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Unfair competition or distortion of competition is a situation in which competitors compete on unequal terms because favorable or disadvantageous conditions are applied to some competitors but not to others. The concept can also refer to situations in which the actions of some competitors actively harm the position of others with respect to their ability to compete on equal and fair terms. It contrasts with fair competition, in which the same rules and conditions are applied to all participants and in which the competitive action of some does not harm the ability of others to compete. Often, unfair competition means that the gains of some participants are conditional on the losses of others when the gains are made in ways which are illegitimate or unjust.
Principles of fair competition
To an important extent, the principles of fair competition in the business world are defined by law, and therefore unfair competition may well be unlawful or criminal. But because the forms of competition can change continually and new forms of competition may arise, competition may be unfair, but not illegal, at least not until a legal rule is explicitly made to prohibit it. The exact meaning of unfair advantage or harm caused in business competition may be vague or in dispute, in particular if different competitors promote different interpretations which suit their own interests. It may be difficult to define what it would mean to compete on equal terms, and the operative terms of competition that exist in reality may be challenged only when a participant is seriously disadvantaged by them. Often "equal terms" is defined as an "equal opportunity" to compete.
Unfair competition in commercial law refers to a number of areas of law involving acts by one competitor or group of competitors which harm another in the field, and which may give rise to criminal offenses and civil causes of action. The most common actions falling under the banner of unfair competition include:
- Matters pertaining to antitrust law, known in the European Union as competition law. Antitrust violations constituting unfair competition occur when one competitor attempts to force others out of the market (or prevent others from entering the market) through tactics such as predatory pricing or obtaining exclusive purchase rights to raw materials needed to make a competing product.
- Trademark infringement and passing off, which occur when the maker of a product uses a name, logo, or other identifying characteristics to deceive consumers into thinking that they are buying the product of a competitor. In the United States, this form of unfair competition is prohibited under the common law and by state statutes, and governed at the federal level by the Lanham Act.
- Misappropriation of trade secrets, which occurs when one competitor uses espionage, bribery, or outright theft to obtain economically advantageous information in the possession of another. In the United States, this type of activity is forbidden by the Uniform Trade Secrets Act and the Economic Espionage Act of 1996.
- Trade libel, the spreading of false information about the quality or characteristics of a competitor's products, is prohibited at common law.
- Tortious interference, which occurs when one competitor convinces a party having a relationship with another competitor to breach a contract with, or duty to, the other competitor is also prohibited at common law.
Various unfair business practices such as fraud, misrepresentation, and unconscionable contracts may be considered unfair competition, if they give one competitor an advantage over others. In the European Union, each member state must regulate unfair business practices in accordance with the principles laid down in the Unfair Commercial Practices Directive, subject to transitional periods. (See also trade regulation law.)