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UNFAIR COMPETITION IN INTERNET SALES IN

BRAZIL By Walter Douglas Stuber

October 2004

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Country

AProducer

Country

BVendor´s Sales office

Country

CProvider

Country

DPurchaser

Country

EFinal Consumer

GOODS

BUYER

Business to Business(B 2 B)

Business toConsumer (B 2 C)

X (claims raised by competiton of the vendor)

CASE STUDY

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Unfair Competition

The Brazilian law represses two kinds of unlawful competitive acts:

1. Unfair competition

2. Infringement of the economic order

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Unfair Competition

Unfair competition relates to the means used by businessmen to gain customers/clients.

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Unfair Competition

• Specific: Described in the law.

• Generic: Extra-contractual liability.

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Specific Unfair Competition

• It is the fraud in obtaining or disclosing information about a competitor.

• Relates to consumer mislead.

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Generic Unfair Competition

It is characterized by the use of immoral, dishonest means or means that are generally unacceptable in the business community.

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Forms of Repression

• Civil repression – ensures the aggrieved businessman proper recovery for losses sustained.

• Criminal repression – determines the discontinuation of the business activities until effects cease.

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Criminal Legal Actions• Criminal action – unfair competition crimes dealt with by the Industrial Property Law (Art. 195 Law nº 9279/1996).

Punishable with three-month to one-year imprisonment or payment of fine.

• Motion for Temporary Relief by Search and Seizure – unlawful act is first confirmed, court order is then enforced and products are seized.

In addition to seizure, the destruction of products may be determined.

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Civil Legal Actions• Action for Damages – to seek anticipated court ruling in order to cease violation and the imposition of daily fine where there is failure to comply.

- Preliminary injunction will be granted to avoid irreparable or hardly reparable damage.

- The Court may determine the offering of guarantee before granting the preliminary relief.

- Indemnification will be calculated based on the benefits the aggrieved party would have earned was not for the violation.

- It is possible to file a motion for preliminary relief first to cease a violation or act.

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Civil Legal Actions

• Action for Obligation Not to Do

- It is to cease unfair practices by motioning for anticipated court ruling to stop a violation from continuing and impose daily fine in the case of failure to comply.

- Preliminary relief will be granted to avoid irreparable or hardly reparable damage.

- The Court may determine the offering of guarantee before granting the relief.

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Civil Legal Actions

• Motion for Temporary Relief by Search and Seizure of Goods

Applicable in the case of reproduction or undisputable imitation of trademark, and may seek destruction of goods.

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E-commerce

Validity Requirements

1. Capacity of the parties to contract – parties’ capacity is measured as they identify themselves.

2. Lawful object.

3. According to the law.

• Electronic Agreements

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E-commerce

And consequently:

- The competent jurisdiction for legal actions;

- Will determine which law will govern the contractual relationship.

Regarded as the place of residence of the person who proposes the obligation.

• Place of the electronic contract

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Conflict of Law/ Jurisdiction

If obligation is created abroad, the Brazilian Courts will have jurisdiction

A) When the defendant is domiciled in Brazil.

B) When the obligation is to be satisfied in Brazil.

Article 435 of the Civil Code establishes that the place where an agreement is made is the place of jurisdiction.

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A) Defendant is domiciled in Brazil:

Country

AProducer

Country

BVendor´s Sales office

Country

CProvider

Country

DPurchaser

Country

EFinal Consumer

GOODS

BUYER

X (claims raised by competiton of the vendor)

The Brazilian Law applies

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B) The obligation is to be satisfied in Brazil:

Country

AProducer

Country

BVendor´s Sales office

Country

CProvider

Country

DPurchaser

Country

EFinal Consumer

GOODS

BUYER

X (claims raised by competiton of the vendor)

The Brazilian Law applies

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Civil Liability

Action or inaction causing damage to third party Fault

Inaction

Recklessness

Negligence

Malpractice

Action

KindPersonalProperty

Moral

Damage

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Strict Liability

Consumer Protection Code

Liability deriving from the inherent risk or deal.

It relates to the obligation to indemnify irrespective of fault and it is unnecessary to prove the existence of unlawful conduct for the right to indemnification to arise.

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Joint Liability

Consumer Protection Code

All participants in the supply chain are strictly liable for redressing damage resulting from goods and services they offer on the Internet.

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Participants in the Production Chain

Manufacturers

Merchants/Vendors

Banks

Insurance companies

Importers

Builders

Joint Liability

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Seller’s Liability

A) To inform consumers of the features and potential risks of their products or services;

B) To withdraw from the market goods and services that constitute risk and inform relevant authorities of such withdrawal;

C) To create channels of communication with consumers;

D) To redress damage caused by their goods and services;

E) To avoid the occurrence of hazardous events.

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Seller’s Duties and Obligations

• To educate and inform consumers of their rights and obligations;

• To control the quality and safety of goods and services;

• To create alternatives for solving consumption conflicts;

• To supply spare parts for as long as the product is manufactured and after its discontinuation.

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Provider’s Liability

• Rule – No liability, because providers are simply intermediaries in the relationship between the person offering and the person buying, and provide information transmission or retransmission services.

Exceptions: A) In the case of authorship of the provider – provider make and edits information.

B) Action – information is selected or changed before it is transmitted.

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Provider’s Duties and Obligations

A) To identify the author and control the contents of messages (where control is possible, liability exists);

B) To control dissemination of unlawful contents;

C) The duty of information: whenever there is information about the authorship, there is obligation to inform addressees/users of the potential risks;

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Pursuant to the Consumer Protection Code:

Providers are liable only for defective provision of their services.

Provider’s Duties and Obligations

D) To safeguard and secure information;

E) To keep the secrecy of the information.

PROVIDERS ARE NOT PARTICIPANTS IN THE SUPPLY CHAIN.

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Bill of Law nº 4906/ 2001

• The consumer protection rules in force in Brazil apply to the e-commerce;

• Providers are not accountable for the contents of information being transmitted;

• Acknowledges that service providers are criminally and civilly liable where they have unequivocal knowledge of goods being offered and information being transmitted that constitute misdemeanor (minor offenses).

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Applicable Legal Actions

Against the seller:

A) Action for recovery of damage;

B) Action for damage resulting from inadequate product;

C) Action for recovery of damage resulting from unfair competition;

D) Legal measures – due to unfair competition.

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Applicable Legal ActionsAgainst the provider:

A) Action for recovery of damage in the following circumstances:

1. Failure to keep current the information related to the offer being made.

2. Advertise product or price in disagreement with its specifications.

3. Change information in ways that harm consumers.

In these cases, the provider will no longer be a mere vehicle of information and will become co-liable with the seller.

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Enforcement of Judgments

Ratification of Judgment

A foreign judgment requires ratification by the Supreme Court to become enforceable.

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Enforcement of Judgments

The following requirements must be satisfied:

A) Jurisdiction of the court that handed down the decision (Art. 15, “b”, LICC);

B) Transit in rem judicatam (Art. 15, “c”, LICC);

C) Official translation into Portuguese and legalization by the Brazilian Consulate in the country of origin have been attached to the judgment (Art. 15, “d”, LICC);

D) The national sovereignty, public order and good morals have not been violated.

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Process of Enforcement

Requirement:

Foreign judgment has been ratified.

Purpose:

Expropriation of debtor’s assets to satisfy a creditor’s claim.

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Process of Enforcement

Expropriation

Auction of debtor’s assets (third party may acquire asset(s))

Adjudication in favor of creditor (creditor will keep the assets on account of credit)

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Procedure

The debtor is summoned to, within 24 hours, pay the debt or list assets for attachment.

The debtor may oppose to the execution by filing a motion for stay of execution after depositing in court the amount in collection or by registering an asset of same value as the debt.