Lanham Act Unfair Competition


Lanham Act Unfair Competition

Regardless of the industry, American companies thrive when they outperform their competitors. There are countless commercial methods that entrepreneurs use to gain even the slightest edge over business rivals. While this type of behavior is encouraged, there are certain actions that are considered over the line. Many of these actions fall under Lanham Act unfair competition laws.

The Lanham Act was signed by President Truman in 1946, and it has since undergone several amendments. While this federal law doesn’t cover every instance of unfair competition, it is directly related to trade dress infringement and trademark infringement.

What is Unfair Competition?

The definition of unfair competition is somewhat elusive.  Even Congress had difficulty defining it when it began to tackle the issue with the Federal Trade Commission Act of 1914.

The simplest way to understand unfair competition is to view it as unjust commercial conduct that could cause economic damages to another business. There is no all-encompassing list of actions that constitute unfair competition. As technology evolves, people can come up with all new ways to engage in this behavior. Here are a few examples of unfair competition:

  • Trade libel.
  • False representation of services or products.
  • Substituting one brand for another without authorization.
  • Stealing trade secrets.
  • Solicitation of customers by former employees using confidential information.
  • Trademark infringement.

State law governs the majority of these issues, but there are certain instances which will fall under the federal government’s jurisdiction. This is when the Lanham Act unfair competition provisions come into play. Issues of false advertising, trademark violations and sometimes copyright infringement typically fall under this statute.

While the Lanham Act covers a variety of issues, most state laws focused on unfair competition deal largely with false or misleading advertising. California’s statute for unfair competition, for instance, states:

“[Unfair competition is] any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.”

Some states have also signed onto the Uniform Deceptive Trade Practices Act. The key takeaway from all this is that you have legal recourse if you’re facing economic difficulties due to unfair competition.

What is the Lanham Act?

Trademarks are designs, words, expressions or signs that differentiate one product from another. Before the Lanham Act took effect, there was no comprehensive deterrent against competitors using similar trademarks or selling counterfeit items.

In addition to establishing the first major trademark laws in America, the Lanham Act also focused on another type of unfair competition: false advertising. By using false or misleading representations or descriptions of fact, companies risk creating a likelihood of confusion among customers. The enforcement mechanism for the Lanham Act, however, is competitors rather than consumers.

The Supreme Court has made it clear that regulators were likely less knowledgeable in the area of unfair competition than those who actually work within the industry. And while any false marketing could result in a lawsuit, it’s typically comparative advertising that ends up in court. While comparative advertising makes up only 25 to 50 percent of all advertising, a full 56 percent of Lanham Act false advertising cases involve this type of marketing.

Keep in mind that Lanham Act unfair competition complaints must come from entities who have already been or are likely to be injured by the acts of the accused. Consumers or unrelated companies have no standing in court.

Lanham Act Unfair Competition Elements

For a lawsuit under the Lanham Act to be successful, it must satisfy certain elements. If even one of these elements isn’t present, courts are likely to rule in favor of the defendant.  Trademark issues can be complex and may require in-depth analysis. Claims of false advertising, though, are often easier to recognize. Only five elements need to be met for a finding of false advertising under the Lanham Act’s unfair competition provisions. They are as follows:

  1. Using false or misleading statements of fact.
  2. Actual or likely deception among substantial portion of likely audience.
  3. Deception is material as it’s likely to influence purchase decisions.
  4. Must involve interstate commerce.
  5. Commercial or competitive injury has occurred or is likely to occur.

Each of the elements of false advertising under the Lanham Act’s unfair competition rules seem straightforward. A more in-depth understanding is required, though, to fully grasp your rights.

Misleading/False Statements of Fact

Statements of fact that are either misleading or false are both actionable under the Lanham Act. An outright lie is typically easy to prove, but this is only the case when untrue claims are made as fact. Opinions or any claim of superiority (e.g. “The best car for your money!”) typically do not constitute false advertising.

A violation of the Lanham Act may also occur if an advertising claim is true but misleading. If consumers are likely to be deceived, confused or misled by how a statement of fact is presented, courts may still view the act as false advertising and unfair competition.

Actual or Likely Deception

Any advertisement that is literally false is considered actual deception. If a statement is true but misleading, extrinsic evidence will usually be necessary to prove your case. A survey of potentially targeted consumers, for instance, could show that most would be confused upon seeing an advertisement.

Material Deception

Whether deception is “material” depends upon the consumer’s ability to make a decision and understand it. If someone’s decision to purchase is affected by a misleading statement of fact, it is considered material deception.

Interstate Commerce

While the interstate commerce element may seem like a substantial hurdle, most businesses within the United States can easily meet this threshold. If a commercial transaction or traffic crosses state lines or involves more than a single state, interstate commerce has occurred. Selling on eBay or Amazon could easily meet this requirement.

Commercial or Competitive Injury

If a plaintiff can show actual economic injury related to false advertisement, they may be able to recover damages under the unfair competition rules of the Lanham Act. Actual damages need not be proven for a ruling in favor of the plaintiff. If economic injury could occur, this threshold is met.

Additional Word on False Advertising

It’s important to remember that these elements must be met in a commercial promotion or advertisement. A CEO telling his board members misleading information, for instance, wouldn’t fall under Lanham Act unfair competition regulations. Even blatant lies from non-competitors – such as an opinion section in the local newspaper – won’t qualify. Other legal remedies may be available in these instances.

Trademark Infringement as Unfair Competition

While the umbrella of unfair competition covers numerous actions, trademark infringement is the most common cause of litigation. In fact, between 4,000 and 4,800 instances of trademark litigation made their way to federal courts between 2009 and 2016 – with no sign of slowing down. Unfair competition in the Lanham Act is forever linked to trademark violations.

When claiming a trademark, it must clearly identify your brand in a distinctive way. You must also plan on using the trademark in commerce. If both these requirements are met, you can likely register your trademark with the United States Patent and Trademark Office (USPTO). In doing so, you’ll give yourself the ability to file a lawsuit in federal court if someone infringes upon your trademark.

Whether or not trademark infringement has occurred – and thus unfair competition – is based on whether a likelihood of confusion exists.  The unfair competition provisions of the Lanham Act also protect against trademark dilution. This occurs when – even in the absence of a likelihood of confusion – potential damage could be caused to a trademark owner. There are two types of dilution:

  • Blurring: If the connection between a company and its products could be weakened, courts may consider a trademark to be “blurring.” KODAK, for instance, is synonymous with film products. If a coffeehouse started selling a KODAK brew, it could ruin years of work that the major company put into creating a distinctive connection.
  • Tarnishment: If a trademark is being used in an unsavory way, tarnishment of a similar senior trademark may occur. No likelihood of confusion need exist, and consumers might never make the mistake of confusing the brands. If the more famous brand’s trademark could be damaged by the other’s reputation, though, a finding of dilution is likely. Tarnishment could also occur if a similar trademark is being used on inferior products.

Even though the Lanham Act is meant to combat different types of unfair competition, protecting trademarks is its main focus. Thanks to the passage of this legislation, you have the right to defend your rights through a variety of methods.

Unfair Competition Cease and Desist Letter

Over 97 percent of legal disputes never enter the court system. There are many reasons behind this fact, but the use of cease and desist letters is one of the most prominent. Sending these formal notifications let competitors know that you’ve recognized their actions and are willing to engage in litigation to stop them. An unfair competition cease and desist letter is typically the first step in the process.

By sending this type of notice, you’re building an evidentiary trail. This will likely help if you end up facing trademark litigation or lawsuits related to other unfair competition.  In some instances, you won’t receive a reply from the offender. Once they realize their actions constitute unfair competition under the Lanham Act, they may simply cease their activities. Those who engaged in willful unfair competition likely know the potential consequences they’ll face otherwise. Anyone who accidentally engaged in these acts will probably jump at the opportunity to avoid a lawsuit.

Of course, not all cease and desist letters serve their intended purpose. If someone ignores your notice or sends a response claiming they’ve done nothing wrong, your only option may be to sue them in federal court. The most common outcome of these lawsuits is an injunction, but monetary damages are also a possibility.

In fact, over $5 billion in damages was awarded between 2009 and 2017 in trademark litigation cases. Similarly, different instances of unfair competition could be eligible for damages. Attorney’s fees and other compensation may also be possible in some situations. Monetary awards are more likely when actual damages or willful intent can be proven, but even an injunction against unfair competition can be invaluable.

Fierce competition is encouraged – and often incentivized – in the American business world. There are certain lines, however, that cannot legally be crossed. This is meant to ensure fairness for entrepreneurs and transparency for consumers. While the Lanham Act is often referred to as “the trademark statute,” it also focuses on other deceptive business practices that are widely considered unfair competition.

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