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Defenses to Unfair Competition Claims

California’s Unfair Competition Law (the “UCL”) forbids “unfair, unlawful and fraudulent” conduct in connection with virtually any type of business activity. More specifically, “unfair competition” is defined in the UCL as any one of the following “wrongs”: (1) an “unlawful” business act or practice; (2) an “unfair” business act or practice; (3) a “fraudulent” business act or practice; (4) “unfair, deceptive, untrue or misleading advertising”; and (5) any additional related prohibited acts (see sections 17500 through 17577.5.46). The term “business” used within the statute has been interpreted to include most business conduct.

The UCL expressly permits claims to be brought by any “person,” which it defines to include “natural persons, corporations, firms, partnerships, joint stock companies, associations and other organizations of persons.”

“Unlawful Conduct” Claims

A practice is unlawful if it violates a law other than the UCL. Unlawful claims have been based on various laws and regulations ranging from federal statutes to prior case law and standards of professional conduct. In order to successfully argue an unlawful business or practice claim, a plaintiff must allege facts showing a violation of the underlying law.

There are several defenses to unlawful conduct claims. One defense is any affirmative defense to the violation of the underlying law. Further, a defendant showing full compliance with the underlying law is also a defense. Last, there may be a valid defense if there has been a change in the underlying law before the plaintiff obtains final judgment on an unlawful claim. However, the violation of a statute of limitations pertaining to the underlying claim will not defeat a UCL unlawful claim.

“Unfair Conduct” Claims

No specific definition of “unfairness” has been created. Rather, the “unfair” prong has been interpreted to allow courts maximum discretion to address improper business practices. The California Court of Appeals has articulated various tests, however, the California Supreme Court or Legislature may ultimately determine what the test used to determine “unfair” claims should be.

One of the tests used determine that a business act is “unfair” is whether it “offends an established public policy or when the practice is immoral, oppressive or substantially injurious to consumers.” See Cmty. Assisting Recover, Inc. v. Aegis Sec. Ins. Co., 92 Cal. App. 4th 886.

The main defense to an “unfair” claim is that the conduct is not unfair pursuant to the test that the court chooses to apply. Another possible defense is that the defendant uses the reasons, motives, and justifications (the business justifications) underlying the challenged business practice to show that the conduct was not “unfair.” For example, the conduct was an essential part of its business operations or consistent with industry norms. Last, a “safe harbor” defense exists where a statute explicitly authorizes the conduct.

“Fraudulent Conduct” Claims

UCL claims for fraudulent conduct do not require proof of intent, reliance or damages. Rather, the plaintiff must show that the members of the public were likely to be deceived. In Lavie v. Procter & Gamble Co., the court held that trial courts facing fraudulent or false advertising claims must apply an “ordinary consumer acting reasonably under the circumstances” standard.

The principal defense to claim of fraudulent conduct is proof, offered in the form of expert testimony or consumer surveys, that the challenged business act or practice is not “likely to mislead” an ordinary consumer and therefore has not resulted in any actual injury. Where a claim involves the defendant making a false representation in connection with the sale of goods, the defendant may argue that the statement was mere “puffery” or sales talk.

If you need assistance in defending against unfair competition claims or determining whether you have a valid unfair competition claim, call Roland Tong, at 1+877-426-8182 or email Mr. Tong at [email protected]. Mr. Tong has been obtaining patent, trademark, and copyright protections for his clients since 2001. He has represented a wide range of clients from start-up companies to Fortune 500 companies in a wide range of industries.