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Unfair Competition: The Tort that Tags Along

Ellis Winters

Ellis & Winters

Today’s post is about North Carolina’s common-law tort of unfair competition. We’ve talked about the tort before, and mentioned her a time or two in passing. But often, we just remember unfair competition as “the child of confusion,” the stepsister of trademark infringement, and the oft-forgotten cousin of section 75-1.1. So, we’re giving her the spotlight today.

North Carolina common law recognized the tort of unfair competition years before the General Assembly adopted section 75-1.1 in 1969 (and amended it in 1977 to include its current language). While section 75-1.1 claims can be quite versatile (ranging from antitrust to privacy to bankruptcy), the tort of unfair competition is a pickier breed. The tort is most often spotted when parties assert trademark infringement or trade-dress violations, but she has been known to hang around with section 75-1.1 claims. Most often, you will find her sitting in the middle of a dispute between business rivals.

A Tale of Two Steak Houses

It didn’t all start for her here, but courts always seem to remember the time she was kicked out of a steak house case.

Charcoal Steak House of Charlotte, Inc. v. Staley was a dispute over the name “Charcoal Steak House.” The plaintiff was Charcoal Steak House, an upscale Charlotte restaurant that, based on a successful advertising campaign, claimed to have achieved “a conscious connection in the public mind between the name Charcoal Steak House and [its] place of business.” Obviously, this was before the days of five-star online reviews and Yelp. However, in 1964, a competing restaurant posted a sign that read “Coming Soon Staley’s Charcoal Steak House.”

The steaks may not have been salty, but the original steak house owner was. He sought to enjoin Staley’s restaurant from using its name, alleging the use would “confuse the public.” For fans of The Office, it’s like the time Michael Scott confused Pizza by Alfredo with Alfredo’s Pizza Café.

Staley sought to dismiss the injunction, asserting his sign gave “more prominence to the name Staley’s than to the other three words in the name of his restaurant” and that the phrase “Charcoal Steak House” was “merely descriptive of the establishment.”

The dispute reached the North Carolina Supreme Court. The court called the unfair-competition tort “the child of confusion.” However, the court ultimately held that “[n]othing in the record suggests the probability that the public will confuse the two restaurants.” “Surely,” the court stated, “[plaintiff’s] satisfied customers will be able to find their way back. Should they wend their way to defendant’s restaurant, also, for the sake of variety or comparison, any loss to plaintiff will be damnum absque injuria. Within our competitive economy there is, in the Charlotte area, indeed ‘room for good service by both.’” Thus, the court held there had not been damage to the original steak house owner that a court of equity could consider unfair. So, the claim for unfair competition was kicked out of the case.

Unfair Competition in Her Best Trade Dress

Unfair competition showed up with more confidence last year in a Middle District of North Carolina case, when a party alleged that competitors had unlawfully copied its trade dress.

Camco Manufacturing alleged two companies had copied its yellow and black trade dress for electrical adaptors and extension cords. Camco alleged claims based on trade-dress infringement under Section 43(a) of the Lanham Act, a violation of section 75-1.1, common-law trade-dress infringement, passing off, and our old friend common-law unfair competition.

Camco alleged that “upon information and belief . . . the consuming public has come to expect that products are from Camco and are of a certain quality of products when they bear Camco’s Trade Dress.” Camco further alleged that it had “consistently and intentionally” used its trade dress to facilitate this connection in the minds of its consumers. Though the defendants moved to dismiss the allegations as too vague to state a claim, the court held Camco had sufficiently alleged a violation of the Lanham Act and a claim for common-law trade-dress infringement.

Because the Lanham Act claims survived, so did the section 75-1.1 claim. The court held that section 75-1.1 “prohibits the same type of activity that the Lanham Act prohibits because trademark infringement and false designation undercut the mark holder’s goodwill and the consumers’ ability to distinguish among products.” 

The court dismissed the passing-off claim, as alleged, reminding us once again that passing off requires a plaintiff to allege the defendant misrepresented its product as that of someone else or falsely suggested the plaintiff was the producer of the defendant’s product. Those facts were not present here.

Finally, the court addressed the tort of unfair competition. Recognizing the similarities between unfair competition and violations of section 75-1.1, the court stated that though the two torts are “not appreciably different,” the key distinction is that unfair-competition claims are “limited to claims between business competitors,” whereas a section 75-1.1 claim “may be maintained by a consumer or a business competitor.” Further, the court stated that a plaintiff can claim damages based on unfair competition “when a rival adopts for his own goods a sign or symbol in an apparent imitation of another’s that would likely mislead prospective purchasers and the public as to the identity of the goods.”

The court held Camco had sufficiently alleged unfair competition by alleging that the competitors’ products would likely mislead the public as to the identity of the manufacturer of the goods. “Because Camco ha[d] alleged facts sufficient to make out claims under the Lanham Act and section 75-1.1,” the court held that Camco had successfully alleged sufficient facts to plead a claim for common-law unfair competition. So unfair competition got to stay.

When Trademark Infringement Is Involved, Invite Her to the Party

Though she’s a relic of an older time, unfair competition can still join the party when trademark infringement is involved. She comes up only in disputes between businesses, so she’s not necessarily welcome anytime section 75-1.1 joins the fray. We’ll keep an eye out for her next time she shows up.

Author: Preetha Suresh Rini

August 11, 2020
Posted in  Intellectual Property Other 75-1.1 Issues