March 1997 Articles

PILOTING A BUSINESS THROUGH THE

SEA OF UNFAIR COMPETITON

by Al Gess *

Most business people have heard the phrase, "Unfair Competition," and most know that it can be both a sword and a shield. But what is it? Is it simply "unfair" business activity between "competitors"? Unfortunately, for both business people and lawyers alike, it’s much more.

It is hard to precisely define the meaning of "Unfair Competition" because it encompasses such a large number of commercial wrongs. There is no one all-governing standard "fairness" that defines when a wrong has been committed. Nor is there an unbending requirement that such wrong be committed by a "competitor." How then, can a business person avoid engaging in wrongful conduct and learn to recognize such conduct by others?

Since we cannot clearly define it, maybe we can understand it by way of example. Examples of wrongful conduct which constitute unfair competition include using a similar trademark, tradename, product appearance, or container configuration, using a similar literary title or character representation, false advertising, "bait and switch" selling, "palming off" goods by substituting such goods for another brand, and stealing trade secrets.

Much of California's unfair competition law is defined by an ever changing web of judicial decisions known as the common law. Examples of the common law of unfair competition include the "right of publicity" which allows a celebrity to prevent others from using his or her likeness or identity; and trade libel which prohibits one from publishing disparaging information about the quality of another's service or products.

The federal and state legislatures have enacted statutes which parallel and sometimes supplement the common law. Most states, including California, have a general unfair competition statute which is very broad. For example, California's statutory law of unfair competition simply prohibits "unlawful, unfair or fraudulent business practice and unfair, deceptive, untrue or misleading advertising."

California has also enacted other legislation which defines and prohibits particular types of unfair competition. Examples of California's more specific unfair competition statutes are:

1. The California Anti-Dilution Statute which provides a remedy against activity which tarnishes or diminishes the value of an existing trademark or tradename.
2. The Unfair Business Practices Act which prevents manufacturers of the same products from competing unfairly with one another.
3. Legislation which prohibits the counterfeiting of goods bearing another's California trademark.
4. The False Advertising Statute which prohibits any knowingly untrue or misleading media statement concerning property or services sold by another.

Significantly, California recently adopted the Uniform Trade Secrets Act which protects trade secrets. Most every business possesses confidential information that cannot be protected by the patent or copyright law but is amenable to protection as a trade secret. Such trade secrets might include a manufacturing process or formula, raw material sources, and customer lists.

Liability arises under the Trade Secrets Act if trade secret information is improperly appropriated by another. The existence of a trade secret requires that the information be known only to the owner and that the owner take special efforts to keep the information secret. Information which might have been protected as trade secret is frequently lost because of a business owner's failure to set up proper secrecy procedures. The key is to develop a plan for handling valuable information in a manner which qualifies it for trade secret protection.

About the author: Albin Gess is a member of the OCCN, a past chairman of the Orange County Section of the IEEE, a VP, Member Societies of the OCEC. Mr Gess is founding partner of Price, Gess and Ubell, an Irvine, California law firm that specializes in patent, trademark, copyright and trade secret law.

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WHAT’S IN A NAME ?

by Al Gess*

Nearly every business spends time and money in order to develop the public’s recognition of its name. When customers come to identify high quality products or services with a particular company’s name, this name becomes synonymous with the product or service and draws them back for repeat purchases. Thus, the commercial name of a business is a very valuable asset as it embodies the good will its customers hold towards that business.

Most managers and owners recognize the value of their company's name, but many do not know how to prevent others from trading off this name. Protection is often mistakenly presumed to exist simply because a business is incorporated under a particular name or because the business has filed a fictitious business name statement with the county.

The right to use a particular business name only arises with actual usage. As confirmed by a recent amendment of state trade name statutes, the filing of a fictitious business name statement does not authorize the use of a name that would otherwise violate the rights of another. Similarly, the Secretary of State's acceptance of a company's Articles of Incorporation does not operate as a license to use a particular name. A Corporate Charter under a particular name neither creates a right to use a particular business name nor operates as a defense to a prior user's charges of infringement.

A business' right to prevent another from using a confusingly similar name is based upon prior use. Enforcement of that right is governed by unfair competition laws of individual states, and Federal laws relating to trademarks and servicemarks.

It is important to determine whether the name of a business is being used as a trademark, or a trade name, or both. A trade name represents the reputation of the business as a whole. A trademark is used to identify and distinguish the products or services sold by the same business. Under state unfair competition law, the extent of protection granted to a trade name is essentially the same as the protection granted trademarks. The Federal law only provides for registration of "trademarks" or "service marks." A business name used only as a "trade name" is not protected under the Federal Trademark Law.

For those companies that do business in interstate commerce (i.e., sell their goods or services across a state boundary), the Federal registration of a trademark or service mark offers significant advantages over state unfair competition laws. State law applies to the individual state. Under Federal law, a corporation having a Federal registration has the unequivocal right to prevent an infringing use of its trademarks or service marks in the Federal courts in any state regardless of whether it is actually doing business in that state.

Registration under the Federal law also provides the following:

1. Constructive notice to others of the registrant's claim of ownership.
2. Incontestable status after five years of continuous use (i.e. conclusive evidence of the registrant's exclusive right to use the mark).
3. The right to bring infringement actions in any Federal court without regard to the citizenship of the parties.
4. The right to request U.S. Customs to prohibit the importation of infringing goods bearing the registered mark.
5. The ability to obtain three times actual damages and attorney's fees in suits for infringement.

To take advantage of the Federal law to protect a company name, the company can simply use its name as a trademark or service mark. Trademark or service mark usage of a company name identifies and distinguishes the goods or services provided by the company as opposed to trade name usage of a company that identifies and distinguishes the company itself. For example, simultaneous use of the business name and the company address constitutes trade name use. By contrast, bold and prominent display of the business name by itself, preferably followed by the symbol ™ constitutes trademark or service mark use.

A court has held that "THE TEXAS COMPANY" used on drums of gasoline, where it appeared prominently and without an accompanying address, is a trademark use.

Federal registration of business names used as a trademark or service mark provides national protection of a company name. Whenever possible, a company doing business in interstate commerce should use its name as a mark for its goods or services. Such usage will allow Federal registration and all of the associated benefits.

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