Dan
Welcome to sound business insights. I’m Dan Watkins. This episode is about unfair competition. This podcast is not intended to provide legal advice.

Neil
Dan today’s topic is unfair competition. And as I understand, it’s a broad group of California laws governing the conduct of business. Can we just start with an overview of what you consider to be unfair competition under the law?

Dan
Well, as a business attorney for the last 35 years, I can tell you every dispute between businesses, between a company and its employees, almost every kind of dispute ends up with a cause of action for unfair competition. Now in the business and professions code in the 17 thousands, there’s a whole bunch of different categories for different kinds of businesses and different kinds of offenses. Basically, if you are doing business and you’re following the law and you are competitors doing business and they’re sexually harassing their employees, or they’re not hiring minorities, or they’re falsely advertising their prices, or they’re doing a number of things that may violate this law.

Dan
And you’re going to find a cause of action for unfair competition included, because if you win even $5 under the unfair competition, you get your attorney’s fees. Yeah. And that’s a big hammer if you’re fighting with somebody for a hundred thousand, but it’s a breach of contract with no attorney’s fees clause, you throw in your unfair competition. They know that the stakes just went up, they could be paying $200,000, $300,000 in attorney’s fees in addition to what they may or may not lose in the case.

Neil
So generally speaking, would you characterize them as just do business legally, morally, ethically and fairly?

Dan
Yeah, I think it’s the legislature’s intent to just give the attorneys a hammer, to try to force people into settlement and do things right. And do things, right? Yeah. You compete with your neighbor and you compete with others and you make shortcuts and you win that way while your competitors or the consumer can come after you for unfair competition.

Neil
You kind of hinted at where we’re going next. So you mentioned in a previous setting that you work unfair competition clauses into every contract. And in what way does that enhance the likelihood that contracts are going to be successful?

Dan
Well, you want to have some teeth on your contract. Otherwise, if it’s more profitable to breach it, you might as well just breach it. That’s the actual intent of the law. So if, for example, you buy somebody’s company and then they turn around and start a new company to compete with you if you don’t have special clauses in there. And that’s just your most basic example, there’s a lot more subtle examples as well. And even when you don’t put it in the contract, sometimes the broad language of the unfair competition laws will save you. And you can go ahead and try to enforce your rights.

Neil
So let’s start with some examples of unfair competition. Can you just give me several examples of what would be considered to be fair acts of unfair competition?

Dan
Well, false advertising, misleading advertising. That’s big. There are entire industries of lawyers who just go out and look at labels and then they’ll go find a consumer or a competitor and they will bring a class action against you if you don’t have, I hate to make the law sound so nitty pity . But if you don’t have ADR on your website, there’s a group of lawyers that find plaintiffs that go out and make sure you get ADR compliance on your website. And a lot of not evil companies that just don’t know weren’t informed are hit with a $5,000 lawsuit or $10,000 lawsuit. And they end up getting blackmailed.

Neil
So we’re also talking about things like bait and switch.

Dan
Oh yes. That’s misleading untruthful advertising where your car dealers used to do this all the time. If we got a car for $10,000 and then in the fine print, they have the serial number or some kind of, you know, only one in inventory. Oh, well, if you find out that they don’t even have one, or it went to a cousin, Joe, then you end up with the consumer lawyers out there going after you.

Neil
So you also mentioned the misappropriation basically of trade secrets or customer lists.

Dan
That’s a pretty big bucket that goes right into the competition section. And it got basically two prongs when you’re competing with somebody and they go ahead and hire one of your employees or one of your competitors, or they hack your system or whatever they do, and they get your trade secrets or your customer list or anything that would be part of your secret business practices. And they use those to compete against you. Those lawsuits are often harshly fought and end up in substantial verdicts and, and lots of damages.

Neil
Yes. What are false representations, Dan? And how does that work in a business transaction when you have two parties want to buy something from each other or merge their companies or buy an entire company?

Dan
What we have is that things we call in the transactional law a schedule.  Schedules are what lawyers ask from the seller, describing their assets. For example, I want to see your tax returns. That would be schedule one. I want to see your banking re I want to see your list of assets. You’ll have a whole bunch of schedules. And then inside that you’re going to want the other side to be able to rely on the accuracy of that. So if I buy a company for a million dollars and the accounting is, is somebody, you know, put a white out on something and the numbers are off, or the gross receipts are off.  Well, that’s a misrepresentation and you’re going to get sued for breach of contract and other things, but you’re also going to get sued for unfair business practices.

Neil
Where’s the line between what I would call polishing the apple.

Dan
You know, you always want to make what you’re selling, look, and, and seem as good as possible without misrepresenting the actual facts surrounding it.

Neil
Where’s that line in your mind between polishing the apple and misrepresentation?

Dan
Well, the legal term for that – you won’t believe it – It’s called puffing!  And, in the law that is defined as if you represent that you’re selling this car or this equipment, and you represent it’s the number one, it’s the greatest. And those things, those terms are defined as you’re just bragging about how your opinion of the car is. But if you represent, say the house has so many square feet and it has less square feet, that’s not puffing, that’s lying, right? So those are the points in law that are most litigated.

Neil
So we’ve heard about price tags, where they compare at, or in our old store, it was this much. And now it’s, you know, 30% of that price and below cost sales. Tell me a little bit about that area of unfair competition.

Dan
It is included in the unfair competition laws generally, but we’re also going to slip into the uniform commercial code. Uniform commercial code is when you’re dealing between customers. And then also there are other sections on truth and advertising and pricing in general. There are lots of cases that have come down on this. And again, there’s a cottage industry of lawyers that go out and they will hold each other accountable. Now the larger companies sometimes won’t file the lawsuits unless it’s really egregious or it’s part of a business plan, but a startup company trying to get in and finding out that their competitors are just going to undercut them and under price and do a, what do you call a loss leader?

Neil
Yes.

Dan
Which is generally not legal, but they do it anyways through some exceptions or they just figure you can’t afford to fight me. So yeah, these are areas of the law we practice and we’d run into from time to time. And we also defend as well, because you can be a regular businessman doing aggressive, competitive things that you believe are fair, all is fair in war and business. And you’ll end up breaking a rule or coming close to breaking a rule. And we’ve defended many clients that have done that.

Neil
So what are the legal remedies available for a violation of the unfair competition loss?

Dan
Well, damages always, you have out of pocket damages and you have future profits and you have damage to your reputation. That’s called stigma. You have attorney’s fees and costs, and you have interest at 10% on any money that you would’ve lost for the years it takes you to get to court. And sometimes you have punitive damages so it can add up.

Neil
And then what’s an injunction?

Dan
Well, sometimes money’s not enough. Sometimes someone has such an advantage and they’re stealing such a giant market share where money’s not enough. And you have a unique loss. You’re suffering unique damages that can’t be compensated and you need an injunction. And then there are two types of injunctions you get preliminary, which is right away. You’re going to court party stop what you’re doing, they stop it.

Dan
Actually I said that wrong, it’s temporary injunction first, that’s right away. And then within 30 days, or so you get a hearing, everybody briefs it. And the judge decides whether you’re going to keep that injunction, which is a preliminary injunction, all the way to trial and at trial, then they decide where they’re going to make it permanent.

Neil
Okay. So how do we defend our clients from allegations of unfair competition?

Dan
The sooner we get the facts, the sooner you are sued for that, the sooner we get the facts, the better, because time is ticking. And if we can do analysis on whether you are grossly in violation of the law, or you are right on the sideline, or you’re definitely not in violation of the law, we want to gather the evidence as fast as possible to either correct something you’ve done wrong, or to determine that you’re doing nothing wrong.

Dan
And so you can continue with your business. And if you’re doing something absolutely wrong, then we’d like to help you correct it in the right way. So you don’t admit any kind of guilt, right? And at the same time cut off their damages for something that you may have inadvertently been, are intentionally be, have been doing.

Neil
So, and how often, or what’s the likelihood that an unfair competition situation becomes a class action?

Dan
Every day.  Every day, many times a day, there are law firms with 20 attorneys or more just looking for a good class action. I was in a class action and I worked with seven other law firms. And we went after a large national client and it took five years and the attorney’s fees were millions and 25, $50 million divided by the lawyers that settlements were $500 million. And it was a, a brutal fight that took five years.

Neil
One of the things that we do here at the Watkins Firm is we defend class action lawsuits, right? What are the steps really to defending a class action?

Dan
The first is to defend the certification of the class itself. Is that right? Well, that’s one of them, but what we do is we have a lo I’d say majority of our lawyers are older like myself. And so to defend a class action, you got to know a lot of areas of the law. You got to know your consumer laws, you got to know your UCC. You have to know your insurance law. For example, in every homeowner’s fire policy and every business fire policy, there’s a section called advertising injury. And so a lot of our clients come to us after they’ve been to another law firm or wherever they’ve been. And they say, I have this problem. And we’ll say, well, did you get your insurance company to pay for it?

Dan
And they say, no, no. Nobody broke into my building. my place. Didn’t burn down. I, I was in business and, and being sued. And we say, no, wait a minute. In your insurance policy, you have an advertising injury section and they will cover you on top of that. If they don’t completely cover you, they’ll send your reservation of rights letter, which entitled you to have them pay for your independent counsel, in addition to the defense counsel, which is known as Cumis council. So yeah, these kind of cases often run right into insurance, which can save a client … If you’re selling products. A lot of them will have, those companies will be advised to have the right type of product policies and have the right type of testing done. So first thing we do is we, we worry about insurance If you’re getting sued, and then we go and look at whether there’s an injunction possibility, and then we look at damages and then we definitely want to gather as much evidence before they gather evidence.

Dan
Because as I’ve said before, there’s nothing worse than having your client testify. Only to know that they know something that you don’t know, and then they tell a lie or make a misrepresentation that they have a hard time walking back is fraud part of unfair competition.

Neil
And in what way, what types of frauds would in your mind fall under this bucket?

Dan
Well, these causes of action. Your average complaint will have 12, 13 causes of action. And so a lot of them, I mean, all of those 12, 13 causes of action are based on one set of facts. You only have one reality so you plead one based on one set of facts, but they may catch certain laws and unison. And you’ll end up with a bunch of causes of action.

Fraud is very, it’s the brother of unfair competition because there’s some type of misrepresent, there’s a lie somewhere, right? And a fraud is lying and an intent with an intent to deceive.

Neil
Yes. Very good. What are the various strategies we use to resolve disputes in unfair competition situations?

Dan
Well, these are twofold. One is going to be based on passion. If it’s truly just unfair competition. If it’s just a tag along where the main, main thing is an employment dispute or something else, then that’s just the hammer. And you got to look at the, the real driving cause, which is going to be based on the facts. But if it’s truly unfair competition misrepresentation, then there’s going to be finding out what the motives are and looking for a business solution.

Neil
Are these negotiated, are they mediated? What’s the, what’s the typical process like on these deals?

Dan
Our power over negotiation depends on how fast we can get the evidence in. And we can analyze the case. Because if we can say, you’re going to win, we’ll tell you you’re going to win. If we can say, you’re going to lose, we’re going to say you’re going to lose. And we have to look at the facts for that. And we have to, as lawyers try to predict the future. So my, our clients can decide whether they want to go forward or not. We’re not always right on that one. If we were there’d be, we we’d be the only law firm in the country. But we’re, we’ve got experienced lawyers here and we are pretty accurate. And we also know that 95% of cases settle. So if you have a lawyer that can tell you with pretty good accuracy, whether you’re going to win or lose at trial, you’ll know whether you want to try to settle and what a reasonable settlement might be.

Dan
And on top of that, when your lawyer gets the facts and the evidence early, they can take action. That will encourage the other side to settle. And you’ll end up with a better deal than maybe you should have got.

Neil
Is there anything else that you think we’ve missed or that you would want to add about unfair competition?

Dan
Well, it’s such a big area. Next time we could break it down into the five or so different sections in the business of profession code and go over some of their examples because they write examples into the law and that’ll be wonderful and more in detail. But for right now, I don’t think it can go anywhere, anywhere deeper.

Neil
So we’ll pick up the next conversation on the five facets of it. And I appreciate your time on the subject today, Dan. Thank you.

Dan
Sounds good. Thanks. You can learn more about the Watkins Firm at https://watkinsfirm.com or call our office at (858) 535-1511.