How Businesses Can Avoid Fines and Risks: Healthy and Unfair Competition Explained Simply - FChain

Why It Matters?

Today, businesses can face fines not only for failing to pay taxes but also for violating competition rules. Even a verbal price agreement or a single misleading phrase in advertising can trigger inspections, fines, or even criminal liability.

This is especially relevant for companies in trade, manufacturing, construction, IT, logistics, and pharmaceuticals — basically, any sector with active competition and a market.

 

Healthy vs. Unhealthy Competition

Healthy competition occurs when companies compete fairly by:

• Improving product quality
• Offering better services
• Lowering prices and investing in technology

Unhealthy (or unfair) competition is illegal. It occurs when a business:

• Makes agreements with competitors on prices, clients, or regions
• Artificially maintains high prices
• Imposes resale prices on partners
• Uses false or aggressive advertising
• Copies a competitor’s brand, design, or website
• Steals clients or commercial secrets

Types of Prohibited Agreements

1. Horizontal Agreements (between competitors)
   This is the most dangerous category. It is illegal for companies in the same market to agree on:

• “Let’s not sell below 50 AZN”
• “You operate in Baku, I’ll operate in Ganja — don’t overlap”
• “Do not poach each other’s clients”

Such actions are considered cartel behavior, illegal, and void from the moment of agreement.

Example:
Two construction material companies agreed not to lower prices below 200 AZN. A competitor reported them to the authorities.
Result: Fine of 150,000 AZN and a 3-year ban from participating in tenders.

 

2. Vertical Agreements (between manufacturer and seller)
   These are agreements between companies at different levels — manufacturer, distributor, dealer.

Prohibited:

• Forbidding a seller from selling below a “minimum price”
• Requiring exclusivity with one supplier
• Restricting whom the seller can sell to

Allowed:

• Suggesting a recommended price, as long as it is clearly stated as optional

 

3. Examples of Unfair Competition

Situation	Legal?	Consequence
Advertising: “Our product is original, others are fakes” without proof	No	Fine, lawsuit, removal of advertisement
Former employee takes client database	No	Court case, compensation, criminal liability
Using a similar brand or packaging	No	Confiscation, fine
Comparing products factually without insults	Yes	Legal

 

Consequences of Violations

Liability	For What	Potential Outcome
Administrative	Price agreements, advertising	Fine up to 10% of turnover
Civil	Damages to competitors or clients	Compensation payment
Criminal	Cartel, fraud, serious damage	Conviction, arrest

 

How to Protect Your Business: 5 Steps

1. Review Contracts

• Are there any fixed prices?
• Are there restrictions like “do not sell below” or “do not work with others”?
• Any verbal agreements with competitors?

2. Audit Marketing and Advertising

• Remove claims like “the best” or “the only one” without proof
• Do not claim competitors’ products are “fake” or “dangerous” without evidence

3. Protect Trade Secrets

• Sign NDAs with employees and partners
• Limit access to client databases and contracts
• Ensure return of all information upon employee departure

4. Train Employees

• Managers must not discuss prices with competitors
• Official meetings with competitors should be documented
• Report any suspicious activity to management

5. Use Legal Outsourcing

• Cheaper than hiring a full-time lawyer
• Ensures all contracts, advertising, and processes are monitored
• Removes the “I didn’t know the law” excuse