In the intricate landscape of business practices, ‘unlawful competition’ is a term that encapsulates a multitude of unfair trading methods. Often, in South Africa, allegations of unlawful competition come hand in hand with claims for violations of intellectual property rights, such as trademarks, copyright, patents, and design protection. However, it’s important to note that unlawful competition is governed by common law, and not specifically directed by legislation.
Through a series of case laws, the courts have established guidelines for what behaviours could be regarded as unlawful in today’s business context. Interestingly, though often accompanying intellectual property rights infringement claims, the principle of unlawful competition falls under the broad umbrella of the law of delict, specifically the Aquilian action.
The question arises then, what makes a competition unlawful? A simple answer is: when competitive trading transgresses another trader’s rights wrongfully. However, the list of acts that qualify as unlawful competition is not finite. Still, some actions have emerged more frequently in contemporary business scenarios:
- Business operations in violation of an explicit statutory prohibition;
- Fraudulent representations by a competitor about their own business or products;
- Dissemination of damaging falsehoods about a competitor’s business by a rival trader;
- A competitor passing off their goods or services as those of a rival;
- Unjust use of a competitor’s efforts and results;
- Exploitation of confidential information to further personal business interests at a competitor’s expense; and
- Provocation or procurement of a contractual breach.
Diving into the types of unlawful competition, trading in contravention of an express statutory prohibition refers to engaging in business activities explicitly forbidden by law, giving an unjust edge to the offender. This overlaps significantly with anti-competitive behaviour. Examples are manifold, including conducting business activities without requisite licenses or permits or trading against consumer protection laws like deceptive pricing.
Fraudulent misrepresentations made by a rival trader involve intentionally distorting facts about one’s own business or products to gain an unfair advantage. Misrepresentations can manipulate consumers into buying based on false or exaggerated information, thereby distorting market perceptions.
Passing-off pertains to misrepresenting one’s goods or services as those of or associated with another, infringing on their name, mark, symbol, or trade dress. A successful passing-off claim requires demonstrating reputation and goodwill associated with the trademark or get-up, and that the misrepresentation resulted in or is likely to cause harm.
The unfair use of a competitor’s fruits and labour involves unjustly capitalising on another company’s efforts or investments without due authorisation or compensation. It includes copying or imitating a competitor’s goods or services without the necessary rights and permissions, or using a competitor’s research and development without prior authorisation.
Misappropriation and misuse of trade secrets constitute another category of unlawful competition, involving the exploitation of a competitor’s confidential information to gain an unjust advantage.
Injurious falsehoods are misrepresentations about a competitor’s products, services, or business, which also fall under unlawful competition. False or misleading claims about a product or business are considered unlawful.
Procuring a breach of a contractual obligation refers to intentionally inducing another party to violate or breach their contractual obligations with a third party, usually to gain a competitive advantage or to harm the business interests of the party with whom the contract is in place.
Businesses must be aware of the various forms of unlawful competition and their accompanying remedies, and how they can rely on the common law action of unlawful competition to protect their interests. There is no clear-cut qualification of a certain type of matter as an unlawful competition matter. Its applicability and enforceability depend on the specific facts of each case, as is the approach of the South African Courts.
An effective enforcement strategy often combines different types of unlawful competition and other rights a business might have, such as those vested in a contract. However, this will depend on the applicable facts and the circumstances of each matter.
By Viteshen Naidoo | Junior Associate
And Stefaans Gerber | Senior Associate