Encyclopedia of Private International Law
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Encyclopedia of Private International Law

Edited by Jürgen Basedow, Giesela Rühl, Franco Ferrari and Pedro de Miguel Asensio

The role and character of Private International Law has changed tremendously over the past decades. With the steady increase of global and regional inter-connectedness the practical significance of the discipline has grown. Equally, so has the number of legislative activities on the national, international and, most importantly, the European level. With a world-class editor team, 500 content items and authorship from almost 200 of the world’s foremost scholars, the Encyclopedia of Private International Law is the definitive reference work in the field. 57 different countries are represented by authors who shed light on the current state of Private International Law around the globe, providing unique insights into the discipline and how it is affected by globalization and increased regional integration. The Encyclopedia consists of three inter-linked pillars, enhanced by sophisticated search and cross-linking functionality. The first pillar consists of A-Z coverage of the scope and substance of Private International Law in the form of 247 entries. The second pillar comprises detailed overviews of the Private International Law regimes of 80 countries. The third pillar presents valuable, and often unique, English language translations of the national codifications and Private International Law provisions of those countries. This invaluable combination represents a powerful research tool and an indispensable reference resource.
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Chapter C.25: Competition, unfair

Tim W Dornis

I. Introduction, background and context

The private international law, or conflict of laws, of unfair competition prevention is characterized by a number of problematic aspects, mainly grounded in substantive law. These problems start with terminology. ‘Unfair competition’ as such must be distinguished from the field of antitrust regulation, which, particularly in Europe, is often also referred to as ‘competition’ law. In addition, it can be difficult to determine the exact purposes and structures of unfair competition law within national regimes, for neither ‘competition’ nor ‘unfairness’ has ever been satisfactorily defined. Accordingly, delimiting the field from adjacent areas – notably intellectual property and tort law – poses a number of problems. Furthermore, from a comparative perspective, the field remains divided between p. 433two major legal traditions. While many civil law jurisdictions have integrated unfair competition law into their tort regimes, common law jurisdictions have been hesitant to even acknowledge the concept. As a result, international harmonization has been complicated. Indeed, no international agreement has established a uniform substantive standard, and none contains a rule on →choice of law. This uncertainty within legal doctrine has been intensified by the side effects of globalization (→Globalization and private international law). The dematerialization and acceleration of communication and socio-economic transactions has rendered the traditional paradigm of territorial regulation dysfunctional in many areas, particularly in unfair competition law. While the field is still footed on structures of tort law and, consequently, attention is still focused on the violator-competitor’s conduct, modern-day competitive acts, in many cases, have an impact that extends beyond the place of acting. The reverberations of competitive activity can occur practically anywhere and everywhere, and conduct is no longer as regulatable as it once was.

Therefore, the application of unfair competition conflicts rules is complicated. To begin with, characterization of ‘unfair competition’ is difficult. It is particularly necessary to delimit the field from tort, antitrust and intellectual property law. Moreover, conceptualizing a consistent and comprehensive system of connecting factors for the multitude of scenarios that can be found under the ‘unfair competition’ label is vexing. Finally, significant care is required to ensure that single national regimes do not overextend their reach when applying unfair competition laws. In essence, the private international law of unfair competition must be designed and coordinated so that it does not interfere with the aim of establishing level playing fields for free competition, both nationally and internationally.

II. Foundations: substantive law and policy

1. Tradition: the tort paradigm

Acts of unfair competition (concurrence déloyale, unlauterer Wettbewerb, concorrenza sleale or competencia desleal) have traditionally been dealt with under the conceptual framework of tort law. Indeed, many jurisdictions throughout the world still uphold this categorization, at least on paper (eg French law under art 1382 of the Code Civil). Not surprisingly, the prevention of unfair competition thus tends to be characterized as the regulation of actual conduct. This is reflected in public international law as well. The Paris Convention’s (Paris Industrial Property Convention, 20 March 1883, with later amendments, 828 UNTS 305) definition of unfair competition in art 10bis refers to ‘[a]‌ny act of competition contrary to honest practices in industrial or commercial matters’. Similarly, the European Unfair Commercial Practices Directive (Directive (EC) No 2005/29 of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market [2005] OJ L 149/22) speaks of ‘unfair commercial practices’.

2. Modernity: the aim of market regulation

Nevertheless, this traditional perspective has begun to change. At both the supranational and the national level, unfair competition law has come to be explained by reference to more detailed and differentiated policies than the mere prevention of improper conduct. In this modernized light, unfair competition law protects not only competitors (ie horizontal relations) but also consumers and the general public (ie vertical relations). Accordingly, doctrine and practice reflect a growing heterogeneity of policies, both in common law and in civil law.

Historically, the common law has been hesitant to acknowledge policies of market regulation beyond the accepted canon of →torts as such (cf Mogul Steamship Co Ltd v McGregor, Gow & Co (1889) 23 QBD 598, 625–6: ‘[N]‌o principle of law enables us to interfere with . . . success or . . . failure so long as it is due to mere competition.’). This has changed. Today, virtually all common law regimes acknowledge more complex structures of regulation under the denomination of unfair competition. In the USA, for example, the Restatement (Third) of Unfair Competition (American Law Institute, Restatement of the Law, Third: Unfair Competition, St. Paul 1995) provides for liability for the infliction of harm on the commercial relations of another in cases of deceptive marketing; trademark infringement (passing off); and the appropriation of intangible trade values, such as trade secrets and the right of publicity (see s 1). Prima facie, many civil law regimes acknowledge an even wider scope of claims under the umbrella of unfair competition prevention (see, eg, s 4 of the German Unfair p. 434Competition Act (Gesetz gegen den unlauteren Wettbewerb as of 3 July 2004, BGBl. I 1414, as amended), s 3 of the Swiss Unfair Competition Act (Bundesgesetz gegen den unlauteren Wettbewerb of 19 December 1986, SR 241, as amended), or arts 6 et seq of the Spanish Unfair Competition Act (Ley de Competencia Desleal of 10 January 1991, Law No 3/1991 on Unfair Competition, as amended)). Details may vary, but in essence, the ‘modern’ law of unfair competition prevention in both civil law and the common law can be divided into two categories: market-oriented conduct and individual-competitor-oriented conduct. With regard to the first, the interests of consumers and the public require that deception and misrepresentation be avoided. This concerns competitors’ conduct with immediate effects on the marketplace. With regard to the second category, individual competitors are protected against tortious interference with their business assets and activities (eg theft of trade secrets) as well as, generally, a misappropriation of the ‘fruit of [their] efforts and expenditure’ (International News Service v Associated Press, 248 U.S. 215, 241 (1918)). This concerns undue interference from other competitors, which does not immediately affect the marketplace.

In this vein, substantive doctrine has been enriched by the general idea that unfair competition prevention is part of a comprehensive system of economic regulation. And this also affects private international law, or conflict of laws. According to the European Commission, ‘The purpose of competition law is to protect a market; it pursues a macro-economic objective’ (Proposal for a Regulation of the European Parliament and the Council on the law applicable to non-contractual obligations (‘Rome II’), COM(2003) 427 final, p 16). Similarly, the American Law Institute recommends a ‘market-oriented approach’ to international intellectual property and unfair competition cases for US conflicts law (American Law Institute, Intellectual property: principles governing jurisdiction, choice of law and judgments in transnational disputes (ALI Intellectual Property Principles) St. Paul 2008, s 301 comment d).

III. Application: private international law, or conflict of laws

1. General structure, international comparison

The analysis of private international law, or conflict of laws, in unfair competition is not only complicated by peculiarities of substantive law. It also must deal with a divergence of conflicts approaches. An overview of the basic structures illustrates the difference between civil law, particularly in Europe, and the common law in the USA.

Private international law in the tradition of the Savignian civil law doctrine provides for a multilateral choice-of-law system. A court may apply the lex fori or another jurisdiction’s law. For multistate cases, a multitude of different laws may even be found applicable. This is also the approach adopted in the →Rome II Regulation (Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), [2007] OJ L 199/40), particularly for international unfair competition cases. The regulation’s provision on ‘[u]‌nfair competition and acts restricting free competition’ in art 6 outlines special conflicts rules for different types of claims. First, it concerns claims for ‘unfair competition’ (paras 1, 2). Second, it covers claims arising out of ‘restriction of competition’ – in other words, antitrust violations (para 3). Further, regarding acts of unfair competition, it outlines a general distinction. With respect to so-called market-related acts, the primary criterion for attachment is the market effect of the act at issue (para 1; see infra III.4.a)). If conduct ‘affects exclusively the interests of a specific competitor’ (so-called competitor-related acts), the applicable law will be determined in accordance with the general rules on tort conflicts (para 2; see infra III.4.e)).

Quite differently, conflict-of-laws issues concerning trademarks and unfair competition are not necessarily seen as a genuine problem of ‘choice of law’ in the USA. The issue may rather be one of subject-matter jurisdiction. International litigation with respect to trademark and related unfair competition claims takes place largely in federal courts, which have limited jurisdiction. In such cases, federal-question jurisdiction determines whether a court may hear a case (see 28 U.S.C. § 1331). Federal courts have jurisdiction whenever, and to the extent that, US trademark and unfair competition law (notably the Lanham Act, 15 U.S.C. § 1051) applies. This requires that the competitive conduct at issue exert relevant repercussions within the USA. By this means, limitations to the territorial reach of domestic law determine the boundaries of original court p. 435jurisdiction. And even though alternative bases of jurisdiction do exist (eg diversity-of-citizenship or supplemental jurisdiction (see 28 U.S.C. § 1332, § 1367)), they often remain a theoretical option. Absent concurrent causes of action under US law, courts tend to dismiss claims based on foreign law under the doctrine of forum non conveniens (see, eg, Wells Fargo & Co v Wells Fargo Exp Co, 556 F.2d 406, 431 (9th Cir 1977); American White Cross Laboratories, Inc v Cote, Inc, 556 F.Supp. 753, 758 (SDNY 1983)). Hence, if the case at bar does not contain a sufficient connection to the USA, it will be dismissed. Foreign law is not applied. Under this procedural approach, the analysis of jurisdiction essentially includes and replaces an actual choice-of-law decision. Many of the issues discussed in European private international law (eg ‘characterization’, ‘demarcations’ and ‘de minimis limitations’ (see infra III.2., 3. and 4.c)) are therefore either irrelevant or dealt with only implicitly.

If a scenario does not concern federal law issues, the situation is different. In cases where common law or state statutory unfair competition claims are litigated (eg trade secret misappropriation), courts treat unfair competition claims as genuine →torts and, hence, apply the forum state’s choice-of-law rules (see, eg, BP Chemicals Ltd v Formosa Chemical & Fibre Corp, 229 F.3d 254, 264 et seq (3rd Cir 2000)). This is also the approach suggested under § 145 of the Restatement (Second) of Conflict of Laws (American Law Institute, Restatement of the Law, Second: Conflict of Laws St. Paul 1971; →Restatement (First and Second) of Conflict of Laws; cf comment f).

Notwithstanding these doctrinal differences, the outcome of many cases may still be similar to the results achieved in Europe. In the USA as well, a market-oriented approach governs. If competition (also) takes place in the domestic market, the Lanham Act or the relevant state’s unfair competition law applies. Case-law has established a genuine effects test for trademark and unfair competition conflicts alike (see especially Steele v Bulova Watch Co, 344 U.S. 280 (1952); Vanity Fair Mills, Inc v T Eaton Co, 234 F.2d 633 (2d Cir 1956); and Peter Hay, Patrick J Borchers and Symeon C Symeonides, Conflict of Laws (5th edn, West 2010) s 17.53 (on state unfair competition laws); see also infra III.4.a)). Further, the American Law Institute’s Principles Governing Jurisdiction, Choice of Law, and Judgments in Transnational Disputes in the field of intellectual property suggest a change in the common law practice. Judicial competence and choice of law should be treated as different issues and, accordingly, be dealt with separately (see s 103 and s 212(3) ALI Intellectual Property Principles). To that effect, the Principles counsel that acts of unfair competition be governed by the ‘law of the place where competition is taking place’ (s 301 comments d and g ALI Intellectual Property Principles).

2. Characterization (classification, qualification)

In light of the heterogeneity of policies, the characterization (also termed classification or qualification) of ‘unfair competition’ under the Rome II Regulation is a delicate issue. While agreement exists that characterization is autonomous, and that Member States’ laws have no direct relevance, the issue is far from clear. Again, problems arise from the fact that ‘unfair competition’ is not a uniform concept. Even within single national regimes, the exact delimitations with adjacent areas (notably tort, antitrust, and trademarks) are blurred. And internationally, no uniform and detailed guidelines exist. Article 10bis(2) of the Paris Industrial Property Convention defines unfair competition simply as an ‘act of competition contrary to honest practices in industrial or commercial matters’. Even the list of more detailed descriptions in paragraph 3 provides for a broad brush at best. Upon first sight, the situation seems to be better structured at the level of secondary European law. Helpful practical guidance can be found in the Unfair Commercial Practices Directive, which explains that a

commercial practice shall be unfair if (a) it is contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed or of the average member of the group when a commercial practice is directed to a particular group of consumers. (art 5(2))

In this respect, however, it is problematic that the Directive, inter alia, has a limited scope of application and concerns b2c transactions only. Therefore, determining an act of ‘unfair competition’ under the Rome II Regulation will p. 436have to take primary recourse to the instrument itself. In this respect, the explanatory memorandum of the European Commission provides further guidance. It lists the following acts as examples of unfair competition: ‘acts calculated to influence demand (misleading advertising, forced sales, etc.), acts that impede competing supplies (disruption of deliveries by competitors, enticing away a competitor’s staff, boycotts), and acts that exploit a competitor’s value (passing off and the like)’ (COM(2003) 427 final, p 15). In addition, a closer look at the ratio of art 6 is helpful. As explained in Recital (21) of the Rome II Regulation, the purpose of a conflict-of-law rule in unfair competition law is to ‘protect competitors, consumers and the general public and ensure that the market economy functions properly’. In light of this expressly market-oriented policy, any act that has at least the potential to affect the market mechanism in an unfair way must be characterized as ‘unfair competition’.

3. Demarcations

Problems of characterization further play out with respect to the demarcation between different categories of competitive activity. This is the case particularly for distinguishing unfair competition from antitrust violations and from intellectual property infringements.

a) Antitrust

Because a specific act may simultaneously be deemed a violation of antitrust laws and of unfair competition norms, a clear demarcation is often deemed unnecessary. Particularly in US case-law, such a differentiation is regularly neglected in light of the fields’ shared purposes (see, eg, McBee v Delica Co, Ltd, 417 F.3d 107, 119 et seq (1st Cir 2005)). This is not so in European law. The black-letter conflict norms on unfair competition and antitrust expressly differ (see art 6(3) lit b Rome II Regulation), making a distinction essential. A consistent demarcation must give regard to the policies at work. Antitrust law primarily controls the structure of markets and thereby follows what can be characterized as a macrolevel approach. Accordingly, a genuine effects principle governs for conflicts resolution. Unfair competition law, by contrast, is primarily intended to regulate the market mechanism at the microlevel. There, it is the impact and effects on competitive relations between businesses themselves and, in particular, between businesses and consumers that matters for establishing the →connecting factor (see infra III.4.a)). Even though the two categories’ different purposes are widely acknowledged, scholarly commentary has suggested that antitrust conflicts rules take precedence. This would require unfair competition (→Competition, unfair) →choice of law to yield to international antitrust norms in cases of overlap (eg boycotts, discrimination, or the protection of distribution systems). In the end, only the antitrust effects principle would be applied in order to determine the applicable regime (see, eg, Andrew Dickinson, The Rome II Regulation: The Law Applicable to Non-Contractual Obligations (OUP 2008) art 6 para 6.31). More convincing, however, is the contrary approach suggesting a concurrent application of conflicts norms from both fields. Antitrust and unfair competition policy may overlap. Yet unfair competition prevention still contains an additional and independent regulatory impulse with respect to individual market transactions. This requires treating unfair competition choice of law as equal to – not subordinate to – antitrust conflicts norms (see generally Josef Drexl, ‘IntLautR’ in Franz Jürgen Säcker and Roland Rixecker (eds), Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol 11 (6th edn, CH Beck 2015) para 132). As a result of this overlap, plaintiffs may have the possibility of choosing the applicable law by basing their claims on either antitrust or unfair competition law, depending on what is most favourable for their case. Quite often, though, the lex causae determined under each rule will be the same.

b) p. 437Intellectual property rights

Similarly, distinguishing between unfair competition conflicts and intellectual property conflicts can be complicated in the areas of overlap. Some cases may be interpreted as simultaneous violations of intellectual property rights and unfair competition norms. Particularly in common law jurisdictions, it is often difficult to distinguish between claims denominated as trademark infringements, passing off and unfair competition. For instance, claims of passing off, common law (ie unregistered) trademark infringement, and the general false or misleading representation of facts are often grouped together under one heading (for the USA, see art 43 of the Lanham Act). Further, overlap is possible when a single act infringes on an intellectual property right and also violates a norm of unfair competition. It then is unclear what conflicts rule to apply. In European law, since arts 6 and 8 of the Rome II Regulation generally apply concurrently, the plaintiff may choose the applicable regime by basing his claim on either unfair competition or intellectual property law. Yet, as with the antitrust/unfair competition concurrence, this often remains a theoretical option when both norms point to the same law. In addition, national differences in substantive doctrine may complicate the analysis. If the forum regime’s and a foreign law’s characterization of the act at issue differ, the former will prevail. Accordingly, ‘unfair competition’ for the purpose of art 6 may require the application of a national law concerning the protection of an intellectual property ‘right’. One field where this problem may come up is product imitation (see, eg, s 4 no 9 of the German Unfair Competition Act). Most commentators characterize cases of imitation as ‘unfair competition’ (see, eg, Peter Mankowski, ‘Internationales Wettbewerbs- und Wettbewerbsverfahrensrecht’ in Peter W Heermann and Günter Hirsch (eds), Münchener Kommentar zum Lauterkeitsrecht (2nd edn, CH Beck 2014) para 268 et seq). Hence, at the conflicts level, the unfair competition rule in art 6 will apply. For geographical indications, the issue is similarly contested. The dominant opinion here, however, tends to characterize indications as ‘intellectual property rights’ under art 8 (J Drexl, ‘IntLautR’ in Münchener Kommentar zum BGB, para 124 et seq).

4. Rules of conflicts attachment

a) General principle: the market-effects rule

Some national regimes have implemented a genuine effects principle for unfair competition conflicts. This approach is nearly indistinguishable from the rule applied in international antitrust conflicts (eg art 136 of the Swiss Private International Law Act (Bundesgesetz über das Internationale Privatrecht of 18 December 1987, 1988 BBl I 5)). Principally, any effect of competitive acts in a given market may suffice to trigger the application of the respective law. Under the US doctrine of unilateral conflict of laws, effects also generally determine the reach of the domestic trademark and unfair competition law. The Supreme Court’s only decision on the issue is Steele v Bulova Watch Co (344 US 280 (1952)). In its wake, the federal circuits have developed differing analyses for subject-matter jurisdiction. Most prominent is the Second Circuit’s three-pronged test in Vanity Fair Mills, Inc v T Eaton Co (234 F2d 633 (2d Cir 1956)), where the court interpreted the Bulova Watch case as requiring three criteria in order to warrant the application of US law: (1) the defendant’s conduct must have a substantial effect on US commerce, (2) the defendant must be a US citizen, and (3) there must be no conflict with trademark rights granted by another jurisdiction or with foreign law in general. Usually, the criterion of commercial effects is weighed the most heavily. State choice-of-law rules increasingly view substantive law policies as protecting a plaintiff’s business and the public’s interest in preventing unfair competition and deceit (P Hay, P J Borchers and S C Symeonides, Conflict of Laws (5th edn, West 2010) s 17.53 with further references).

Although it leads to similar outcomes in practice, the Rome II Regulation differs in the way that it qualifies effects. To begin with, the Rome II Regulation uses different terminology. ‘Market’ effects, not ‘commercial’ effects, are what matters (see COM(2003) 427 final, p 16). More precisely, according to art 6(1), ‘the law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected’. While it is acknowledged that the mere potential for effects may suffice, the qualitative and quantitative metric for effects on ‘competitive relations’ and on the ‘collective interests of consumers’ is unclear. First, the rule must be distinguished from the antitrust effects principle. This is due to the difference in purposes (see supra III.3.a)). Of course, like in antitrust conflicts, finding the connecting factor for acts of unfair competition requires courts to identify and locate the relevant market. The starting point of choice-of-law analysis has thus become market definition and localization (Costanza Honorati, ‘The Law Applicable to Unfair Competition’ in Alberto Malatesta (ed), The Unification of Choice of Law Rules on Torts and Other Non-Contractual Obligations in Europe – The ‘Rome II’ Proposal (CEDAM 2006) 127, 148–9). Yet unfair competition conflicts resolution further requires that an additional element be found. This element focuses on the relevant market participants: acts of unfair competition are considered to affect competitors and consumers at the place of p. 438market impact (so-called Einwirkungsprinzip). This rule was already acknowledged in national laws prior to the Rome II Regulation’s enactment (eg in Germany; see German Federal Court of Justice (BGH), 30 June 1961, 35 BGHZ 329 – Kindersaugflaschen). Under the Rome II Regulation, relevant effects are said to occur at the place where ‘competitors are seeking to gain the customer’s favour’ (COM(2003) 427 final, p 16). In economic terms, this is the place where the competitor’s supply and the customer’s demand coincide. Accordingly, neither the place of mere preparatory activities nor the place where indirect and consecutive damages materialize may qualify as relevant for the attachment under art 6(1). For exceptions to the market-effects rule, see art 6(2) and infra III.4.e).

b) Caveat: the country-of-origin principle

The market-effects principle appears to conflict with the European doctrine of applying the law of the country of origin. The debate concerns both secondary and primary Community law. With respect to secondary European law, two instruments are of special concern: the e-Commerce Directive (Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce) [2000] OJ L178/1) and the Audiovisual Media Services Directive (Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services, [2010] OJ L 95/1), which contain sector-specific rules for marketing and advertising via the Internet or via audiovisual media services (eg television). According to art 3(1) of the e-Commerce Directive, ‘each Member State shall ensure that the information society services provided by a service provider established on its territory comply with the national provisions applicable in the Member State in question which fall within the coordinated field’. Article 3(2) expressly prohibits ‘restrict[ing] the freedom to provide information society services from another Member State’. Concerning audiovisual media services, the Audiovisual Media Services Directive contains similar rules (arts 2 et seq). Both Directives may be seen as predetermining the law of the country of origin as the lex causae. But even though art 27 of the Rome II Regulation provides for the priority of earlier instruments’ conflicts norms – suggesting that the Directives’ rules should prevail – the majority opinion in scholarly commentary does not see the country-of-origin principle as a conflicts rule (see generally J Drexl, ‘IntLautR’ in Münchener Kommentar zum BGB, para 53 et seq). Notably, for the e-Commerce Directive, a different interpretation would be inconsistent, since art 1(4) expressly explains that the Directive is not to ‘establish additional rules on private international law’. The European Court of Justice seems to have recently clarified the situation, at least in part, by rejecting an interpretation of art 3 of the e-Commerce Directive as a rule of private international law (ECJ, Joined Cases C-509/09 and C-161/10 eDate Advertising GmbH v X, Olivier Martinez, Robert Martinez v MGN Limited [2011] ECR I-10269). As the Court explained, ‘Article 3 of the Directive must be interpreted as not requiring transposition in the form of a specific conflict-of-laws rule’ (para 68). Seen in this light, the Rome II system of choice of law and the country-of-origin principle operate independently. The Rome II Regulation determines the law to be applied, while the country-of-origin principle comes into play only at the level of substantive law, subjecting the lex causae to a comparison with the law of the country of origin. Remarkably, a service provider is thus free to rely on a more liberal regime in the marketplace instead of being bound by a potentially more stringent law in his country of origin.

Also, with respect to the basic freedoms of the Treaty on the Functioning of the European Union (consolidated version, [2012] OJ C 326/47, eg, arts 34, 56), dominant opinion in scholarly commentary rejects a direct impact on Member States’ private international law (J Drexl, ‘IntLautR’ in Münchener Kommentar zum BGB, para 48; further instructively: Jürgen Basedow, ‘Der kollisionsrechtliche Gehalt der Produktfreiheiten im europäischen Binnenmarkt: favor offerentis’ (1995) 59 RabelsZ 1 et seq). Instead, substantive law is required to accord with the basic freedoms. This test, too, is two-pronged. A national law determined as lex causae under Rome II’s principles of private international law may ultimately be found non-applicable by means of effectuating the substantive prerogative of the Treaty’s freedoms.

c) p. 439Practical overreach: mosaic approach and de minimis limitations

Competitive acts – eg newspaper, broadcast or Internet advertising – can affect numerous marketplaces and jurisdictions. In such cases, the number of applicable laws can multiply, resulting in a distributive application of the laws involved. Each national regime will determine separately and independently whether the act at issue constitutes unfair competition. Accordingly, the →remedies will also be territorially segmented. For →damages, the practical handling is straightforward: each regime covers only the ‘national part’ of the entire damage. The situation is similar for injunctive relief. There, too, each court, when applying the lex fori, may in principle enjoin only conduct falling within its national territory. The issue becomes complicated, however, with regard to non-segmentable multistate acts, such as transnational broadcast activities and Internet communication. In practice, a single →injunction by the courts in one state may block the whole activity in all other states. This means that the most stringent law may govern the case. In order to avoid the detrimental effects of an overly sensitive criterion of market effects and to exclude minimum spillover, prior to the Rome II Regulation, many Member States’ national laws had established a de minimis rule. Under this rule, if the effects on a national market were below a certain threshold, the national law would not be applied (eg a single issue of a foreign newspaper (and the unfair competitive advertising contained therein) would not suffice to trigger the application of the national law if casually brought inside the jurisdiction by an airplane traveller). Even though the initial draft of the Rome II Regulation provided for a similar limitation in cases where competitive relations or the collective interests of consumers were or were likely to be ‘directly and substantially affected’ (art 5(1) Proposal, in COM(2003) 427 final, p 34), the Regulation’s final text lacks such a rule. Strictly speaking, therefore, a restriction can be implemented only at the level of substantive law. Accordingly, even though a criterion of perceptibility at the level of choice of law would foster legal certainty and practical efficiency, most scholarly opinions advocate a substantive law threshold (see especially Andrew Dickinson, The Rome II Regulation: The Law Applicable to Non-Contractual Obligations (OUP 2008) art 6 para 6.53 et seq). Furthermore, there is debate over whether perceptibility should be determined objectively or by recourse to subjective indicators (eg intent). In practice, in order to implement a reasonable and practically workable threshold requirement of perceptibility, courts have reverted to, inter alia, the criteria listed in the Joint Recommendation Concerning Provisions on the Protection of Marks, and Other Industrial Property Rights in Signs, on the Internet (WIPO pub no 845, Thirty-Sixth Series of Meetings of the Assemblies of the Member States of WIPO, September 24 to October 3, 2001; see, eg, German Federal Court of Justice (BGH), 13 October 2004 [2005] GRUR 431, 433 – Hotel Maritime, referring to the recommendation’s criterion of ‘commercial effect’ in arts 2 et seq).

d) Typology of conflicts and attachment

Given the number of acts that can be characterized as unfair competition, a typology is helpful. This typology categorizes acts according to their chronological sequence.

First, with respect to competitive activities undertaken prior to an actual market transaction (ie pre-sale), the connecting factor is the place where potential customers are being influenced or where an attempt to influence is made. This concerns sales promotion and marketing, notably misleading or comparative advertising. In such cases, the law to be applied is the regime of the ‘advertising market’. With respect to actual transactions, the regime to be applied is the law of the ‘sales market’. The sales market is generally found to exist where a product is advertised, sold and delivered to the customer. While the applicable law is straightforward in cases of such convergence, if the place of advertising and the place of delivery or performance diverge, the issue is much murkier. Most courts and commentators then attach the applicable regime to the place of advertising only. This issue has been debated in German law with regard to the so-called Gran Canaria scenario concerning improper advertising activity on Spanish territory vis-à-vis German consumers (see, eg, German Federal Court of Justice (BGH), 15 November 1990, 113 BGHZ 11 – Kauf im Ausland). Finally, with regard to post-transaction activities, it usually is the residence of the consumer that matters. For example, if a misrepresentation is made concerning a consumer’s right to rescind a contract, the law of the place where the consumer receives the deceptive information is said to apply (see, eg, p. 440Helmut Köhler and Joachim Bornkamm, Gesetz gegen unlauteren Wettbewerb (33rd edn, CH Beck 2015) Einleitung UWG para 5.36).

e) Exception to the market-effects rule: bilateral acts

Article 6(2) of the Rome II Regulation deals with special and narrow claims of unfair competition, covering situations where the competitor’s act affects ‘exclusively the interests of a specific competitor’. Since the competitor-violator targets a specific competitor, these situations must be regarded as ‘bilateral’ (COM(2003) 427 final, p 16). The exception is a remnant of the historical understanding that considered unfair competition law to be a subcategory of torts, and, hence, primarily aimed at individual-competitor protection. Notably German conflicts doctrine used to argue that disputes between national competitors in foreign markets should always be governed by their common national law of unfair competition (Arthur Nussbaum, Deutsches Internationales Privatrecht (JCB Mohr (Paul Siebeck) 1932) 339–40; German Federal Court of Justice (BGH), 20 December 1963, 40 BGHZ 391 – Stahlexport; expressly rejected in BGH, 11 February 2010, 185 BGHZ 66 – Ausschreibung in Bulgarien). Under the Rome II Regulation, however, a modern understanding of unfair competition policy as being aimed at market regulation governs (see supra II.2.). Accordingly, agreement exists that art 6(2) must be interpreted narrowly. Any undue deviation from the market-effects rule risks a distortion of the par conditio concurrentium.

With respect to the practical application, it is particularly complicated to precisely delimit market-related from competitor-related conduct. It should be clear that the competitor’s intention cannot determine whether a deviation from the market-effects rule is possible. Unfair competition law is largely independent of subjective elements. Yet, a merely objective focus on market effects is also problematic. It is nearly impossible to discern an act of unfair competition that will affect a specific competitor alone and not also exert at least minimum effects on the marketplace. In light of modern unfair competition policies, the delimitation must thus focus on whether the act at issue exerts a direct effect on the market. If it does, the market-effects rule governs. If such repercussions are merely indirect, art 6(2) Rome II Regulation applies. On this basis, the European Commission has indicated that this ‘bilateral’ category contains, inter alia, cases of enticing away a competitor’s staff, corruption, industrial espionage, disclosing business secrets and inducing a breach of contract (COM(2003) 427 final, p 16). By contrast, requests for boycotts or the denigration and defamation of a competitor vis-à-vis his customers fall within the domain of the general rule in paragraph 1.

The law to be applied to bilateral acts under articles 6(2) and 4(2) Rome II Regulation is the law of the common habitual residence of the parties (lex domicilii communis; see also art 23 of the Rome II Regulation). If there is no common habitual residence, the lex loci damni under art 4(1) provides for the fallback solution. This is usually the law of the victim-competitor’s principal place of business or his place of central administration; only rarely will the act of unfairness be ‘manifestly more closely connected’ with a different jurisdiction (art 4(3)).

5. Party autonomy

Article 6(4) of the Rome II Regulation provides that ‘the law applicable under this Article may not be derogated from by an agreement pursuant to Article 14’. This restriction of party autonomy can be explained by reference to public policy. Unfair competition regulation embraces matters that concern both private-party interests and the public interest. Individual parties may not dispose of the general public’s interest in free and fair competition. At least one exception, however, is worth pointing out. With respect to bilateral acts, art 6(2) Rome II Regulation refers to the general tort rules in art 4. Hence, the applicable law will not be directly determined ‘under’ art 6. Accordingly, as far as art 14 allows, the parties are free to derogate from the statutory rule by agreement.

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