The Definition of Unfair Competition

Unfair Competition and Unfair Trade Practices

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"Unfair competition" is a term applied to dishonest or fraudulent rivalry in trade and commerce. It's a branch of intellectual property law, particularly applied to the practice of endeavoring to substitute one’s own goods or products in the market for those of another for the purpose of deceiving the public.

How Unfair Competition Happens

According to Black's Law Dictionary, this deception is commonly accomplished by:

"... imitating or counterfeiting the name, title, size, color scheme, patterns, shape or distinctive peculiarities of an article. It can also occur by imitating the shape, color, label, wrapper or general appearance of the package in such a way as to mislead the general public or deceive an unwary purchaser." 

Acts of unfair competition are generally characterized by deception, bad faith, fraud or oppression. They're perceived as being against public policy because of their tendency to unduly hinder competition. Unfair competition laws have been established to protect consumers and businesses and help prevent illegal merchandising.

Some Examples 

  • Trademark infringement, such as using the Coca-Cola® trademark on a soda container manufactured by a competing beverage maker.
  • False advertising, such as making false claims about a drug's abilities to promote weight loss.
  • Unauthorized substitution of one brand of goods for another, such as substituting a low-cost handbag for a designer handbag.
  • Misappropriation of trade secrets, such as stealing a competitor’s soft drink formula.
  • False representation of products or services, such as exaggerating a software program’s spellcheck capabilities.
  • Trade defamation, such as disseminating written or oral communications designed to harm or ruin a business's reputation. 

    Some of these, like making false claims about a drug's abilities, technically fall under the umbrella of "unfair trade practices," which is a component of unfair competition law

    State vs. Federal Law 

    For the most part, issues of unfair competition are addressed in state courts. A successful suit brought in state court might result in an order of monetary damages and/or an injunction against the guilty party continuing with such actions. Copyrights and trademarks are governed by federal law, however, so cases involving these aspects may find their way to federal court.

    The law does not simply protect businesses, nor is it solely the domain of large corporations. Small business owners can be hurt as well. The Federal Trade Commission may also become involved when consumers are harmed in the process, such as in cases of false advertising. 

    Unfair competition laws are backed by the U.S. Constitution in the "Commerce Clause." This clause allows Congress to address these types of fraudulent acts. The Uniform Trade Secrets Act has also been adopted by numerous states to deal with misappropriation of trade secrets.