On June 26, 2008 the Peruvian government enacted Legislative Decree 1044 , Unfair Competition Law (hereinafter, the UCL). The UCL unifies in one single normative body the regulation on unfair competition and commercial advertising: (i) Law Decree 26122 - Unfair Competition Law and; (ii) Legislative Decree 691- Regulations regarding Commercial Advertising. This change has been positive because in the past these two Laws have been in conflict due to the almost identical nature of the acts involved in unfair competition and unfair advertising practices (for example, acts of deceit, denigration, among others).
The UCL comprises the most relevant criteria and interpretations of mandatory precedents issued by the Competition Defense Court in the last 15 years.
In the following lines, we will briefly mention the main normative changes related to:
- Acts of unfair competition; and,
- The administrative procedure, including the sanctions regulation.
The administrative authorities in charge of the enforcement of the UCL are: in first instance the Commission of Unfair Competition; and in second instance, the Competition Defense Court. Both authorities are part of the National Institute for Defense of Competition and Intellectual Property Protection – INDECOPI.
Both the Commission and the Court are assisted by a Technical Secretary who carries out the role of proceeding instructing body.
The UCL has adopted the "Effects Theory" according to which the law will be enforced against unfair competition acts that produce or may produce effects in the national territory, even if the act itself originated abroad.
Similarly, the UCL regulates the "Primacy of the Reality principle" according to which the administrative authority will determine the real nature of the investigated conducts considering the actual economic situation produced by the unfair competition acts, while disregarding the juridical forms adopted.
Acts of Unfair Competition
The UCL introduces some changes but in general, maintains the structure and types of unfair conducts already sanctioned by the Law Decree 26122. Both the last norm and the new norm establish a general clause that prohibits acts of disloyal and unfair competition that are not efficiency – oriented, and list a series of conducts that are per se considered as being disloyal. This list is not meant as an exclusive list but rather as examples of unfair competitions acts already typified in the general clause. Thus, any unfair competition conduct not included in the list will be evaluated under the general clause disposition.
The acts of unfair competition included in the aforementioned list are:
- Acts that affect the transparency of the market: deceit (give consumers false information about advantages of their products or present testimonies in advertisements based on unreal or long-ago experiences); or acts of confusion (to induce consumers to error regarding the company's product or service).
- Acts related to the reputation of another economic agent: exploitation of another's reputation (acts which have as effect the unfair use of the image or trade dress of another); denigration (offend the prestige or professional reputation of another company); and the unlawful comparison or equivalence with a competitor. Comparisons and equivalences are considered lawful only when they are objective, true and pertinent.
- Acts that unduly modify one's own competitive position or that of another: violation of commercial secrets and violation of norms. An interesting innovation of the UCL is to consider as an infraction the violation of the subsidiary principle established in the Constitution. According to this principle, the government may subsidiarily engage in business activities for reasons of public interest or national benefit when so authorized by law. According to UCL, disregarding this constitutional principle is considered to be an unfair competition act.
- Acts developed through the advertising activity: unfair acts against authenticity ( to present advertisements as news or press reports), legality (violation of imperative regulations) and social adequacy (to encourage antisocial or illegal behavior).
Other unfair competition acts have been eliminated from the UCL, among them:
- Systematic imitation: to imitate the services and business initiatives of another company in order to prevent its concurrence in the market.
- Discrimination acts: to give consumers an unequal commercial treatment. The Consumer Protection Law provides appropriate treatment of this infraction.
The UCL also eliminates the regulation regarding participation of children in advertising and advertisements directed at children previously contained in DL 26122. However, the general clause or the principles that regulate the advertising activity may be applied to this type of advertising.
Regulation of tobacco products' advertisements has also been eliminated. The reason is that the General Law for Preventing and Controlling Risks related to the use of tobacco (Law 28705) and its Regulations establishes the limitations of this kind of advertising since 2006. INDECOPI is in charge of the enforcement of these advertising provisions.
Finally, the following acts have been eliminated from the Criminal Code and are no longer considered crimes:
- The emission of deceitful advertising, and
- Unfair use of the other's reputation.
Administrative Procedure and Sanctions
The UCL adopts the social model of competition, as did the preceding norm. According to this model, unfair competition legislation is enforced to benefit the market system and not only competitors or consumers.
In this sense, it is not necessary to be a competitor but rather the administrative procedure can be initiated by a formal complaint ex officio or upon request of any person affected by acts of unfair competition.
Furthermore, the terms established to present defenses, appeals, among others, have been increased in time but are deemed to be enforced more rigidly . In addition, the UCL has established the following steps in the procedure:
- Probation period that can not be longer than 100 week days.
- After this period both sides can present oral reports and allegations.
- The Technical Secretary will then give a technical report on the existence or inexistence of an infraction.
- The Commission emits its decision (Resolution).
- The decision of the Commission can be appealed before the Court. The Court will then emit its final decision that will end the administrative instance.
- Finally, the decision of the Court can be challenged before the Judicial Power.
Any person affected by acts of unfair competition (declared by the Commission or the Court) can file a claim through the Judicial Power requesting the compensation for damages against the offenders.
Another novelty in the new UCL is that the sanctions imposed upon offenders have been increased:
- Previously: the maximum sanction was 100 UIT (approximately, US$110,410 or €85,784)
- Currently: serious infractions may be sanctioned with a fine of up to 700 UIT (approximately, US$ 783, 170 or € 577,906) as long as this amount does not exceed 10% of the offender's gross income during the fiscal year preceding the procedure.
Finally, the UCL has expressly established that, aside from the pecuniary sanctions, both the Commission and the Court can adopt the following measures:
- Cautionary Measures: this measure is adopted in order to protect the efficacy of the final decision. It can be generic or specific, among others.
- Corrective Measures: cessation of the unfair act, rectification of false information, publication of the condemnatory Resolution, among others.
- Coercive measures:
- When the cautionary measure is infringed, the Commission or the Court will impose a fine ranging from 10 UIT to 125 UIT. In case of continuing infringement, they will impose a fine up to 700 UIT.
- When the corrective measure is not complied with, the Commission or the Court will impose a fine equal to 25 % of the previous fine. In case of continuing the infringement, they will impose a fine up to the limit of 16 times the amount of the original coercive fine.
Certain gray areas will be defined by Indecopi's case law, especially regarding new provisions, such as considering the violation of the subsidiary principle by public entities as an act of unfair competition.
This article was first published in the GALA Gazette.
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.