​Unfair competition is the enemy of goodwill

Yuryst&Zakon, No. 28, 8th of August, 2019.

Khrystyna Sushkevych, associate at Legal Alliance Company

For any business entity, along with the quality of the goods and services they provide, their business reputation is gaining more and more importance. As goodwill is related to demand, it can be safely added to the main factors that influence a consumer's final choice in favor of certain goods and services. Clearly, in addition to the conformity of the production process with the established standards or the proper quality of the components of the product, the consumer also focuses on other indicators of the high quality of goods and services, one of which is business reputation, which indicates the source of their origin.

Variety of "parasites"

Business reputation is acquired by a specific participant in market relations, in particular through the production of quality products, the provision of high-level services, the marketing campaign, the promotion of goods and services, which, in turn, requires the entity to attract significant financial and human resources.

However, the legitimate activities of an entity in a particular market for goods and services can face a dishonest entity that damages the business reputation and achievements of a competitor to gain greater benefits for itself, in particular, by creating a false impression of the origin of the goods and its relationship with another manufacturer who has already developed a business reputation.

To date, the Law of Ukraine "On Protection against Unfair Competition" (hereinafter - the Law on Protection against Unfair Competition) is one of those components of the legal framework that defines the use of business reputation of another market participant as misconduct.

Quite common cases of misuse of the goodwill of another entity are copying the appearance of its goods, misuse of marks and comparative advertising.

In this context, it would be appropriate to pay particular attention to identifying symbols of the entity, since they are a means of individualizing the relevant players in the market for goods and services. One such symbol is a trademark that allows the consumer to distinguish products from different manufacturers. This ability of the consumer to distinguish products from different manufacturers is an essential prerequisite for competition. The trademark also acts as an advertisement, allowing consumers to make decisions about purchasing goods or receiving services from specific entities.

The right to an identifying symbol is an exclusive right that enables its owner to allow or prohibit other persons from using it in his or her sole discretion, and the absence of a prohibition on use does not imply automatic authorization.

The misuse of the identifying symbols is certainly detrimental to the goodwill primarily due to the probably significantly lower quality of the product than the original product of the rightful owner of the mark. Therefore, the improper use of an identifying symbol does not guarantee the conformity of the product or service with the consumer's expectations of the manufacturer's existing reputation.

In markets with high levels of competition, there may be cases of deliberately misleading information from competitors about other entities in order to discredit the latter or to induce a boycott of the entity. Such misconduct materially damages the business reputation of a particular market participant and misleads consumers.

The most common manifestation of unfair competition is the dissemination of misleading information to achieve unfair competitive advantages. It should be noted that spreading misleading information can damage the reputation of both competitors (if the information concerns competitors) and the reputation of the company that disseminates misleading information about its products or services.

As reputation losses can be quite noticeable in business, and restoration of reputation can require significant effort and resources, it is worth being attentive and guarding own business reputation, and if there is information even about a potential reputation threat, take preventative and timely measures for its protection.

How to protect oneself?

One of the bodies that can be contacted in case of infringement by an unfair competitor is the Antimonopoly Committee of Ukraine (hereinafter - the AMCU, the Committee), which is responsible for healthy competition in Ukraine. If goodwill has been harmed as a result of fraudulent actions by a competitor, or the company has information that gives it reasonable grounds to assert a potential threat to goodwill, then the AMCU should be urgently contacted to stop or prevent misconduct by competitors and other persons interested in harming the relevant entity.

If the Committee finds a violation, the defendant should expect sanctions, including, in particular, a fine of up to 5% of the revenue from sales of its products during the last financial year.

Extensive practice of the AMCU has a case against the company "Kyiv BKK", which committed a violation of Article 4 of the Law on Protection against Unfair Competition, namely it used without the permission of Roshen's design of packaging of the cake "Kazkovyi Kliuchyk". The packaging was similar to the design of Zolotyi Kliuchyk cake package, which was first used by Roshen for its confectionery. This could lead to confusion with Roshen's activities. It means that a consumer who is accustomed to the quality characteristics of Roshen's products could mistakenly expect the same from the products of the Kyiv BKK, confusing it with Roshen's products. The Committee imposed a fine of UAH 326,000 for the said violation on Kyiv BKK.

How to prevent it?

A perfect business reputation is clearly one of the elements of success. By "parasitizing" on the business reputation of its competitor, the infringer thereby harms its own business reputation in case of detection of the violation , which may further reflect not only on consumers' preferences for its products or services, but also on attitude towards it from its business partners.

CONCLUSION:

Therefore, in order to prevent the company from going beyond the Law on Protection against Unfair Competition, the option of salvation may be to appeal to the AMCU for preliminary conclusions on the qualification of actions, which will serve as a pointer for companies to act within the law. Thus, even before carrying out a particular activity, the entity will be aware of its legitimacy and the risk of breach of the law, since it will obtain the official position of a competent authority, which will be a good benchmark.