Sec. 13. Introduction. The businessman, in his competitive
practices, is curbed by three distinct forces : first, by his own moral
concepts, as influenced by the reactions of his business associates;
second, by his liability to the injured parties for the damages occa-
sioned them ; and third, by some positive law, legislative or other-
wise, making particular conduct a crime and imposing certain pen-
alties. With the first of these controls we are not concerned, since
there is no assurance that the force will operate in any particular
case. The second control has been fairly well established, and for
the most part is found in the law of torts. Whenever a business
practice is indulged in which injures materially a competitor, the
latter has a right to recover damages unless the first party can jus-
tify his conduct.
Sec. 14. Right to compete. In general, the right to enter into
a business as a competitor of others in the same field is not denied
by our economic or political order. Even though the opening of a
new enterprise will do serious harm to existing and established
businesses, freedom of competition has not been denied. If insuffi-
cient demand exists to insure the economic life of all, the law sanc-
tions the economic death of those unable to survive. The fact that
old customers are enticed to a new business, that prospective sales
dwindle, or that similar wares are offered at lower prices gives no
cause of action to the old entrepreneur against the new. 1 Even
though one has a sale almost consummated, a competitor, with
knowledge of that fact, is at liberty to tempt the customer with a
lower price on similar goods.
To this general principle the courts have laid down one well-
defined exception. If a person enters into a competing business for
the express purpose of driving his competitor out of business and,
having accomplished his purpose, intends to withdraw from the en-
terprise, he commits an actionable wrong. 2 It is also true that, if
one conducts his business in such a manner as to embarrass or harass
unduly a competitor without correspondingly promoting his own
"Von Bremen et al. v. MacMonnies et al., 1910, 200 N.Y. 41, 93 N.E. 186; p. 845.
2 Tattle v. Buck, 1909, 107 Minn, 145, 119 N.W. 946* p. 847.
444 TRADE REGULATIONS
interests, he may be enjoined from indulging in such tactics. 3 One
who injures a competitor commits a wrong unless he can justify it
as the lawful exercise of a right.
To these general principles the legislatures have from time to
time added further exceptions in the case of public utilities. Those
industries in which the public has a peculiar interest, and which
competition most seriously hampers by duplication of facilities and
increased costs, have been relieved of competition.
Sec* 15. Threats or intimidation. Injury to one's business
resulting from threats to customers or intimidation of prospective
purchasers is recoverable in damages. If the threats are made by
one in good faith who thinks that they are legally sound, no tort
has been committed, but an injunction will be issued restraining
such conduct in the future. Thus, if the owner of a patent honestly
believes that another is infringing on his patent, he may threaten
potential purchasers with a lawsuit in case they purchase. Should
a court later determine that no infringement existed, the party who
threatened the buyers is not liable for damages. His threat was
made in good faith for the purpose of protecting his own interest.
Sec. 16. Disparagement. One who disparages or belittles the
goods of another may be enjoined from future misconduct, and in
certain instances may be compelled to pay damages to the injured
party. There are four distinct elements of disparagement:
1. An express or implied misstatement of fact as distinguished
from words of comparison which indicate merely an opinion. Such
expressions as "good" or "bad," "better" or "best" are in effect
2. The statement must concern the injured party's goods.
Merely misrepresenting favorably one's own goods never constitutes
disparagement. Some misstatement must be made about goods
offered for sale by another.
3. The motive which prompts the statement must be bad. In
other words, the statements must be intentionally made for the
deliberate purpose of injuring the other party.
4. The injured party must allege and show special as distinct
from general damages. That is, he must be able to prove loss of
specific sales as a result of the statements. A general allegation
and showing that business had declined a certain amount would not
be enough. 4
All four elements must be present in order to recover damages.
3 American Bank and Trust Co. v. Federal Reserve Bank, 1921, 256 U.S. 350, 41
S.Ct. 499, 65 L. cd. 983; p. 848.
* Hopkins Chemical Co. v. Read Drug and Chemical Co., 1914, 124 Md, 210, 92
A. 478 ; p. 850.
BUSINESS TORTS 445
A showing of the first two elements, however, will entitle one to an
injunction against a repetition of such statements.
Sec. 17. Inducing breach of contract. To induce one person
to breach his contract with another is to commit a tort. The effect
is the same even though the one who induced the breach did so in
order to sell his own goods or services.
Mere passive presentation of the merits of one's products which
has the net result of causing one to breach a contract and to pur-
chase the goods of another is not actionable. It is only where one
is active in persuading another to violate one agreement in order to
be free to make another that a tort is committed.
Closely akin to inducing breach of contract are those cases in-
volving boycotts. In general it can be said that an agreement to
boycott a certain individual or group of individuals is legal only so
long as it is in furtherance of some justifiable objective. Thus, an
agreement by retail coal dealers whereby no purchaser may pur-
chase on credit so long as he owes another dealer is legal, because of
the protection such an agreement accords all parties to it.
Appropriation of Competitor's Trade Values
Sec. 18. Trade dress or wrapper. One who devises a distinc-
tive 5 wrapper, container, or shape for a product and who builds up a
good will around it is entitled to protection. He may enjoin others
from copying his device if it is distinctive or unique. If the par-
ticular wrapper or shape serves a useful purpose or adds to the value
of the product by extending its life or usefulness, it can be protected
only by patent or by copyright.
Sec. 19. Trade-mark or name. Technically a trade-mark is
supposed to be some mark or stamp imprinted upon the product,
whereas a name does not have to be attached to the product. So
far as the legal rights of the owner are involved, there is practically
no difference between the two.
The first user of a trade-mark or name has a right to its exclusive
use. The second user of such a mark or name, or of one which is
deceptively similar, may be enjoined from its further use. Just
how similar the mark, name, or trade dress must appear before relief
will be granted presents an interesting problem. In general, it can
be said that, whenever the casual observer, as distinct from the
careful buyer, tends to be misled into purchasing the wrong article,
an injunction is available to the injured party. 6
Sec. 20. Descriptive, geographical, and proper names. A
name or mark which is descriptive of the nature of the article sold
5 George G. Fox Co. v. Hathaway, 1908, 199 Mass. 99, 85 N.E. 417; p. 851.
6 Standard Oil Co. v. Mitchie, 1929, 34 Fed.(2) 802; p. 852.
446 TRADE REGULATIONS
may not be exclusively appropriated by any one concern. Such
terms as "Always Closed" for revolving doors and "Rubberoid" for
roofing fall in the descriptive class and may be used by anyone.
The use of a geographical name is somewhat similar. Every
manufacturer or producer has a right to indicate upon his product
or produce where it is produced. The same is true in the case of
proper names. Every individual has a right to make use of his
name in connection with his business. Any good will or favorable
reputation that attaches to it should not be denied to him. Conse-
quently, one generally canjaot exclusively appropriate a proper
The three rules indicated above are subject to one well-recognized
exception. If a descriptive, geographical, or proper name has been
used so long as to become identified with a certain product, thus
having a secondary meaning, the first user will be protected in its
use. 7 Newcomers in the field who desire to use the descriptive
term, the geographical location of their plant, or their names in
identifying their products will have to qualify the use in such a
manner as to avoid possible injury to the first user's good will. The
latest cases indicate that such names cannot be identified as the
name of the product by the second user, but that the maker's name
or location may be placed on the product in some inconspicuous
manner. Thus, it is clear that no one by the name of Ford could
manufacture an automobile and call it Ford, although the name
Ford could undoubtedly be used by the manufacturer in his busi-
Sec. 21. Limited protection only. An important question in
the use of trade-marks and names is: In what territory will the
first user be protected in their use? In reply to this question, two
rules can definitely be indicated, while a third has aroused consid-
erable conflict in those states which have passed on the problem.
1. If two parties in different localities and at different times inno-
cently create and use the same name or mark, each user will be pro-
tected in that territory which he first penetrated with the ijame or
mark. The first user cannot deny the second user the benefit of the
good will which the latter has innocently built up. Each will be
protected in the territory which he has preempted by prior use. 8
2. A second user, although innocent, will not be protected in ter-
ritory where the first user has conducted any business, regardless of
how slight or trifling those business transactions are.
7 American Waltham Watch Co. v. United States Watch Co., 1899, 173 Mass. 85,
53 N.E. 141; p. 853.
8 Hanover Star Milling Co. v. Motcalf, 1915, 240 U.S. 403, 36 S.Ct. Rep. 357;
BUSINESS TORTS 447
3. If the first user's good will has penetrated into new territory,
but no business has been transacted there, a second user may adopt
the name or mark and intentionally profit by the good will which
the first user has built up. 9 This appears to be the holding of the
majority of the courts, including the Supreme Court of the United
States, although there is a vigorous minority. Sound reasoning
and fairness would both lead toward a different result. The view
of the majority prohibits expansion by the first user, defeats na-
tional advertising, submits the reputation and good will of the first
user to the hands of the second user, and destroys the uniqueness of
the name or mark. Despite this line of reasoning the Supreme
Court of the United States declared that no protection was needed
until the first user had entered a given territory. The fact that the
mark was registered with the federal government was given no
weight in the decision. The only merit in registering a trade-mark
or name is that a presumption immediately arises that the party
registering the mark or name is the first user. This presumption
can be rebutted by another's proof of prior use. The first user is
always protected regardless of registration.
A trade-mark or name is protected only against infringement on
articles of the same class. A first user cannot enjoin a second user
from use of a mark or name on an article of an entirely different
character. Three tests have been applied by the courts in deter-
mining whether articles are of the same class.
1. Are the articles so similar that one can be substituted for the
other, as cocoa or chocolate?
2. Are the articles allied products, or are they used together, such
as automobiles and automobile tires?
3. An association of ideas test: 10 does one article call the other
to mind? Are they usually associated together in retail establish-
ments? Hats and shoes offer an illustration of this group.
Through the adoption of these tests the courts attempt to prevent
the confusion of goods by consumers, to make possible the expan-
sion of a line to include new articles similar in nature, and to protect
the good will of a business concern from the assault of a predatory
competitor or one attempting to profit from the efforts of another.
Sec. 22. Effect of wrongful use of name or mark. A second
user who makes an improper use of a trade-mark, name, or wrapper
can always be enjoined from using it in the future. In addition, if
the user is an intentional wrongdoer if he intentionally profits
from the use of another's good will the injured party may recover
damages or the profits of the wrongdoer. In some courts, including
Yellow Cab Co. v. Sachs, 1923, 191 Cal. 238, 216 Pac. 33; p. 856.
10 Wall v. Rolls-Royce, 1925, 4 Fed.(2) 333; p. 857.
448 TRADE REGULATIONS
the federal courts, the first user may recover both profits and dam-
ages. It should be borne in mind, however, that damages or profits
can be recovered only in case of intentional wrongdoing. If the
second user copies the mark or name exactly or so nearly as to indi-
cate bad faith, damages or profits are recoverable. If the second
user has no knowledge of the first user's name or mark, an injunc-
tion is the only remedy available in most of the states.
Sec. 23. Trade information and advertising. Information
about one's trade, customers, processes, or manufacture is confiden-
tial in nature. If a competitor can discover this information fairly
through research, study, or observation, he may use it freely in the
absence of a patent or a copyright. However, if he obtains such
information by bribery of an employee of the first concern or by
engaging an employee of the first concern with the understanding
that he will use this information, the second party may be enjoined
from making use of it.
In this connection it should be emphasized that an idea once ex-
posed to the public may thereafter be used by anyone. The for-
ward march of civilization is dependent upon the freedom with
which new ideas are adopted. A book or magazine article contain-
ing new ideas may be copyrighted, but the ideas set forth therein
may be used by anyone so long as the language used is not published
by another. One who unfolds to an interested party a plan for
financing his product or for merging several industries may discover
later that the interested party has made use of these ideas without
compensating the originator of them.' To forestall such a possi-
bility, the originator of the idea should, before explaining his idea,
obtain a promise of payment in case his plan is adopted.
Review Questions and Problems
1. Name three forces which may be relied upon to curb unfair com-
2. Hanson was just about to complete the sale of a used car to Miller
when Sanson happened along. The latter offered a similar car to Miller
at a lower price, finally consummating the sale. If Hanson sues Sanson
for interference with his sale, should he be permitted to recover?
3. A was the only grocer in Centerville, and B, who had quarrelled
with A, rented a building and made plans to enter the grocery business
in the same community. Under what conditions, if any, will A be able
to enjoin 5?
4. X Co. was engaged in selling farm wagons in a certain state when
Y Co. entered the state with a competitive make. X Co. instructed a
representative to follow the sales agent of Y Co. and to harass or threaten
until the sales agent left the territory. What recourse, if any, has Y
BUSINESS TORTS 449
5. A, the owner of a certain make of car, is asked by F, a friend, how
he likes the car. A replies that it has a very weak transmission. As-
suming that the statement is untrue, will the manufacturer or retailer of
the car have an action against A?
6. A certain distribution company called its gasoline "Silver Flash."
A competitor named its brand "Silver Streak." Will the first user be
able to enjoin the second?
7. W. Parker desires to manufacture fountain pens and to give the
pens of his manufacture his name. Assuming there is at present a pen by
that name, has he a right to do so?
8. Elgin Watch Co., located at Elgin, Illinois, manufactures watches,
giving them the name of Elgin. Will a competitor be able to apply that
name to its watches if they are made in Elgin?
9. A" Co., selling dresses under the trade name of "Sweet Sixteen," has
been engaged in business for many years in the eastern and middle west-
ern states. 7 Co., with knowledge of the good will attached, proposes to
sell dresses under the same name in Washington, Oregon, and California.
May Y Co. be enjoined at the request of X Co.?
10. Yale Lock Co. manufactures locks of all kinds under the name
"Yale/ 7 X Co. desires to manufacture bricks and sell them under the
same name. Should it be able to do so?
11. A" Co. manufactures Stetson hats, and Y Co. desires to manufac-
ture and sell Stetson shoes. Should it be permitted to do so?