Misleading as a form of unfair competition

Chagina Elizaveta Mihailovna Junior Researcher ; Department of Private Law ; Institute of Legislation and Comparative Law under the Government of the Russian Federation 31 Bolshaya Cheremushkinskaya str., Moscow, 117218, Russia chagina.elizaveta1997@mail.ru Other publications by this author

According to article 8 of the Constitution of the Russian Federation, support for competition is one of the foundations of the constitutional order of the Russian Federation, along with the guarantee of a single economic space, freedom of economic activity, etc. As noted in the literature, "the state supports competition by, on the one hand, preventing and suppressing monopolistic activities and unfair competition, on the other hand, preventing restrictions and eliminating competition by state and municipal authorities, officials and organizations." ^{[1, c. 14]}

A general prohibition of unfair competition, i.e. such actions that are aimed at obtaining advantages in carrying out business activities and at the same time contradict the legislation of the Russian Federation, business practices, requirements of integrity, reasonableness and fairness, as well as cause or may cause losses to competing business entities or cause or may harm their business reputation (paragraph 9 of Article 4 of Federal Law No. 135-FZ dated July 26, 2006 "On Protection of Competition", hereinafter referred to as the Law on Protection of Competition), is based on Part 2 of Article 34 of the Constitution of the Russian Federation, which prohibits the implementation of economic activities aimed at unfair competition. ^{[2, p. 83]} By itself, this prohibition is the most important tool for ensuring normal competition in a market economy, as well as protecting a person's subjective right to freedom of fair competition and a healthy competitive environment ^{[3, p. 80-88]}.

Acts of unfair competition can take various forms. The Law on Protection of Competition highlights unfair competition by discrediting (Article 14.1), by misleading (Article 14.2), by incorrect comparison (Article 14.3), unfair competition related to the acquisition and use of the exclusive right to the means of individualization of a legal entity or goods, works, services (Article 14.4) related to illegal using the results of intellectual activity (Article 14.5) related to the creation of confusion with the activities of another business entity or with goods or services introduced by a competitor into civil circulation (Article 14.6) related to the illegal receipt, use, disclosure of information constituting a commercial or other legally protected secret (Article 14.8). At the same time, the law also prohibits any other forms of unfair competition (Article 14.9) that do not meet the criteria specified in Articles 14.1-14.8, but fall under the general criteria defining unfair competition (paragraph 32 of the Resolution of the Plenum of the Supreme Court of the Russian Federation dated 03/04/2021 No. 2 "On certain issues arising in connection with the use of courts antimonopoly legislation").

In this paper, it is proposed to consider only one of the forms of unfair competition, namely misleading, to investigate its main features, as well as to consider the problem of distinguishing unfair competition by misleading from similar offenses. To this end, the author chose the method of analysis and interpretation of regulatory legal acts as the methodological basis of the study, and also examines judicial practice, as well as the law enforcement practice of antimonopoly authorities.

In accordance with article 14.2 of the Law on Protection of Competition, unfair competition through deception is not allowed. As the Federal Antimonopoly Service (hereinafter referred to as the FAS of Russia) explains, the objective side of misleading lies in the dissemination of positive information regarding the actions of the distributor of the product or the product itself, while such information is unreliable (paragraph 9.2 of the Letter of the FAS of Russia dated December 24, 2015 No. IA/74666/15 "On the application of the Fourth Antimonopoly Package", followed by Letter from the FAS of Russia no. IA/74666/15). This is how unfair competition through deception differs from unfair competition through discrediting (Article 14.1 of the Law on Protection of Competition), which is the dissemination of information about a counterparty, or its activities, or the goods it sells, while such information is also unreliable, but it is not positive, but negative, and can cause losses. to the person in respect of whom it is distributed, or to harm his business reputation (paragraph 9.1 of the Letter of the FAS of Russia no. IA/74666/15).

Speaking about the essence of deception as an act of unfair competition, it should be noted that such actions are aimed at creating market participants' ideas about the product, its manufacturer, terms of sale or other circumstances that do not correspond to the real state of affairs. All this creates certain expectations among market participants, which potentially "can distract the clientele in one or another market segment and channel their interests in the right direction for an unscrupulous participant" ^{[4, p. 30]}.

The objective side of the act in question is precisely active actions, which is characteristic of any act of unfair competition. ^{[5, p. 17]}

Misleading actions can be directed at various categories of persons: these can be competitors, contractors of the entity, as well as consumers of goods, not only in the sense of paragraph 23 of Article 4 of the Law on Protection of Competition (i.e. individuals or legal entities that purchase goods), but also consumers in the narrow sense. – it is individuals who purchase goods for personal, family, etc. needs that are not related to business activities (see the preamble to the Law of the Russian Federation dated 02/07/1992 No. 2300-1 "On Consumer Rights Protection", hereinafter referred to as the Law on Consumer Rights Protection). A striking example is the prosecution of LLC "Sunlight" (Sunlight jewelry store chain) for violating Article 14.2 of the Law on Protection of Competition.: The act of unfair competition was expressed in the dissemination of information about the closure of the chain's stores, which was addressed specifically to consumer citizens (see the decision of the Volgograd Federal Antimonopoly Service of Russia in case No. 034/05/5-540/2020 dated 07/31/2020; warning of the Volgograd Federal Antimonopoly Service of Russia dated 09/23/2021 No. 02-14/6926). Similar examples are also found in judicial practice (see, for example, the Ruling of the Supreme Court of the Russian Federation dated 02/28/2022 No. 305-ES21-1176 in case No. A40-294109/2019).

The text of the norm contains a list of objects in relation to which it is possible to mislead. This:

1) the quality and consumer properties of the product offered for sale, or its purpose, or the methods and conditions of manufacture or use of the product, or the results expected from the use of the product, as well as its suitability for use for certain purposes;

2) the quantity of the product offered for sale, or its availability on the market, or the possibility of purchasing the product on certain conditions, or the actual amount of demand for the product;

3) the place of manufacture of the goods, the manufacturer of such goods, the warranty obligations of the manufacturer or seller;

4) the conditions under which the product is offered for sale, in particular, the price of the product.

The Letter from the FAS of Russia No. IA/74666/15 also contains explanations of how the terms "product quality", "consumer properties of the product", as well as some others should be understood. Thus, the quality of a product is defined as a set of consumer properties of a product (paragraph 9.2 of the Letter from the Federal Antimonopoly Service of Russia No. IA/74666/15). In turn, consumer properties of a product are understood as those properties of a product that manifest themselves when it is used by a consumer in the process of satisfying needs (paragraph 9.2 of Letter No. IA/74666/15 of the Federal Antimonopoly Service of Russia). It should be noted that the concept of product quality is not fully disclosed in the explanations of the Federal Antimonopoly Service, since it implies not just a set of consumer properties of the product, but such properties as meet the established requirements, including the terms of the contract of sale or other similar (see GOST R 51303-2023. The national standard of the Russian Federation. Trading. Terms and definitions, approved by By Rosstandart Order No. 469-st dated 30.06.2023). In addition, based on the provisions of part 2 of Article 4 of the Law on Consumer Protection, the proper quality of goods implies not only the conformity of the properties of the goods with established requirements, including the requirements usually imposed on goods of a certain type, but also the suitability of the goods for the purposes for which such goods are commonly used.

The FAS of Russia also clarifies the concepts of the method of manufacturing the goods and the place of manufacture of the goods. The first one should be understood as the technologies, component materials used in the manufacture of goods, as well as other conditions of its production. In the second case, it refers to a country or a narrower geographical object on the territory of which the product is produced.

It is impossible not to raise the issue of the fundamental permissibility of holding a subject accountable for violating the law on protection of competition if the object in respect of which the participant in the civil turnover was misled is not named in article 14.2 of the Law on Protection of Competition. There are various opinions in the literature on this issue, both about the impossibility of bringing to justice ^{[6, p. 47]} and that it is permissible ^{[4, p. 34]}. It seems necessary to agree with the latter point of view, since the very content of article 14.2 of the Law on Protection of Competition indicates that the list of characteristics in respect of which it is possible to mislead market participants is open, as indicated by the construction "including" at the beginning of the enumeration. Judicial practice is also based on this position: for example, a business company was held accountable for unfair competition by misleading, which was expressed in the presentation of untrue information when submitting a "proposal" for concluding a contract, which could mislead the commission regarding the financial performance of the company, which allowed the latter to obtain unreasonable advantages in with respect to other procurement participants (see paragraph 11 of the Review of Judicial Practice on Issues Related to the Application of Federal Law No. 223-FZ dated July 18, 2011 "On Procurement of Goods, Works, and Services by Certain Types of Legal Entities", approved by the Government of the Russian Federation). By the Presidium of the Supreme Court of the Russian Federation on 16.05.2018).

There may be a question of distinguishing between an offence of unfair competition through deception, for which administrative responsibility is established by Article 14.33 of the Code of Administrative Offences of the Russian Federation (hereinafter referred to as the Administrative Code of the Russian Federation), when such actions are directed at consumer citizens, and consumer deception, which consists in misleading consumers about consumer properties or quality. goods (works, services) during the production of goods for the purpose of sale or during the sale of goods (part 2 of Article 14.7 of the Administrative Code of the Russian Federation). The objective side of both offenses does have certain similarities: in both cases, misleading actions are directed at individuals who purchase goods for needs unrelated to business activities, and these actions also consist in providing untrue information characterizing the quality or consumer properties of the goods. However, these two offences should not be confused. The offense specified in part 2 of Article 14.7 of the Administrative Code of the Russian Federation is aimed at influencing the consumer's choice of goods when concluding a retail purchase and sale agreement ^{[7, p. 4]}, whereas the act punishable in accordance with Article 14.33 of the Administrative Code of the Russian Federation is aimed at obtaining advantages in carrying out entrepreneurial activities in comparison with competing business entities As follows from the very definition of unfair competition ^{[8, p. 90]}, this determines the difference between the objects of these administrative offenses. In both cases, the generic object of encroachment is legal relations in the sphere of entrepreneurial activity, however, the specific objects, i.e. the specific legal relations that are being harmed ^{[9, p. 95]}, will be different: for the offense specified in part 2 of Article 14.7 of the Administrative Code of the Russian Federation, the object of unlawful encroachment is civil law relations, one of the parties to which he is a consumer citizen ^{[10, p. 4-15]}, whereas the object of an administrative offense specified in Article 14.33 of the Administrative Code of the Russian Federation is legal relations in the field of competition protection ^{[11, p. 94]}

Also, one should not confuse the elements of administrative offenses provided for in Article 14.33 of the Administrative Code of the Russian Federation, if an act of unfair competition finds expression in misleading consumers about, for example, the place of manufacture of the product or its manufacturer, and part 1 of Article 14.10 of the Administrative Code (violation of the consumer's right to receive necessary and reliable information about the product being sold, the manufacturer, the seller, the contractor and the mode of their work). These compositions differ both in terms of the specific object (relations in the field of competition protection in the first case and civil law relations involving citizen consumers in the second), and on the objective side: if Article 14.33 of the Administrative Code of the Russian Federation is characterized by the dissemination of information of an unreliable nature, then the offense provided for in part 1 of Article 14.10 The Administrative Code of the Russian Federation is expressed in the refusal to provide information to the consumer when, according to the law, its communication is mandatory. ^{[7, p. 6]}

It is impossible not to consider the relationship between unfair competition through misleading and violations of advertising legislation, namely the dissemination of false advertising.

It is generally believed that a significant number of unfair competitive actions to mislead are committed through the use of advertising and, in particular, its prohibited variety, called unreliable advertising. The validity of this point of view is also evidenced by law enforcement practice (see, for example, the decision of the Chelyabinsk UFAS of Russia in case No. 074/05/5/2392/2020 of 02/26/2020; the decision of the Volgograd UFAS of Russia in case No. 034/05/5-540/2020 of 07/31/2020; the decision of the Volgograd UFAS of Russia in case No. 034/05/5-540/2020 of 05/29/2020).

In accordance with paragraph 3 of Article 5 of Federal Law No. 38-FZ of 13.03.2006 "On Advertising" (hereinafter referred to as the Law on Advertising), an advertisement that contains information that does not correspond to reality, such as:

1) about the advantages of the advertised product over other goods in circulation;

2) about the characteristics of the product, including its composition, method and date of manufacture, consumer properties, place of origin, etc.;

3) about the assortment and packing of goods, the possibility of their purchase in a certain place or within a certain period of time;

4) the cost or price of the product, the payment procedure, the amount of discounts, tariffs and other conditions for the purchase of the product, as well as a number of other information about the product.

In this regard, the FAS of Russia clarifies that if false information that meets the criteria of unfair competition in the form of deception is contained in an advertisement, the subject is liable only for violating the legislation on advertising (Article 14.3 of the Administrative Code of the Russian Federation), since in accordance with Article 1 of the Law on Advertising, the purpose of this law is to This includes ensuring compliance with the principles of fair competition (see Letter from the Federal Antimonopoly Service of Russia dated 12/24/2020 No. AK/113856/20 "On the Correlation of Legislation on unfair Competition with legislation on advertising and Consumer Protection"). In the event that a person's actions to disseminate false information that meet the criteria of unfair competition are carried out not only through advertising, but also in another way, the person must be held accountable for both violations of advertising legislation and violations of competition protection legislation (see paragraph 8 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated 08.10.2012 No. 58 "On some issues of the practice of application by Arbitration courts of the Federal Law "On Advertising").

As a result of the study, the following conclusions can be drawn::

1. Unfair competition through deception consists in taking active actions to disseminate false information about the consumer properties of a product, its quality, place of origin, manufacturer, as well as other circumstances, the purpose of which is to gain advantages in the market compared to competitors. Such actions can be directed at different persons: counterparties, competing business entities, as well as consumers.

2. The distinction between unfair competition through deception, when such actions are directed at consumers, and administrative offenses in the field of consumer protection (consumer deception, violation of consumers' right to receive reliable information about a product) occurs according to the object of unlawful encroachment (competition law relations – civil law relations involving consumers), as well as according to impact objectives (impact on an unspecified group of people in order to gain an advantage in the market over competitors – impact on consumers, including a specific consumer, in order to influence the process of choosing a product when concluding a purchase agreement).

3. The dissemination of false information in advertising that meets the criteria of unfair competition by misleading is qualified only as a violation of advertising legislation. If a person's actions to disseminate false information that meet the criteria of unfair competition are carried out not only through advertising, but also in any other way, the person is also liable for violating the law on protection of competition.