Unfair Competition

Trademark infringement is seen as a form of unfair competition.  In an unfair competition claim, an individual or business must be able to show, at a minimum, that another individual or business is using a trademark under circumstances where the public is likely to become confused or deceived. While unfair competition is not codified in a statutory sense, it has been recognized as a cause of action by the courts. Additionally, some states have passed deceptive business practices acts to protect against unfair business practices. There is not a strict definition of “unfair competition,” but it contains a wide variety of unfair or deceptive business practices. The North Carolina Supreme Court said that the test lies in the answer to the following: “Has plaintiff’s legitimate business been damaged through acts of the defendant’s which a court of equity would consider unfair?” This question can be posed a different way: “Is the defendant’s trademark likely to cause confusion or mistake, or to deceive purchasers as to the source of the product?” However, courts frequently do not distinguish between the two questions if there is solely an unfair competition claim or a trademark infringement claim.

Many policy concepts have helped form guidelines to unfair competition. Some of these policies include:

• business should be conducted honestly;
• the good will and other property of a business should be protected;
• a competitor should not be allowed to trade on another entrepreneur, inventor, or business’ good will, claim its goods as those of another, or be unjustly enriched by such conduct; and
• the public is entitled to be protected from any kind of deceptive business practices.

Since there is no strict statutory definition of unfair competition, the laws and rulings of the court can be a flexible legal tool that allows judicial relief to new and unheard of situations. In order to establish a claim of unfair competition in the trademark context, an individual or business must be able to show, at a minimum, that another individual or business is using your trademark under circumstances where the public is likely to become confused or deceived.

Common law unfair competition is comprised of torts causing economic damages to a business through deceptive or wrongful business practices. Unfair competition, both the common law tort and the federal statute, attempt to enforce honest pratices in business.  The courts give a fairly broad definition of what constitutes unfair competition, with prior case law lending guidance in defining the concepts of fairness.  Most states recognize two common law forms of unfair competition relating to trademarks.

Trademark Passing Off or Reverse Trademark Passing Off

Two examples of unfair competition, recognized by state unfair competition  laws as well as federal law under section 43(a) of the Lanham Act, are passing off and reverse passing off.  Passing off is defined as the sale of the goods of one manufacturer passed off as those of another (trademark infringement).  In contrast, in reverse passing off, the seller misrepresents the source of its product by removing or obliterating the original trademark. Reverse passing off falls into two categories: 1) Express and 2) Implied.  In express reverse passing off, the infringer replaces the original trademark with his trademark and sells the produce. In implied reverse passing off, the infringer only removes the trademark prior to selling the product, leaving the product unbranded. In both instances of passing off and reverse passing off, the infringer prevents the customers from knowing the true source of the product, creating a means for deceiving the customer, causing damages to the true product owners’ goodwill with their customers.

Trademark Misappropriation

Another example of common law unfair competition is misappropriation, which involves the unauthorized use of intangible assets not protected by trademark or copyright laws. Misappropriation is the principle that one may not misappropriate the results of the skill, expenditure and labors of a competitor.  Most state recognize a common law claim for misappropriation, even though it is not codified.

The law of unfair competition is mainly governed by state common law (state unfair competition). A few states, including Illinois, have enacted legislation dealing with types of state unfair competition, such as the Uniform Deceptive Trade Practices Act (UDTPA) and the Consumer Fraud & Deceptive Practices Act (CFA).

Consumer Fraud & Deceptive Practices Act (CFA)

Several states have codified some form of Consumer Fraud Act. Illinois is one state that has done so, codified at 815 ILCS 505/1 as the Consumer Fraud & Deceptive Practices Act (CFA). The CFA make unlawful unfair or deceptive acts or practices which take place “in the conduct of any trade or commerce” The act is defined broadly, covering transactions in services, goods & property.

Unlawful practices are defined in the code as deception, fraud, false pretense, false promise, misrepresentation, concealment, omission of material fact, with intent that others rely on the concealment or omission. A material fact is one where a person would have acted differently knowing the correct information or which concerns the type of information upon which a person would be expected to rely on making a decision.

Consumers do not need to show intent to deceive; a violation may be based on innocent or negligent misrepresentation. However, only people who suffer actual damages as a result of the misappropriation can bring an action under the act. Thus, to state a claim, a consumer must prove reliance on the misrepresentation.

 Uniform Deceptive Trade Practices Act (UDTPA)

The purpose of the UDTPA is to prevent dishonest businesses from doing injury to those honest businesses competing in their markets. Injunctive relief is available to protect individual consumers, where they are likely to be damaged in the future by a deceptive trade practice of another. No damages remedy is available under the UDTPA, but damages for violations of the UDTPA are available under the CFA. To prevail under the UDTPA, a plaintiff need not prove monetary damage, intent to deceive, or even actual confusion or misunderstanding. The prevailing plaintiff may be awarded costs and attorneys fees, but only if the court finds that the defendant willfully engaged in a deceptive trade practice.

A person engages in a deceptive trade practice (trademark infringement) when, in the course of his business, he:

• Passes off goods or services as those of another;
• Causes likelihood of confusion or misunderstanding as to the source, sponsorship, approval or certification of goods or services;
• Causes likelihood of confusion or misunderstanding as to affiliation, connection or association with another;
• Uses deceptive representations or designations of geographic origin in connection with goods or services;
• Represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation or connection that he does not have;
• Represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used or secondhand;
• Represents that goods or services are a particular standard, quality or grade or that goods are a particular style or model, if they are not;
• Disparages the goods, services or business of another by false or misleading representation of fact;
• Advertises goods or services with intent not to sell them as advertised;
• Advertises goods or services with intent not to supply reasonably expected public demand, unless the advertisement discloses a limitation of quantity;
• Makes false or misleading statements of fact concerning the reasons for existence of or amounts of price reductions; and
• Engages in any other conduct which similarly creates a likelihood of confusion or misunderstanding.