Exploring the Claim of Unfair Competition

Exploring the Claim of Unfair Competition

Unfair Competition has multiple meanings.  To the lay person, it means exactly as it sounds.  Someone in the marketplace who unfairly competes against others.  Unfair competition also has specific meanings within the legal profession.  The words encompass a particular state’s common law claim of Unfair Competition.  These words also describe claims brought under Section 43 of the Lanham Act (15 U.S.C. § 1125).

Arizona’s Common Law Claim of Unfair Competition

In Arizona, the claim of unfair competition involves equitable principles designed to prevent and seek redress for a number of separate tort theories (e.g. palming off, trademark infringement, misappropriation).  A common thread exists among these separate theories.  According to the Arizona Court of Appeals, “the general purpose” for the common law claim of Unfair Competition “is to prevent business conduct that is contrary to honest practice in industrial or commercial matters.”

Section 43(a) of the Lanham Act

Unfair Competition claims arising under the Lanham Act are expressly stated in Section 43(a) as follows:

(a) Civil action

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

Below is a general overview of the different types of Unfair Competition claims that have been decided in federal and Arizona courts.

Types of Arizona Common Law and Section 43(a) Unfair Competition Claims

Misappropriation

An Unfair Competition claim for misappropriation focuses on Party A’s unjust taking of Party’s B’s information, data or work product for Party A’s benefit at little to no cost.  However, an Unfair Competition claim for misappropriation has many limitations.  First, under many circumstances the claim will be preempted by U.S. Copyright law, and in Arizona, the statute governing trade secrets.  If the information, data or work product is something that falls within the scope of copyright protection, a misappropriation claim is likely preempted.  Likewise, to the extent the information qualifies as a trade secret, Arizona’s Uniform Trade Secrets Act preempts a common law Unfair Competition claim based on misappropriation.  Other limitations include that Party A must “directly compete” with Party B for customers, and Party B must have invested substantial time and money into developing the information, data or work product.

Palming Off/Passing Off

Palming Off or Passing Off involves Party A making a false representation that “tends to induce” a buyer into believing that Party A’s goods are Party B’s goods.  Like other unfair competition claims a primary interest being protected against is consumer confusion in the marketplace.  The tortious conduct takes place through deceptive representations or use of a confusingly similar mark.  Some courts have recognized an Unfair Competition claim for Reverse Palming Off, which involves Party A placing Party A’s mark on Party B’s goods and selling to consumers as if they are Party A’s goods.

Misrepresentation

In a nutshell, the broad scope of 43(a)’s misrepresentation language focuses on Party A’s false or misleading use of a mark in connection with goods or services that is likely to cause confusion as to origin (source) or association and approval (sponsorship).  By source, a consumer is confused whether the manufacturer of a good or provider of a service is a brand that the consumer is already familiar with.  By sponsorship, a consumer is confused whether the seller of a good or provider of the service is sponsored by or associated with a brand that he or she is already familiar with.  These typically involves the sale of unlicensed products.  Rights to a mark vest from use in the marketplace, rather than registration, so trademark infringement of a registered mark under 15 U.S.C. § 1114 or an Unfair Competition claim based on misrepresentation of an unregistered mark under 15 U.S.C. § 1125(a) or Arizona common law follows the same general analysis.

False Advertising

Section 43(a) prohibits false advertising.  Unfair Competition claims based on false advertising occur both where Party A’s advertisement focuses on Party A’s own product or where Party A compares Party B’s product to its (Party A) product.  Generally, false advertisements fall into two separate camps:  (1) literally false claims and (2) literally true but misleading.  The false representation in a literally false claim is readily apparent from the use and context itself.  No evidence of consumer confusion is required, although, the plaintiff in Arizona (9th Circuit) must show that the literally false representation is material (e.g. tending to influence a consumer’s decision in purchasing the good).  A literally false but misleading claim involves a claim that may be true, but the falsity arises by implication or innuendo.  A plaintiff generally must demonstrate actual consumer deception, unless it can be shown that the defendant intended the deception (not easy).  If intended deception is shown, this creates a presumption of consumer deception.

Limits of Unfair Competition Claims?

Unfair Competition claims can potentially be used as a tool to seek redress for unique scenarios that don’t fit neatly into the traditional claims so long as claim seeks to “prevent business conduct that is contrary to honest practice in industrial or commercial matters.”

The Arizona Supreme Court recently pointed this out in Orca Communications Unlimited, LLC v. Noder, LLC, although it didn’t definitively decide the issue.  As technology advances at a much greater pace than the law adapting to rapidly changing marketplace conditions, unique Unfair Competition claims are likely to be litigated and addressed with more frequency.  For Unfair Competition claims under Arizona common law, there is support that the different types of claims was not intended to be exhaustive.

Unfair Competition claims under Section 43(a), however, appear limited to those expressly provided for in the statute.

Contact Paul Ticen if you to discuss and explore potential Unfair Competition claims or if you received a cease and desist letter or are facing a lawsuit asserting Unfair Competition claims.

 

 

Skills

Posted on

March 25, 2016