Brazil: Parasitic Exploitation: Unfair Practice Among Non-Competitors

Last Updated: 22 July 2015
Article by Julia Davet Pazos

Violations against the assets that comprise the tangible property of a legal entity are easily perceptible. They are condemned and prohibited by several laws of different nature.

The most known violations against intangible assets include crimes against trademarks, patents and industrial designs, provided for in the Brazilian Industrial Property Law (Law 9279/96), as well as copyright violations, provided for in the Copyright Law (Law 9610/98).

In this regard, the theory of parasitism, under the widely known Competition Law, has been growing in importance and power in the  intellectual property protection scenario.

The whole society strives for free competition since it mitigates and equalizes prices, improves service provision and, therefore, benefits consumers most of the time.

In fact, free competition is one of the General Principles of the Economic Activity, as established by  art. 170, item IV, of the Federal Constitution.

On the other hand, deceptive competition is condemned by the entire legal system in Brazil and, in some cases, is considered a crime by lawmakers.  

Any act that may illegally and unreasonably be detrimental to a competitor, going beyond the limits of the Law, is generically called unfair competition and is regulated by the Industrial Property Law and by article 10 bis of the Paris Convention for the Protection of Industrial Property, of 1883 (enacted in Brazil under Decree 75572/75 –, which reprehends "unfair uses" in commercial practices).

Unfair competition usually takes place in two forms: either one openly attacks a competitor to affect its credibility before consumers and, therefore, gain indirect advantage − a more aggressive way of competing in the marketplace, as usually observed in comparative advertising − or one dishonestly takes advantage of its adversary's success, "getting a free ride" in the prestige earned after a long journey and big investments.

Two simultaneous effects in case of unfair competition can be easily noted: on the one hand, it inflicts harm on competitors, which have their concept discredited in the marketplace and lose customers or have them lured away; on the other, a company takes undue advantage at the expenses of a competitor, that is, unjust enrichment.  The Brazilian legislation and precedents have made considerable progress in this area: decisions are increasingly more homogeneous, strongly banning this practice.

However, what to expect when a non-competing company takes advantage of the efforts and goodwill of another? Is this the case of a company that — in view of the recognition given to a trademark of another that has business in a different market segment — appropriates this distinctive sign and employs it on its own products, assimilating such sign and thus improperly adding value to its goods?

This type of subterfuge is called "parasitic exploitation," parasitic practice" or even "free riding."

The notion of parasitic exploitation among non-competitors, whose practice could not — at least in theory — directly injure the affected company, is not addressed homogeneously in Brazilian decisions.

However, more recently, the court has started addressing the subject in some decisions, and a specific opinion of jurists is being developed on that matter.

Parasitic exploitation can be considered an attempt of profiting from the work, investment, name and/or intellectual, scientific or artistic creations of a company with business in a different market segment. This is not the case of regular unfair competition, which presupposes competition between two companies of the same market area.

Parasitic exploitation usually consists of copying the formula of success of another company or assimilating someone else's name into that of the parasitic company. In other words, it often involves taking advantage of the use of assets that are part of a company's intangible property — trade name and fictitious business name, trademark, trade and industry secrets, etc. —, for purposes of easy enrichment.

Parasitic exploitation has stood out in trademark law; however, parasitic acts are not easy to define. How far can free enterprise go and where does the illegality aforesaid start? There is a fine line, sometimes undetectable, depending on the efforts of evaluators and on the cleverness of the judges.

Parasitic practice is a subtle and, at times, sophisticated behavior, whose critical aspect lies in that it goes beyond the limits of protection conferred upon the trademarks and business name – territorial and time related or related to an economic area –, or it is characterized by the use of identification elements that have no special protection regime offered by legislation. As the legal system contains no rule to expressly avoid exploitation by non-competitors and because no customers are lured away in this case, it is hard to ensure protection in this case.

The subject is clearly quite sensitive and all must be analyzed on a case-by-case basis, always following the principles of reasonability and proportionality. Besides, it is always important to check whether the social purpose of that intangible asset is being met. This is the only way to avoid the abuse of rights and the practice of illegal acts inherent in parasitic behavior.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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