Generally, businesses, (other than breach of contracts), redress wrongs committed in commercial competition. These cases more or less establish the boundary between fair and unfair business competition.
Business torts comprise several torts that arise in the context of commercial transactions, broadly viewed. These kinds of cases generally include unfair competition as a core concept, but often also include interference with contract, interference with prospective advantage, trade libel, (i.e., trade disparagement), false advertising, fraud, or similar claims. Furthermore, claims for misappropriation or theft of trade secret(s) also are viewed in the broad category of business torts.
To prevail on a claim for intentional interference in a contractual relationship, the injured party, (i.e., the plaintiff), must plead and prove the following:
Similarly, the elements of a cause of action for the tort of intentional interference with prospective economic advantage are:
In addition, the plaintiff must also plead and prove that the defendant engaged in conduct that was wrongful by some legal measure other than the fact of the interference itself. Therefore, a claim for intentional interference with prospective economic advantage includes the same elements as a claim for interference with contractual relationship, but further includes an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff, and the additional element that the defendant’s action must have been wrongful apart from the interference itself.
California’s Unfair Competition Laws are contained within California Business and Professions Code Section 17200, and includes five definitions of unfair competition, which are: an unlawful business act or practice; an unfair business act or practice; a fraudulent business act or practice; unfair, deceptive, untrue or misleading advertising; or any act prohibited by other relevant sections of the Business and Professions Code. Claims under California’s Unfair Competition Laws are valid, depending on the nature of the claim, for three or four years. These Unfair Competition laws are used widely in California and are considered some of the most inclusive laws for challenging business practices anywhere.
Previously, anyone, regardless of whether he or she was a victim of unfair competition, could sue another person or business for a violation of section 17200. However, after 2004, only injured individuals can begin unfair competition litigation. Therefore, it is not enough that a person sees an advertisement that is misleading, he or she, in order to litigate the case, must have been harmed by the false or deceptive advertising (to determine if an ad is misleading, judges consider all parts of the advertisement; the video, the audio and packaging) or some other type of business practice. Individual consumers may file a claim using these statutes if actual harm has occurred, as may businesses who have been harmed or targeted by other businesses unfairly.
The nature of what is “unfair” is also a point of disagreement within California’s courts. Some courts require a violation that is in some way connected to some type of statutory provision or other rule that prohibits the behavior in question. Other courts have decided that a violation of the Unfair Business Practices rules requires conduct that would “likely” deceive the public, using a balancing test that, “weighs the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”
In addition to the now-limited ability of individuals to sue claiming unfair competition, section 17200 allows local prosecutors and state prosecutors to file actions on behalf of injured individuals. Further, these unfair competition statutes can be used for permanent relief but injunctive relief is also available if harm is ongoing and a temporary order is needed to end harmful behavior. Courts have the ability to assess penalties of up to $6,000 for failure to comply with temporary orders and $2,500 per violation in civil penalties for failures to comply with orders.
While the recovery of any property or funds acquired due to unfair competition are allowed (restitution), punitive damages are not permitted in connection with California’s unfair business practices laws. As with almost all other types of litigation matters handled in California, attorneys’ fees are also not recoverable under the Unfair Competition Law. Finally, unlike other types of claims typically filed in California, such as a traditional breach of contract claim, compensatory damages are not allowed in Unfair Competition Laws matters: the only damages that are allowed are those discussed, above (injunctive relief, civil penalties, and restitution).
A common misconception in litigation is the need for actual, and not speculative damages. While difficulties in determining what the correct approach to damages in a given case are can be less common in breach of contract matters, ambiguity related to what damages are appropriate regularly arise in all types of business disputes. In all cases, if damages are too speculative, they cannot be awarded. Speculative damages are damages that have not occurred but will occur in the future. Further, speculative damages are damages that are improbable and / or are not directly connected with the allegedly wrongful act. For example, a breach of contract claim regarding the failed delivery of goods to a retail establishment cannot include a damages claim for an entire business’s failure and corresponding damages unless a direct connection can be established. Damages in connection with a failed delivery cannot extend beyond the reasonable profits from the undelivered goods, minus all costs.
A common way of avoiding damages issues when the possibility for problems are known to either party in advance is the implementation of liquidated damages clauses in contracts. Liquidated damages are damages that are agreed to by both parties to a contract in the event of a breach by one or more parties. The parties to the contract agree in advance that if a certain breach occurs, a fixed amount or otherwise agreed-upon amount of damages will be owed. When an enforceable liquidated damages clause is present and applicable, it can be valuable in assisting one or more parties avoid litigating the issue or amount of damages. Instead, that party can contain the litigation to the issue of liability and whether the liquidated damages clause is enforceable.
A common issue in connection with damages in civil litigation is the collection of those damages and what funds can be recovered as damages after litigation. A debtor cannot transfer funds for the purpose of avoiding a legitimate debt. Whether a lawsuit has been filed or a judgement has been entered is not as important as other factors to determine whether a transfer of funds or property was made for the purpose of avoiding collection (and was therefore a fraudulent transfer).
The first instance where a transfer is fraudulent is when there is actual intent present to avoid the legitimate collection of a valid debt. The second situation a transfer can be proved to have been fraudulent is when the transfer in question was made without the transferee receiving reasonably equivalent value for whatever he or she transferred or where the transferee was engaged or about to engage in a business or transaction with an unreasonably small amount of remaining assets in relation to the business or the transaction. The third instance where a transfer can be identified as fraudulent exists when a transfer is made without the debtor receiving reasonably equivalent value where the debtor incurred debts beyond his or her ability to repay. The final situation where a transfer can be seen as fraudulent is when a transfer made or obligation incurred without receiving reasonably equivalent value where the debtor was insolvent at the time of making the transfer or incurring the obligation or became insolvent as a result of the transfer or obligation.
Trade libel is defined as the intentional disparagement of the quality of the property, which results in pecuniary damage to the plaintiff. Injurious falsehood, or disparagement, may consist of the publication of matter (in speech or writing) derogatory to the plaintiff’s title to his property, or its quality, or to plaintiff’s business in general.
The plaintiff must demonstrate in all cases that the publication of falsehoods has played a material and substantial part inducing third parties not to deal with plaintiff and as a result, he or she has suffered damage(s). Generally, the damages claimed consist of loss of prospective business or contracts with the plaintiff’s customers and potential customers.
Businesses often find themselves subject to allegations of false or misleading advertising. Advertising need not be entirely false to be actionable under the law of unfair competition, so long as it is sufficiently inaccurate to mislead or deceive consumers in a manner that inflicts injury on a competitor. A claim for false advertising typically requires the plaintiff to plead and prove the following elements:
Unfair competition may consist of the wrongful appropriation of a trade secret, and generally, the law of unfair competition prohibits former employees from disclosing or misusing an employer’s trade secrets and/or other confidential information, (even in the absence of contractual restrictions).
A trade secret is typically defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Thus, the test for trade secrets is whether the matter, (i.e., formula, compilation, etc.), sought to be protected is information that derives its value from being unknown to others, and that which the owner has attempted to keep secret. As such, a trade secret loses its protected status if the owner does not undertake reasonable efforts to maintain its secrecy.
Misappropriation is generally defined as the:
Improper means includes theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means. However, reverse engineering or independent derivation alone is not to be considered improper means. Moreover, misappropriation is not limited solely to the initial act of improperly acquiring trade secrets. Rather, the use and continuing use of the trade secrets is also misappropriation. Use is defined as the employment of confidential information in manufacturing, production, research, development, or marketing goods that embody the trade secret or soliciting customers through the use of trade secret information.