The Breadth of the Unfair Competition Concept

Protection against unfair competition is founded on the principles established in the Federal Constitution of 1988, with respect to economic policy, namely free competition and consumer protection (Art. 170, Subparagraphs IV and V) and control of abuse of economic power and unfair competition (Art. 173, §4).

Clearly the State does not prohibit competition, but rather desires and encourages it as a means of stimulating industrial, commercial and technological development. For competition to thrive, however, abuses on the market must be deterred and controlled by coercitive regulations.

As in the previous legislation (Decree-law No. 7,903/1945), Law No. 9,279/1996 detailed the crimes of unfair competition.

Under "crimes of unfair competition," the current Law not only lists virtually all the practices described in the previous Law, it also classifies some of those contemplated in the latter. Examples include crimes committed "through use of the slogans of others" (Subparagraph IV) and those committed "through the undue use of another business’ trade name, establishment name or insignia" (Subparagraph V). It also typifics other crimes that were not formerly punishable, such as those defined in Subparagraph XII and §1, (violation of business or manufacturing secrets by an employer, associate or manager who appropriated them from a third party); in Subparagraph XII (the sale, display or offer to sell a product claimed to be subject to a patent and/or patent application, or a registered industrial design), and in Subparagraph XIV (unauthorized disclosure, exploitation or utilization of test trial results or other undisclosed information, whose elaboration involved considerable effort and was submitted to government agencies as a condition for obtaining authorization to sell products).

Law No. 9,279/1996, as was the case with Decree-law No. 7,903/1945, was drafted based on concepts established in the Paris Convention of 1883 concerning the protection of industrial property (Art. 10 bis: "Unfair competition includes any act of competition that contradicts honest application of industrial and commercial material") to classify acts of unfair competition, adapting them to the current business scenario.

Gama Cerqueira, a famous Brazilian legal writer, warned that not only were the legal definitions imprecise, but also "reality goes beyond concepts, and new, formerly inconceivable forms of competition arise that do not fit into the proposed definitions, but that surpass its provisions." (Industrial Property Treaty, Vol. II, Section X, Chapter II, published by Revista Forense – 1982, p. 1,269).

Among the numerous variations of unfair competition listed in the Industrial Property Law, it is worth noting the "diverting of customers" contemplated in Article 195, Subparagraph III.

• III – employs fraudulent means to divert the customers of another person to his or another party’s advantage; (…)

• Diverting of customers is achieved through a variety of practices, including imitation of a product’s facing, packaging or images. More recently, with the advent of the Internet, malicious and undue registration of a domain name by an individual who reproduces the trademark or trade name of another establishment with the clear intent of confusing users or consumers in order to harm or secure monetary gain from the holders of the respective trademarks and trade names is also included in this classification, notwithstanding the combined application with Art. 195, Subparagraph V, and Art. 209 of Law No. 9,279/1996.

Case law has faced numerous issues involving the "diverting of customers," and the following decisions, based on Industrial Property Law, merit note:

• A unanimous decision by the Second Civil Chamber of the São Paulo State Court of Appeals, in the records of interlocutory appeal No. 226.201-4, which stated: "Punitive action – Denial of request for an interlocutory injunction – Internet Site – Registration of an Internet domain name that may lead to consumer error – Commercial exploitation of a website that constitutes unfair competition – Violation in theory, right to use trademarks and symbols with a sports association – Soccer team, in accordance with Law 9,615/98, likened to the company, moreover for commercial exploitation of trademarks and symbols – Interlocutory injunction awarded – Appeal granted. (Docket No. 253253 – Reporter: Paulo Hungria – 11.20.2001)

• The unanimous decision handed down by the Second Judging Panel of the 1st Civil Chamber of the Court of Justice of the State of Goiás, in the proceedings of CIVIL APPEAL no. 65558-9/188, holds that: "The set of practices of any entrepreneur who, fraudulently or dishonestly, seeks to draw clients away from the competition constitutes unfair competition. Thus, in order to ascertain whether or not any practices of unfair competition have been committed, not only must the phonetic resemblance between the trademarks be taken into account, but any and all commercial practices that are contrary to honest uses and likely to, by any means, be mistaken for the establishment, products or industrial or trade activities of the competition, be it due to their visual likeness, the location where the goods are sold, their packaging, arrangement, etc. must also be taken into consideration. Having ascertained the possibility that consumers might be led to mistake one trademark for another, we vote unanimously to uphold the decision that ordered the owner of the more recent trademark to change the characteristics of the establishments where its goods are sold, and to compensate the injured party for damages caused as a result of its unfair practices."(Summary no. 253253 – Reporting Judge: Justice Vítor Barboza Nov. 26, 2002 )

• A unanimous decision by the Second Civil Chamber of the Santa Catarina State Court of Appeals, in the records of Civil Appeal No. 98.006382-5, which stated: Commercialization of the same type of beverage – RUM BACACHARI – as another international ly renowned beverage – RUM BACARDI -, packaged in a nearly identical bottle, with a cap, colors, logo and, most importantly, virtually identical label, the only difference being small symbols and images, demonstrates an unacknowledged attempt to confuse or mislead consumers, and with this to obtain gain, involving a constitutionally prohibited practice (Art. 5, Subparagraph XXIX, of the Federal Constitution) of unfair competition, which shall be promptly suppressed, with indemnification for the damages caused." appeal denied. (Reporter: Justice Gaspar Rubik – 09.22.2000).

Protection of slogans also merits note. The lawmakers included crimes against slogans, formerly listed in a specific chapter (Chapter IV of Decree-law No. 7.903, of 08.27.45), among those classified as unfair competition: the current Industrial Property Law no longer provides for registration of slogans.

Therefore, if Art. 177 of Decree-law No. 7,903 of 08.27.45 only considered the violation of a right guaranteed by the registration of a slogan as a crime, the new Law deems unfair competition the unauthorized use or imitation of another party’s slogan.

In other words, in order for this type of practice to constitute a crime of unfair competition, it is sufficient to use slogans without authorization, or to copy them, in a way that may cause confusion, regardless of whether or not such slogans are registered.

It is important to underscore that the fact that the registration of slogans is not required, does not mean they are no longer protected, except within the scope of unfair competition. Original, creative slogans are amply protected by copyright regulation.

Increasingly common in the courts is joint contestation of an unfair competition practice and copyright violation when the parties are competitors.

Note the following legislative changes subsequent to the Industrial Property Law related to protection against acts of unfair competition:

• Article 1147 of the New Civil Code Law 10,406/02, which states that in the absence of express authorization, the seller of an establishment may not compete with the purchaser in the five years following the transfer;

• Law 10,603/02, which contemplates protection of undisclosed information submitted for authorization to commercialize goods and make other provisions. Among other measures, the law establishes periods of protection for information related to trial results or other undisclosed information submitted to the competent authorities in order to sell pharmaceutical products for veterinary use, fertilizers, agricultural chemicals and their components and related products.

In summary, Law 9279/96 has proven very efficient for suppressing dishonest means of gaining clientele, including in relation to new situations that arise with the development of technology, such as in the case of domain names.

Association of the aforementioned rules with the specific ones regarding protection of intellectual property rights establishes a powerful arsenal for businesses to combat violations in this area.