The controversial issue of whether foreign companies with no direct operations in Spain have standing to bring the actions provided for in the Unfair Competition Act was addressed in Judgment No. 474/2017 of the First Chamber of the Supreme Court, dated July 20 (ECLI:ES:TS:2017:3025).
Standing to sue was initially governed by Article 19 of the Act and, following the 2009 amendment, by the current Article 33, in the same terms as the previous provision. Two cumulative requirements are established in this regard: participation in the market and direct harm or threat to the economic interests of the individual or legal entity seeking to bring the action. However, our courts had interpreted the first of these requirements by adding the condition that such participation must be in the Spanish market, even considering direct activity in other European Union countries to be insufficient.
This was the position adopted by the Supreme Court in its ruling No. 873/2009, dated January 20, 2010 (ECLI:ES:TS:2010:158). In that case, a Danish company—whose trademark and trade name had been registered in Spain by a third party—was denied standing to bring an unfair competition action against that third party, even though its claim was aimed at recovering said trademark in order to operate under it in our country.
Indeed, the defense of lack of standing on the part of the plaintiff had also been raised in the case now resolved by the recent Supreme Court ruling of July 20. This case involved a U.S. company that had granted a Spanish firm an exclusive license for an innovative pipe-cleaning system for distribution in Spain. Following the termination of the distribution contract, the U.S. company brought unfair competition claims against some of the former partners and employees of that distributor, arguing that they were engaging in unfair acts involving the misappropriation of trade secrets in connection with the use of the
know-how that had been provided to them on a confidential basis during the term of the contract.
The U.S. company’s motion to dismiss for lack of standing—based on its lack of direct involvement in the Spanish market—had been denied at both the trial and appellate levels and was raised again by the defendant in the cassation proceedings. The Supreme Court dismissed the appeal, rejecting a literal interpretation of the market participation requirement and advocating instead for an analysis of that requirement based on the specific unfair conduct, to avoid reaching “the absurdity of denying standing to the holder of the economic interests directly affected by the unfair conduct.”
In this specific case, the Supreme Court found that the plaintiff company had participated in the Spanish market indirectly, specifically through the distribution agreement entered into with a Spanish company and, following the termination of that contract, through a subsidiary incorporated in Spain for the distribution of its system. Therefore, the ruling concludes that providing a Spanish distributor with its know-how for pipe repair through a license, so that the distributor could exploit it in the Spanish market, constituted a means of entering and participating in that market. The infringement of the trade secret comprising that know-how directly harmed, in the Court’s view, the plaintiff’s economic interests.
The clarification provided by this ruling regarding the traditional interpretation of the requirement for participation in the Spanish market deserves, in our view, a positive assessment. Post-contractual disputes between manufacturers and distributors are not uncommon in practice. Denying standing to bring unfair competition claims to foreign companies that have chosen to enter our country through domestic distributors would mean excluding the application of this rule to conduct that may fall squarely within its scope and that would otherwise be exempt from legal sanctions.
Author: Carlos Morán