Protecting Against the Pirates of Unfair Competition

Posted by: kevensteinberg
Category: Blog, Business Law
pirate ship on sea

America has been built on enterprise and competition. While healthy competition often drives innovation, there are some pirate-like practices that are dishonest and/or fraudulent that could pose a serious risk to your business. While some of the boundaries of unfair competition and intellectual property are elusive (and changing in the midst of technology’s evolution), there are some clear federal and state laws around unfair competition that may help protect your business assets.

What is Unfair Competition? 

The Unfair Competition Law of California (also known as UCL) prohibits false advertising and illegal business practices. California Business and Professions Code 17200 describes “unfair competition” as “any unlawful, unfair or fraudulent business act or practice” or “false, deceptive or misleading advertising” that (a) harms consumers, or (b) gives a business unfair advantage over its competitors proven by economic harm. Intended to protect economic, intellectual, and creative business investments, the law of unfair competition most commonly applies to areas of trademarks, copyrights, and false advertising.  

Examples of unfair competition may include (but are not limited to): 

  • Violating Non-Compete and Non-Solicitation Agreements
  • Trade disparagement (making false statements about a business or product
  • Stealing company trade secrets (copying products, logos, etc.)

How to Prove Unfair Competition Under the Lanham Act

State laws cover most of the issues associated with unfair competition, but certain situations fall under the federal government’s jurisdiction addressed by the Lanham Act. Typically, issues that fall under this statute deal with false advertising, trademark violations, and, sometimes, copyright infringement. Unfair competition under the Lanham Act and California Law may provide unfair competition claim elements including false advertising if it can be proven that the defendant acted in “bad faith.” 

Elements of unfair competition may be protected under the Lanham Act, which protects businesses against the unfair competition of misleading advertising or labeling (Section 43(a)). 

Only competitors (not consumers) have standing under the Lanham Act, which may prevail under certain conditions: (1) a false or misleading statement of fact; that is (2) used in a commercial advertisement or promotion; that (3) deceives or is likely to deceive in a material way; (4) in interstate commerce; and (5) has caused or is likely to cause competitive or commercial injury to the plaintiff. 

Fair vs. Unfair Competition According to the Law

Unfair competition is an overarching term used to describe several different types of infringements that may cause economic harm to business including: 

  • Trademark infringement
  • Misappropriation
  • False advertising
  • “Bait and switch” advertising
  • Use of confidential information by former employees to solicit customers
  • Theft of trade secrets
  • Breach of a restrictive covenant
  • Trade libel 

Unfair competition does not refer to economic harms involving monopolies and/or antitrust legislation. What constitutes an “unfair” act must be evaluated on a case-by-case basis. It is critical that you acquire counsel to help form protections and fight against unfair competition infringements. 

Business Foundations That Mitigate the Risk of Unfair Competition

There may be three relationships in which you may face unfair competition practices. These may include: 

  1. A competitor
  2. Former employees
  3. Former partners

While an attorney with experience and expertise in California Unfair Competition lawsuits can help you seek litigation, an experienced business attorney should also help structure a business at the time of formation. Having counsel at the beginning of a business’s formation will build in the necessary protections against potential threats. 

A common situation in which California unfair competition violations occurs is when an employee or business partner leaves your company and/or partnership and either joins a competitor or forms a competing business using inside information, knowledge, or trade secrets (such as customer-vendor lists and professional contacts) to do so. 

The terms around these types of situations can be clearly outlined in the partnership agreement and/or employee handbook outlining intellectual property and non-compete and/or non-solicitation agreements. While California is known for its generally liberal stance in non-compete cases, courts have been found to support business owners who have suffered unfair competition based upon intellectual property violations including trade secrets and violations of California unfair competition trademarks. 

In order to minimize the financial damages caused by unfair competition, a business attorney should be part of business formations, partnership agreements, and employee policies from the start. 

Keven Steinberg has a passion for building custom business formations to protect business assets and is a Supreme Court experienced attorney. Contact Steinberg Law to help protect your business assets or fight unfair competition under the Lanham Act and California law. 

Author: kevensteinberg