The term "unlawful competition" is broad and encompasses a range of unfair business practices. Claims for damages arising out of unlawful competition are often brought together with claims for infringement of other intellectual property rights such as trade marks, copyright, design protection or patents. In South Africa, unlawful competition is vested in the common law and is not governed by legislation specifically. The common law has been developed by the courts, who have provided guidance on what types of conduct can be considered or regarded as unlawful in a modern context.
Although a claim for unlawful competition often accompanies other claims related to the infringement of intellectual property rights, the law of unlawful competition falls within the ambit of the law of delict, to be more specific under the Aquilian action.
When is competition unlawful? Competitive trading is unlawful when it involves wrongful interference with another trader's rights.
There is no exhaustive list of acts that constitute unlawful competition, however, there has been some actions that have regularly surfaced in modern day business, which are:
- Trading in contravention of an express statutory prohibition
- Fraudulent misrepresentations made by a rival trader as to that trader's own business or goods
- The publication by a rival trader of injurious falsehoods concerning the competitor's business
- The passing off by a rival trader of that trader's goods or services as being that of a competitor
- The unfair use of a competitor's fruits and labour
- The misuse of confidential information in order to advance one's own business interests and activities at the expense of a competitor
- The inducement or procurement of a breach of contract.
Types Of Unlawful Competition
- Trading in Contravention of an Express Statutory
Prohibition
This refers to engaging in business activities that are explicitly prohibited by law, which provides an unfair advantage to the business engaged in the activity. There is a substantial overlap with this form of unlawful competition and anti-competitive behaviour. Examples of trading in contravention of an express statutory prohibition are abundant and includes but is not limited to:- Conducting certain business activities without obtaining the required licenses or permits as mandated by specific statutes. For example, engaging in financial services without the proper licenses from regulatory authorities.
- Trading in contravention of consumer protection laws, such as misleading pricing, that contravene the Consumer Protection Act.
- Fraudulent Misrepresentations made by a Rival Trader as
to that Trader's own Business or Goods
This involves intentionally making false or misleading statements about one's own business or products with the aim of gaining an unfair advantage over competitors. Fraudulent misrepresentations can harm consumers by misleading them into making purchasing decisions based on false or exaggerated information. Moreover, it creates an unfair competitive landscape by distorting market perceptions.
A trader making false claims with regards to the quality, features and/or benefits of their goods, falsifying customer testimonials or misrepresenting their business qualifications are all activities that would fall under this particular form of unlawful competition. In the past, a motor vehicles company was found to have installed software in their diesel vehicles to manipulate emissions tests, resulting in false claims about the environmental impact of their cars. Post the discovery of the deception they were subject to fines in excess of $ 1 billion dollars. This would fall under a fraudulent misrepresentation made by a rival trader as to their own goods or services. - Passing-Off
Passing-off involves misrepresenting one's goods or services as those of or associated with another. A passing-off action allows an individual to protect its name, mark, symbol, badge, get-up, or trade dress from third parties. To be successful in a passing-off claim, the affected party must have a reputation and goodwill associated with their trade mark or get-up, and the misrepresentation must result in harm or the likelihood of harm. In summary to prove passing-off, the party must show:- Goodwill or reputation attached to the goods or services.
- Misrepresentations were made by the representor to the public which lead the public into believing that his goods or services are those of the complainant, and
- Damage to the goodwill or reputation of the business or the likelihood of damage to the goodwill or reputation of the business.
- The Unfair Use of a Competitor's Fruits and
Labour
The unfair use of a competitor's fruits and labour refers to a situation where a rival trader takes advantage of the efforts or investments of another company without proper authorization or compensation. The act of using a competitor's fruits and labour dilutes the value of the effort and destroys the competitive advantage that was rightfully earned.
This comes in many forms including:- copying or imitating a competitor's goods or services without obtaining the necessary rights and permissions, and
- using a competitor's research and development without prior authorisation.
- Misappropriation and Misuse of Trade Secrets of
Another
Another category of unlawful competition is the misuse or disclosure of confidential or secret information. This occurs when a person uses a competitor's confidential information to gain an unfair advantage, such as when an employee takes customer lists, pricing structures and strategies, fee sheets, training manuals or other trade secrets and confidential information when leaving a company to start their own business or to work for a competitor. Unlawful competition actions related to the misuse or disclosure of confidential information are often brought on an urgent basis due to the potential permanent and substantial loss that the proprietor may suffer.
In a lawsuit settled in 2018 Alphabet (the parent company of Google) sued Uber as Alphabet had discovered that a former employee had downloaded numerous files and documents from Alphabet's self-driving division, Waymo, prior to starting his own company which was later acquired by Uber. This allowed Uber to unfairly erode Alphabet's competitive advantage and benefit unduly from the efforts of Alphabet. - Injurious Falsehoods
Misrepresentations about a competitor's products, services or business can also be considered unlawful competition. Statements that make false or misleading claims about a product or business can be considered unlawful. This can be a competitor spreading untrue or malicious rumours of defective and/or ineffective products or services.
In recent years online selling platforms such as Amazon, Takealot and Facebook Market Place have taken legal action against companies offering fake reviews and ratings to products sold on their platform, competitors who pay for negative reviews of competing businesses products will fall within this form of unlawful competition. - Procuring a Breach of a Contractual
Obligation
This refers to intentionally inducing or procuring another party to violate or breach their contractual obligations with a third party. Usually, this is done by a competitor with the aim of gaining a competitive advantage or to harm the business interests of the party with whom the contract is in place.
Acts which will fall under the following form of unlawful competition, include:- Encouraging employees to leave their current employer in violation of their employment contracts, more specifically in relation to employees with restraint agreements and/or restrain clauses in place; and
- Persuading a supplier to terminate their contractual relationship with a competitor, breaching their existing supply agreements.
Awareness Needed
Businesses should be aware of how and when they are able to rely on the common law action of unlawful competition to adequately protect their interests. Unlawful competition is a broad category that includes various types of conduct, businesses should take note of the various forms of unlawful competition and their accompanying remedies, should the need arise.
There is no clear-cut qualification of a certain type of matter as an unlawful competition matter, its applicability and enforceability depends on the specific facts of each case, as is the approach of the South African Courts.
Typically, we have found that an effective enforcement strategy is not only to combine different types of unlawful competition, but in addition to combine other rights a business might have such as those vested in contract however, this will depend on the applicable facts and the circumstances of each matter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
