Unfair competition

І. Nature of the protection against unfair competition

In the sense of the Law on Protection of Competition (LPC) unfair competition is any action or omission when carrying out economic activity, which is contrary to good faith commercial practices and damages or may damage the interests of competitors (Article 29 of the LPC).

For the purpose of establishing an infringement under Chapter Seven of the LPC, several mandatory conditions shall be in place.

1. Presence of an economic activity and competitive relations between the parties under the case.
This requirement introduces a distinction between the competence of the Commission for Protection of Competition (the CPC) and the competence of the Commission for Consumers Protection. While the Consumer Protection Act (CPA) is aimed at the direct protection of the major rights of consumers (Article 1 of the CPA), the LPC is aimed at ensuring protection and conditions for promotion of competition and free economic initiative. In practice, this means that the CPC is responsible for keeping a watch on the cleanness of market relations between competitive undertakings, thus indirectly protecting the interests of end-customers.

The LPC ensures protection for any natural person, legal entity, or unincorporated entity which carries out economic activity, regardless of its legal and organizational form (§1 (7) of the Supplementary Provision of the LPC). Thus in addition to merchants in the sense of the Commercial Law, the LPC ensures protection against unfair actions for all other persons whose activities, organized in an undertaking, determine them as merchants.

For competitive relations to be in place, the parties shall carry out their economic activity on one and the same relevant market and this is the case when they offer goods and services which could be accepted by customers as interchangeable in respect of their characteristics, intended use and price, on the one hand, and in respect of whether they are offered on one and the same territory, on the other hand.

2. Any action or omission when carrying out economic activity contrary to good faith commercial practices.
A contradiction to good faith commercial practice is in place when any action or omission when carrying an economic activity infringes written (laws) or unwritten (imposed ordinary commercial relations or good morals between economic subjects) rules of market conduct related to the relevant economic activity.

3. Presence of damaging or of a possibility for damaging the interests of competitors.
The carrying of competitive activity shall not be deemed as damaging the interests of competitors. The action or omission contrary to good faith commercial practice shall damage the interests of customers or at least create a possibility for such damage.

ІІ. Forms of unfair competition

The most common forms of unfair competition have been indicated in the special texts of the LPC (Article 30 – Article 37).

1. Damaging good name of competitors (Article 30 of the LPC);

* Damaging the good name of competitors shall be in place by way of assertion or dissemination of false information, as well as by way of misrepresenting of facts for the competitors or for the goods and services offered by them.

* For damaging the good name of competitors to be in place, the latter shall be explicitly pointed out or the possibility for establishing it shall be clear and unquestionable. When the competitors on the relevant market are few in number and when from the context of the statement an unambiguous conclusion can be drawn to whom exactly the evidence is directed, it can be assumed that the identification of the competitor is unambiguous.

* For an objective possibility for damaging the good name of a competitor to be in place the false information should have reached or should be able to reach a large number of persons whose conduct may influence the activity of the competitor (an unlimited number of end customers, specific consumer audience, traditional contractors, state bodies or institutions, etc.). There may be different ways for disseminating the information, as in most of the cases it is disseminated through the media, through internet or through letters.

* The very evidence or misrepresented facts shall be of such a nature as to be able to damage the competitor, i.e. a negative change in the notion of merchants or of the goods or services offered by them to occur or to be likely to occur.

* Misrepresentation of facts shall be in place when objective facts are distorted, modified or misinterpreted in a way whereby they acquire content, meaning and sense different from the original one.

* For the purpose of not discrediting the reputation of a merchant by imputing to him the commitment of criminal acts, good faith commercial practice requires the statements in this direction to follow the rulings on this issues of the competent bodies as far as only their findings are trustworthy with respect to competitor’s actions conformity with the law.

2. Misleading in respect of substantive characteristics of goods or services (Article 31 of the LPC)

* Misleading can be in place only when a competitor presents its own goods or services whereby ascribing to them non-existing properties and concealing their shortcomings. When such actions are taken against somebody else’s goods or services, the infringement is not misleading but damaging the good name of a competitor.

* Misleading can be in place only with respect to the substantive characteristics of the goods or services. The assessment which properties or characteristics of the offered goods or services are substantive is made on case-by-case basis. Generally speaking, substantive can be those properties or characteristics of the product which relate to its nature, intended use, origin, way of use, price, etc.

* An abuse of the prohibition shall be in place when a discrepancy has been established between the actual goods and services offered by the merchant and the data presented by him in advertising materials or messages which distort, modify or misrepresent the substantive characteristics of the good or the service.

3. Misleading advertising (Article 33 in relation to Article 32 of the LPC)

* Misleading shall be any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of this, is likely to affect their economic conduct (for example to motivate them to purchase a given good or use a given service, or to restrain from purchasing the good or using the service of a competitor).

* An advertising shall be misleading with regard to the characteristics of the goods and services; the price or the manner of its formation; the conditions under which the goods are supplied and the service provided; as well as with regard to the data about the advertiser or the advertising agency.

4. Comparative advertising (Article 34 of the LPC)

* The regulation of comparative advertising is aimed at protecting the rights and interests of merchants when an advertiser inaccurately compares its goods or services to analogical or similar goods or services of his competitors. To the extent to which the LPC prohibits certain comparative advertising, it (Article 34 (2)) lays down the requirements which comparative advertising shall meet in order to be considered permitted. More specifically, comparative advertising shall be permitted when:

- it is not misleading (under the meaning the LPC) and is not an unfair commercial practice (under the meaning of the Consumer Protection Act)

- it compares goods or services satisfying the same needs or intended for the same purpose;

- it compares goods with the same designation of origin;

- it objectively compares one or more features of the goods and services which are substantial, comparable and representative for these goods and services, including their prices;

- it does not lead to confusion between the advertiser and his competitors;

- it does not lead to confusion between trademarks, trade names, other distinguishing marks, goods or services of the advertiser and those of his competitors;

- it does not discredit or denigrate the trademarks, trade names, other distinguishing marks, goods, services, activities or situation of the competitors;

- it does not take unfair advantage of the reputation of the trademark, trade name or other distinguishing marks of the competitors or of the designation of origin of competing goods;

- it does not present the goods or services as imitations or replicas of goods or services bearing a protected trademark or trade name.

* In order to assess whether comparative advertising is legal, account shall also be taken of the provisions of Regulation (EC) 510/2006 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs.
 
5. Imitation (Article 35 of the LPC)

* The LPC grants protection against imitation of goods or services. The protection encompasses intellectual property rights (Article 35 (2) – trading name, mark or geographical indication), as well as the other characteristic marks (Article 35 (1)) – appearance, packaging, marking, name or other features which may lead to a deception in respect of their origin, manufacturer, seller, method and place of manufacture, the source and manner of acquisition or purpose, the quantity, quality, nature, consumer properties and other substantive characteristics of the goods or services. The prohibition also covers the use of a domain or of a web-site identical or similar to those of other persons (Article 35 (3)).

* For disloyal conduct to be in place, the merchant shall impart to the goods offered by him such an appearance (design) which resembles other goods, to give his company a name close to the name of a competitor, or to use in its activities a domain or a website resembling those of a competitor. The objective of such a conduct is to mislead the customer thus damaging the interests of competitors. Through his disloyal conduct the merchant aims at taking advantage of the image of a competitor and at benefiting from the competitor’s established reputation and good name. This presupposes that the imitated goods or services have established themselves among customers and have gained popularity on the market.

* For establishing an infringement under this text, it is sufficient a potential risk of damaging the interests of competitors to be created, not necessarily such a result to have taken place.

6. Unfair solicitation of clients (Article 36 of the LPC)

* The prohibition covers any unfair competition aimed at soliciting clients that contradicts good faith commercial practice and influences the objective judgment of clients and as a result of which existing agreements are terminated or breached, or entry into such agreement with competitors is prevented.

* The individual prohibitions in this text aim at the prevention of using “non-market” methods for solicitation of clients.

* For an infringement to be in place, the wrongful action should have led to a certain harmful effect, which expresses itself in terminating on violating agreements with competitors or preventing the signing of an agreement. A direct immediate cause-effect relationship shall be in place between the action and the consequences that followed it.

* The offering or granting of other goods or services as a supplement to goods sold or services provided, either free of charge or at an ostensible price is prohibited (Article 36 (2)).

* This prohibition shall apply except for:

а) advertising items of minor value and bearing a clear indication of the advertising undertaking. The value of advertising items is determined as minor by the CPC when it does not exceed 10% of the value of the goods sold or services provided, to which they have been offered as a supplement.

b) items or services which according to commercial usage are an attribute to the goods sold or services provided. An attribute is a good or a service which in any way services the main good or service that is being sold (e.g. consumables).

c) goods or services as a rebate for sales in higher quantities. The judgment is made on case-by-case basis, as most often these are cases of enduring links between the supplier and the customer whereby sales of higher quantities are realized.

* The conducting of a sale, where an offer or promise is attached, which is conditional upon: solving problems, puzzles, raffles, riddles; collecting a series of coupons and other similar items; organizing games to win money or prizes, the value of which significantly exceeds the price of the goods or services sold is prohibited (Article 36 (3)). This prohibition is directed to those marketing methods which put the customers under the condition of making a choice to purchase a given good and service not on the basis of its quality indicators, but on the basis of a dubious future opportunity for winning a prize. In this way the customers’ decision to buy a good or a service is determined not by their needs or the quality of the purchased product, but by their desire to get something free of charge. The anticompetitive effect on the market arises in the cases when the value of the promised prize substantially exceeds the price of the good or service sold. A significant value is the value which exceeds the value of the offered good more than 100 times or with more than 15 minimum salaries for the country.

* The LPC prohibits the sale to the domestic market of significant quantities of goods over an extended period of time at prices lower than the costs of their production and marketing (Article 36 (4)). To the extent to which the main objective of each merchant is to realize profit, any voluntary refusal for gaining profit for a certain period of time is aimed at pushing competitors out of the market and respectively limiting the choice of customers. Thus the interests of end customers in a long-term perspective are damaged through subsequent price increase, quality deterioration or choice limitation. For this effect to be achieved the sales at prices lower than the cost of production shall cover significant quantities of the goods or services in question and shall be implemented over a long period of time. These two criteria do not have a legal definition and shall be subject to analysis for each specific case. In their totality, however, they shall be able to lead to a lasting redirection of customers’ demand.

7. Discovery, use or disclosure of production or commercial secrets (Article 37 of the LPC)

* The LPC prohibits the discovery, use or disclosure of production or commercial secrets that is contrary to good faith commercial practices (Article 37 (1)). The LPC also prohibits the use or disclosure of production or commercial secrets where they have been discovered or disclosed under the condition that they shall not be further used or disclosed (Article 37 (2)).

* For a given undertaking to be able to protect its interests under this Law it should (by way of its management bodies) have undertaken actions for protecting its own commercial and/ or production secret. The shall clearly determine: the data and information that shall be considered a secret; the actions that shall be undertaken for preserving the confidentiality of the data and the information through limiting the access to them, appointing persons who are granted access and introducing them to their obligation to keep the secret.

The explicit list of the most characteristic and common forms of unfair competition in Articles 30-37 of the LPC is not exhaustive and does not exclude the possibility the interests of competitors or the relations between them to be damaged or put into risk by means of other actions or omissions taken contrary to good faith commercial practice. In those cases the general prohibition for unfair competition under Article 29 of the LPC shall be applied.


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