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How to Prove an Unfair Competition Claim Under New York Law

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So what is "unfair competition?"

Fortunately, New York's courts have given some relatively clear guidelines:

"[T]he essence of unfair competition under New York common law is the bad faith misappropriation of the labors and expenditures of another." Jeffrey Milstein, Inc. v. Greger, Lawlor, Roth, Inc., 58 F.3d 27, 34 (2d Cir. 1995) (emphasis added) (internal citations and quotations omitted); see also Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980) ("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) (requiring a showing of bad faith). Mere negligence or recklessness is insufficient."

As a practical matter, unfair competition claims tend to crop up in the same context of claims related to breach of fiduciary duty and its closely-related cousin, the breach of a non-compete and/or non-solicitation agreement. The unfair competition cause of action is, generally speaking, intended to cover those aspects of the claim that are not otherwise covered by the breach of contract theory.

This, of course, leads to challenges as well, for unlike the context of breach of contract claims - which do not require any showing of intentional, bad faith on the defendant's part - unfair competition does. As demonstrated below, neither of these elements are simple to prove.

Demonstrating Bad Faith

In order to establish bad faith, you need to show that the defendant acted "out of a dishonest purpose." Kalisch-Jarcho Inc. v. City of New York, 448 N.E.2d 413, 417 n.5 (N.Y. 1983) (defining bad faith in the context of a contract claim).

Proving the Defendant Acted Negligently Isn't Enough

To that end, it is important to note that New York does not recognize a claim for negligent unfair competition; this is an intentional tort, and you must prove that the defendant acted intentionally. Naturally, that is a higher burden of proof than merely being required to demonstrate that the defendant acted negligently.

 


Jonathan Cooper
Employment Litigation and School Negligence Lawyer