COMPETITION • FRENCH LAW • UNFAIR COMPETITION
In matters of unfair competition, a distinction is traditionally made in French law between disruption (désorganisation) of an undertaking and disruption of the market. The first concerns a particular operator and manifests itself through the use of various processes: the poaching of employees, the appropriation or disclosure of know-how, trade secrets or commercial processes, the disruption of commercial channels (e.g. violation of a distribution network), the creation of a new undertaking under conditions likely to divert customers. The second is aimed at a group of operators who manufacture or market identical or similar products; it results from unfair commercial practices (e.g. resale at a loss, paracommercialism, loss leader pricing) or failure to comply with legal rules. Most of these unlawful processes are now punishable on grounds other than unfair competition.
In practice, the vast majority of disruption cases do not in and of themselves constitute unfair competition. They are characterized as such because the tactics accompanying them constitute an abuse of free and fair competition.
Disruption may result from the creation of a competing undertaking by former members of the undertaking. In application of the principle of freedom of trade and free competition, an undertaking may not claim any proprietary rights over its customers. At the end of their employment contract, ex-employees are free to act as they wish and can compete with their former employer. Former employees can even organize their new activity while still under contract to their employer, as long as they do not actually begin the new business until their employment contract is terminated. On the other hand, an individual’s conduct is wrongful if he or she forms a competing company and starts or carries on business while still employed. Also, a partner of a limited liability company who creates a competing undertaking, contacts other partners to come and work there, and canvasses the clients of the limited liability company in order to divert them to the benefit of his new undertaking, is in breach of his/her duty of loyalty.
The newly created undertaking can canvass its competitor’s customers because canvassing is not in itself an unfair act. On the other hand, canvassing of the competitor’s customers by the undertaking created by a former employee is wrongful when it is systematic or when the departure of customers to the new structure is the result of unfair practices. Indeed, the new undertaking must not use unfair tactics to acquire its customers. Canvassing is unlawful when an undertaking introduces an artificial distortion in the competition between itself and its competitor, whose clientele it seeks to capture for its own benefit. Proof of unfair acts must be adduced however e.g acts of confusion, disparagement, diverting customers or, as a general rule, any systematic canvassing of the competitor’s customers. Illicit canvassing may also take an indirect form when a company, in violation of Article L. 442-6, I, 4° of the Commercial Code, puts pressure on a department store to move a competitor’s corner stand under threat of breaking off relations or when a former employee takes customers, after the termination of his employment contract, to the benefit of his new employer.
Disruption may also be the result of acts of misappropriation of trade secrets or know-how or acts tending to disrupt the business, pricing or trademark practices, or, more generally, conduct contrary to regulations. Violating the rules in force constitutes an unfair act of market disruption, as it gives the person circumventing the regulations a competitive edge. According to the Court of Cassation, the violation of the regulations in force creates a distortion of competition, which in itself constitutes an act of unfair competition, without there being any need to prove that the perpetrator of the offending acts benefited from it.
Finally, the disruption of a distribution network may constitute an act of unfair competition. The commercialization of products outside the distribution network does not in itself constitute an act of unfair competition, as long as the supply is regular. On the other hand, parallel sales cease to be viewed with indulgence when they constitute parasitic sales made by non-network resellers who benefit from the investments of the brand without bearing the costs or providing service to the consumer. Article 1240 of the Civil Code applies when a fault that is not related to the sale is attributable to the third party reseller. It is considered that concealing one’s source of supply indicates the illicit nature of the acquisition. In the same way, non-authorized distributors, who obtain their supplies from authorized distributors, through front companies, or in breach of their contractual obligations, commit an act of unfair competition. Any direct or indirect participation in the violation of a prohibition of resale outside the network will incur the liability of the infringer, where the prohibition in question is permitted under competition law (Art. L. 442-6, I, 6º, Commercial Code). An advertisement which misleads the consumer about belonging to the network is also liable to constitute a breach which is not related to the sale.
