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You Can't Win an Unfair Competition Claim Without This


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11/8/2018
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In the world of trade secret theft cases, one of the central claims brought by plaintiffs (in addition to other typical claims, such as tortious interference with contract or tortious interference with prospective business relations) is for unfair competition.

What is Unfair Competition?

In broad strokes (and in layperson's terms), an unfair competition claim is based on the plaintiff's contention that the defendant wrongfully took advantage of the plaintiff's blood, sweat, money and tears in developing its proprietary, confidential materials without paying for it.

   

 For   add ition al information on this topic, please see "How to Prove an Unfair Competition Claim Under New York Law."

More specifically, New York's courts have summarized the basic principle as follows:

"The essence of an unfair competition claim under New York law is that the defendant has misappropriated the labors and expenditures of another…. Central to this notion is some element of bad faith." Abe's Rooms, Inc. v. Space Hunters, Inc., 833 N.Y.S.2d 138, 140 (2d Dep't 2007).

Or, more directly:

“A plaintiff claiming unfair competition under New York law must show that the defendant acted in bad faith.” Empresa Cubana del Tabaco v. Culbro Corp. et al., 399 F.3d 462, 485 (2d Cir. 2005).

From these quotations (and many other cases on the subject), it is clear that "bad faith" is the linchpin to establishing an unfair competition claim. Absent proof of bad faith (or, in other words, evidence that only supports an inference of incidental, or negligent) misappropriation of the plaintiff's materials will result in a dismissal of the plaintiff's unfair competition cause of action.

The next question is obvious: 

So how do you establish that the defendant engaged in "bad faith?"

How to Prove "Bad Faith" in the Context of an Unfair Competition Claim

New York's federal courts have weighed in on this issue, giving prime, practical examples where plaintiffs have successfully established such claims, stating as follows:

"Bad faith can be established by a showing of 'fraud or deception, or an abuse of a fiduciary or confidential relationship.' Telecom Int’l Am., Ltd. v. AT & T Corp., 280 F.3d 175, 197 (2d Cir. 2001) (quoting Katz Dochrermann & Epstein, Inc. v. Home Box Office, No. 97-Cv-7763, 1999 WL 179603, at *4 (S.D.N.Y. Mar. 31, 1999)).

"Bad faith can include signing up for a competitor’s service under false pretenses to gain access to information that is the parties’ 'stock in trade,' and incorporating that information into a competitive product, thereby “‘free r[iding]’ on the [competitor’s] significant effort.” Reed Constr. Data Inc. v. McGraw-Hill Cos., Inc. et al., 49 F. Supp. 3d 385, 430 (S.D.N.Y. 2014) (quoting Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997)), aff’d, 638 F. App’x 43 (2d Cir. 2016). 

An Important Takeaway

From the foregoing, one thing should be abundantly clear:

An unfair competition is not a simple claim to bring, and is not for the uninitiated, because if handled incorrectly, it could easily lead to the dismissal of an otherwise valid claim.

In other words, unlike some other, more straightforward kinds of claims, this is not the type of claim you should try to handle on your own; assuming you have a legitimate claim with sufficient damages to make bringing the claim worthwhile (read: at least low to mid six figures) you should retain a lawyer that is well-versed in this area of the law.

 



Category: Tortious Interference

Jonathan Cooper
Non-Compete, Trade Secret and School Negligence Lawyer

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