Unfair Competition

Unfair competition refers to a wide range of laws dealing with economic injury to a business due to the wrongful actions of a competitor. For example, a competitor using another business's trademark for the purpose of deceiving customers would violate unfair competition laws. These wrongful acts include common-law causes of action (e.g., disparagement), as well as state (e.g., the Uniform Deceptive Trade Practices Act) and federal (e.g., the Lanham [Trademark] Act) regulation. This entry provides a brief overview of some of the different types of unfair competition claims.

Some of the most common unfair competition claims involve intellectual property. Intellectual property refers to the creations that flow from a person's mind, such as an invention or a fictional novel. The law grants the creator rights over the use of certain types of intellectual property, such as trademarks, trade secrets, copyrights, and patents. For instance, the example given above of a competitor using another business's trademark involved the intellectual property claim of trademark infringement. Trademarks (including trade dress and service marks) are the unique words and symbols that a business uses to distinguish its products in the marketplace (e.g., its brand name or product packing design). A business establishes its right to a trademark simply through its use in commerce, but registering it with the Patent and Trademark Office grants additional protections. The law grants a business the exclusive use of a trademark to allow customers to easily determine the party responsible for a product and to allow businesses to build goodwill (i.e., customers recognize the level of quality behind the trademark over time). A trademark holder has an unfair competition claim when another party infringes on his or her trademark. That is, the other party creates confusion in the minds of consumers as to the source of a product by [Page 2138]using a confusingly similar trademark. Even if there is no customer confusion, a trademark infringement claim may be based on “dilution.” Dilution is the use of another's trademark in a way that lessens the ability of the trademark holder to identify and distinguish goods through the use of that trademark.

A second unfair competition claim involving intellectual property is the misappropriation of trade secrets. A trade secret is any compilation of information (e.g., a formula or manufacturing process) that provides a business with a competitive advantage by virtue of the fact that it is not generally known and is not readily ascertainable by others. Perhaps the most famous trade secret is the recipe for Coca-Cola. As long as a business takes reasonable steps to protect its trade secret, it is misappropriation (and thereby unlawful) for another to use that information if it was gained through improper means (e.g., industrial espionage or the breach of a confidentiality agreement). A typical example of trade secret misappropriation would involve an employee leaving his or her current employer to go to work for a competitor and taking a list of clients with him or her. The list of clients is a trade secret of the employer that the exemployee has misappropriated.

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