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Interference with Business Relations

No business can effectively compete without establishing good relationships with its employees and customers. In some instances the parties execute a formal contract to memorialize the terms of their relationship. In other instances business relations are based on a less formal oral agreement. Most often, however, business relations are conducted informally with no contract or agreement at all. Grocery shoppers, for example, typically have no contractual relationship with the supermarkets that they patronize. The law of unfair competition regulates all three types of relationships, formal, informal, and those falling somewhere in between.

Many businesses depend on formal written contracts to conduct business. Employer and employee, wholesaler and retailer, and manufacturer and distributor all frequently reduce their relationships to writing. These contractual relations create an expectation of mutual performance, meaning that each party will perform its obligations according to the terms of the agreement. Protecting these relationships from outside interference facilitates performance and stabilizes commercial undertakings. Interference with contractual relations upsets commercial expectations and drives up the cost of doing business by involving competitors in squabbles that can find their way into court.

Virtually every contract, whether written or oral, qualifies for protection from unreasonable interference under the law of unfair competition. Noncompetition agreements are a recurrent source of litigation in this area of the law. These types of agreements are generally struck up in professional employment settings where an employer requires a skilled employee to sign an agreement promising not to go to work for a competitor in the same geographic market. Such agreements may also expressly prohibit the employee from taking client files, customer lists, and other tangible and intangible assets from the employer.

Noncompetition agreements are generally enforceable, unless they operate to deprive the employee of the right to meaningfully pursue a livelihood. Employees who choose to violate the terms of a noncompetition agreement may be sued for breach of contract, but the business that enticed the employee away from the employer may be held liable for tortious interference with an existing business relationship. The elements of this tort are: (1) the existence of a business relationship or contract; (2) the wrongdoer’s knowledge of the relationship or contract; (3) the wrongdoer’s intentional action taken to prevent contract formation, procure contractual breach, or terminate the business relationship; (4) lack of justification; and (5) resulting damages.

Informal trade relations that have not been reduced to contractual terms are also protected from outside interference by the law of unfair competition. Businesses are forbidden from intentionally inflicting injury upon a competitor’s informal business relations through improper means or for an improper purpose. Improper means include the use of violence, undue influence, or coercion to threaten competitors or intimidate customers. For example, it is unlawful for a business to blockade an entryway to a competitor’s shop or impede the delivery of supplies with a show of force. The mere refusal to deal with a competitor, however, is not considered an improper means of competition, even if the refusal is motivated by spite.

Malicious or monopolistic practices aimed at injuring a rival may constitute an improper purpose of competition. Monopolistic behavior includes any agreement between two or more people that has as its purpose the exclusion or reduction of competition in a given market. The Sherman Anti-Trust Act of 1890 makes such behavior illegal by proscribing the formation of contracts, combinations, and conspiracies in restraint of trade. 15 U.S.C.A sections 1 et seq. Corporate mergers and acquisitions that suppress competition are prohibited by the Clayton Act of 1914, as amended by the Robinson-Patman Act of 1936. 15 U.S.C.A. sections 12 et seq. The Clayton Act also regulates the use of predatory pricing and unlawful tying agreements. Predatory pricing is the use of below-market prices to inflict pecuniary injury on competitors. A tying agreement is an agreement in which a vendor conditions the sale of one product upon the buyers promise to purchase an additional or “tied” product. For example, the U.S. Department of Justice sued Microsoft Corporation for allegedly tying its Internet Explorer web-browsing product to the sale of its Windows operating system. U.S. v. Microsoft Corp., 253 F.3d 34 (D.C.Cir. 2001). The case was settled before the issue was finally resolved by a court.

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