Unfair Competition FAQ

Q: What is unfair competition in a business context?

A: Unfair competition (or unfair trade practice) is a catch-all tort. It is closest to trademark practice, but there is no federally registered trademark interest which is protected. It requires a wrongful act or bad faith act coupled with damage or potential damage to trade. A typical example is found where news stories are lifted by a second party from a newspaper sent to other parts of the country by that second party for publication in other papers. Protection in this function can also possibly be obtained by copyright, if the proper filing is done.

Q: What does Illinois law have to say on the subject?

A: The Illinois statutes covering unfair trade practices are found in a wide variety of places. They are in various parts of Illinois Compiled Statutes, Chapters 10, 15, 55, 65, 70, 740 and 815, among others. Chapters 740 and 815 are the most pertinent.

Various aspects of unfair competition include Interference With a Contract, Covenants Not To Compete, Passing Off, Commercial Disparagement, False Advertising and Commercial Bribery.

The perfectly clear case for inducing breach of contract requires the plaintiff to establish the existence of the contract between the plaintiff and a third party at the time of defendant's action. Plaintiff must further establish that the defendant knew of the contract and that the defendant induced the third party to breach, rescind, terminate or otherwise adversely affect the performance of the contract with plaintiff. The plaintiff must also prove that the defendant's acts were an actual or proximate cause of the damage to the plaintiff.

Q: How do covenants not to compete relate to unfair competition?

A: Another part of the Unfair Competition is Breach of Covenants Not To Complete. Covenants Not To Compete can run from an employer to either a current employee or a separating employee, or from the seller of the business to the buyer of the business. Generally speaking, the covenant from a seller of a business to a buyer of a business is more widely enforceable than the covenant between an employer and an employee. The employee must have the right to make a living. Therefore, the restrictions on area and competing area and time of the Not To Compete will be more strictly limited with regard to an employee than with the selling owner of a business. In the business, the Covenant Not To Compete usually consists of a statement that the party will not form a competing business within a certain distance or within a certain time of the sale of separation. Thus, because of the right of the employee to make a living, the time and the distance may be somewhat limited.

Passing off (or palming off) means to sell the goods of one manufacturer by leading a purchaser to believe that he is buying the goods of another. Passing off occurs is at the time of the offer for sale whether or not a purchase is made. Thus, the actual making of the goods is the critical element of this action.

Q: What elements must be present to bring an unfair trade practices action under Illinois law?

A: Illinois has adopted the Uniform Deceptive Trade Practices Act. As long as the 12 points of the Deceptive Trade Practices Act are applied, there is an action. The elements are:

  1. Passes off goods or services as those of another

  2. Causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or service

  3. Causes likelihood of confusion or of misunderstanding as to affiliation, connection or association with or certification by another

  4. Uses deceptive representations or designations of geographic origin in connection with goods or services

  5. 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

  6. Represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used or secondhand

  7. Represents that goods or services are a particular standard, quality or graded or that goods are a particular style or model, if they are of another

  8. Disparages the goods, services or business of another by false or misleading representation of fact

  9. Advertises goods or services with intent not to sell them as advertised

  10. Advertises goods or services with intent not to supply reasonably expectable public demand, unless the advertisement discloses a limitation of quantity

  11. Makes false or misleading statements of fact concerning the reasons for, existence of or amounts of price reductions

  12. Engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding (IICLE Unfair Competition, 1979 Chapter 7, Page 6)

Q: What is commercial disparagement?

A: In commercial disparagement, one must consider the action of commercial defamation, or commercial libel and slander. This is based on the publication on false and derogatory assertions concerning the reputation of an individual or entity. The standard rules of both slander and libel per se apply. Disparagement, on the other hand, is an injurious falsehood relating to false and derogatory statements about the quality or nature of the products or services provided. This, of course, is actionable.

The Hormel Corporation challenge against Cyber Promotions can be pursued under facets of unfair competition in addition to trademarks. Federal trademark law provides for court costs and attorney fees. Unfair competition may be easier to prove. Those are difficult, which vary from case to case.

For the most part, the distinction between libel and slander has been eliminated for unfair competition purposes. Libel is written disparagement; slander is spoken disparagement. However, penalties for either libel or slander are similar.

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