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The concept of unfair competition advocates the commercial law principal of fair trade. The right to compete in the market must be governed by such principles in order to avoid unfair competition. The values that oversee trademarks are closely linked with the doctrine of unfair competition. This chapter will explain this relationship in further detail.
Unfair competition is defined as “Any commercial behavior or activity that is legally unjust or deceptive. It includes such diverse activities as trademark infringement, false advertising, and theft of trade secrets but can include any illegal dirty tricks within the marketplace. If a court finds that an activity constitutes unfair competition, it will prevent that activity from occurring in the future and may award money damages to the person or company harmed by the activity
An example of unfair competition is trademark infringement. “Deceptive trade practices, Anti-competitive market practices, Interference with business relationships, Invasion of privacy, False and comparative advertising issues, Internet domain trademark issues, Misrepresentation and fraud, Defamation, Plagiarism, Non-compete and non-disclosure agreements, Trade dress and advertising compliance, Domain infringement and cybersquatting issues” are other examples of unfair competition.

The principles of unfair competition are mainly governed by the laws of the state. Trademarks, trade secrets etc. are protected by the state and federal laws. The main areas of unfair competition are trademark infringement and trademark dilution. Misappropriation is also a common form of unfair competition.

Trademark Infringement can occur in three ways – likelihood of confusion, passing off and false advertising. All of these constitute unfair completion and unfair trade practices.
As explained in Chapter 5, likelihood of confusion occurs when a mark consists of or comprises a mark which so resembles a mark registered in the Patent and Trademark Office, or a mark or trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive....”
If a seller uses a mark that closely resembles another’s mark, the seller will infringe the other’s trademark. This amounts to unfair competition as the consumer will be confused into believing that the infringing product belongs to the true owner of the mark. For example, the mark ”Hyatt” has been registered by the well known hotel group. If another hotel group decides to use the mark ”Hyatt” as their brand name, this will confuse the consumer into thinking that the second group is somehow associated with the first. The second group would thus infringe the first group’s trademark.
Passing off refers to the misrepresentation of one’s product as another’s. For example, the infringer does something to mislead someone to believing that the product or service belongs to someone other than the owner, or that the product or service is associated with the someone else’s product or service and the person suffers some damage due to this misrepresentation, that person can recover damages from the infringer under the common law of passing off. Reverse passing off refers to a situation wherein a person passes off someone else’s goods as his own.
In New West Corp. v. NYM Co. of California , it was held that the test for ”passing off” of goods was similar to the test for trademark infringement, that is, there must be confusion as to the source or origin of the product or service.
In such situations, a trademark need not be registered. Also, the infringer’s goods need not be similar to that of the trademark owner’s. It is enough if the infringer passes off his goods as the trademark owner’s goods.
15 USC 1125 of the Lanham Act specifically prohibits false advertising. It states:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which,
(a) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(b) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.”
Therefore, any word, term, name, symbol, or device, or any combination thereof falsely used when advertising the product or service a product would amount to unfair competition and may incur severe penalties.
A person whose trademark has been infringed has certain remedies available to him. He can get a permanent injunction to prevent the owner from using the mark, he can receive monetary damages for willful infringement and in some cases can recover attorney costs.
As explained in the previous chapter, dilution is basically “whittling down” of the identity or reputation of a trade mark or name. When a famous trademark is used by another, the mark is said to lose its identity and this would amount to unfair competition. For example, in the case of Coco Cola v. Gemini Rising Inc. , the defendant sold posters with the wording “Enjoy Cocaine” in the text and colors of the Coco Cola trademark. It was held that there was unfair competition as the defendant’s mark diluted the Coco Cola trademark.
However, each case is dependent on its facts and circumstances. In the case of Mead Data Central v. Toyota the question arose of whether the mark “Lexis” for legal books, cases etc., was diluted by the mark “Lexus” for automobiles. The court held that there was no dilution as the mark “Lexis” was famous only in the legal profession and therefore had not achieved sufficient distinctiveness to be blurred by the mark “Lexus”.
Trademark dilution and unfair competition is therefore closely linked. Claims of trademark dilution are almost always related to the common law principle of unfair competition.
Trade dress or packaging of a product is also very important to determine unfair competition. The way the product is packaged plays an important role in establishing likelihood of confusion. In the case of Sears, Roebuck and Co. v. Stiffel Co. , the state court held that the lamps of the two companies were so similar in appearance that it amounted to likelihood of confusion and some actual confusion. The Court of Appeals held that this was unfair competition (FIX ENGLISH) and Sears was liable for the same. However, the Supreme Court reversed this judgment on the ground that Stiffel’s lamp was unpatented and uncopyrighted and therefore the State could not prohibit the copying of the lamp. The Supreme Court stated that the judgment of the lower court gave Stiffel a patent monopoly when the article was not patented.
This judgment has been vastly debated and in the year 2000, the Court in Wal-Mart Stores v Samara Bros., 529 U.S. 205, 120 S.Ct. 1339 (2000) held that: “To the extent there are close cases, we believe that courts should err on the side of caution and classify ambiguous trade dress a product design, thereby requiring secondary meaning”. The Court ruled in favor of Samara Bros. and held that Wal-Mart Stores liable for consumer fraud and unfair competition for copying Samara Bros’s clothing designs and selling them in their stores.


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