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.

Three different blogs, all focusing on business legal matters, have touched on a common (but foolish) business habit: copying other web site’s terms of use.

Terms of use are contracts between the owner of the site and the person viewing the site. As I’ve discussed before, contracts must be drafted with precision or they will not have the intended effect - namely, the contract can’t help you reach your economic goal nor can the contract adequately protect you or your business. Therefore, it is well worth the cash to get customized terms of use drafted, especially when you have a unique and specialized!

H/T: Rush Nigut, Jonathan Friedan, and Brett Trout.

Moander Law Firm

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

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.

The next few posts will concern “torts” - the area of law that focuses on civil, non-contractual injuries with damages as the standard remedy. In the business context, torts fall under two categories: (1) injuries to customers (i.e. product liability) and (2) injuries to competitors (i.e. defamation and interference with contractual relations). We’ll discuss the former in this post. Bear in mind that products liability is, unsurprisingly, a heavily litigated area of the law and so my posts on this topic are very basic; any concerns you may have about products liability should be addressed by individual legal advice.

The word “injury” generally connotes ideas of bodily harm, which constitutes what is known as products liability. However, there is another area of law concerning injury to customers called misrepresentation, where the transaction between the seller and the consumer is flawed (as asserted by the consumer).

The theory behind products liability is that society has a right to be protected from catastrophic harm resulting from defective products. While such a goal is noble, it is certainly one that terrifies many manufacturers, hence the importance of getting rudimentary understanding of the area.

In a strict liability (read: the manufacturer is not favored) products liability action, there are five elements the plaintiff must prove (I won’t list them all here); the keystone element, and the most important to businesses, is whether a product is “unreasonably dangerous.” This term, translated, asks whether the average consumer would recognize that the product is dangerous and the degree of injury risked by using the product. On the other hand, a manufacturer gets a chance to be psychic and foresee all reasonable uses of the product it produces. As a bit of personal commentary, “reasonable uses” encompasses a wide array of asinine uses of any and all products - chainsaws used as can openers (ok, that’s a stretch, but my point is that a manufacturer needs to consider the creative skills of potential customers when producing goods).

Alternatively, there are negligence actions in products liability cases, which focus on the actions of the manufacturer, not the product itself (as in strict liability cases).

Products liability lawsuits can be quite harsh to a business. One avenue of prevention often taken is use of effective and attention-grabbing warning labels to get the attention of consumers. Warning labels are not a cure-all, but they do make it clear that caution must be used with a product. Another upside is that warning labels are often cheap. Another option, one that is far more costly but internalized as easily as labels, is to “childproof” your product - by that I mean you analyze the product’s safety for every possible use (not easy). Such work takes a lot of time and money on the front end of product development, but may well be worth it. Products liability suits are extremely expensive.

Bear in mind that most products liability cases focus on consumers, not businesses. Defective products in the business realm are often covered by the UCC (contract) law.

Moander Law Firm

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