Lieber & Galperin
Los Angeles Civil Litigation
Law Firm

633 W 5th St Ste 2600

Los Angeles

California

90071

(213) 973-0051

info@liebergalperin.com

Business Defense

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.

INTENTIONAL INTERFERENCE WITH A CONTRACT

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:

  • The existence of a valid contract between the plaintiff and a third party;
  • The defendant had knowledge of that contract;
  • The defendant’s intentional acts were designed to induce a breach or disruption of the contractual relationship;
  • Actual breach or disruption of the contractual relationship, and;
  • Resulting damage.

INTERFERENCE WITH ECONOMIC ADVANTAGE

Similarly, the elements of a cause of action for the tort of intentional interference with prospective economic advantage are:

  • An economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff;
  • The defendant’s knowledge of the existence of the relationship;
  • The defendant’s intentional acts designed to disrupt the relationship;
  • Actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the defendant’s acts.

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.

UNFAIR COMPETITION LAWS

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).

FALSE STATEMENTS

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.

FALSE ADVERTISING

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:

  • The defendant made misleading or false factual representations of the quality or nature of defendant’s goods or services;
  • The defendant made the false or misleading statement in a “commercial advertising or publication” to promote the good or service or otherwise further his own business interests;
  • The false statement must actually deceive or have a tendency to deceive a large portion of its audience;
  • The deception must be materially likely to influence a consumer’s (i.e., the plaintiff’s) purchasing decision and;
  • The plaintiff must be able to prove pecuniary injury/damage.

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.”

MISAPPROPRIATION

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:

  • Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;
  • Disclosure or use of a trade secret of another without express or implied consent” of the trade secret’s lawful owner.

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.

Photo is licensed under CC BY 2.0 / Adjustment layer, text and buttons added.