Unfair competition laws protect companies and consumers from wrongful acts that impede a healthy, competitive business market.
Sometimes, the application and enforcement of this law can put a target squarely on a business's back. How your business deals with and responds to any unfair competition allegations can mean the difference between large legal liability and a successful resolution to your case.
Always consult an experienced business litigation defense attorney immediately to begin building a defense against such allegations.
These cases can present a number of pitfalls for your company. Each case may call for its own unique legal strategy. In some cases, you may need to come out fighting with everything that you have. In other cases, you need to take a more pragmatic approach. Your lawyer will work with you to determine a strategy. They will listen to your concerns and your business needs and talk through your defense.
Your company has a right to fairly compete in the marketplace. However, your competitors might want to muscle you out of the market or enhance their standing by making your life more difficult. While you need to remain level-headed, you also do not want other parties to unfairly push you around.
The Origin of Unfair Competition Claims
Unfair competition claims result primarily from business torts, either how companies deal with:
- Consumers - Companies cannot engage in unfair acts when conducting business with consumers. Fraudulent and deceptive practices may be unfair competition that open a business to legal action.
- Competitors - Companies that compete with your business may allege that your business took steps to injure them or boost your competitive position at their expense.
- Other companies - Other companies can file a claim against you if they believe you interfered in their business, even if you were not direct competitors.
Examples of Unfair Competition
Unfair competition laws are very broad and wide-ranging. They can encompass a diverse set of activities.
Unfair competition laws intentionally function as catch-all statutes. Instead of enumerating a specific list of activities, the law generally prohibits unfair acts. What the law considers unfair depends on a specific situation.
Here are some potential forms of unfair competition:
- Using deceptive practices to sell goods and services to the general public (such as creating confusion among the general public about different products)
- Stealing business and trade secrets from a competitor
- Interfering in economic relationships that other parties have with each other (including employment relationships and contracts)
- Helping a former employee of another company breach a restrictive covenant that they had with their former employer
The Elements of an Unfair Competition Claim
Consumers or companies may have the right to sue under a state’s unfair competition lawsuit.
Typically, a plaintiff needs to prove two elements to win an unfair competition lawsuit:
- A consumer or business suffered an economic loss.
- A business’s deceptive or wrongful conduct caused the economic loss.
Damages in an Unfair Competition Claim
If you lose an unfair competition lawsuit, you may need to pay the plaintiff:
- The actual loss caused to a consumer or a competitor
- Costs related to injuries suffered by consumers
- Return of any profits earned due to unjust enrichment
- Potential punitive damages for extremely wrongful conduct
One of the first things that a litigant may do, especially if they are a competitor, is to seek an injunction to put a temporary stop to the alleged conduct. They may move for an early restraining order soon after filing their case.
When the court considers a request for an injunction, it looks at several factors. One thing that a court will analyze in deciding whether to grant a temporary injunction is the plaintiff's likelihood of success on the merits of the case. Not only does it look bad to receive a temporary restraining order, but it can also cost you business opportunities.
While you may overcome a loss on the initial decision for a temporary injunction, it can greatly complicate your case. You need to make a strong showing to the court early in your case.
Unfair competition may be just one of several allegations your business may face. For example, you may also face claims under common law grounds, such as tortious interference with business relationships. Your business might face lawsuits under intellectual property laws if the plaintiff alleges that your company used their ideas and passed them off as your own.
Hire an Attorney to Defend You from Allegations
If your business receives threats of an unfair competition lawsuit, or you have actually been served with lawsuit papers, you need an experienced attorney to defend you.
Your first step in an unfair competition lawsuit is contacting an experienced attorney who can defend your company. These lawsuits are very detailed. If the case goes to court, the plaintiff can get their hands on sensitive documents and communications as part of the discovery process.
If this information gets out to the public, it can damage your company. Therefore, prepare a legal strategy as soon as you know that a potential plaintiff may file a lawsuit.
Devising a Strategy for Defending an Unfair Competition Claim
Your legal strategy needs to balance many factors, including:
- The potential damage that a lawsuit can do to your company
- Your position in the marketplace with regard to your competitors
- Your company’s future business prospects
- The costs of defending a lawsuit and the risks that your company faces
- Possible negative public relations for your business, both from the lawsuit itself and from information that the plaintiff may learn
- Restrictions on your business based on court orders
Because you have every right to defend your company from any allegations levied against you, a full defense strategy will take a multidisciplinary approach. An experienced lawyer will not only develop a strong courtroom defense strategy, but they can anticipate other legal or strategic concerns.
Prepare Yourself for the Legal Process
First, you must be ready to answer the allegations in any complaint someone files against you. In a court case, you only have 30 days from the time of service to file the answer. You can get an extension from the court, but not automatically.
Immediately begin working with a business litigation lawyer because they have limited time to file your answer with the court. Litigation normally involves tight timeframes, and your lawyer may need information and decisions from you with tight turnaround times.
The defense process is about more than just answering filings in court and arguing your case in front of a jury. There is an entire strategy that is involved in defending your company. In addition, there are errors that you can make that can increase the chances that your company may be liable.
The high stakes in an unfair competition case may include criminal charges against individuals or even the company itself. An initial allegation can grow into a firestorm if you don’t prepare.
The Prospect of Punitive Damages
In addition to business risks, your company can face punitive damages. If a jury is particularly disturbed by a company’s conduct, it can assess a very large verdict that can severely damage your company (and perhaps put it out of business). The prospect of punitive damages does not mean that you should automatically look to settle every single lawsuit, regardless of merit. It does mean that you need to know which fights you should take to their conclusion.
Settlements are Possible
Many civil lawsuits will settle before they get to trial. The stronger your initial legal defense, the better negotiating position you might have if you choose to attempt to settle. Sometimes it just makes sense to settle, but you do not want to negotiate from a position of weakness. Preparing for the lawsuit and the onslaught that follows can increase your chances of obtaining the best possible result in the case.
A settlement may also involve having to change certain business practices. You should consider your desired outcome for the case and how you are prepared to compromise.
Figure out Any Defenses Available to You
Work with your attorney to present the strongest possible defenses.
First, you may need to defend yourself in the court of public opinion, especially if the lawsuit can create bad publicity for your company. When you have a strong legal defense to your case, you can better defend your company's position to the public to preserve your business reputation.
Here are some defenses that you may use:
- Your practices were not unfair within the meaning of the law
- You fully complied with the applicable law
- Members of the public were not likely to be deceived by your conduct
- Any claims made in connection with selling your product were not fraudulent but were just puffery
- Any information that you obtained from a competitor was available to the general public
- You did not interfere with any economic relationship between the two parties
Further, you may also have affirmative defenses you can present in your case:
- The party did not file the lawsuit within the applicable statute of limitations
- The plaintiff in the case has unclean hands, meaning that they committed unfair acts themselves and have no right to sue you
- The plaintiff has not stated a cause of action
- The plaintiff cannot take a position that is dramatically different from an earlier position
Consider Whether You Have Any Counterclaims Against Your Accuser
In addition to defenses, unfair competition cases often involve two-way litigation. The competitor who filed the lawsuit may have also done something wrong themselves.
You may file a counterclaim if the competitor also acted in a manner that injured your company. Your attorney will include counterclaims as part of your answer to the complaint, so they have limited time to identify and prepare counterclaims to file with the court.
The court will hear your claim simultaneously as the plaintiff’s. The plaintiff has the burden of proof for their claims against you, while you have the burden of proof for your counterclaims.
You need evidence not only to defend your company against unfair competition allegations, but also to meet your burden of proof for your claims. You need the right legal representation to do so.
You Need a Qualified and Experienced Attorney
Everything begins with hiring an attorney. You need a lawyer who knows how to go the distance for you in court. Many unfair competition cases are “bet the company” litigation that may go all the way to trial. The case may not even be over after the court reaches a verdict. Either you or the other party may appeal your case, and it can go all the way to the state supreme court. Your attorney should have a track record of delivering results in high-stakes litigation.
Not every attorney is ready to handle high-stakes litigation for your company.
First, an attorney may not even have the necessary business litigation experience at all.
Second, you do not want to hire someone who has only dealt with minor controversies to handle a high-stakes case. You need to know that your attorney is up to the job.
Timing is also crucial when you are hiring a lawyer. You need an attorney as soon as you have an idea that you are involved in any dispute. Business or consumer litigation often does not emerge out of the blue. You have some notice about a potential controversy. If you do not already have a lawyer, hire a Chicago business litigation lawyer as soon as you suspect the potential for an unfair competition lawsuit.