While seemingly unlikely to confuse between a best practice and an unfair competition practice, cases have shown that the line can become thin between the two. We explore in this article the answer to the question: is this a best practice or is it really an unfair competition practice?
What is a best practice?
A best practice can simply be defined as a set of guidelines that have been used by multiple organizations and have shown to produce good outcomes if followed. Best practices may be set by individuals, community groups, management of an organization or; a governing body with or without a legal requirement to follow them. For example, in sales and marketing, it is considered a best practice to identify potential costumers based on elements like demographics, profession, etc. Another example is follow up regularly with potential customers. In an organization, a research and marketing department helps in identifying best practices. Another method is knowledge sharing, where knowledge of different employees can become part of the collective knowledge that can turn into best practices.
What is unfair competition?
Unfair competition is broadly defined by the 1883 Paris Convention for the Protection of Industrial Property, as: “any act of competition contrary to honest practices in industrial or commercial matters.”. In many countries around the world, anti-unfair competition laws and regulations have been put in place. Despite the concept of unfair competition being broad enough to cover all acts that fit under the above definition, many legislations around the world have associated unfair competition with violations of Intellectual Property rights. Common examples are trademark infringement, false advertising, use of confidential information by former employee to solicit customers and; theft of trade secrets. In some jurisdictions such as and the UAE and Sudan, the unfair competition umbrella extends to cover practices limiting competition in the market and resulting in economic harms, such as monopolies and abuse of dominant position in a market sector. Unfair competition legislations also set remedies to be sought by injured business and consumers as a result of such acts, such as injunctive relief to restrain the competitor from continuing in the unfair competition practice; or monetary damages.
Where does the line become thin between the two?
We have now established that best practices are good and encouraged to develop businesses and industries at large; whereas unfair competition practices are harmful toward other businesses and are prohibited under laws. But where does the line become thin between the two?
A good example that answers this question, is the case of Pepsico, Inc. v. Redmond. William Redmond, Jr., worked for PepsiCo from 1984 to 1994 as management employee with “relatively high-level position” that “gave him access to inside information and trade secrets”. In late 1994 Redmond resigned from Pepsico to join Quaker's sports drink division, "Gatorade", which at the time was “the dominant brand in its market niche.”. Pepsico immediately sought a preliminary injunction against Redmond and Quaker to prevent Redmond from disclosing PepsiCo confidential information in his new job with Quaker and from being in charge of similar duties with Quaker. The district court agreed with PepsiCo and granted the injunction and the court of appeal affirmed the decision.
In its reasoning, the court of appeal stated that: “unless Redmond possessed an uncanny ability to compartmentalize information, he would necessarily be making decisions about Gatorade and Snapple by relying on his knowledge of PCNA trade secrets. It is not the "general skills and knowledge acquired during his tenure with" PepsiCo that PepsiCo seeks to keep from falling into Quaker's hands, but rather "the particularized plans or processes developed by [PCNA] and disclosed to him while the employer-employee relationship existed, which are unknown to others in the industry and which give the employer an advantage over his competitors. "AMP, 823 F.2d at 1202.” [1]
A key factor in this case, and similar cases, is the distinction between a former employee’s freedom to use the knowledge acquired during his tenure, in a new job; and a former employer’s right to protect the valuable information of the business. A good way to draw the line between the two and identify what acts fall under the unfair competition category, is to ask:
1- Does assuming responsibilities of the new job breach restrictive agreement or clauses in place between the former employer and employee?
2- Regardless of any restrictive agreement, does assuming responsibilities of the new job involve inevitable or a threat to disclosure of “trade secrets” or “confidential information” as defined in applicable laws?
If the answer to both questions is yes, then it is likely that assuming the new role will fall under the unfair competition category.
If the answer to the first question only is yes, then there is still a chance that assuming the new role is within the former employee’s freedom to use his acquired knowledge. This is due to the possibility that some clauses in the agreement signed with the former employer may not be valid. Some employers incorrectly believe that imposing very broad confidentiality obligations, puts them in a strong position. However, such clauses, if found unjustified, may be rejected by courts in many jurisdictions.
But a definitive answer to these questions will depend on a number of factors, such as the type roles (former and new), type of industry, level of risk of disclosure and other facts. In addition to the stance of local courts in issues of unfair competition and employment. If you need an advice or assistance in an unfair competition issue, please get in touch through different channels here: https://www.yybadvocate.com/get-in-touch
Many businesses and Intellectual Property creators lose the innovation and sweat behind their IP creations and businesses in general. We help these owners in protecting their rights, so they can enjoy a maximum, trouble-free, use and exploitation of such rights.
[1] FindLaw, https://caselaw.findlaw.com/court/us-7th-circuit/1337323.html , 21st August, 2024.
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