Unfair competition: disparagement and disorganisation, practical cases and penalties

Unfair competition is not governed by any specific provision of the French Commercial Code: it is built on the ground of civil liability. For a business owner whose former employee leaves with the customer file, for a trader whose competitor publicly suggests that its products are dangerous, or for an SME whose visual identity is copied by a new entrant, the question is always the same: where does freedom of trade end and where does actionable fault begin? This article sets out the four grounds that the courts distinguish, namely disparagement, confusion, disorganisation and parasitism, through concrete situations, and then explains the penalties incurred and how the loss is assessed.

The legal foundation: an application of civil liability

Freedom of trade and industry is the principle. Anyone may win over a competitor's customers, offer lower prices, or hire away an employee whose contract contains no non-competition clause. The mere fact of harming a competitor by taking market share from it is not a fault: it is the normal play of economic competition.

An action for unfair competition is based on Article 1240 of the French Civil Code, which lays down the general rule of liability for fault:

Any act whatsoever of a person which causes damage to another obliges the person through whose fault it occurred to make reparation for it.

Three cumulative conditions must therefore be met: a fault, a loss and a causal link between the two. The fault is disloyal conduct that breaks equality in competition, and the case law of the Commercial Chamber of the Cour de cassation has gradually sorted such conduct into four main categories. Unlike infringement, an action for unfair competition does not require any exclusive right (trade mark, patent, registered design). It protects fair conduct, not a title of intellectual property. That is precisely what makes it available to a business that has registered nothing but is subject to wrongful conduct.

One point should be stressed from the outset: the existence of a direct competitive relationship is no longer always required. Parasitism, in particular, may be alleged against an operator who is not the victim's direct competitor but who unduly benefits from its efforts.

Disparagement: discrediting a competitor

Disparagement (dénigrement) consists in publicly discrediting the products, services, business or person of a competitor, with the aim of diverting its customers. It is one of the grounds most frequently relied on, particularly since online reviews and social media communications have become widespread.

What distinguishes disparagement from legitimate criticism

Not all criticism is a fault. The difficulty lies in the boundary with freedom of expression and the consumer's right to information. The courts apply several criteria to characterise disparagement.

• The target: the information identifiably concerns a named operator or its products
• The publicity given: the statement is circulated to customers or to the public, and is not made in a confidential setting
• The absence of a serious and verifiable factual basis: a peremptory, exaggerated or unsupported assertion amounts to disparagement
• The intention to harm or to win over customers, revealed by the context

The Cour de cassation accepts that disclosing information likely to discredit a competitor constitutes disparagement, even where the information is accurate, provided that it is not justified by a debate of general interest and that it comes from an economic operator acting in its own interest. In other words, the truth of the assertion is not, on its own, a justification.

Practical cases

Take a building tradesman who states on his professional page that a local competing business "botches its sites" and "uses non-compliant materials", without any evidence at all. The statement is identifiable, public, unsupported and intended to divert customers: the characterisation as disparagement is established.

Another common situation: a supplier sends all of a competitor's customers a circular letter announcing that legal proceedings are under way against that competitor. Even if the action genuinely exists, the mass and targeted circulation of that information, when no final decision has been given, is regularly penalised. The presumption of innocence and the absence of a final decision leave the message without a sufficient factual basis.

Conversely, a comparative test published by a consumer association, based on an objective and verifiable protocol, does not constitute disparagement: it forms part of informing the public and of debate of general interest. The distinction turns on the objectivity, verifiability and purpose of the statement.

Confusion: creating doubt in the minds of customers

The second ground covers acts intended to create, in the minds of customers, confusion with a competitor, its products or its business. It involves imitating an operator's distinctive signs (trade name, shop sign, presentation of products, graphic identity, website) in order to benefit from its reputation or divert its customers. The actions available to a business whose image is used without authorisation are examined in our article on the image rights of a business.

Imitation does not require a registered exclusive right. A business that has not registered its trade name as a trade mark may nonetheless take action against a competitor that adopts a very similar name in the same sector and the same catchment area, provided that there is a risk of confusion for customers of average attentiveness.

Take the example of a restaurant that opens in the immediate vicinity of a well-known establishment, adopting a phonetically very similar sign, a shopfront in the same colours and a menu presented in an identical format. Taken in isolation, each element may be commonplace. It is the combination of indicators, the overall effect, that creates the risk of confusion and characterises the fault. The courts assess confusion globally, taking account of geographical proximity, the identity of the customer base and the degree of similarity.

Confusion is distinct from infringement: the latter requires an infringement of a registered intellectual property right and is judged independently of any risk of diversion of customers. In practice, the same situation may found both an action for infringement (on the registered trade mark) and an action for unfair competition (on elements not protected by registration), provided that distinct facts are relied on for each.

Disorganisation of the business: disrupting a competitor's operations

Disorganisation of the business (désorganisation) covers conduct that directly disrupts the internal functioning of a competitor or, more broadly, of the market. It is a technical ground, where the boundary with freedom of trade is particularly difficult to draw.

Poaching of staff

Hiring away a competitor's employee is not a fault in itself. An employee free of any non-competition undertaking may join whomever he or she wishes, and the employer who hires that employee is exercising its freedom to undertake. Fault arises where particular circumstances are added to the hiring:

• the mass and simultaneous poaching of several employees from the same department, which deprives the competitor of its operational capacity
• inducing the breach of a non-competition clause whose existence the new employer was aware of
• arranging the departure in order to capture the know-how, processes or files of the original business
• the manifest disorganisation that results, assessed having regard to the size of the business and the position of the employees who left

Thus, the organised departure of almost the entire sales team of an SME to a competing structure created by a former manager, with the concurrent takeover of the main customers, goes beyond the mere play of competition. The tight chronology of events and the scale of the departure are, here, decisive indicators.

Diversion of customers and files

The use by a former employee or former partner of the customer file of his or her former business is a classic case of disorganisation. The customer file is an asset built up through the business's investment. Its reproduction or use, without authorisation, to solicit the same customers methodically characterises disloyalty.

Two situations must be distinguished. A sales representative who, from memory, contacts again a few customers with whom he or she had a personal relationship remains within the normal exercise of his or her activity. By contrast, a person who has copied the database, with its contact details, order history and pricing terms, in order to systematically solicit the entire portfolio, commits a fault. The difference lies in the existence of a disloyal method and in the scale of the diversion.

Disorganisation may also target the market itself, for example through non-compliance with a regulation that gives an undue competitive advantage. Undeclared work, selling without the required authorisations or failing to comply with mandatory standards that bind law-abiding competitors may, depending on the circumstances, be analysed as acts of unfair competition, independently of the administrative or criminal penalties specific to them.

Parasitism: riding on another's coat-tails

Parasitism (parasitisme) consists, for an operator, in placing itself in the wake of another in order to profit, without consideration and without effort, from that other's investments, reputation or know-how. The Cour de cassation defines it as all the conduct by which an economic agent interferes in the wake of another to unduly benefit from its efforts and its economic value.

Parasitism is clearly distinguished from the other three grounds by two features. First, it does not require a direct competitive relationship: the parasite may operate in a different market. Second, it presupposes neither a risk of confusion nor disparagement: what is penalised is the appropriation of another's economic value, independently of any confusion in the minds of customers.

Two notions structure the analysis: the victim's investments, whether intellectual, financial or promotional, and the resulting capture of value. The victim must demonstrate the reality and economic value of what it has created, and then establish that the third party has appropriated the benefit of it.

A common illustration: a business launches an original commercial concept, a strong identity and an expensive communication campaign; a few months later an operator takes over the codes of that campaign, its vocabulary and its visual universe, in order to sell products with no direct link. There is not necessarily any confusion for the public, but there is an appropriation of another's efforts and reputation. The case law also penalises the slavish copying of work that is not protected by an exclusive right, such as elaborate technical documentation, visuals or a reference database, where it shows a wish to avoid making an investment. The protection of innovation and know-how against such conduct is dealt with separately in our article on parasitism and unfair competition.

It must nevertheless be recalled that the Cour de cassation has set a limit: the mere taking over of a service or an idea that is not the subject of exclusive rights does not, in itself, constitute an act of parasitism. An individualised economic value and the appropriation of a particular effort must still be demonstrated. Freedom of trade allows, in principle, drawing inspiration from what is not protected.

Penalties and assessment of the loss

The penalties for unfair competition pursue two distinct objectives: to put an end to the disturbance and to make good the damage suffered. The action falls within the jurisdiction of the commercial court (tribunal de commerce) where the parties are traders, and is subject to a five-year limitation period running from the day the victim knew or should have known of the facts.

Cessation of the conduct

The victim may seek the immediate cessation of the unfair acts. The judge orders, depending on the case, the removal of disparaging content, the modification of a sign that creates confusion, a ban on continuing to use a diverted file, or the removal of parasitic elements. These measures may be backed by a daily penalty (astreinte), that is, a sum payable for each day of delay, to ensure that they are complied with.

Where urgency justifies it and the disturbance is manifestly unlawful, the victim may apply to the judge hearing summary proceedings (référé) for rapid protective measures, without waiting for the judgment on the merits. This route is particularly suited to disparagement circulated online, where each day of circulation aggravates the loss.

The judge may also order the publication of the decision, at the expense of the party held liable, in the press or on a website. This measure of reparation in kind repairs the damage to reputation by restoring the information to the public concerned.

Damages and assessment of the loss

Reparation takes mainly the form of damages. This is where the major practical difficulty lies: the loss caused by unfair competition is often real but hard to quantify. It may cover several heads of loss.

• the loss of turnover and margin resulting from the diversion of customers
• the damage to image and reputation, particularly in the case of disparagement
• the loss of a competitive advantage or the trivialisation of a concept, in the case of parasitism
• the saving unjustly made by the perpetrator, who avoided having to make investments

The Commercial Chamber of the Cour de cassation has relaxed the evidential requirement in favour of victims. It accepts that the loss resulting from acts of unfair competition or parasitism is necessarily inferred from those acts, even in the absence of a demonstrated loss of turnover. The judge may then assess the damage by taking into account the undue advantage that the perpetrator obtained, assessed against the investments that the victim made and that the parasite saved. This approach is decisive in matters of parasitism, where the direct loss is sometimes impossible to isolate.

In practical terms, the victim has every interest in documenting in advance the reality of its investments (communication budgets, development costs, value of the file), the scale of the conduct (bailiff's reports, dated screenshots, witness statements) and, so far as possible, the change in its turnover. A report drawn up by a commissaire de justice (bailiff) remains the preferred means of proof for fixing online content or a shopfront before they are altered. The means of proof and the conduct of the procedure are set out in our article on proving unfair competition.

The question of cumulation deserves attention. The same situation may combine several grounds, for example confusion coupled with parasitism, or poaching accompanied by the diversion of a file. The courts then require each ground to rest on distinct facts in order to justify separate compensation, so as to avoid double reparation of the same loss.

Conclusion

The four grounds of unfair competition are not theoretical boxes: they correspond to different logics that the judge assesses concretely. Disparagement penalises damage to reputation, confusion protects distinctive signs without registration, disorganisation targets the destabilisation of a competitor's operations, and parasitism punishes the capture of efforts and investments. The dividing line with free competition is always the same: it is not the fact of causing harm that is a fault, but the disloyal method used to achieve it.

The real issue for the victim lies less in characterisation than in proof. A well-constructed action rests on dated, documented and distinct facts for each ground relied on, together with solid documentation of the investments and of their capture. Faced with suspicious conduct, the first useful reflex is not to write to the competitor, but to have a report drawn up by a commissaire de justice in order to fix the evidence before it disappears. It is that evidence, gathered quickly, that determines both the cessation of the disturbance and the amount of reparation.

Frequently asked questions

What is the difference between unfair competition and infringement?

Infringement requires an infringement of a registered intellectual property right (trade mark, patent, design) and is judged independently of any risk of diversion of customers. Unfair competition, founded on Article 1240 of the French Civil Code, requires no exclusive right: it penalises wrongful conduct. The two actions may be combined if they rest on distinct facts, for example the infringement of a registered trade mark and the imitation of elements not protected by registration.

Can a negative online review constitute disparagement?

It depends on its author and its content. A consumer who expresses a personal opinion on a service remains, in principle, within the exercise of his or her freedom of expression. By contrast, a competitor who circulates peremptory, unverifiable assertions intended to divert customers commits disparagement, even if the facts alleged are accurate, where they do not form part of a debate of general interest.

Is it prohibited to poach a competitor's employee?

No. Hiring an employee free of any non-competition undertaking is lawful and falls within the freedom to undertake. Poaching becomes wrongful where it is accompanied by particular circumstances: its mass and simultaneous nature, inducing the breach of a known non-competition clause, or arranging the departure in order to capture the know-how and files of the original business, with the resulting disorganisation.

How can an act of unfair competition be proved?

Evidence is unrestricted in commercial matters, but some means are particularly effective. A report drawn up by a commissaire de justice (bailiff) makes it possible to fix online content, a shopfront or documentation before they are altered. To this are added dated screenshots, statements from customers or employees, written exchanges and accounting records showing the change in turnover. Documenting the investments made is essential in matters of parasitism.

Do you have to be a direct competitor to bring proceedings?

Not necessarily. Disparagement, confusion and disorganisation generally presuppose a competitive relationship, even an indirect one. Parasitism, by contrast, may be alleged against an operator that is not a competitor, where it places itself in the wake of the victim to profit from its investments and reputation without consideration.

How is the loss assessed in the event of unfair competition?

The judge takes account of the loss of turnover and margin, of the damage to image and, in the case of parasitism, of the saving unjustly made by the perpetrator. The Cour de cassation accepts that the loss is necessarily inferred from the unfair acts, which allows compensation even without a demonstrated loss of turnover. The assessment may then be based on the undue advantage obtained by the perpetrator, assessed against the investments saved.

What is the time limit for bringing an action for unfair competition?

The action is subject to a five-year limitation period, in accordance with the general law. That period runs from the day the victim knew or should have known of the facts enabling it to act. Given the difficulty of gathering evidence and the continuing aggravation of certain losses, particularly in the case of online disparagement, it is preferable to act without waiting for that period to expire.