Unfair Competition

AuthorJeffrey Lehman, Shirelle Phelps

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Any fraudulent, deceptive, or dishonest trade practice that is prohibited by statute, regulation, or the COMMON LAW.

The law of unfair competition serves five purposes. First, the law seeks to protect the economic, intellectual, and creative investments made by businesses in distinguishing themselves and their products. Second, the law seeks to preserve the good will that businesses have established with consumers. Third, the law seeks to deter businesses from appropriating the good will of their competitors. Fourth, the law seeks to promote clarity and stability by encouraging consumers to rely on a merchant's good will and reputation when evaluating the quality of rival products. Fifth, the law seeks to increase competition by providing businesses with incentives to offer better goods and services than others in the same field.

Although the law of unfair competition helps protect consumers from injuries caused by deceptive trade practices, the remedies provided to redress such injuries are available only to business entities and proprietors. Consumers who are injured by deceptive trade practices must avail themselves of the remedies provided by state and federal CONSUMER PROTECTION laws. In general, businesses and proprietors injured by unfair competition have two remedies: injunctive relief (a court order restraining a competitor from engaging in a particular fraudulent or deceptive practice) and money damages (compensation for any losses suffered by an injured business).

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General Principles

The freedom to pursue a livelihood, operate a business, and otherwise compete in the marketplace is essential to any free enterprise system. Competition creates incentives for businesses to earn customer loyalty by offering quality goods at reasonable prices. At the same time, competition can also inflict harm. The freedom to compete gives businesses the right to lure customers away from each other. When one business entices enough customers away from competitors, those rival businesses may be forced to shut down or move.

The law of unfair competition will not penalize a business merely for being successful in the marketplace. Nor will the law impose liability simply because a business is aggressively marketing its product. The law assumes, however, that for every dollar earned by one business, a dollar will be lost by a competitor. Accordingly, the law prohibits a business from unfairly profiting at a competitor's expense. What constitutes unfair competition varies according to the CAUSE OF ACTION asserted in each case. These include actions for the infringement of PATENTS, TRADEMARKS, and copyrights; actions for the wrongful appropriation of TRADE DRESS, trade names, trade secrets, and service marks; and actions for the publication of defamatory, false, and misleading representations.

Interference with Business Relations

No business can compete effectively without establishing good relationships with its employees and customers. In some instances parties execute a formal written contract to memorialize the terms of their relationship. In other instances business relations are based on an oral agreement. Most often, however, business relations are conducted informally with no contract or agreement at all. Grocery shoppers, for example, typically have no contractual relationship with the supermarkets they patronize.

Business relations are often formalized by written contracts. Merchant and patron, employer and employee, labor and management, wholesaler and retailer, and manufacturer and distributor all frequently reduce their relationships to contractual terms. These contractual relationships create an expectation of mutual performance?that each party will perform its part under the contract's terms. Protection of these relationships from outside interference facilitates performance and helps stabilize commercial undertakings. Interference with contractual relations upsets expectations, destabilizes commercial affairs, and increases the costs of doing business by involving competitors in petty squabbles or litigation.

Virtually any contract, whether written or oral, qualifies for protection from unreasonable interference. Noncompetition contracts are a recurrent source of litigation in this area of law. These contracts commonly arise in professional employment settings where an employer requires a skilled employee to sign an agreement promising not to go to work for a competitor in the same geographic market. Such agreements are generally enforceable unless they operate to deprive an employee of the right to meaningfully pursue a livelihood. An employee who chooses to violate a noncompetition contract is guilty of breach of contract, and the business that lured the employee...

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