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Article:

JÓKAY AND PARTNERS WIN HIGH-PROFILE COMPETITION AND PERSONALITY RIGHTS CASE

12 February 2019

Jókay and Partners have recently won a case worth HUF 410,000,000 and involving violations of competition law, advertising law and personality rights, as well as economic and non-economic damages. In the final and binding judgment, the appeals court made several findings that have major significance.

Several of these findings concern the understanding of the theories of “legal person” and “imputability”. The appeals court held that a legal person’s status as legal actor that is separate from its members, its ownership of its own separate assets and its distinct liability are all manifestations of the doctrine of separation, which is in turn one of the key elements of the theory of the legal person. Therefore, a legal person cannot be condemned merely because a company in its ownership violated a statute or because it operates at the same location, or uses the same assets or personnel, as another legal person that committed a violation. Another key element of the theory of the legal person is the doctrine of imputability. Consistent judicial practice holds that that the doctrine of imputability must be applied in property relationships.

If an officer or employee of a legal person, acting on behalf of the legal person, causes a third party that has a legal relationship with the legal person, whether under a contract or otherwise, to incur loss or damage, the legal person will be held liable under civil law. It follows from the doctrine of imputability that a natural person acting on a legal person’s behalf will only be held liable in exceptional cases: if such person intentionally and materially misused the advantages and rights stemming from the legal person’s separate personhood and liability. However, the plaintiff in the case never alleged that such misuse had taken place. The appeals court found that the situation was different if personality rights are violated. In that case the doctrine of imputability does not apply, and both the natural person who committed the violation and the legal person represented by him or her will be held liable. In the court’s opinion, the fact that a legal person makes its decisions concerning its wholly owned subsidiary in view of its own best interests may not in itself, in the absence of other factors, serve as grounds for establishing that a competition law violation was committed.

In connection with the breach of business secrets, the court held that the occurrence of a breach can only be established if the owner of the business secret proves not only that the information or know-how that qualifies a business secret was obtained but that it was also used without authorisation. The fact that a person used what otherwise qualifies as an unfair market practice cannot in and of itself serve as grounds for establishing that business secrets were breached. Gaining access to a business secret does not automatically (i.e. without the presentation of evidence) mean that it was used for any purpose. Additionally, a breach of business secrets can only be ruled to have occurred if the owner of the business secrets has taken all reasonable measures to keep the relevant information or know-how confidential. If the owner does not cancel the codes that allow its former employees to access the business secrets, then it will have failed to carry out the requisite reasonable measures and cannot claim that its business secret was breached.

The court ruled in connection with the prohibited solicitation of employees that a competitor’s hiring of a legal person’s former employees is not unfair in itself, if it is not done for an unfair purpose, such as making it impossible for the legal person to continue its operations. Judicial practice holds that it is perfectly legal for ex-employees of a company to use their lawfully acquired knowledge and expertise in the employment of another company, because employees will necessarily acquire the technical, business, commercial and other know-how that is associated with the operations of their employer. An employer and an employee can conclude a non-competition agreement that will apply in a period after the end of their employment relationship, but such an agreement may not place unreasonable restrictions on free market competition or the employee’s ability to earn his or her livelihood. Similarly, it is not considered to be illegal if an employee who leaves an employer sends a letter to business partners he/she was in contact with in the employment of the employer to inform them that he/she is now employed by a competitor and to offer the services of the competitor. The competitor’s attempt to win clients by offering better terms in this way is also not considered to be unfair in itself.

The appeals court emphasised in connection with liability for damages that the existence of causality between the damage and the alleged action must be established. In a lawsuit for damages, the plaintiff must prove that the damage or loss suffered by it (in this particular case, its loss of sales revenue) was due to the defendants’ unlawful actions. Assumptions or presumptions cannot serve as grounds for establishing causality. The fact that a certain number of employees left the plaintiff to enter the defendants’ employment is not in itself sufficient evidence that there was a connection between the damage that the plaintiff alleges to have suffered and the defendants’ actions.

The plaintiff sought non-economic damages under the old Hungarian Civil Code (Act V of 1959). The appeals court noted an important distinction between the old and new Civil Code whereby the existence of non-economic injury that resulted from an unlawful action and cannot be averted with an objective sanction must be proven before non-economic damages can be awarded. As opposed to grievance money, an arrangement that was introduced under the new Civil Code, the purpose of non-economic damages is to mitigate the non-economic injury that was suffered by a party as a result of an unlawful action.