Castellán

Undoubtedly, freedom of trade is not a “matter of fact”, but a fundamental constitutional principle established for the realization of all economic activities. This principle includes the right to free competition within the market: a true battle between companies operating simultaneously in the market, offering equal or similar products or services, with a common goal - to acquire or attract clientele. The purpose is none other than to allow the progress of the economy.

But are there limits to free competition?

Yes. Limitations or restrictions on free competition can sometimes come from the law (as in the case of some monopolies), or sometimes from the contract (non-compete clauses), determining that certain companies must refrain from competing in that particular market.

But there is also another fundamental limit, specifically linked to the means used by companies to attract or divert clientele from one or other companies, because “anything goes”. That is precisely the realm of unfair competition, where there is no law or contract that obliges the company to refrain from committing an act of competition, but there is an excessive use of the freedom to compete, through the use of questionable means in the search for clients.

Ultimately, the institute of unfair competition thus becomes a system of protection against those who, relying on “free competition”, use unfair means to attract clientele.

What then is unfair competition?

In a market where products and services are offered and acquired, there is a “game” between supply and demand. Demand prefers the most convenient product and service, while supply presents the most desired product and service in terms of price and quality. But this natural trend of demand and supply can be disrupted by dishonest maneuvers by competitors.

If a competitor modifies or alters the direction of demand through such maneuvers, trade is severely harmed, because on the one hand the consumer no longer receives the product or service they desire most, and the entrepreneur no longer has or retains the clientele they deserve. This causes a distortion in the market, and that is precisely what the law of unfair competition seeks to prevent.

Of course, not all behaviors aimed at altering the natural trend of supply and demand can be repressed. In a regime of freedom of trade, entrepreneurs seek by all possible means to attract clientele in many ways: investing in advertising, setting up a good store, using modern technology. All these means can influence the clientele's trend and modify their inclination, but they are not repressible.

Only when deceptive, unfair, incorrect, or abusive means are used to attract or divert clientele can we speak of “unfair competition”. Illegality is present only when commercial instruments or methods that are unacceptable in terms of the ethics of commerce, commercial loyalty, and good faith that should govern business are used.

“Unfair competition” thus presents itself as a pathological phenomenon of “freedom of trade”, as an offense that arises from an activity that is in itself lawful. And this is the fundamental concept: it is not enough to divert clientele, a legitimate end in itself, to speak of “unfair competition”, but it is necessary to use incorrect means to achieve such a purpose.

The difference between legitimate free competition and illegitimate unfair competition lies not in the goals pursued, but in the means used by companies to achieve those goals.

What are then the elements of unfair competition?

- an act of competition: it is necessary for companies to carry out an activity that involves clientele, and for the company harmed by the act to have an activity that is equal or similar, so that both activities are intended to satisfy the needs of the same class of consumers, thus allowing for a potential diversion of clientele. The company does not necessarily have to have an already formed clientele, it could be a company that is preparing to start a business activity and, to ensure success, commits a series of acts against another company that is already engaged in similar activities.

Conversely, it has been understood that there is no unfair competition when it comes to completely different activities that deal with different clienteles. This does not mean either that the activities must be completely identical, as long as there may be some overlap between them.

- the use of an unfair means: it involves carrying out an act contrary to the honest practices that govern commercial relationships or the professional correctness that should prevail in the exercise of an economic activity. These, of course, are variable concepts that correspond to public opinion on how entrepreneurs should behave in their relationships, at a specific time and place. The conduct will be assessed, in each case, by the relevant judicial authority.

- an act capable of causing harm to the competitor: the notion of harm in relation to unfair competition is very flexible, with some positions ranging from requiring actual, material, or moral harm, to those for whom the mere possibility of causing harm is sufficient. For the latter, the act of competition is considered independently of its success as such, of its effects, only considering its ability to produce such harmful effects.

Most common types of unfair acts

- acts with the purpose of confusion with the establishment, products, or industrial or commercial activity of a competitor: confusion over the names and designations of establishments and their distinctive signs, similarity in the external appearance of establishments, and imitation of a rival's advertising.

- acts with the purpose of internally disorganizing the competitor: disclosure of factory, trade, or business secrets (for example, a list of customer names and addresses). Another example is when a company uses the services of employees dependent on its rivals, who continue to provide their services in those companies, especially when they are encouraged to carry out acts that tend to disorganize the clientele of the main company, allowing for its absorption by the competitor. In the recently published ruling, one of the key factors was that the newly established defendant company had hired three of the main officials of the competing company in a short period of time, and used confidential commercial information, apparently with the purpose of destabilization and disintegration.

- acts with the purpose of generating a general market disorganization: indications or allegations whose use is likely to mislead the public about the nature, method of manufacture, characteristics, suitability for use, or quantity of goods. A clear example is the use by the company of “false, misleading, or deceptive advertising”. Praise - even exaggerated - does not constitute unfair competition, but statements of false facts do, as they can actually divert clientele, disrupting the free play of competition.

- acts with the purpose of denigration: involves false allegations that tend to discredit the establishment, products, or industrial or commercial activity of a competitor.

Montevideo, June 6, 2022