Unfair Competition

No business can compete effectively without establishing good relationships with its employees and customers. In some instances parties execute a formal written contract to memorialize the terms of their relationship. In other instances business relations are based on an oral agreement. Most often, however, business relations are conducted informally with no contract or agreement at all. Grocery shoppers, for example, typically have no contractual relationship with the supermarkets they patronize.

Business relations are often formalized by written contracts. Merchant and patron, employer and employee, labor and management, wholesaler and retailer, and manufacturer and distributor all frequently reduce their relationships to contractual terms. These contractual relationships create an expectation of mutual performance—that each party will perform its part under the contract's terms. Protection of these relationships from outside interference facilitates performance and helps stabilize commercial undertakings. Interference with contractual relations upsets expectations, destabilizes commercial affairs, and increases the costs of doing business by involving competitors in petty squabbles or litigation.

Virtually any contract, whether written or oral, qualifies for protection from unreasonable interference. Noncompetition contracts are a recurrent source of litigation in this area of law. These contracts commonly arise in professional employment settings where an employer requires a skilled employee to sign an agreement promising not to go to work for a competitor in the same geographic market. Such agreements are generally enforceable unless they operate to deprive an employee of the right to meaningfully pursue a livelihood. An employee who chooses to violate a noncompetition contract is guilty of breach of contract, and the business that lured the employee away may be held liable for interfering with an existing contractual relationship in violation of the law of unfair competition.

Informal trade relations that have not been reduced to contractual terms are also protected from outside interference. The law of unfair competition prohibits businesses from intentionally inflicting injury upon a competitor's informal business relations through improper means or for an improper purpose. Improper means include the use of violence, UNDUE INFLUENCE, and coercion to threaten competitors or intimidate customers. For example, it is illegal for a business to blockade the entryway to a competitor's shop or impede the delivery of supplies with a show of force. The mere refusal to deal with a competitor, however, is not considered an improper means of competition, even if the refusal is motivated by spite.

Any malicious or monopolistic practice aimed at injuring a competitor may constitute an improper purpose of competition. Monopolistic behavior includes any agreement between two or more people that has as its purpose the exclusion or reduction of competition in a given market. The SHERMAN ANTI-TRUST ACT OF 1890 (15 U.S.C.A. §§ 1 et seq.) makes such behavior illegal by forbidding the formation of contracts, combinations, and conspiracies in restraint of trade. Corporate MERGERS AND ACQUISITIONS that suppress competition are prohibited by the CLAYTON ACT of 1914, as amended by the ROBINSON-PATMAN ACT of 1936 (15 U.S.C.A. §§ 12 et seq.).

The Clayton Act also regulates the use of predatory pricing, tying agreements, and exclusive dealing agreements. Predatory pricing is the use of below-market prices to inflict pecuniary injury on competitors. A tying agreement is an agreement in which a vendor agrees to sell a particular good on the condition that the vendee buy an additional or "tied" product. Exclusive dealing agreements require vendees to satisfy all of their needs for a particular good exclusively through a designated vendor. Although none of these practices is considered inherently illegal, any of them may be deemed improper if it manifests a tendency to appreciably restrain competition, substantially increase prices, or significantly reduce output.