Crossing the Line: When Does Competition in Business Become “Unfair”?

In the business arena it is readily understood that open competition is healthy where it is unrestricted and subject to free rein. It is theoretically anticipated to stimulate macro and micro-economic growth.  Competition in a laissez-faire marketplace is expected to increase supply and lower price points, consequently affording consumers and purchasers with option variety for goods and/or services. However, free competition mistakenly assumes all participants will “play by the rules of the game” at all times. From a real world perspective, we know this is simply never the case. Therefore, all means of competition cannot be viewed as fair and equitable, and at times must be seen as “unfair competition.”

From a legal perspective, unfair competition can be somewhat amorphous, but it typically arises from a competitor’s interference with another’s business, existing customer accounts, good will, theft of trade secrets, or proprietary information. Such scenarios are actionable as business torts and some are regularly referred to as “tortious interference claims.” New Jersey courts have dissected tortuous interference claims into two distinct causes of actions:

  • First, a cause may exist for a competitor’s interference with one’s customer contract(s) or “contractual relations.” This most commonly arises when a competitor directly interferes with existing contractual relationships with a third-party. The interference is an unmistakable attempt to “steal away” the customer and the contract work.
  • A related, yet distinct, sister cause exists where a competitor has not interfered with a written contract per se, but instead has acted intentionally to interfere with an “economic advantage” otherwise expected from the customer relationship.

The distinction is that to pursue an economic advantage claim a party does not have to prove that a written contract existed, but merely that some business relationship had developed from which an economic benefit would reasonably flow. This genre of business torts arises from varying circumstances so there is not a “bright line” test for unfair competition.  For a cause to be actionable the aggrieved conduct simply must be determined to fall outside the “rules of the game” expected in the marketplace. As a result, such scenarios come in all shapes and sizes.

To recover money for a competitor’s interference with a contract, contractual relationship or economic advantage, the victimized party needs to prove the interference was the direct cause of a business loss or monetary harm. The interloper’s actions do not have to be “evil-minded” or malicious, but the conduct must be intentional.  Where liability is found, damages may be measured from the direct monetary loss or the value of opportunities lost on the economic advantage where the customer relationship is stolen away. This usually requires a financial expert to opine as to the exactness of the value of the monies lost due to the interference, whether that be loss of business or loss of the business.

Legal claims pursued under the moniker of “unfair competition” can be factually complex, yet experienced legal counsel can successfully navigate you through the issues of liability, while also working with a financial expert to prove the damages of your losses directly incurred from the interference.  If you believe your business or company has been damaged by unfair competition or tortuous interference you should consult competent legal counsel.

Author: Timothy D. Lyons