 of the Civil Code of the Russian Federation, “no one has the right to use, without the permission of the copyright holder, designations similar to his trademark in relation to goods for the individualization of which the trademark is registered, or homogeneous goods, if in as a result of such use there will be a possibility of confusion."

Based on the above norm, one of the qualifying signs of the illegal use of a trademark is the occurrence of the likelihood of confusion. But let's imagine a situation where a third party publishes information comparing its product and a competitor's product, including which a registered trademark is applied, especially when this occurs in a negative context. It turns out that in such a situation, the trademark is, as it were, “used”, but the conditions for the right holder to apply protection and liability measures do not arise within the meaning of Article 1484 of the Civil Code of the Russian Federation, since a third party uses the trademark not to individualize homogeneous goods and indicates a clear difference in goods and designations, their marked. Despite the fact that the described actions of a third party have signs of bad faith and may harm the person concerned, it seems that under such circumstances there are no grounds for suppressing them. In this case, Federal Law No. 135-FZ of July 26, 2006 “On Protection of Competition” provides for an article prohibiting incorrect comparison of persons and (or) their goods, qualifying such actions as an act of unfair competition. Let's figure it out.

According to paragraph 7 of Article 4 of the Law on Protection of Competition, “competition is the rivalry of 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 for the circulation of goods in the relevant commodity market.”.

In turn, as unfair competition, the law defines any actions of economic entities (groups of persons) that are aimed at obtaining advantages in carrying out entrepreneurial activities, contradict the legislation of the Russian Federation, business practices, the requirements of integrity, reasonableness and fairness, and have caused or may cause losses to others business entities that are competitors have either been harmed or may be harmed by their business reputation (Item 9 of Article 4 of the Law on Protection of Competition).

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

At the same time, 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 Article 14.3. 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:

1) comparison with another economic entity-competitor and (or) its product by using the words "best", "first", "number one", "most", "only", "only", other words or designations that create the impression about the superiority of the product and (or) the economic entity, without specifying specific characteristics or comparison parameters that have objective confirmation, or if the statements containing these words are false, inaccurate or distorted;

2) comparison with another economic entity-competitor and (or) its product, in which there is no indication of specific compared characteristics or parameters or the comparison results cannot be objectively verified;

3) comparison with another economic entity-competitor and (or) its product, based solely on insignificant or incomparable facts and containing a negative assessment of the activities of the economic entity-competitor and (or) its product.

When determining an incorrect comparison, the antimonopoly authority uses the method “on the contrary”, indicating that an incorrect comparison should include one that is opposed to a correct one, and therefore an incorrect comparison should be understood as an inaccurate, incorrect comparison, the purpose of which is to create a negative image of competitors and the products they sell.

Meanwhile, the antimonopoly authority separately notes that an incorrect comparison can be not only negative, when an economic entity seeks to belittle a competitor’s goods, praising its own, but also positive, when the reputation of a competitor’s goods is not weakened, but is used by such an economic entity (Letter of the FAS Russia dated December 24, 2015 No. IA/74666/15 “On the application of the “fourth antimonopoly package”).

In addition, the information provided in such a comparison may be in principle reliable, but their arrangement or choice creates a certain incompatibility. Also, with an incorrect comparison, there is no comparison criterion or it is unclear, inaccurate, words and lexical devices with a negative connotation are used (decision of the Sverdlovsk OFAS Russia dated 10.01.2023 in case No. .2021 in case No. 011/05/5-64/2021).

Since the comparison can be carried out both with a specific product of a competitor, and with all products of a certain category (for example, by using the phrases “the best”), the legislator has divided unfair actions by incorrect comparison into three categories.

1.  The first type of incorrect comparison is related to an unlimited range of economic entities-competitors and (or) their goods (paragraph 1 of Article 14.3 of the Law on Protection of Competition).

In this case , a form of impersonal comparison is formed with the superiority of such a person (goods) in comparison with any person (goods) acting or located in this product market.

To specify the specified type of incorrect comparison, verbal markers were established in the norm of the law that allow one or another information to be attributed to an incorrect comparison, in particular, “the best”, “first”, “number one”, “most”, “only”, “the only " etc. Thus, it is presumed that the use of such words can create an impression of a product or its seller in an unreasonably superlative degree without objective prerequisites for this, since the indicated actually means the presence of other persons and (or) goods that are worse than a competing business entity ( decision of the Arbitration Court of the Moscow District dated September 13, 2018 in case N A40-223476 / 17).

In order to satisfy legal requirements, the statements used must be accompanied by an indication of specific characteristics or comparison parameters that have objective confirmation, for example, reference to the result of relevant studies and the source of data (Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated October 08, 2012 No. 58 “On some issues of the practice of application by arbitration courts of the Federal Law “On Advertising”, decision of the Sverdlovsk OFAS Russia dated January 10, 2023 in case No. 066/05/28 -3423/2022 ).

2.  The second type extends to an incorrect comparison with a specific economic entity - a competitor (goods) (paragraph 2 of Article 14.3. of the Law on Protection of Competition).

The specified type of incorrect comparison implies the impossibility of using information, statements or other information 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 a part of them or does not disclose them at all, and may somehow or in a way to give the consumer the impression that the competitor's product is clearly inferior in quality and other properties to the product to which the information is dedicated.

In addition, the dishonesty of the above actions lies in the fact that the consumer is provided with incomplete information about the compared goods, misleading him regarding their properties and characteristics and creating a distorted impression of the manufacturers of such goods (decision of the Ivanovo OFAS Russia dated November 29, 2022 on case No. 037/01/14.3-180/2022).

As a result of the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation, in its ruling dated March 20, 2017 in case No. А41-947/2016, it was noted that when carrying out actions to publish information containing a comparison of their goods with the goods of a competing economic entity, they must be refuted to the extent that they affect the competitor's products.

3.  The third type of incorrect comparison must be built using incorrect logical operations, the reliability of which can neither be objectively confirmed nor refuted (paragraph 3 of Article 14.3 of the Law on Protection of Competition).

In the case of the third type of incorrect comparison, the so-called reputational borrowing takes place, which consists in transferring the recognition of someone else's product to one's own produced and sold product, while simultaneously creating a negative connotation by belittling the competitor's product, which, suppose, has already gained a certain reputation, has established itself in the eyes of consumers and with a sufficient degree of probability is guessed by them, along with the presentation of a positive characteristic of their product by stating that a competing product is better according to minor or incomparable criteria (decision of the Chelyabinsk OFAS Russia dated 03.08. 2021).

Based on the interpretation of the relevant provision of the law, the comparison should take place on the basis of significant and comparable characteristics of a competitor or his product, which will not contain and be perceived by the consumer as a discrediting activity of such a person or his product.

Thus, it can be concluded that the current legislation contains not only civil law leverage against persons seeking to parasitize on the reputation created around a product or, for example, its manufacturer, but also administrative measures that can stop such dishonest actions.