Stock-photo-mazeIn 1933, California passed the Unfair Competition Law, also known as Section 17200 of the Business and Professions Code. At the time of its origination, this law allowed public prosecutors and private citizens, acting for themselves or on behalf of the public as “private attorneys general,” to file lawsuits to protect businesses from the unfair business practices of competitors. By the late 1970s, legislative amendments gradually grew to protect consumers from any “unlawful, unfair or fraudulent business act or practice” and any “unfair, deceptive, untrue or misleading advertising,” also known as Section 17500.

Up until 2004, the Unfair Competition Law was very controversial because it did not require standing for the plaintiff to sue. Essentially, the person filing the claim did not have to be the person hurt by the business practice; the plaintiff did not need to be the one deceived or harmed by the business he or she sued. This is unusual in the law and led to a lot of abuses by “professional plaintiffs” who filed harassing lawsuits just for nuisance value settlements from businesses.

Additionally, even if the plaintiff won or settled the lawsuit, it would be in his or her name only, leaving the business vulnerable to being sued again for the same conduct. That is because the lawsuits were not considered to be true class action lawsuits, so a settlement or judgment had no preclusive effect (no res judicata). As a result, many attorneys were using Section 17200 as an “add-on” claim in traditional torts lawsuits to raise the prospect of a larger payout.

In November 2004, the law was updated once again with the passage of Proposition 64. The Unfair Competition Law now requires that a representative claim seeking relief on behalf of others may be brought only by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Proposition 64 also added language that cross-references California’s class action statute, which means that all representative actions under Section 17200 or Section 17500 must meet regular class action requirements.

The ability to defend a typical California Unfair Competition Law action requires an in-depth knowledge of this unique statute, a command of the rules and procedures governing class-action litigation and, in many cases, an understanding of substantive areas of law that are used to trigger the Unfair Competition Law violation. Here are just a few examples of actions that violate Section 17200 and Section 17500 include:

  • •False Advertising and Promotion: A business makes a statement in advertising that is either untrue or is likely to deceive the customer.
  • •Misleading or Deceptive Trade Practices: A business deceives the consumer as to the quality, source, origin, or endorsement of the product.
  • •“Palming Off” Goods: A business portrays its goods to the public as being the goods of another or originating from another source.
  • •Trade Dress Violations: A business very closely copies the appearance of a competitor’s product and/or packaging so much that the consumer has trouble telling the difference between the two products.

Despite these changes in the law under Prop 64, many businesses can be surprised by what activities may expose them to lawsuits, even when their activities are innocently done. This law is still routinely used by predatory plaintiffs and competitive companies, alike, to obtain money from a business or quash competition.

Bellatrix PC’s clients and businesses subject to this California law are welcome to contact us to discuss a Business Risk Review to identify and correct potential liabilities or to consult on any threats or active litigation.