Step 7: Supplementary protection
Intellectual property rights can be augmented by supplementary protection. Here, we review marketing rights, trade secrets and competition clauses.
7.1 Marketing rights
Marketing rights are a supplement to intellectual property rights as they regulate the exploitation of trademarks and serve to protect entrepreneurs and consumers in connection with the marketing of a product or service. The Marketing Act contains specific examples of prohibited marketing. For example, the following are prohibited:
- Using copies which could easily be confused with another company’s well-known and distinctive products.
- Certain forms of comparative advertising. It is prohibited to exploit or smear the products or symbols of other enterprises.
- Misleading concerning the company’s own trademarks, product names, symbols or other rights or those of other enterprises.
As marketing rights concern the protection of trademarks from exploitation, among other things, there is a close link between intellectual property rights and marketing rights.
Throughout the 2000s, marketing rights have often been a vital component of intellectual property rights. Almost half of the Market Court’s judgements have concerned issues relating to what is known as reputation parasitism, discrediting, product imitation or other closely related issues and also overlap issues within intellectual property law.
The general aim of marketing rights is to promote the interests of consumers and industry in connection with the marketing of products and services. Rules concerning marketing are laid down in a number of laws, but the most important of these is the Marketing Act. Marketing is a broad term which in principle means most things that an actor can do to improve its chances of selling products and services. Marketing is therefore more than just advertising. The starting point is that the marketing must be trustworthy, i.e. it must correspond with reality. Anyone who makes a claim in their marketing must also be able to show that the claim is true. There are many different tricks which marketing executives use to give an embellished picture of what they are trying to sell. We will focus on the types of prohibited marketing which are linked to the field of intellectual property rights, but there are of course many other ways of carrying on trustworthy marketing.
In accordance with what is known as a general clause (a generally applicable fundamental rule), marketing must be in accordance with good marketing practice. The International Chamber of Commerce (ICC) has drawn up rules for advertising and market communication which can be used as a guideline for what constitutes marketing which is in breach of good marketing practice. These rules complement intellectual property rights in many ways. Perhaps the most important comparison with intellectual property rights is that market communication cannot entail reputation parasitism. Reputation parasitism means that marketing may not be formulated so that a good reputation linked to other companies’ symbols or exclusive rights in general are unduly exploited. Another word for reputation is "goodwill". The imitation of advertising and using other actors’ symbols is also prohibited. Actors can also not make erroneous comparisons or otherwise discredit other actors. Erroneously claiming to have intellectual property rights may also be prohibited.
Marketing is improper if it markedly impacts on, or will probably impact on, the recipient’s ability to make a well-founded transaction decision. This so-called "transaction test" has been introduced into the Swedish Marketing Act as a result of an EU Directive. Improper marketing can trigger sanctions under the Marketing Act.
The Marketing Act also contains a list of slightly more specific forms of prohibited marketing. This is used called a prohibition list. However, in order to be prohibited, the abovementioned transaction test must also be fulfilled. The following aspects which are similar to/overlap intellectual property rights are prohibited:
- Misleading concerning origin.
- Misleading concerning the enterprise’s own trademarks, product names, symbols or other rights or those of other enterprises.
- Using imitations which are misleading as a result of them being easily confused with another enterprise’s well-known and distinctive products (but not functional design).
- Certain forms of so-called "comparative advertising". It should be noted that many forms of comparative advertising are permitted. The rules concerning comparative advertising are complicated and have been established as a result of a separate EU Directive. In simple terms, exaggerated exploitation or smearing of other actors’ products or symbols are prohibited.
Sanctions under marketing law
One could ask whether it matters whether an actor practises improper marketing generally or breaches a specific ban which is listed in the prohibition list. The answer is that it may have an impact on which sanctions could be imposed on the party which practises improper marketing. All prohibited marketing is covered by a ban and courts can link bans to a fine. In this context, a fine means that the actor must pay a predetermined amount to the state if it breaches the ban. This has a certain deterrent effect. Cases are decided by the Market Court as the first and only instance, which usually resolves cases relatively quickly.
If an actor breaches any of the specific bans in the prohibition list, it can also be ordered to pay compensation to the affected party. This compensation will be particularly relevant in cases involving prohibited marketing which is similar to intellectual property rights. The compensation rules of the Marketing Act are similar to those in intellectual property law which we described in Chapter 5. There is also a so-called ‘market disturbance fee’, which can be imposed on an actor which breaches any of the rules in the prohibition list, but it is unusual for the market disturbance fee to be imposed. If a party wishes the tougher sanctions to be imposed, Stockholm District Court is the court of first instance and the Market Court is the second and final instance. This will therefore take longer than if the party which wishes to stop the marketing is satisfied with a ban linked to a fine as described above.
7.2 Trade secrets
Intellectual property law affords actors the right to ban others from using certain phenomena. Some valuable phenomena are not protected by any law within the field of intellectual property law. One example of this type of phenomenon is “trade secrets”. Trade secrets are regulated in a separate law.
In order to be a trade secret according to law, it must be information that neither as a whole nor in the form in which its constituents are arranged and put together is generally known to or easily accessible to those who normally have access to information of the type in question.
However, to protect freedom of expression, disclosing a serious wrong is permitted even if it would harm the company.
In this context, reference is often made to “company-specific information”. The term “information” must be distinguished from what constitutes individual people’s knowledge and ability. What is considered to constitute protected information or unprotected knowledge is often very difficult to determine. There is often an unclear grey area between the two. Information that is protected need not be written down in a document, although this may be advantageous as evidence. For example, business plans, customer registers and commercial circumstances such as price calculations or customer structures can constitute trade secrets.
However, individual knowledge, skills, competence and experience are therefore not protected.
A commonly used term is "know-how". This term is used in many different ways in society and is therefore confusing in this context. What is described as know-how can sometimes constitute a trade secret, other times not.
In order to fulfil the requirement that information must be kept secret, it is sufficient to take reasonable measures. The information must therefore not be disseminated outside a reasonably wellidentified and closed group. Other actors may also be aware of the information, but they should be specifically informed that the information must be kept secret.
In order for someone to suffer harm with regard to competition, the information must have a certain value, for other entrepreneurs too.
Prohibited behaviour and sanctions
Anyone who unlawfully gains access to trade secrets can be convicted of industrial espionage and fined or sentenced to imprisonment. Anyone who obtains a trade secret in the knowledge that someone has previously obtained the information through industrial espionage can be convicted of the unlawful possession of trade secrets, with a similar sentence (albeit subject to a maximum of four years’ imprisonment in the case of a serious crime).
Quite a few conditions must be met in order for the sanctions under criminal law to be applicable. You should also note that it is not a punishable offence to sell information to which a person has lawful access, e.g. through their work, which surprises many people.
However, it should also be noted that there are sanctions under compensation law which cover more than the area of criminal law. Anyone who commits a crime in accordance with the above may become liable to pay damages. In addition, both employees and other actors who have gained access to trade secrets in confidence can, under certain circumstances, become liable to pay damages if they disclose or exploit trade secrets without permission.
The weakness associated with the regulation of trade secrets is that it is difficult to prove that someone has broken the law and to verify the financial loss that has been caused.
7.3 Non-disclosure agreements
The legislation concerning trade secrets has its weaknesses. It can therefore be a good idea to supplement the rules regarding trade secrets through an agreement. An agreement can also provide proof of what should be considered trade secrets in accordance with the section above.
Agreements are binding and the principal rule is that agreements must be followed. Agreements can take many different forms and be more or less detailed. Agreements need not be written, but there are major advantages of written agreements. Parties tend to respect written agreements more than verbal ones. In addition, written agreements are (hopefully) clear, which makes it easier to know what the parties have agreed.
One problem with non-disclosure agreements is that it can be difficult to get the other party to sign an agreement without knowing what will be disclosed. Once the party has found out what is confidential, it then becomes difficult to retrospectively force them to sign an agreement. This leads to a risk of creating a so-called ‘Catch 22 situation’.
7.4 Competition clauses
Companies may wish to protect themselves in other ways. Employment agreements are often combined with what are known as ‘competition clauses’. By ‘competition clauses’, we mean an agreement between an employer and an employee. The purpose of such an agreement is that companies can protect investments in their employees quite simply by preventing them from working for or starting their own competing business. Regarding anti-competitive agreements between companies, see below concerning competition law.
Rules concerning competition clauses between employers are not covered by competition law (which prohibits agreements between companies), but are still controversial.
According to the Contracts Act, people cannot be bound by competition clauses which extend beyond what can be considered reasonable. The provision is an exception from the general rule that agreements must be followed. From the provision, one can also indirectly draw the conclusion that competition clauses may be permitted if they are reasonable.
An important historical agreement concerning competition clauses was established in 1969 through a collective agreement between SAF (the then Confederation of Swedish Enterprise) and a number of trade unions (including the Swedish Association of Graduate Engineers). This historical collective agreement is still considered to be indicative as regards when businesses can use competition clauses. The Swedish Labour Court, which considers most disputes relating to competition clauses, applies the principles of the collective agreement with a number of supplements.
Above all, competition clauses may be applied by businesses which handle industrial secrets of different kinds (see section 7.2 above concerning trade secrets). Under recent practice, competition clauses have also been valid for some knowledge-based enterprises such as audit firms and sales companies. However, only employees who have access to company-specific knowledge can be bound through competition clauses. It should be noted that competition clauses are not solely intended to favour the employer. Indirectly, individual employees are also considered to be favoured by being bound by a competition clause, as such clauses mean that companies dare to invest in increasing the level of knowledge of their employees. The idea is that, in the long term, this can give employees a stronger position in the labour market.
Although competition clauses can be considered to be lawful in themselves, consideration must be given to the importance of the interests that the employer wishes to protect set against the employee’s interest in being able to freely utilise their labour. It is therefore a question of striking a balance so that companies are incentivised into investing resources in their employees, but without the option to “bind them to the company for life”.
The balance between these interests is very complex. Consideration must be given to factors such as the type of duties concerned and whether the employee is a key person; the employee’s age, experience and education/training; the sector that is involved, and the scope of the competition clause as regards content and geographic area. It is also important how long the competition clause will apply and the compensation that the employee will receive for being bound by a competition clause. It should also be noted that an agreed amount of damages may be reduced if it is considered to be unreasonable. The general rule states that six monthly salary payments is often considered a reasonable level of damages.
7.5 Competition law
Competition law is a separate area of law which is very complicated. The Swedish Competition Authority is responsible for monitoring competition law in Sweden. PMD and PMÖD are the courts which usually handle issues relating to competition law.
Competition law within the EU has emerged since the middle of the twentieth century, and Swedish competition law has been established against the background of EU law and is largely integrated with EU law. Unlike previous parts of Chapter 7, competition law does not act as a supplement to intellectual property law, but rather as a counterbalance. While intellectual property law leads to exclusive rights (which are undoubtedly limited for competition reasons), competition law strives to stimulate more actors into becoming active in a market both to promote market economics and for other reasons. The aim of both sets of legislation is to incentivise development in society, but the methods used differ.
There are two main types of prohibited behaviour which breach competition law. It is prohibited to (1) abuse a dominant position in a market, and (2) enter into agreements with companies which restrict competition.
Abuse of a dominant position
Intellectual property law is of course intended to provide an incentive to create development in society. According to the approach in intellectual property law, an actor which holds a patent, for example, can exploit the economic potential inherent in the invention. Design protection and copyright can also give an actor a very strong position. Trademark law can also be strong, but in practice does not protect the product type itself.
The competition law perspective is based on the view that there could be harmful consequences if an actor abuses a dominant position in a market. The concept of ‘market’ is very narrow within competition law and an actor can be considered to be dominant without actually having a monopoly. A market share of 40-50% is often sufficient for a company to be considered to be dominant. Through the company’s intellectual property rights, the holder of a strong patent, design protection or copyright can quickly achieve a dominant position under competition law.
A dominant position in itself is not unlawful. It is the abuse of a dominant position that is prohibited. Examples of behaviour which could constitute the abuse of dominance due to the holding of intellectual property rights are:
- imposing unreasonable conditions on an actor, which could for example consist of so-called “overpricing",
- limiting production and thereby increasing demand,
- discriminating against certain actors by exploiting one’s dominant position, or
- imposing as a condition for the purchase of a product covered by intellectual property rights that the buyer must also purchase another product which is not naturally linked to the first product, known as “tying".
There are a number of interesting legal decisions which have considered the relationship between intellectual property law and the ban on the abuse of dominance laid down in competition law. Using intellectual property rights to prevent new markets from arising has for example, been considered to be a particularly problematic area.
Licence agreements were mentioned in section 5.2. In that section, it was noted that, under the main rule, agreements must be followed. However, the whole of competition law can be viewed as an exception from this. When drawing up a licence agreement, the parties involved should pay particular attention to two types of aspects which could be prohibited under competition law. These are price cartels and market segmentation.
Agreements concerning the price that third party purchasers of products must pay are prohibited. In this context, reference is often made to price cartels. Stipulating in an agreement between the holder of intellectual property rights and a licensee that consumers must pay a certain fixed price is prohibited. However, the law is more complicated than simply stating that price agreements are prohibited under any circumstances. Nevertheless, you should be wary of entering into agreements which result in third parties having to pay a particular price. There are some exceptions, but the rules are very complicated. There are what are known as block exemptions for vertical agreements and block exemptions for the transfer of technology which can be triggered. A lawyer specialising in competition law should be hired.
The fact that a licensee must pay a particular price to the licenser is not an anti-competitive agreement.
Under the general rule, splitting up markets between competitors is also prohibited. In the case of licence agreements under intellectual property law, the issue of market segmentation may become relevant. There are also many complicated exceptions in this regard, which we will not go into here for reasons of space. The block exemption concerning vertical agreements and the block exemption concerning technology transfer may become relevant. A lawyer specialising in competition law should also be hired if this type of issue becomes relevant.
Sanctions under competition law
Anyone who breaches competition law risks very severe sanctions. The applicable sanction under competition law is known as a "competition distortion fine". In the event of the abuse of a dominant position, price cartels and prohibited market segmentation, it is common for competition distortion fines amounting to millions of Swedish kronor to be imposed. If the prohibited conduct impacts on the EU, it is not unusual for the sanctions to run into billions. Breaches of the provisions of competition law are considered to harm the whole of the EU’s internal market.
Damages may also be appropriate as a sanction.
Marketing law provides a supplement to many areas of intellectual property law (patents, trademarks, designs, copyright), as it regulates the exploitation of trademarks, among other things.
Marketing law exists to protect entrepreneurs (and their customers) in connection with the marketing of a product or service.
The Marketing Act contains specific examples of prohibited marketing. Some of the most important bans are:
- Using copies which could easily be confused with another company’s well-known and distinctive products.
- Certain forms of so-called "comparative advertising". In simple terms, exploiting or smearing other actors’ products or symbols are prohibited.
- Misleading people concerning the company’s own trademarks, product names, symbols or other rights or those of other enterprises.
Because marketing law is about protecting you as an entrepreneur from anyone else exploiting your trademark or using copies of the trademark, there is a close link between intellectual property law and marketing law.