Why is the Unfair Competition Law Important?

Here’s everything you need to know about unfair competition law.  Unfair competition is an umbrella term that encompasses several different types of economic torts.

The principles of the unfair competition law allow companies to distinguish themselves from others. 

Without the unfair competition law in place, it would be nearly impossible to establish a company and products, along with many unique aspects that set the company and its products apart from others.

What is unfair competition? 

Unfair competition is essentially an illegal or deceptive business practice that economically harms either business entities or consumers. 

As per unfair competition law, unfair competition is a business tort designed to stop the unfair practices happening in the marketplace under the context of a business setting.

Federal and state unfair competition laws are designed to protect the business’s economic, creative, and intellectual investments from distinguishing themselves and their products.

What constitutes unfair competition?

Unfair competition occurs when a company uses unlawful business practices to gain a competitive advantage. 

The primary category of unfair competition relates to customers’ confusion as to where the product came from. 

The second category of unfair competition relates to unfair trade practices.

The most common form of unfair competition has the following things involved:

• Making false claims or false advertising about the product to promote it in the marketplace

• Bait-and-switch selling technique, such as interchanging a lower-cost product of a different brand for a higher-quality, expensive product
  
  
• Use of confidential information or misappropriation such as stealing trade secrets or a competitor’s special formulation
  
  
• Breaching a restrictive covenant, such as a non-compete clause
  
  
• Copying the physical appearance or packaging of a competitor’s product in an attempt to fool a customer into buying it; such kind of activity is called a trade dress violation.
  
  
• A false representation of the products or services, such as exaggerating the capabilities of a product
  
  
• Trademark infringement
  
  
• Reverse passing off, misrepresenting the source of a product by not informing the consumers who created it. Reverse passing off often happens when a company selling the product removes the mark and sells it.
  
  
• Below-cost sellings
  
  
• Unauthorized substitution of one brand of products or goods for another
  
  
• Rumormongering or trade slander/libel, such as verbal or written communications that would harm or ruin a company’s reputation in the industry
  
  
• Counterfeiting or imitation
  
  

The Laws Governing Unfair Competition

State unfair competition law mainly governs unfair competition, although issues of false advertisement, trademark infringement, and copyrights often involve federal unfair competition law as well. 

If the issue constitutes a conflict between state and federal law, the federal laws will generally pre-empt the state’s law. Refer to getlegal.com for more information on the laws governing unfair competition.

The Federal Trade Commission (FTC)

To partly protect consumers and other business owners from the risk of unfair competition, the United States Congress found the Federal Trade Commission (FTC).

Title 16 of the Code of Federal Regulations mainly contains information about specific deceptive trade practices that may cause damage to business and create confusion among consumers. This intellectual property branch law particularly relates to substituting one company’s products or services for another to mislead the consumers.

A business primarily uses these four devices to distinguish itself from others:

• Trademarks 

Symbols, words, phrases, emblems, slogans, and other devices get used to signify source and authenticity to the public. 

A company customer can easily identify the product and maintain loyalty when using a registered trademark.

• Trade names

Trade names identify the name of a corporation, partnership, sole proprietorship, or any other business entity. 

A business may register the trade name with the government and operate under the same name registered. In other cases, the name can be an ‘assumed’ under which the business gets known to the public.

• Trade dress

Trade dress is the physical appearance of a product or how the product gets presented, wrapped, packaged, or promoted to the public, which could fall under trade dress. It can also include the texture, shape, design of a specific product or packaging. 

A company’s trade dress can also get served by combining specific colors, such as the color red and yellow used by Chevron Chemical Company.

• Service marks

Service marks are similar to trademarks but for services instead of goods. For example, Orlando Pest Control provides pest control services, so in this case, the company’s protection gets registered as a service mark.

A company’s four devices mentioned above must be distinctive to qualify for protection under unfair competition law. Using generic words or phrasing could limit competition, so these are not eligible for trademark protection. Read more about unfair competition law at getlegal.com.

Why are unfair competition laws important?

Five primary purposes served by unfair competition law include:

• Preserve goodwill between the business and their customers
• Helping to protect economic, creative, and intellectual investments made by business owners
• Deter businesses from stealing ideas of their competitors and appropriating the goodwill
• Promote clarity and stability by making products clear to consumers
• Increase competition among companies within identical industries by providing incentives to the companies for offering better goods and services

These five purposes of unfair competition law allow companies to distinguish themselves and their products or services from others. 

Without unfair competition law in place, it would be challenging to establish a company and its product with a unique aspect that distinguishes them.

Without the unjust competition law, it would be more challenging for customers to maintain brand loyalty since other companies are free to produce similar or identical products that can create confusion.

The Lanham Act further protects the company owners and unfair competition law for copyright infringement, false advertising, and trademark infringement. 

Between the various laws in federal and state, several protections help restrict anything starting from misappropriation to the production of counterfeit products.

When to take legal action as per unfair competition law and The Lanham Act?

Under the Lanham Act, a business suffering an economic injury may take legal action to recover for the losses caused by the following reasons:

• Dilution of a trademark 

Owners of a well-known trademark can limit the use of the trademark with the help of this provision. The use of the trademark can even get limited in situations where there is no likelihood of confusion if the use of the trademark will dilute the strength of the famous mark.

• Unauthorized use of a registered trademark

Any use of a registered trademark without the owner’s permission is considered a violation of the Lanham Act.

• Trade dress violation

One of the common acts of the competitor is to copy the physical appearance of a product that is successful in the market, hoping that the consumers won’t be able to figure out the difference in brand and will buy the counterfeit product.

Competitors often use similar deceptive packaging, with the same images and color scheme of the successful product. 

The practice of copying the physical appearance of another product mostly successful is known as trade dress violation and violates the Lanham Act.

• False advertising

The Lanham Act forbids the use of false, misleading, or inaccurate statements in any form of product advertising. 

Any advertising that creates confusion within consumers about the product’s facts is unjust or has an incorrect perception of the facts falls under the false advertising part of the Lanham Act.

What could get done when you suspect unfair completion?

Suppose you have reasons to believe that a particular company is using unfair competition against your business. In that case, you might take legal action against that company by filing an unfair competition claim. 

It is not difficult to win a case if you have legal protection, such as trademarks, copyrights, and/or patents. 

Unfair competition law, the act of unfair competition gets designed to protect owners of the business of all sizes and consumers. 

Suppose a company harms consumers through unfair competition, such as through bait-and-switch selling techniques or false advertising. In that case, the Federal Trade Commission will often get involved as well.

The United States Constitution includes Article 1, Section 8, Clause 3, also called Commerce Clause, further supporting unfair competition law.

Congress can address fraudulent acts related to unfair competition through this additional legal protection. Several states in the United States have also adopted the Uniform Trade Secrets Act (UTSA) to safeguard trade secrets and deal with issues that arise from them.

The elements of an unfair competition claim

An illegal business practice that causes an economic injury to a business constitutes unfair competition. 

The specific requirements for establishing an unfair competition claim as per unfair competition law vary depending on the type of misconduct alleged.

For example, a breach of a non-compete agreement would have different elements than a false advertising claim. However, both claims tend to be similar. 

The misconduct causing economic injury to a business involves some level of deception, fraud, or bad faith. Typically the monetary damage that results is a loss of property or sales. However, the loss may include the loss of goodwill.

Remedies available in unfair competition actions

An injured owner of the business may recover monetary damages and equitable relief in an action for unfair competition. Monetary damages can compensate a party for the economic harm suffered, including lost profits.

The plaintiff gets the right to recover the cost that the defendant avoided or the profits made from its misconduct. The plaintiff may obtain a reasonable royalty for the unauthorized use or disclosure of the trade secret when a trade secret is involved. Treble or punitive damages along with an attorney’s fee are also available in some instances.

Injunctive relief can get granted to force a defendant to cease its illegal conduct. It may also include stopping the importation of and destroying or seizing the infringing goods in case of a trademark infringement.

What are some best practices?

Where an unfair competition claim gets based on a misappropriation of a trade secret, the plaintiff has to prove that the information taken or stolen was a confidential trade secret. 

The owner of the business must have taken reasonable measures to:

• keep the information secret, 
• the information must not readily get ascertained by someone who obtains monetary value from using or disclosing the information, 
• the information must have an independent economic value from being not disclosed to qualify as a trade secret.

Thus businesses should take an inventory of any information deemed confidential and then institute relevant protections. These may incorporate strictly controlling access to necessary personnel, documenting the cost of developing confidential information, and consistently stating and enforcing security procedures.

When taken by the plaintiff, such measures can help prove that the information in question is confidential if the company ever needs to or brings an unfair competition claim as per the state’s unfair competition law.

An expert attorney in unfair competition can help you take measures to save a business’s valuable information, which someone can use to harm the business. Click here to get in touch with an expert attorney who has complete knowledge about unfair competition law.

What could happen when a business breaks unfair competition law?

If a business breaks unfair competition law, the business could face legal consequences. Since federal laws could be at stake, the business can end up dealing with the federal trade commission or face a lawsuit in federal court. 

Consumers and businesses of all sizes have several laws on their side that prevent unfair competition and take action against those who violate unfair competition laws.

Some states incorporate additional laws in place and unfair competition laws making the penalty even more severe. For example, California laws allow for monetary damages and injunctive relief where necessary.

The court considers several factors into account when awarding monetary damages:

• Number of violations
• Length of the misconduct
• Nature and severity of the misconduct
• The willfulness of the misconduct of the defendant
• The responsibilities, assets, and net worth of the defendant

Counterfeiting the title, color scheme, name, shape, size pattern, or imitating or distinctive peculiarities of a specific product are examples of how other companies have broken unfair competition law.  Read more about unfair competition law at getlegal.com.

To Conclude –

When you have reasons to believe that someone has broken any state or federal unfair competition laws, you have the right to get compensated by taking legal action against them. The best way to file an unfair competition claim is by hiring an expert attorney who can review your case and guide you to understand the law better. 

https://www.getlegal.com/legal-info-center/business-law/unfair-competition/