Federal Law of Unfair Competition

• Pages: 47-83

CHAPTER III

FEDERAL LAW OF UNFAIR COMPETITION

This chapter opens the substantive discussion of business

tort claims. Although business torts are popularly associated

with state law causes of action such as tortious interference

and disparagement, a substantial body of federal statutory law

reaches competitive conduct for which there may or may not

also be private civil liability under the antitrust laws. This

chapter examines federal laws governing unfair competition,

including section 43(a) of the Lanham Act. Common law

disparagement 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 this century to include not

only misrepresentation of the source of goods but also “misappropriation

of what equitably belongs to a competitor.”2

In recent years the field of unfair competition has 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

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

(1935); Goodyear’s Rubber Mfg. Co. v. Goodyear Rubber Co., 128 U.S.

598, 604 (1888).

2. Schecter Poultry, 295 U.S. at 532 (citing Int’l News Serv. v. Associated

Press, 248 U.S. 215, 241, 242 (1918)); see Cottman Transmission Sys. v.

Melody, 851 F. Supp. 660, 672 (E.D. Pa. 1994); cf. RESTATEMENT (THIRD)

OF UNFAIR COMPETITION § 38 (1993) [hereinafter RESTATEMENT].

3. Am. Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3, 14 (5th

Cir. 1974) (citing 3 R. CALLMANN, THE LAW OF UNFAIR COMPETITION

48 Business Tort Law

work of the American Law Institute. Chapters 34-36 of the original

Restatement of Torts contained a comprehensive treatment of unfair

competition, and a tentative draft containing an updated treatment was

prepared in connection with the Restatement (Second) of Torts.

Recognizing that the field of unfair competition had become a specialty

in its own right, “governed extensively by legislation and largely

divorced from [its] initial grounding in the principles of torts,”4 the

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

for its own restatement. The new Restatement (Third) of Unfair

Competition represents such an “independent restatement of the law

relating to unfair trade practices,”5 including such topics as deceptive

marketing, trademark infringement and misappropriation of trade secrets

and other business intangibles. Noting that “the boundaries of unfair

competition are not fixed,”6 the Restatement (Third) also includes 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.”7

§ 4.1 at 120 (3d ed. 1969)); cf. Standard & Poor’s Corp. v. Commodity

Exch., Inc., 683 F.2d 704, 710 (2d Cir. 1982) (unfair competition “has

been broadly described as encompassing ‘any form of commercial

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 one person . . . a

benefit or ‘property’ right belonging to another. The tort is adaptable and

capacious.’”) (quoting Roy Export Co. Establishment of Vaduz,

Liechtenstein v. Columbia Broad. Sys., 672 F.2d 1095, 1105 (2d Cir.

1982)); Nw. Airlines v. Am. Airlines, 853 F. Supp. 1110, 1113 n.4 (D.

Minn. 1994) (unfair competition is not a unique tort, but rather a group of

torts).

4. RESTATEMENT,supra note 2, reporter’s mem. at xv (Tentative Draft. No.

1, 1988) (quoting RESTATEMENT (SECOND)OF TORTS, Vol. 4 director’s

introduction (1979)).

5. Id.

6. Id. at xvii.

7. RESTATEMENT,supra note 2, § 1 cmt. g.

Federal Law of Unfair Competition 49

In popular usage, “unfair competition” has been even more

expansively described as a “broad class of business torts,”8 including not

only the traditional forms of misrepresentation and misappropriation, but

also commercial disparagement and defamation, fraudulent conduct in

business transactions and tortious interference with commercial

relationships.9 These and other business torts are addressed in the

chapters that follow.10 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.

B. Section 43(a) of the Lanham Act

Occasionally it is written that “[t]here is no federal law of unfair

competition.”11 Such statements are best read advisedly. 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.’”12

Although the Lanham Act is primarily associated with the federal law

pertaining to the infringement of registered trademarks and service

8. Union Nat’l Bank of Tex. v. Union Nat’l Bank of 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)).

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

KEETON, PROSSER AND KEETON ON THE LAW OF TORTS § 130, at 1014 (5th

ed. 1984); RESTATEMENT,supra note 2, § 1.

10. See Chap. 4 (commercial disparagement and defamation), Chap. 5 (tortious

interference), Chap. 6 (fraud and misrepresentation), Chap. 7

(misappropriation of trade secrets).

11. Wich ita Clinic, P.A. v. Columbia/HCA Healthcare Corp., No. 96-1336-

JTM, 1997 WL 225966, at *7 (D. Kan. 1997); Nw. Power Prods., Inc. v.

Omark Indus., 576 F.2d 83, 88 (5th Cir. 1978). It is more accurately said

that the federal courts have “long resisted [the] temptation to create a

federal common law of unfair competition.” George R. Whitten, Jr., Inc.

v. Paddock Pool Builders, Inc., 508 F.2d 547, 560 (1st Cir. 1974) (footnote

omitted); cf. Water Techs. Corp. v. Calco, Ltd., 850 F.2d 660, 670 (Fed.

Cir. 1988) (“there is no federal common law of unfair competition”) (citing

Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79 (1938) (“There is no

federal general common law.”)).

12. Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 123 S. Ct.

2041, 2045 (2003) (quoting 15 U.S.C. § 1127); Two Pesos, Inc. v. Taco

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