The law of unfair competition is primarily composed of torts that cause an economic injury to a business through a deceptive or wrongful business practice. Unfair competition consists of two broad categories. First, the term "unfair competition" is sometimes used to refer only to those torts that are meant to confuse consumers as to the source of the product. The other category, "unfair trade practices," comprises all other forms of unfair competition. In this context, unfair competition does not refer to the economic harms involving monopolies and antitrust legislation.
What constitutes an "unfair" act varies with the context of the business, the action being examined, and the facts of the individual case. Trademark infringement is the most familiar example of unfair competition. Another common form of unfair competition is misappropriation. This involves the unauthorized use of an intangible assets not protected by trademark or copyright laws. False advertising, "bait and switch" selling tactics, unauthorized substitution of one brand of goods for another, use of confidential information by former employees to solicit customers, theft of trade secrets, breach of a restrictive covenant, trade libel, and false representation of products or services are also considered unfair competition.
The law of unfair competition is mainly governed by state common law. In the areas of trademarks, copyrights, and false advertising, federal law may apply. The Federal Trade Commission (FTC) was established by Congress in part to protect consumers from deceptive trade practices. The FTC indirectly protects competitors because some deceptive trade practices that injure consumers also injure competing businesses. If there is a conflict between federal and state law, the state law may be preempted. A few states have enacted legislation dealing with specific types of unfair competition. Under state common law, trademarks are protected as part of the law of unfair competition. Registration is not required.
Section 43(a) of the Lanham Act created a federal law of unfair competition addressed to a wide variety of wrongful acts. Congress amended the section in the Trademark Law Revision Act of 1988 to codify two decades of court decisions interpreting the original section and to broaden its scope with respect to liability for false advertising. The amendment was designed not to freeze the scope of the section but to allow and encourage the courts to deal effectively with new kinds of unfair competition that fall within its broad applicability.
The existence of a federal law of unfair competition has raised numerous complex questions concerning the relationship between federal and state law. The trend is toward the dominance of federalism in the trademark/unfair competition law arena. State law will not be preempted, but the even greater availability of federal jurisdiction and the causes of action under Section 43(a) of the Lanham Act will most likely continue to diminish the influence of state law and the state courts.