Discussing unfair competition is in fashion

24 February, 2017

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Rosa Guirado

It seems to be in fashion to discuss unfair competition. Yes, you are nobody if you are not talking about unfair competition.

It seems so – I say –, because there seem to be so many operators around accusing new entrants to the market of unfair competition when, at the most, all the newcomer is doing on many occasions is trying to compete – if they let him – on the same market where the previous one had been doing so for a long time. However, many consider simply be competing to be unfair competition.

Due to this, it would not be exaggerated if, having reached this point, we remember what the difference is between there being competition on the market or none at all, and whether such competition is unfair or not.

Defending competition, in the public interest

Article 38 of the Spanish Constitution recognises, under the title of “citizens’ rights and duties”, “entrepreneurial freedom within the setting of a market economy” and its guarantee and protection by the public powers. This consecrates governance of the markets by effective competition between companies, regulating corporate activities and reassigning productive resources to favour the most efficient operators or techniques. The key is for such productive efficiency to be passed on to the consumer in the form of lower prices or greater quantity, variety and quality of products, thus increasing well being for society overall.

Thus, the fact of there being competition on a market is considered a public interest, although not at the whim of the legislator, but rather because it affects the wellbeing of all Spanish citizens and thus it also comprises a right and duty of all that, as such, deserves the guarantee and public protection afforded by the Constitution. Within that context, defence of competition is consolidated as one of the pillars of economic policy, as a complement to the regulations, in order to promote productivity and general competition within the economy.

Thus, the Defence of Competition Act arose (now Act 15/2007), being conceived to provide a system that, while not unnecessarily intervening in free corporate decision making, would allow adequate instruments to be made available to guarantee proper operation of the market processes. A system that is complemented by an institutional structure of administrative bodies to defend competition (now the National Markets and Competition Commission, CNMC) intended to promote competition on the markets, to ensure compliance, supervise the markets and penalise economic conduct that is contrary to competition, as that would be against everybody’s interest. Thus, its resolutions may be appealed, being administrative acts, before the contentious-administrative jurisdictional instance.

And what purpose does that defence of competition have on the markets?

Well its purpose is to publicly guarantee that public interest of competition through the competition bodies, that right of all, in order to prevent companies operating on the markets being able to perform acts of collusion to prevent, restrict or interfere with competition on all or part of the national market, to abuse their dominant position, or concentrate in manners liable to restrict effective competition on the relevant market concerned.

It is thus senseless for an operator – or guild – to speak against what has been declared by the competition body, either national or regional, as all it shows is that such an operator – or guild – is contrary to the essential basis and grounds of all the economic policy and legislation that promotes competition on the markets and, thus, the Spanish Constitution and ultimately the European Union Treaty, in addition to being against the interests of all Spaniards (and not only the families of the guild concerned, the proportion of which is infinitely less than the more than forty million Spaniards who benefit from competition existing).

And when is such competition unfair?

Now, once competition exists on the market and – under ideal terms – no restrictions are placed on access for new entrants, nor on practice thereof, it will be possible to speak of unfair competition, as competition could hardly be unfair when such does not actually exist.

Thus, once competition is established on the market, competition is said to be unfair when the operators compete by “trampling or tripping each other up”, that is, acting in bad faith, because they do not respect the private interests of the remaining entrepreneurs with conflicting interests, or because they attack the collective interests of the consumers or, where appropriate, because they misrepresent free competition on the market. The fact is that within the scope of unfair competition, not only does this affect the public interest of the State to maintain healthy, above board competition, but also – and most specially – the private interest of entrepreneurs and the collective interest of consumers.

This gave rise to Act 13/1991 on Unfair Competition, in order to establish the necessary mechanisms to prevent the principle of free competition being subverted by unfair practices.

Unfair competition, a -mostly- private interest.

One of the main differences in the Unfair Competition Act (UCA), compared with the Defence of Competition Act, consists in it entrusting its protection to the same operators and consumers addressed, so it is them (any natural or legal person who participates in the market, whose economic interests are directly harmed or threatened by unfair conduct) who are legitimated to take action regarding unfair competition before the Mercantile Courts in such a case, and those who obtain, when appropriate, direct compensation arising from exercising such actions.

Although it is true that the Defence of Competition Act itself also entrusts the CNMC and other competition bodies hearing cases of unfair competition that may be understood to subvert free competition and thus affect the public interest, one may say that it is not a main, or very usual function of such bodies, that rather are tending to disappear.

The main thing is that Unfair Competition is purely private and aimed at protecting the interests of entrepreneurs and the collective interests of the consumers.

And what is understood as unfair?

The concept is open, as it is defined with an indeterminate legal concept such as “all behaviour that is objectively contrary to the demands of good faith”.

Notwithstanding this, it is not a fully open concept, as the legislator has foreseen a series of conducts that it specifically classifies as unfair. For the present purposes, those practices include those presumed to be in bad faith, such as to compete in breach of the rules that govern the market concerned.

Article 15 UCA.- “Unfair competition is considered to be dominate the market by obtaining competitive advantage acquired by breaching the laws. The advantage must be significant.”

In order to understand this, it means that not all breach of the regulations is considered unfair, but rather only that taken advantage of to obtain a different position on the market, and as long as that gives rise to a significant advantage in terms of competitiveness.

Competition always bothers, but that does not make it unfair

Notwithstanding this, it is of interest to emphasise that unfair competition is a claim it is difficult to have admitted by the Courts, most especially by the Supreme Court, that has reiterated in a multitude of judgements that competition hurts, “competition always bothers, and that does not make it unfair, it is simply competition”.

Or as stated by Antonio Maudes, present Director of the Competition Promotion Department at the CNMC, “competition is the gymnasium where the companies on the market work out”.

This is a key point to bear in mind, as there seems to be a widespread tendency to classify any competition that inconveniences one as unfair, while we must remember that this is a general interest, right and duty of all citizens.

And what has all this to do with the collaborative economy?

Fundamentally the last point: that collaborative platforms continually have fingers pointed at them regarding fair competition, when all the majority try to do is simply and plainly to compete.

And as competition is inconvenient, that is why others cry out “unfair competition”, without knowing the true meaning and the difference we have considered here.

But how is competition not a bother if it is precisely that: competition?

That is precisely why the precedent of BlaBlaCar has been so relevant, as the Judgement of 2nd February 2017 considers that BlaBlaCar is an online platform that provides electronic services and does not unfairly compete with the partners of CONFEBUS, due to it not providing the underlying service of transport.

However, this deserves a more detailed explanation, which is that, even though on previous occasions, we have provided an analysis of the judgements handed down in favour of Airbnb and BlaBlaCar, now some time has gone by, it is worth examining the “big picture” to understand why the platforms do not compete unfairly with the operators in these sectors.

This we shall soon do in another article.