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Unfair Competition

Unfair competition is a broad term that includes a number of fraudulent, deceptive, and dishonest trade practices that one business may carry out against another. Statutes, regulations, and common law prohibit these practices. The law of unfair competition serves a number of purposes: to protect business investments used to distinguish itself and its image, to preserve the good will a business has with its customers, to deter a business from appropriating the good will of a competitor, to promote clarity and stability by encouraging consumers to rely on a merchant's good will and reputation, and to increase competition. A business entity or proprietor that is harmed by unfair competition generally has two remedies: injunctive relief (a court order restraining particular behavior) and money damages (compensation for losses). Consumers who are injured by unfair competition must pursue their claims under state and federal consumer protection laws.

Interfering with another’s business relationships is one form of unfair competition. Businesses have contracts with many other entities, including employees, suppliers, and landlords. If a competitor interferes with any of these contracts, it may be unfairly competing. Luring away a key employee from a competitor for the purpose of gaining access to proprietary information can be interference with a contract (and may be a breach of contract by the employee). A business also has less formal relationships, which are not based on written contracts. For example, many relationships with customers are not contractual. The law protects these relationships from unfair competition, also. A business that threatens or intimidates a competitor's customers or blocks access to a competitor's store is interfering with its competitor's business relations. Violating antitrust laws by predatory pricing, monopolizing the market or restraining trade, is considered interference with business relationships, because it harms competitors.

To compete successfully in the marketplace, a business needs to have an identifiable name, and products and services that are distinguishable from those of its competitors. Companies use trade names, trademarks, service marks, and trade dress to identify themselves and their products and services. A trade name may be the actual name of the business that is registered with the government, or it may be an assumed name under which the business operates. Trademarks are words, symbols, emblems, or other devices attached to goods on labels or tags, such as the Levi tag on a pair of jeans. Service marks identify services rather than goods, and usually are displayed through advertising. Orkin pest control is a well-known service mark. "Trade dress" refers to a product's physical appearance, including its size, shape, texture and design. Trade dress also may include the way a product is packaged or a distinctive color combination.

The law of unfair competition forbids competitors from confusing consumers by using trade devices that are indistinguishable or difficult to distinguish from another product or company. To protect a trademark or service mark from infringement, a company can register its mark with the federal and/or state government. Trade names usually must be registered with state governments.

Trade dress typically receives legal protection when the physical appearance is distinctive and recognizable without any formal registration. Registration of a trade device does not ensure that no one else will use the trade device, but it helps ensure that the original user will prevail in an infringement lawsuit.

Two businesses that share similar identifying trade devices may both be allowed to continue to use the device if they are in unrelated fields or in different geographical markets. Not all cases are easily decided, however. In 1999, the Amazon Bookstore Cooperative in Minneapolis sued Amazon.com, the online bookseller, for trademark infringement. The actual bookstore has operated for 30 years and serves a mainly local clientele, while the virtual bookstore is much newer and has a worldwide customer base. While actual received is not a prerequisite for winning an action, in this case, it has occurred: Amazon Bookstore Cooperative gets many phone calls from customers who were attempting to reach Amazon.com. The case was settled out of court, with Amazon.com gaining the legal rights to the name, but with the Amazon Bookstore Cooperative receiving a license to use the name.

The intangible assets of a business include not only its trade name and other identifying devices, but also its inventions, creative works, and artistic efforts. A business is entitled to the exclusive use and enjoyment of its trade secrets, including all commercial information that the business discovers and attempts to keep secret. A business that steals a competitor's trade secrets or an employee who discloses his or her employer's trade secrets may be held liable under unfair competition laws. Copyright and patent laws give individuals and businesses exclusive rights in original creative works and inventions, even though these works and inventions are not kept secret. The law offers protection to individuals and businesses that have invested considerable resources in creating something useful or valuable and wish to use the investment commercially.

False advertising and distributing information that lowers the reputation of another business are other forms of unfair competition. Unfair competition law prohibits a business from running false advertising that misleads or deceives consumers in a way that injures a competitor. In general, businesses are prohibited from placing ads that either unfairly disparage the goods or services of a competitor or unfairly inflate the value of their own goods and services. Advertising, which truthfully compares products, services, or prices, is not considered unfair competition, however. Trade defamation is closely related to false advertising, but instead of lowering the reputation of a business's products or services, it lowers the reputation of the business itself. Libel and slander are the two kinds of trade defamation; libel is communicated in writing, while slander is communicated orally. To prove that a competitor has libeled or slandered a business, the business must prove the competitor knew the information was false, but nevertheless published or broadcast the information.

Learn More: Reasons to Contact an Intellectual Property Attorney

To read and print out a copy of the checklist, please follow the link below.

Reasons to Contact an Intellectual Property Attorney

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DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent counsel for advice on any legal matter.

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