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How to Prove an Unfair Competition Claim Under New York Law

Under the same general heading of claims related to breach of fiduciary duty and it's closely-related cousin, the breach of a non-compete and/or non-solicitation agreement, is the claim related to "unfair competition."

So what is "unfair competition?"

Defining "Unfair Competition" Under New York Law

Fortunately, New York's courts have given some broad 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."

In What Context Do Unfair Competition Claims Typically Arise?

For the most part, unfair competition claims usually are made in cases involving one of five categories:

(1) trade secrets;

(2) trademark and/or trade name infringement;

(3) palming off;

(4) misappropriation; or,

(5) false labeling or advertising. 

Since the plaintiffs in these kinds of cases often are seeking injunctive relief, i.e., a court order directing the defendants to cease and desist from their activities, they tend to be tried by judges, rather than juries.

(For a more detailed discussion on what constitutes a "trade secret," I suggest you read "A Textbook Case of How to Prove Trade Secret Theft in NY").

Getting back to the issue at hand, though, we're still left with a pressing question that gets to the heart of an unfair competition claim:

How do you show that the defendant acted in bad faith?

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

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).

To be sure, that's not exactly a model of clarity; therefore (and not surprisingly), this issue does tend to come up quite a  bit in the context of unfair competition claims.

An Important Note

As a final matter, 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
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Non-Compete, Trade Secret and School Negligence Lawyer