Wisconsin Business Law and Litigation
A blog dedicated to Wisconsin business law and business litigation matters, authored by Chris Moander of the Moander Law Firm.

Unfair competition
The tort of Unfair Competition encompasses a variety of wrongs that occur between competitors. These wrongs fall into two major categories: (1) Intellectual property concerns and (2) misleading actions.

Examples of IP issues include infringement/dilution of trademarks and service marks, theft of trade secrets, copyright infringement, and other misappropriation of another business’s IP. I’ve written a bit about these areas here, here, here, and here, so I won’t go into detail on them. Suffice it to say that it is a prudent move to have someone (preferably and attorney) evaluate your IP ideas before you use them, especially if a new employee introduces you to a fantastic idea that might have come from a prior employer - lots of money at stake in IP matters.

A business has one major concern under the “misleading actions” category. Commercial defamation, also known as product disparagement, when a business makes false communications regarding another business or another business’s products. If a communication deters individuals or businesses from dealing with the business subject to the communications, whoever made the communication is liable for damages. Communications can come in print (libel) or via oral statements (slander). Bear in mind that a statement is defamatory if it tends to harm the reputation of another so as to lower him (it) in the estimation of the community or to deter third persons (or parties) from dealing with him (it).

I have not delved into all the potential business competitor torts out there because business torts, as is frequently the case with the law, are highly fact dependent. However, it is good business sense for a business owner to know about potential bases of liability. I hope my posts at least open some eyes of Wisconsin business owners.

Moander Law Firm

Chris Moander is an Attorney handling business law matters, business litigation, and collections matters throughout Wisconsin.

Tortious interference with a contract
This tort is the most common tort used in lawsuits between competitors. The story usually goes something like this: the plaintiff claims the defendant swiped a customer or vendor, while the defendant declares that it was just competing in the marketplace. And so the litigation ensues.

Here are the elements of tortious interference with a contract: (1) the plaintiff must have had either a contract or a prospective contractual relationship with a customer/vendor/etc; (2) the defendant interfered with that relationship; (3) the defendant’s interference must have been intentional; (4) a causal connection must exist between the interference and the damages; and (5) the defendant must not have been justified or privileged to interfere with the relationship.

Before anyone panics about this particular tort, understand that if the interfering business does not act with the purpose of interfering, no liability attaches to the interfering business even if the other business loses a contract. This is good news for businesses that legitimately compete and act with no ill will.

In the spirit of American business, competition in and of itself is not a basis for an interference claim, so long as no restraint of trade occurred (ex: unenforceable non-compete agreements), no wrongful means were used in competition (ex: violence or threats of violence), and the business acted to advance its own economic interests.

Prong 5 of the elements refers to “privilege.” In the context of this tort, privilege means that the interfering party has an actual right to interfere with contractual relations. A good example would be when a contractor or employee is required to report the performance of another employee. In that case, should the employee subject to the report get canned, the reporting employee is privileged and thus free of liability for interfering. The defendant has to prove privilege to the court if it asserts privilege as a defense.

Moander Law Firm

Chris Moander is an Attorney handling business law matters, business litigation, and collections matters throughout Wisconsin.

I recently covered the issue of business torts in the context of customers, but now we’re going to take a peek at torts between competitors. Most business lawsuits focus on the main legal tool of american business: contracts. However, there are torts out there designed for application to interactions between businesses, mostly in the absence of a contract.

The three primary areas of competitor-focused torts are:
Civil conspiracy,
Tortious interference with a contract, and
“unfair competition” and its various subsets

Civil Conspiracy
Civil conspiracy is a really odd tort. Most folks, including myself, think of conspiracy in terms of criminal matters (or Fox Mulder), but there is a tort under Wisconsin law (§ 134.01) that makes it illegal for two or more persons to act together to maliciously injure another person’s reputation, trade, business, or profession, with a key focus on the maliciousness of the individuals’ actions. What’s more, this tort also appears to be a crime, too! Again, rather unusual.

The elements of the tort are fairly basic after a “civil conspiracy” is defined: a combo of two ore more persons by concerted action to accomplish an unlawful purpose or to accomplish by unlawful means a purpose not in itself unlawful (in other words, not a crime). The elements are: (1) the formation and operation of a civil conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) damage resulting from such acts.

Moander Law Firm

Chris Moander is an Attorney handling business law matters, business litigation, and collections matters throughout Wisconsin.

Phew, we’ve covered the “big” torts regarding consumers. Alas, there are a few more torts that, as a business owner, you need to know of:

The Wisconsin Deceptive Trade Practices Act - this statute is also known as the fraudulent advertising statute, which indicates the commercial wrong it addresses (although it covers an array of other issues aside from fraudulent advertising). Essentially, if a salesperson makes a misleading, false, or deceptive advertisement (including face-to-face statements) to a consumer, the salesperson’s business will be liable for damages. Luckily, silence is not covered by the statute and neither is the usual sales “puffery.”

This statute is particularly pernicious to businesses because it has what is known as a fee-shifting provision. What does this mean for you, the business owner? It means that not only does the injured consumer get to recover any economic damages s/he suffers from the allegedly bogus representation, s/he also gets to recover attorney fees from you - if you lose, you get to pay the consumer’s reasonable legal fees. A very harsh penalty, indeed. Under this law, there is great value in honesty and silence.

Invasion of privacy - most folks think of the Constitution and the government when privacy is mentioned, but businesses can be liable for privacy invasion in certain instances. By and large, health-related industries are the most likely targets for invasion of privacy suits because they deal with extremely sensitive information about individual’s health matters.

Here’s the framework: (1) the business disseminates information about the plaintiff to the public at large, which can be done in a number of ways, including acts ranging from publishing internal memoranda to press releases to the local news outlets; (2) the information disseminated is private (ex: that someone has HIV); (3) the information disseminated is the kind that a reasonable person of ordinary sensibilities would find highly offensive (again, HIV diagnoses); and (4) the business acted unreasonably or recklessly with that information, given the information’s sensitive nature (a lack of a legitimate need for the public to know about such information). Other laws often come into play in invasion cases, such as federal health laws and the First Amendment. Further, companies often have privacy elements in contracts with customers which can further exacerbate an invasion tort matter.

Negligently provided services - a/k/a “malpractice” for non-professional service providers - the basic negligence rules apply here: (1) you have a duty of care your customers to not negligently perform your services for them; (2) you breach that duty of care to the customer; (3) there is a causal connection between your alleged negligence and the injury suffered by the customer; and (4) the customer suffered an actual injury. The lesson here is that your are under an obligation to perform your services with extreme care - don’t skimp on the work or you will run the risk of paying up.

As my three “consumer tort” cases show, businesses must walk a fine line when dealing with customers. Consumers in Wisconsin have many legal options available to them when they feel wronged by a business. However, one theme rings true through all of these business torts: honesty matters. Good sales skills are essential for a profitable business, but the law lays out boundaries. As always, the assistance of an attorney can prove invaluable in avoiding consumer lawsuits.

As a general matter, misrepresentation = a consumer was told a fact (not an opinion) about a product that misled the consumer into buying the product. Put another way, if the manufacturer flat out lies about a key quality of the product to get the consumer to buy it, the manufacturer exposes itself to misrepresentation liability. Normal sales puffery such as “this machine will last for years and years” is not enough to create misrepresentation liability - facts are the key. Specifically, you will always need (a) the manufacturer to make a “representation of fact” to the consumer; (b) the representation must be false; and (3) the consumer relied, to her detriment, on the false representation.

Wisconsin recognized three specific types of misrepresentation classifications, which we’ll take a peek at: (1) intentional misrepresentation (aka fraud); (2) negligent misrepresentation; and (3) and strict liability.

Intentional Misrepresentation - fraud requires, in addition to the original three elements, that the manufacturer know his statements are false and that s/he intended to deceive the consumer. All of these elements sound avoidable because it simply requires a seller to not lie.

However, things are not that simple - in some cases, the producer has a duty to disclose latent defects in a product. The rub here is that there is no clear-cut rule on when this duty exists. The lesson: if there is some huge gap in bargaining power between the manufacturer and the consumer, a duty to disclose probably exists on behalf of the manufacturer. From a sales standpoint, the duty to disclose is pure torment. Generally speaking, if a product has a latent defect, either don’t sell it or disclose it.

Negligent misrepresentation - obviously, negligence is required with this flavor of misrepresentation. The required negligence must occur in the making of the representation - the key is that everyone doing sales/etc must be made fully aware of benefits and drawbacks of product, otherwise, a manufacturer may be held liable for its negligence in not notifying sales staff of those facts.

Strict Liability misrepresentation - always bad news for a business. Negligence and state of mind do not matter; if the manufacturer or seller should have had personal knowledge of the details and the product and stood to gain financially from the sale, strict liability exists.

Misrepresentation liability is, from a business standpoint, somewhat nebulous. Yet, it is also possesses some clarity. As always, it’s good to check with an attorney as to what passes muster and what does not. I mention “preventative medicine” for businesses and this is a prime area for such measures.

Moander Law Firm

Chris Moander is an Attorney handling business law matters, business litigation, and collections matters throughout Wisconsin.

Gasp! Theft occurs in the workplace? Surely not! Oh, it’s sad but true - not all employees are honest and sticky fingers while on the clock often pick the pocket of the employer.

John Philips posted three articles on employee theft: Part I, Part II, and Part III.

I think the gist of these posts centers on two points that are always important in dealing with employees: (1) having solid policies in place and (2) enforcing them. Relationships do matter and they help make a business run well, but as John indicates, good relationships won’t stop people from boosting cash or supplies - workplace policies are king.

Moander Law Firm

Chris Moander is an Attorney handling business law matters, business litigation, and collections matters throughout Wisconsin.

It seems like no business gives substantive employee references any more. From my first job to my most recent (aside from my own firm), I don’t recall one instance of any former employer telling a potential employer anything more than “I would hire him again.” Pretty thin on details and value. We know why this trend came along…lawsuits. But is a five word reference the best practice?

The April 2008 Wisconsin Lawyer magazine has a wonderful article on the issues of employer liability and employer references, written by Matthew L. Mac Kelly. Mr. Mac Kelly outlined several points to curb employer exposure to liability when giving references, a few of which I think are novel and allow an former employer to actually communicate quality information to potential employers instead of doling out useless platitudes.

• Be truthful when making references, especially when you think the former employee poses a foreseeable risk to potential employers/co-workers. On the other hand, claiming a former employee engaged in specific conduct (especially illegal or inappropriate conduct) is a bad idea. Instead, an former employer could refer to the suspicion that the former employee engaged in certain activities.
• A former employer can formalize the reference process by selecting particular employees as the “reference folks” who have a duty to handle reference calls - only they can give references. To further formalize the process, a policy can be instituted requiring proof that a reference request is being made for a legitimate business purpose. All reference requests must be submitted in writing to the “reference folks,” thus ensuring that any reference is legit and proper.

The Coca-Cola formula. The Colonel’s Secret Recipe. Both are well-known as “trade secrets” and it also well-known that both are valuable and aggressively protected. So, what is a trade secret and what does that definition potentially mean for your business?

Wisconsin has adopted the Uniform Trade Secrets Act, which defines a trade secret - trade secret law is state-based, unlike other forms of intellectual property law. In simplified form, a trade secret is:
- information (formula, pattern, program, etc) from which your company gains specifically identifiable economic value by virtue of not being known by competitors, and
- you put reasonable efforts into keeping that information secret.
Reflecting on Coke’s formula, you can see that it’s formula provides the company with economic benefits because nobody else can reproduce the exact flavor of Coke absent the trade secret formula. Further, the formula is revealed to only a few Coca-Cola employees. Thus Coke has a trade secret.

The primary problem businesses run into with trade secret law is the second prong - reasonable efforts to maintain secrecy of the trade secret. Courts judge reasonableness based on the nature of the secret so a business generally has no way to predict what protection measures will be sufficient in the court’s eyes.

Employees are the main issue in most trade secret matters; Watergate-esque break-ins are not the real concern. Two major employee-centered problems arise: (1) whether your employees (new or not) are misappropriating the trade secrets of another business/former employer and (2) whether current and ex-employees misappropriating your trade secrets. The former subjects you to potential liability and the latter causes you to lose money and potentially need to litigate (although employee actions may not be prevented by internal rules and thus such theft is no fault of yours). For clarification, misappropriation occurs when somebody (most likely an employee) “takes” a trade secret (usually from an employer) and uses it without the owner’s consent.

When new businesses begin hiring, they are driven clarify to extreme degrees that no employee should bring in either ideas, documents, etc from former employers to use at the new job. They may also inquire into any non-compete or non-disclosure agreements the employee signed with a prior employers and, contrarily, may have employees sign new non-compete and non-disclosure agreements to protect the company’s own trade secrets.

There is no doubt that trade secrets are valuable, but they require constant tending, like a plant.

How do we determine race, ethnicity, or national origin? To some, that’s an easy question, for others, not so easy (especially businesses). The 7th Circuit, which covers Wisconsin, dissected this issue in a recent case, Abdullahi v. Prada. The lesson the court imparts is that, when a discrimination claim is filed, the case is not centered on which boxes are checked in the EEOC forms.

As background for businesses, when a discrimination complaint is filed, the person(s) filing the complaint must use a form that has boxes marked for various categories, including race, national origin/ethnicity/nationality, color, etc. The ruling in Abdullahi appears to view these boxes are rough estimates as to the basis of discrimination, not firm categories. This puts businesses in a tighter spot when sued for discrimination, particularly regarding ethnicity, national origin, and race. Again, this case is particularly important for Wisconsin businesses because Wisconsin is in the Federal Court’s 7th Circuit.

H/T: Ohio Employer’s Law Blog and Workplace Prof Blog

Forgive me for lapsing into legalese in my last post. I believe I should clarify some things.

Copyrights are an actual property right. If you own the copyright, you control that content for the allowed period of time and can generally use it how you see fit. Businesses struggle with the idea of intellectual property (particularly non-patent areas) because intellectual property rights are applied to what we call “non-exclusive property,” versus “exclusive property.” For example, consider a plot of land. If you own it, you can exclude others from entering or otherwise using the property. You have exclusive rights to the land. Nobody can use or take part of the land without depriving you of your right to use that part of the land - the property is exclusive. Intellectual property is not like that. The copying of your work does not deprive you of your property (the work itself) - two or more entities are using the work at the same time, hence the work is not exclusive. Rather, copying deprives you of your right to economically benefit from distribution of the work.

From another perspective, you and your business have invested time and money into generating even basic materials (such as marketing materials), much less major products (books or digital media). Costs sunk into these works are almost always substantial. It’s important to protect this work as your own, much like you would want to protect physical items you create or goodwill you generate - copyrights help protect your livelihood.

I briefly mentioned the need to invest money in legal advice when determining a suitable business name. It is well worth the cost to have an attorney confirm whether your chosen name is either not protected (nobody else has it) or able to be protected (geographical names and descriptive terms are not protected). You seriously curb the risk of being sued for copyright infringement and ensure the protection of your chosen company name - both are preventative in nature. Additionally, lawyer review can also help evaluate the marketing efficacy of the chosen name - is it unique enough to be remembered easily and get attention drawn to your company?