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Chapter 76: Unfair Competition

§76.1 Generally

The Case: B & L Corp. v. Thomas and Thorngren, Inc. , 162 S.W.3d 189 (Tenn. Ct. App. 2004).

The Basic Facts: Employer brought action against former employees/officers alleging, inter alia, unfair competition.

The Bottom Line:

  • "We restate defendants' third issue as whether the trial court erred in entering a judgment in favor of B&L as to its unfair competition claim. In its complaint, B&L premised its unfair competition claim on the following allegations:
    The acts of the Defendants, in disregarding their covenants not to compete and in wrongfully competing with Plaintiff, together with breach of their duties of employment loyalty to Plaintiff, with the purpose and intent of harming, disrupting and interfering with Plaintiff's business in Tennessee and elsewhere, and the enticement, solicitation and inducement to breach lawful contracts of Plaintiff and the use of Plaintiff's personal property, trade secrets and business techniques all constitute unfair competition."
    162 S.W.3d at 215.
  • "In B&L I, the Middle Section stated:
    Unfair Competition is a generic name for several related torts involving improper interference with business prospects. Prosser and Keeton on the Law of Torts § 130 at 1013 (5th ed. 1984). Although all unfair competition does not stem from a breach of fiduciary duty relationship, the breach of a fiduciary relationship by an employee, using confidential information obtained while employed to the detriment of his employer, may constitute unfair competition. Plastic Industries, Inc. v. Yarborough and Co., 1988 Tenn. App. LEXIS 742, C.A. No. 57, CIV. ACTION NO. 16, 108.

    For many of the reasons already discussed in the fiduciary duty portion of this opinion we believe there to be a genuine issue of material fact regarding Thorngren's actions and remand this issue for greater examination.
    917 S.W.2d at 681.7
    FN7 In Dade Int'l, Inc. v. Iverson, 9 F. Supp.2d 858 (M.D. Tenn. 1998), the court stated:

    In its most common form, the tort of unfair competition requires a showing that:

    (1) the defendant engaged in conduct which 'passed off' its organization or services as that of the plaintiff; (2) in engaging in such conduct, the defendant acted with an intent to deceive the public as to the source of services offered or authority of its organization; and (3) the public was actually confused or deceived as to the source of the services offered or the authority of its organization.

    Sovereign Order of St. John v. Grady , 119 F.3d 1236, 1243 (6th Cir. 1997).

    This tort is generally alleged as part of a trademark infringement case. (citations omitted).

    The Tennessee Court of Appeals has considered it appropriate to extend the tort of unfair competition beyond the context of trademark infringement in certain circumstances. In B&L Corp. v. Thomas & Thorngren, Inc., 917 S.W.2d 674 (Tenn. Ct. App. 1995), for instance, the court held that an action for unfair competition could be sustained for a breach of a fiduciary relationship by an employee who uses confidential information to the employer's detriment. Id. at 681. In so doing, the court noted that '[u]nfair competition is a generic name for several related torts involving improper interference with business prospects.' Id. (citing Prosser and Keeton on the Law of Torts § 130 at 1013 (5th ed. 1984)).
    Id . at 861-62." Id.
  • "Prosser and Keeton on the Law of Torts § 130 at 1013 (5th ed. 1984), relied upon heavily by the court in B&L I, states in pertinent part:
    apart from any improper motive, unfair competition, or for that matter other interferences with prospects, can be found when the defendant engages in any conduct that amounts to a recognized tort and when that tort deprives the plaintiff of customers or other prospects. Liability for such losses may be imposed from defamation, disparagement, intimidation or harassment of the plaintiff's customers or employees, obstruction of the means of access to his place of business, threats of groundless suits, commercial bribery and inducing employees to commit sabotage."
    Id. at 215-16.
  • "As noted, defendants did not have a valid and binding non-compete agreement at the time of the alleged inappropriate and unfair competition. We have already determined that B&L's prices, customer names, contact information, and contract renewal dates did not constitute confidential business information, and therefore defendants can not be found to have improperly relied upon this information in competing with plaintiff corporation. Moreover, there is recognized authority in Tennessee supporting the proposition that 'general knowledge and skill appertain exclusively to the employee, even if acquired with expensive training, and thus does not constitute a protectible interest of the employer.' Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471, 473 (Tenn. 1984) (citations omitted); see also Wright Med. Tech., Inc. v. Grisoni, No. W2000-01302-COA-R7-CV, 2001 WL 1683754, at *25 (Tenn. Ct. App. Dec. 18, 2001) ('However, while a former employee cannot use confidential business information, he is entitled to use the general knowledge, skill and experience he acquired over the course of his employment.') (internal citation omitted). The former employee 'cannot be compelled to erase from his mind all of the general skills, knowledge and experience acquired through his experience.'") (quoting ILG Indus., Inc. v. Scott, [273 N.E.2d 393, 396 (Ill. 1971)]). While we find that the defendants breached their fiduciary duties to B&L by engaging in a covert scheme to establish a competing business and by soliciting the employment of Benson and Donnelly, the defendants were not prohibited by any agreement from competing with B&L after their employment with B&L ended, and were further not prohibited from incorporating and using the general skills and knowledge acquired during their employment with plaintiff corporation in establishing a competing venture." Id. at 216.
  • "We do not believe our finding to be inconsistent with the Middle Section's opinion in B&L I or B&L II. Upon further examination, we found that the defendants did not interfere with B&L business prospects during their tenure as executive officers with plaintiff corporation. Moreover, we concluded that the defendants did not use 'confidential' information to B&L's detriment before or after their termination or resignation from plaintiff corporation. In light of these facts, we find that the trial court erred in entering a judgment for B&L on its unfair competition claim." Id. at 216-17.

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The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

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