California Unfair Competition Law
Although intellectual property issues are often handled on a federal level, state laws often apply as well. One such statute is the California Unfair Competition Law (UCL).
The initial California UCL was crafted with a focus on Section 5 of the Federal Trade Commission Act, but ensuing court decisions and ballot propositions have made it unique. While intellectual property protection is an important aspect of the statute, the overall law is much more expansive.
What is Unfair Competition?
Most states have crafted statutes which serve to pull all forms of deceptive business practices under one umbrella. Unfair competition typically refers to any fraudulent or dishonest business practice that results in harm to either consumers or other companies. The term deceptive trade practices is typically used when consumers are the target of these acts, but attempts to harm competitors through fraud, deception, bad faith and other unfair practices also fall under the definition.
While the California Unfair Competition Law is different from others found throughout the country, nearly all states have crafted laws similar to federal statutes.
Types of Unfair Competition
The term unfair competition is wide-ranging, and this is also the case for California’s Law. There are innumerable acts that could meet the California UCL definition. In all cases, though, an unfair practice will fall under five distinct areas laid out in the unfair competition law. The different types of unfair competition are:
- Business acts or practices that are unlawful.
- Business acts or practices that are unfair.
- Fraudulent business practices or acts.
- Deceptive, misleading, untrue or unfair advertising.
- Any prohibited act under Section 17500-17577.5.
The fifth type of unfair competition serves as a “catch-all” provision allowing plaintiffs to seek additional remedies due to a defendant’s violation of multiple statutes. Unlike the California Unfair Competition Law, Section 17500 only deals with deceptive advertising of goods and services. While many plaintiffs and some courts treat the two laws interchangeably, the advertising requirement is an important distinction.
Due to the wide-reaching scope of California’s UCL, there are a vast array of business practices that may fall under the statute’s umbrella. These are generally actions that are viewed as anti-competitive, and they can cause harm to both consumers and other businesses. The following are different types of unfair competition:
- Intellectual property infringement.
- Bait-and-switch marketing.
- Price manipulation (e.g. selling below cost to harm competitors).
- “Spoofing” or “robocalling” that directly violates FCC regulations.
- Engaging in trade libel.
- Trade secret misappropriation.
- Falsely affiliating oneself with an established brand.
Some of these actions also constitute violations on the national level. Filing a federal lawsuit in this situation will not preclude you from also seeking legal remedies under the California Unfair Competition Law. In fact, it’s possible that those engaged in infringement are also committing additional offenses under the California UCL.
Regardless of the type of unfair competition, you’ll have several legal recourses at your disposal. Litigation may not be appropriate in all instances, but it’s still important to consider your options.
Although unfair competition laws involve all forms of intellectual property violations, the most common is Lanham act unfair competition. Registering a trademark with the U.S. Patent and Trademark Office (USPTO) is an essential part of protecting your rights. If you’ve yet to do so, however, California provides other avenues of recourse. California’s Unfair Competition Law is particularly important for trademark issues outside of federal purview.
The following are examples of trademark infringement that qualify as unfair competition:
- Creating a logo that’s confusingly similar to another company’s.
- Using a competitor’s well-known slogan in your marketing.
- Packaging products in containers that resemble a competitor’s.
- Copying another company’s trade dress for your own product.
- Improper use of brand names in Amazon listings.
Whether trademark infringement has occurred typically rests on if there’s a likelihood of confusion. This means that consumers will likely be confused by the source of a product or service. Actual occurrences of confusion need not occur, but they can be used as evidence of such infringement. If damage to a brand’s image is likely, it’s not always necessary for confusion to exist (e.g. trademark dilution).
Since trademark violations harm both consumers and the owner of the brand identifier, it’s considered a particularly egregious act. Purchasers may receive products and services they didn’t want, and trademark owners can lose sales along with having their brand’s reputation damaged. There are several factors considered when deciding whether infringement through a likelihood of confusion has occurred:
- Similarity of trademarks: Consumers become likelier to confuse brand identifiers if they’re more similar. This can include the look, sound or commercial impression created by the identifier.
- Goods/Services similarity: Trademarks are more likely to be confused if they’re applied to goods/services that are closely related.
- How strong is the property: Some brand identifiers are stronger than others. Fanciful, arbitrary and suggestive trademarks have higher levels of protection.
- Proof of actual confusion: Trademark owners who can prove that actual confusion has occurred will be in a better position in court.
- Intent of defendant: Was the defendant attempting to create confusion among consumers?
- Market interface: How close are the products within the marketplace? Do the same consumers shop for them? Are they sold near each other in stores?
- Consumer care: To what degree do consumers practice care when making these purchases?
- Expansion potential: Is it likely that a company will expand into the market the alleged infringing product/service is part of?
Cease and Desist Letter
The most powerful tool you may have at your disposal is the cease and desist letter. This form of legal document is at least partially responsible for keeping more than 97 percent of American legal disputes outside of courtrooms. These can be used for IP or other unfair competition issues. When you send such a notice, though, you’ll need to ensure it contains all relevant information. This includes the following:
- Contact information for all parties.
- The dates and circumstances of the unfair competition.
- Applicable sections of the California Unfair Competition Law.
- Registration numbers if unfair actions involve intellectual property.
- Demand that the unfair competition end immediately and never be resumed.
- Explanation of legal action that will occur if actions do not end.
- Deadline for a response (10 days).
We typically email cease and desist letters and ask for an immediate confirmation of response. If necessary we FedEx them and take over actions to ensure compliance. This makes it more difficult for violators to later claim – if they continued their actions – that they were unaware of their violation. This is a strong first step in establishing an evidentiary trail.
California Unfair Competition Law Elements
Since few statutes are as wide ranging as California’s Unfair Competition Law, there are a variety of elements that may apply in some instances but not others. There are two main California Unfair Competition Law elements that apply in the majority of cases:
- The act causes some harm to consumers or
- The act provides an unfair competitive advantage to a business.
Of the several types of unfair competition, unlawful acts and practices may be the easiest to understand. For the law to apply in this situation, another underlying statute must have been violated. Unfortunately, “unfair” and “fraudulent” can have more subjective meanings under the law. When it comes to “deceptive, untrue, unfair and misleading” advertising, things are more straightforward.
To meet the California Unfair Competition Law elements regarding false advertising, the following must be true:
- Deceptive, untrue, unfair or misleading advertising was undertaken by the defendant and
- Injury was suffered by the plaintiff to include lost money or property.
When it comes to the fifth type of unfair competition under California law – regarding Statute 17500 – it must be proven that the defendant knew or should’ve known they were engaged in false or misleading advertising.
One final California Unfair Competition Law element – that applies in all cases – is that the plaintiff must have been harmed by the actions. Prior to Proposition 64 being passed by ballot initiative, anyone could sue a party that was engaged in unfair activities. After passage, only certain government attorneys and harmed parties can bring forth a lawsuit.
Unfair Competition Legal Remedies
If an issue cannot be handled outside of the courtroom, there are unfair competition legal remedies available. The plaintiff has a four-year statute of limitations they must abide by, but this only begins when they learn of the unfair acts or should’ve discovered such acts via reasonable diligence. The following remedies are applicable:
- Injunctions to end further unfair competition.
- Recovery of actual economic damages suffered by plaintiff.
- Daily penalties of up to $6,000 if unfair actions continue after an injunction is issued.
- Profits earned from violations may have to be forfeited.
There are a variety of factors considered when deciding upon appropriate compensation. Similar to instances of violating intellectual property law, proof of willful misconduct can result in higher court awards. Judges and juries may also consider how many violations occurred, how serious they were, the defendant’s persistence, how long the violation occurred, and the assets available to the defendant.
If the lawsuit is brought forward by the government rather than injured parties, the defendant may be liable for up to $2,500 for every violating act.
California Unfair Competition Defenses
There are a variety of defenses to California’s Unfair Competition Law. These will differ dependent on the specifics of a case, and the likelihood of a defendant being successful will vary. Around 72 percent of trade secret violation cases that make it to trial, for instance, are decided in favor of the plaintiff. Similarly, defendants in unfair competition cases can face difficulties.
Since many violations of the UCL in California are considered strict liability, common defenses such as mistake of law, no wrongful intent and good faith are typically inapplicable. If the following issues are brought up at trial, however, the defendant may be able to avoid liability.
No Underlying Unlawful Conduct
If a claim under the California Unfair Competition Law is based on unlawful conduct, it must be shown that such conduct occurred. If the defendant shows that an alleged action never took place or that it wasn’t a violation of any law, they will have established a solid defense against claims of unfair competition.
Statute of Limitations
There is no concrete statue of limitations other than the requirement of filing within four years of discovering violating actions. Once this period passes, however, no action can be brought against the accused. If the defendant can prove the plaintiff knew or should’ve known about their actions more than four years ago, they may emerge successful.
No Legal Standing
If defendants can prove that the plaintiff suffered no injury, they can initially avoid liability since the claimant has no legal standing to sue. This is also the case if it’s shown that the plaintiff lost no property or money related to the alleged violations. This doesn’t preclude other parties from bringing forward similar litigation.
Different courts have defined “fraudulent” and “unfair” in separate ways. If an action doesn’t meet the standard established by a certain court, it’s unlikely that they’ll find the defendant liable. Defendants should conduct research prior to trial and then tailor their defense based on a court’s interpretation of specific terms.
Free Speech Defenses
There is a difference between unfair competition and non-commercial speech. Presenting such a defense successfully means the courts viewed the alleged violation as a free speech issue rather than a question of wrongful competitive advantage.
Certain issues – typically those involving food safety, the environment, transportation and banking – may create federal preemption of state laws.
If you have an issue with the California Unfair Competition Law, please contact us today.