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What Constitutes Unfair Competition?

Unfair CompetitionUnfair competition occurs when individuals or companies in the same market are not able to compete on equal terms because of certain wrongful acts of one of the parties, usually a deceptive or unfair trade practice. Generally, the term “unfair competition” refers to situations where the actions of one competitor are designed or have the effect of confusing consumers as to the origin of the product. Issues related to illegal monopolies, collusion or acts in restraint of trade typically are not considered unfair competition, but fall under the general topic of antitrust.

The Laws Governing Unfair Competition

Legal actions claiming unfair competition can be based on violation of statute, or may be filed as common law claims. Much of the law of unfair competition is governed by state law, but the federal Lanham Act also provides businesses with protection against certain deceptive or unfair trade practices.

Under the Lanham Act, which was originally designed to provide remedies for trademark infringement, a business suffering economic injury may take legal action to recover for losses caused by:

  • Unauthorized use of a registered trademark—Any use of a registered mark without the permission of the owner is a violation of the Lanham Act.
  • Dilution of a trademark—This provision allows owners of a well-known trademark to limit the use of the trademark, even in situations where there is no likelihood of confusion, if the use of the trademark will “dilute” the strength of the famous mark.
  • False advertising—This part of the Lanham Act prohibits the use of false, inaccurate or misleading statements in any form of product advertising, such that consumers are confused as to the facts, or have an incorrect perception of the facts.
  • Trade dress violation—One of the common ploys by a competitor is to copy the physical appearance of a successful product, hoping that consumers will not know the difference and will buy the counterfeit product. Often, competitors will use deceptively similar packaging, with similar color schemes and images. This practice is known as trade dress violation, and is a violation of the Lanham Act.

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