Unfair Competition Lawsuit

An unfair business practices lawsuit is a legal action where one business alleges that another business has engaged in dishonest or fraudulent behavior that gives an unfair advantage. The behavior could include misappropriation, trade defamation, false advertising, and other actions that deceive consumers or unfairly damage a competitor’s business.

What Constitutes Unfair Competition?

Unfair business practices or unfair trade practices can take on many forms. It includes:

False Advertising

False advertising occurs when false or misleading information is used in the promotion of a product or service. For example, a company might falsely claim that its products are “all-natural” or “organic” when they contain synthetic materials or ingredients.

Another common example involves exaggerating the capabilities or features of a product. The Federal Trade Commission (FTC) regulates false advertising under the Federal Trade Commission Act. An example is the case of FTC v. Reebok, where Reebok was ordered to refund $25 million to customers over claims about its EasyTone shoes, which the FTC deemed were unsupported by scientific evidence.

Trademark Infringement

This form of unfair competition involves the unauthorized use of another business’s trademark.
For instance, if a company uses a logo, symbol, or name that’s confusingly similar to another company’s trademarked property, it may be considered trademark infringement.

An infamous case involved Gucci and Guess. Gucci accused Guess of using a similar stylized “G,” which they claimed infringed on their trademark. The court agreed, finding Guess liable for trademark infringement.

Trade Defamation

Trade defamation, also known as trade libel or slander of goods, involves making false statements intended to harm another business’s reputation. For instance, a company might spread false rumors about another company’s products being faulty or unsafe.

One notable case is Polar Corp. v. Coca-Cola Co., where Polar Beverages sued Coca-Cola for trade defamation after Coca-Cola allegedly spread false rumors to Polar’s customers about the quality of their products.

Misappropriation

Misappropriation involves the unauthorized use of another business’s property or ideas. An example could be a business that uses confidential information obtained from a competitor to gain an unfair advantage. A famous case of misappropriation is the lawsuit between Waymo (a subsidiary of Alphabet, Google’s parent company) and Uber, in which Waymo alleged that a former employee stole trade secrets related to self-driving car technology and brought them to Uber.

“Bait and Switch” Selling Tactics

The “bait and switch” strategy is a form of fraud where a business advertises a product or service at a low price to attract customers. However, the company then reveals that the advertised goods are not available or the seller has only a limited quantity and then pushes a more expensive product.

For instance, a retailer might advertise a high-end product at a low price, but when customers arrive in-store, they’re told the product is sold out and are directed towards a more expensive model. This practice is considered deceptive and is regulated by the FTC.

Are Misrepresentations or “No-Compete” Clauses Considered Unfair Competition?

Misrepresentations can constitute unfair competition, especially if they lead to consumer confusion or harm a competitor’s business. On the other hand, “no-compete” clauses are generally not considered unfair competition unless they are overly restrictive in duration or geographic scope.

“No-compete” clauses are contractual agreements that restrict an employee from working for or starting a competing business within a certain time period and geographic area after leaving their current employer. The intent of these clauses is to protect a company’s trade secrets, proprietary information, and investment in employee training.

Non-compete clauses are generally not considered a form of unfair competition because they are seen as a legitimate way for a business to protect its interests. However, there can be instances where such clauses might be seen as unfairly restricting trade, specifically when they are overly broad or restrictive in their terms. For example:

• Duration: If a non-compete agreement restricts an employee from working in a similar industry for an excessively long period after leaving the company, it might be seen as unfair.
  • For instance, a non-compete clause that lasts for five years might be deemed unreasonable, depending on the industry and the nature of the work.
• Geographic Scope: Similarly, if a non-compete agreement restricts an employee from working in a similar role across an unreasonably large geographic area, it might be deemed overly restrictive.
  • For example, a clause that prevents an employee from working in the same industry anywhere in the United States might be seen as unfair, particularly if the employee’s role was localized or did not involve national or international responsibilities.
• Scope of Work: The non-compete clause can’t restrict an employee from all types of work. It must be specific to the industry and the role of the employee’s previous job. For instance, if a software developer is restricted from working in any role in any tech company, it may be seen as overly broad and unreasonable.

Can I Sue a Business for Unfair Competition?

Yes, a business can sue another business for unfair competition. The plaintiff typically must demonstrate that the defendant engaged in deceptive or fraudulent business practices, that these practices led to consumer confusion or mistake, and that the plaintiff suffered harm as a result.

Scenario 1

Company A and Company B both sell organic honey. Company A discovers that Company B is falsely advertising its honey as “100% organic” when, in fact, it contains a significant amount of non-organic ingredients. Due to this deceptive advertising, customers begin to choose Company B’s honey over Company A’s, leading to a substantial loss in sales for Company A. In this scenario, Company A may sue Company B for unfair competition. They would need to demonstrate that:

• Company B engaged in deceptive practices (false advertising),
• These practices led to consumer confusion (consumers believed they were buying 100% organic honey),
• Company A suffered harm as a result (loss of sales).

Scenario 2

Tech Company C and Tech Company D are competitors in the smartphone market. Tech Company C creates a unique, innovative feature for its smartphones and markets it under a distinct brand name. However, Tech Company D starts using a very similar name for a feature on their own phones without authorization. Customers start to believe that Tech Company D’s phones also have this unique feature and start buying their phones instead. In this case, Tech Company C could sue Tech Company D for trademark infringement.

They would need to prove that:

• Tech Company D engaged in fraudulent practices (unauthorized use of the trademark),
• These practices led to consumer confusion (consumers were misled into believing Tech Company D’s phones had the unique feature),
• Tech Company C suffered harm as a result (loss of sales).

Scenario 3

Restaurant E and Restaurant F both operate in the same city and offer similar cuisine. Restaurant F begins spreading false rumors that Restaurant E’s food is unsanitary and has led to food poisoning. As a result, customers stop dining at Restaurant E, causing a significant loss in revenue. In this situation, Restaurant E could sue Restaurant F for trade defamation. They would need to establish that:

• Restaurant F made false statements intended to harm Restaurant E’s reputation,
• These statements led to consumer mistake (believing that dining at Restaurant E could lead to food poisoning),
• Restaurant E suffered harm as a result (loss of customers and revenue).

Do I Need an Attorney Experienced in Unfair Competition?

Considering the complexity of unfair competition laws, hiring an experienced attorney in this area of law can be extremely beneficial. They can help determine if you have a valid claim, collect the necessary evidence, and represent your interests in court.

If you believe you are a victim of unfair competition, don’t hesitate to reach out to an attorney via LegalMatch. LegalMatch can connect you with an experienced business attorney who can guide you through the process and advocate for your rights.