Trademark Unfair CompetitionThe following is a brief overview of the law of unfair competition in a trademark context.  A basic objective of policies regulating the free market economy in the US is the promotion and encouragement of competition. This is based on the premise that a competitive free market economy is both socially and economically desirable.  In a free and competitive market, businesses profit by selling goods or services to willing customers. To stay in business, they must offer lower prices or higher quality than their competitors. Those that fail disappear. Those that succeed spread prosperity.

The Conflict between Free Market Competition and Intellectual Property

The Supreme Court has emphasized that legal copying and imitation is an important part of free competition.  For example, imitating a successful business concept or idea that is not protected by intellectual property is the essence of free competition. The second comer who imitates by offering an equivalent product or service at a lower price or with greater quality is to be encouraged. Legitimate copying is essential in a competitive economy and this is the general rule.

In American Safety Table Co v Schreiber (1959), the Second Circuit stated: “Imitation is the life blood of competition. It is the unimpeded availability of substantially equivalent units that permits the normal operation of supply and demand to yield the fair price society must pay for a given commodity.” In Abercrombie & Fitch Stores, Inc. v American Eagle Outfitters, Inc., the Sixth Circuit stated: “Copying preserves competition, which keeps downward pressure of prices and encourages innovation.” Therefore, it is false to assume that all copying is inherently immoral or unfair and therefore illegal.  For example, Henry Ford was a second entrant who did not invent the automobile, but by the use of mass production reduced price and soon dominated the market. Steve Jobs was a pioneering innovator who was first to reach the market with the Apple personal computer in 1977, IBM was a successful second entrant in 1981, imitating the idea of a desktop computer for home and office (using Bill Gates’ MICROSOFT MS-DOS operating system) and thereby establishing the industry standard “PC.”  Legitimate imitation and copying is what makes a free market economy work.

However, one can capitalize on an idea or concept created by another so long as no intellectual property is infringed and the public is not confused into mistakenly believing that the second entrant’s product or service emanates from or is sponsored by the original creator.  Intellectual property rights, such as patent, trademarks and copyrights (see trademark law basics), are exceptions to the general rule of free market competition – i.e., legal copying and imitation of ideas, inventions and writings.  As the Second Circuit observed in Streetwise Maps v VanDam, Inc (1998): “Competitors, by copying and underselling a product’s originator, enjoy a ‘free ride’ on the originator’s efforts. Yet, since the common law favors competition, unless a plaintiff can establish that the defendant encroached on its trademark or copyright, the law will tolerate such conduct.”  Hence, the importance of the legal system as an instrument in protecting an individuals or businesses intellectual property to prevent the unauthorized copying and imitation of ideas, inventions and writings (to the extent they are protectable).  In other words, the legal system acts as an instrument to insure fairness in the free market economy.

What is Unfair Competition?

Unfair competition is a commercial tort – i.e., a wrong that arises in the course of a claimant’s business or profession.  The Fifth Circuit has defined the term “unfair competition” as an “umbrella” for a wide range of distinct business torts, including, but not limited to:

  • Infringement of trademarks and service marks;
  • Dilution of trademarks;
  • “Palming off” goods by unauthorized substitution of one brand for the brand ordered;
  • Use of confusingly similar corporate, business and professional names;
  • Use of confusingly similar titles of creative works, movies and TV programs on other creative works,5 and on commercial goods;
  • Confusing use of names and images of distinctive characters;
  • Infringement of trade dress in the distinctive configuration of packaging or product;
  • Infringement of the right of publicity;
  • Misappropriation of valuable and time-critical business information;
  • “Bait and switch” selling tactics;
  • False advertising;
  • Theft of trade secrets; and
  • Sending bad faith cease and desist letters to plaintiff’s customers, charging trademark infringement.

Why Do Business Professionals and Entrepreneurs Engage in Acts of Unfair Competition?

In short, the pressures of competition and rivalry, and the ability to remain viable in the marketplace, lead business professionals and entrepreneurs to engage in dirty tricks and egregious behaviors that are labeled “unfair” practices for which injury will result.  Selfishness, greed and destructiveness are part of the human make-up.  As such, the state common law and federal law (Lanham Act) require a showing of bad faith in connection with unfair competition claims.  Before a business or individual can be held liable for unfair competition, a showing of bad faith or commercial immorality is essential. That said, however, business conduct can be rough and aggressive without constituting unfair competition and injury can result (and often does) from fair competition.

To conclude, in Zippo Mfg. Co. v Rogers Imports, Inc (SDNY 1963), the court stated that the law of unfair competition has traditionally been a battleground for competing policies. The interest of the public in not being deceived has been called the basic policy. Moreover the plaintiff’s interest in not having the fruit of his labor misappropriated should not be disregarded (see trademark rights). But there is also the policy of encouraging competition from which the public benefits.

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