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The boundaries between copyrights and free competition

Home > Intellectual Property in France | Published 2010-12-15

In a society where trade is a pillar of the economy, we must pay utmost attention to the importance of protecting businesses. While competition is essential for the proper functioning of a market, it must respect certain rules.

Some actions, often called unfair competition, are punishable by law while others are creative jurisprudence and do not necessarily threaten a competitive relationship. In a jurisprudential example we will examine the ruling of March 23, 2010 issued by the Commercial Chamber of the Court of Cassation concerning unfair competition and parasitism.

To understand the decision we refer to Article L442-6 of the Commercial Code:

"I. Engage the responsibility of the author and requires him to repair the harm done, for any producer, trader, business or person registered in the business directory:

6 ° Direct or indirect violation of a resale that has been prohibited outside the distributor’s network, linked by an inclusively or exclusively exempt distribution agreement and pursuant to the rules, applies to the law of competition;”

The Chanel Company, owner of numerous brands, acted against a company for its illegal use of Chanel trademarks and unfair and parasitic behavior. Their frustrations lay in the other company’s proposal to sell cosmetics and perfumes purchased from another company that had bought the stock of a dealer through public auction.

The decision holds that if resold, under poor presentation conditions, by an unauthorized distributer of products meant for circulation in legally watertight and selective distribution networks and compliant with the rules of competition, constitutes an act of unfair competition or parasitism. This engages the responsibility of the author explained at the end of the Article L. 442-6 I 6° of the Code of Commerce in that the alleged loss for Chanel is indistinguishable from the issue of illicit use of the brand, to the extent that the act originated in resale outside of the network by an unauthorized distributer that has been classified as illicit use.

The Court of Appeals has taken into consideration the conditions of presentation of the products by the company, engaging in this exercise with utmost discretion. They decided that Chanel did not suffer any damages aside from the illicit use of their brand, and therein justified their decision.”.

This case involves a question of unfair competition and parasitism. Unfair competition finds its roots in jurisprudence and an attempt to maintain fairness in competitive relationships. According to a judgment made in 1985 by the Court of Cassation, “if the free research of a clientele is identical to that of a business(es), and abuse of the freedom of trade voluntarily (or involuntarily) causes a disturbance in trade, it is therein classified as unfair competition.”

There are several types of action that constitute unfair competition and are typically decided on a case by case basis. In this example, the unauthorized distributor exploited the reputation of Chanel by selling its products without permission, either intentionally or intentionally (which is not taken into account). In this instance, it is considered unfair competition. Nevertheless, there are numerous other instances that merit unfair competition status; for instance in the event of defamation, devaluation of the competitor, comparative advertising (to be approved, it must be fair and true, limited to an objective comparison that may relation to similar traits of goods and services), or intentional distribution of products that will inevitably and undeniably confuse buyers into purchasing one product over another. This is explained in the field of torts in sections 1382 and 1383 of the Civil Code; specifying that there are fault and damages with causal links between both elements. An assessment of these elements is made by the judge, which often leads to differences between cases.

On the other hand, the judgment evokes the notion of parasitism: parasitism differs from unfair competition in that it allows action in a non-competitive setting. According to a verdict reached in the Commercial Chamber on January 26, 1999, economic parasitism is defined as “all conduct by which an economic agent interferes in the wake of another to take advantage without compensating them for their efforts and/or expertise.” Therefore, parasitism describes an abusive relationship in which one party uses the reputation and expertise of another to further their own status without offering anything in return. This is certainly not a competitive relationship because it is, simply put, the exploitation of one party by another without proper consent and authorization.

The concept of parasitic competition also exists and unfolds when one party capitalizes on the reputation of its competitors, approaching acts of plagiarism, without the intention to instill confusion in the mind of the consumer. This is the distinguishing factor between parasitism and unfair competition. Damages are difficult to decide because, since the two parties are not in a competitive relationship, it does not technically divert clientele and doesn’t cause a loss of revenue. What about moral damages?

Finally note that the jurisprudence is not very clear on this topic; the boundary between parasitism and unfair competition is rather vague and most often decided on a case by case basis. Therefore, one can simply identify a generalized set of actions that characterize an offense, which can then be punished in accordance with the applicable laws. In this sense, it is impossible to establish an exhaustive list of possible scenarios distinguishing between parasitism and unfair competition.  Be cautious; there are many loopholes and complexities between these two situations which render it very difficult to conclusively deem a situation parasitism and another unfair competition.

This article is available online for public information purposes. It is updated regularly, as needed. Due to the constant evolution of the laws and the legal system, we cannot guarantee that the information in this article is still applicable. We invite you to contact us with any legal questions or concerns you have regarding this topic at +33 1 56 79 11 00. In no way can this firm be held liable for articles that contain inaccuracies or are now out of date.

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