Federal Law of Unfair Competition

• Pages: 53-89

53

CHAPTER III

FEDERAL LAW OF UNFAIR COMPETITION

This chapter opens the substantive discussion of business

tort claims. While the term “business torts” is often associated

with state la w causes of action such as tortious interference and

dispara gement, a substantia l body of federal sta tutory law

reaches conduct for which there may be private civil liability

either directly or under the antitrust laws. This chapter examines

federal laws governing unfair competition, including section

43(a) of the Lanha m Act and section 5 of the Federal Trade

Commission Act. Common law dispara gement and defamation

are addressed in the following chapter. – Eds.

A. Introduction

The early common law of unfair competition was a limited concept,

involving the palming off of one’s goods as those of another.

1

As

commercial ingenuity produced new forms of piracy, “unfair

competition” expanded in the early part of the last century t o include not

only misrepresentation of the source of goods but also “misappropriation

of what equitably belongs to a competitor.”

2

The field of unfair competition continued to evolve, embracing both

“statutory and nonstatutory causes of action arising out of business

conduct which is contrary to honest practice in industrial or commercial

matters.”

3

This evolution is reflected in the work of the American Law

1

. A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 531

(1935); Goodyear’s India Rubber Glove Mfg. Co. v. Goodyear Rubber

Co., 128 U.S. 598, 604 (1888).

2

. A.L.A. Schechter P oultry, 295 U.S. at 532 (citing International News

Serv. v. Associated Press, 248 U.S. 215, 241-42 (1918)); see Cottman

Transmission Sys. v. Melody, 851 F. Supp. 660, 672 (E.D. Pa. 1994); cf.

RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 38 cmt. c (1 995)

[hereinafter RESTATEMENT (THIRD)].

3

. American Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3, 14

(5th Cir. 1974) (citing 3 RUDOLPH CALLMANN, THE LAW OF UNFA IR

COMPETITION, TRADEMARKS & MONOPOLIES § 4.1 at 120 (3d ed. 1969));

see Standard & Poor’s Corp. v. Commodity Exch., 683 F.2d 704, 710 (2d

Cir. 1982) (unfair competition “has been broadly described as

54 Business Torts and Unfair Competition Hand book

Institute. Chapters 34-36 of the original Restatement of Torts contained a

comprehensive treatment of unfair competition, but recognizing that the

field of unfair competition had become a specialty in its own right, the

Council of the Institute decided to reserve the area of unfair competition

for its own restatement.

4

The Restatement (Third) of Unfair Competition

includes such topics as deceptive marketing, trademark infringement and

misappropriation of trade secrets and other business intangibles, as well

as a residual category of conduct that “substantially interferes with the

ability of others to compete on the merits of their products or otherwise

conflicts with accepted principles of public policy recognized by statute

or common law.”

5

Courts describe “unfair competition” as a “broad class of business

torts,”

6

including not only the traditional forms of trademark

infringement, misrepresentation and misappropriation, but also

commercial disparagement and defamation, fraudulent conduct in

business transactions and tortious interference with commercial

relationships.

7

These and other business torts are addressed in the

chapters that follow.

8

The discussion below examines the federal law of

unfair competition, including section 43(a) of the federal Lanham Act

and section 5 of the Federal Trade Commission Act.

encompassing ‘any form of co mmercial immorality,’ or simply as

‘endeavoring to reap where [one] has not sown’; it is taking ‘the skill,

expenditures and labors of a competitor’ and ‘misappropriati[ng] for the

commercial advantage of on e person . . . a benefit or “property” right

belonging to another. The tort is adaptable and capacious.’”) (quoting

Roy Export Co. Establishment of Vaduz, Liechtenstein v. CBS, 672 F.2d

1095, 1105 (2d Cir. 1982)).

4

. General Universal Sys. v. HAL Inc., 500 F.3d 444, 451 n.5 (5th Cir.

2007).

5

. RESTATEMENT (THIRD), supra note 2, § 1 cmt. g.

6

. Union Nat’l Bank of Tex., Laredo, Tex. v. Union Nat’l Bank of Tex.,

Austin, Tex., 909 F.2d 839, 843 n.10 (5th Cir. 1990) (quoting Keebler

Co. v. Rovira Biscuit Corp., 624 F.2d 366, 372 (1st Cir. 1980)).

7

. Taylor Publ’g v. Jostens Inc., 216 F.3d 465, 486 (5th Cir. 2000); W. PAGE

KEETON ET AL., PROSSER & KEETON ON THE LAW OF TORTS § 130, at

1014 (5th ed. 1984); RESTATEMENT (THIRD), supra note 2 , § 1 cmt g.

8

. See Chapter IV (commercial dispar agement and defamation), Chapter V

(tortious interference), Chapter VI (fraud and misrepresentation),

Chapter VII (misappropriation of trade secrets).

Federa l Law of Unfair Competition 55

B. Section 43(a) of the Lanham Act

As the Supreme Court has observed, the Lanham Act “was intended

to make ‘actionable the deceptive and misleading use of marks,’ and ‘to

protect persons engaged in . . . commerce against unfair competition.’”

9

Although the Act is primarily associated with the federal law pertaining

to the “registration, use and infringement of trademarks and related

marks,”

10

section 43(a) of the Lanham Act goes beyond trademark

protection to prohibit certain unfair trade practices. Section 43(a)

provides in pertinent part:

(1) Any person who, on or in connection with any goods or services,

or any container for goods, uses in commerce any word, term,

name, symbol, or device, or any combination thereof, or any false

designation of origin, false or misleading description of fact, or

false or misleading representation of fact which –

(A) is likely to cause confusion, or to cause mistake, or to

deceive as to the affiliation, connection, or association

of such person with another person, or as to the origin,

sponsorship, or approval of his o r her goo ds, services,

or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents

the nature, characteristics, qualities, or geographic

origin of his or her or another person’s goods, services,

or commercial activities,

shall be liable in a civil action by an y person who believes that he

or she is or is likely to be damaged by such act.

11

As the Supreme Court explained, section 43(a) “‘prohibits a broader

range of practices than does § 32,’ which applies to registered marks.”

12

The Lanham Act is cumulative of, and does not preempt, state unfair

9

. Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28

(2003) (quoting 15 U.S.C. § 1127) ; Two Pesos, Inc. v. T aco Cabana, Inc.,

505 U.S. 763, 768 (1992) (quoting 15 U.S.C. § 1127).

10

. Dastar , 539 U.S. at 28-29.

11

. 15 U.S.C. § 1125(a)(1).

12

. Two Pesos, 505 U.S. at 768 (quoting Inwood Labs. v. Ives Labs., 456

U.S. 844, 858 (1982)); Famous Horse Inc. v. 5th Ave. Photo, 624 F.3d

106, 110 (2d Cir. 2010).