1.8.4 - IP-rights versus unfair competition claims

IP-rights and unfair competition. In what way does an IP-right differ from a claim based on unfair competition law? While answering that question one has to bear in mind that intellectual property law can be seen as a part of unfair competition law. What is true for unfair competition law is generally also true for IP law. However, intellectual property law concerns specific forms of unfair competition and the question is what is specific for intellectual property rights compared with unfair competition claims or tort claims in general.

Property of an object instead of a behavioural norm. IP-rights are about immaterial goods and ownership thereof. Unfair competition law is not about ownership of a particular (material or immaterial) asset but about how a competitor is to behave in particular circumstances. If that behavior is in violation of an unfair competition rule – “contrary to honest practices in industrial or commercial matters” as article 10bis of the Paris Convention puts it – this results in a claim for the party whose interests are affected. That claim may entail an injunction to refrain from using a particular (material or immaterial) object, but this is more or less a side-effect. Unfair competition can be spoken of  if, for instance, one bribes employees of a competitor to obtain information that is confidential. If a court rules that this act is unfair under the circumstances, this may result in an order to refrain from using that confidential information, but that injunction is only a means to penalize this unwanted behavior, and a court may – generally – also instead choose from a variety of other appropriate measures to neutralize the unlawful advantage or to limit or compensate any damages. In that case, the affected party does not have an exclusive right to that information. With an IP-right, however, the exclusive right (i) to use and exploit an immaterial object – such as patented know how – and (ii) to be able to prohibit the use thereof by others are the central purpose of the right. The behavior of an infringing party and the circumstances under which the infringement occurred are generally not relevant when an injunction banning any and all infringement is to be given.

Taking advantage of instead of using an object. IP-rights give an exclusive right to use an immaterial object. May one apply the invention, publish the work or use and exploit the trademark? Those specific questions concerning the use of an intangible object are the domain of intellectual property law. Unfair competition law does not concern the exclusive use of an object but is about taking advantage of the existence of that object instead.

Derivative products and services. Just as ownership of a bicycle gives the owner the exclusive right to use the bike, a patent on a light bulb gives the patentee the exclusive right to manufacture that specific light bulb. Because a bicycle manufacturer produces and sells bicycles, a market for bicycle related accessories (locks, tires and lights) and services (bicycle repair, bicycle storage and tours) is created. Unfair competition law addresses the issue whether such taking advantage of the existence of the bicycle by these third parties is allowed or not. It is only because bicycles are made that these third parties can be in business. However, the freedom to compete entails that the merely profiting from of market circumstances created by another party is allowed, given that that is what competition is all about. The alternative would simply shut down the economy, given that an economy exists because of subsequent and interdependent transactions.

Tangible and intangible goods. What is true for taking advantage of somebody else’s materials products is also true for profiting from somebody else’s immaterial goods, such as patented inventions or copyrighted works. Taking advantage of market circumstances created by somebody else is generally allowed. This is not unlawful, except when there may be additional, extraordinary circumstances. The owner of a patent on a light bulb has the exclusive right to manufacture and sell that light bulb but cannot take action against third parties that profit from the existence of his patented light bulbs by manufacturing auxiliary products or by providing dependent services.

Behavioural norm for third parties. Unfair competition law only provides specific norms that apply to certain relationships between companies, dependent upon, for instance, whether or not they are direct competitors. A norm that serves as a yardstick for the lawfulness of future behaviour, while taking into consideration the various relevant circumstances that may exist in the future , is of course important and does protect a company’s assets, but does not provide property. It is only if and when a third party may in the future violate such a behavioural norm that at that uncertain point in time one or more claim may come into existence for the company protected by the norms. Then that company does have a legal action to issue a cease and desist order regarding that specific act of unfair competition act  and, once the act may have materialized, a claim for damages. However, any such claims are only conditional, future claims and it is questionable whether or not they will come into existence dependent on uncertain future acts by one or more competitors. In addition, any such future claims will only arise provided that at that future point in time both companies are indeed still competitors.

No “property”. In short, unfair competition law does not result in a property– an asset – to which a commercial value can already be attached in the present, that can be valued as part of a company’s equity and or can be included in a balance sheet (if only for a nominal amount of € 1).