California's Unfair Competition Law - Uses, Abuses, and What the Future Holds. The Basics

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1 California's Unfair Competition Law - Uses, Abuses, and What the Future Holds Kenneth Fitzgerald, Esq. Latham & Watkins LLP 600 West Broadway, Suite 1800 San Diego, CA Tel: (619) Fax: (619) [email protected] The Basics Cal. Business & Professions Code defines unfair competition as 1. Any business act or practice which is: Unlawful or Unfair or Fraudulent 2. Any business act or practice which is: Unfair or Deceptive or Untrue or misleading advertising and 3. Any false advertising prohibited by

2 Other Names of Unfair Competition Law 1. The Unfair Business Practices Act 2. The Unfair Litigation Law 3. The California Lawyers Full Employment Act 4. California s Business Tax 5. &*^%!!!!! The Unlawful Prong Borrows violations of other laws Consumer suits any other laws Other laws need not provide private right of action Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, (1998) Competitor suits conduct must threaten incipient violation of antitrust law, or violate public policy or spirit of one of those laws because of anti-competitive effect Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163 (1999) 2

3 The Unfair Prong Anything can be unfair Unfair defined: when it offends an established public policy or when the practice is immoral, oppressive, unscrupulous of injurious to consumers To determine what is unfair, courts must weigh the utility of the defendant s conduct against the gravity of the harm to the alleged victim California Supreme Court criticized these tests as being too amorphous and provid[ing] too little guidance to courts and businesses. Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163 (1999) California Supreme Court Defining Unfair 3

4 The Fraudulent Prong Likely to deceive a reasonable consumer Actual reliance not necessary No need to prove scienter/intent to deceive Actual damages not necessary Remedies Injunction Restitution Disgorgement (not in representative actions) No attorneys fees Available under public benefit theory No damages No punitive damages 4

5 Criminal Unfair Competition Law Prosecutions Tricia Pummill Asst. District Attorney San Diego County District Attorney s Office Civil UCL Action - The Basic Problems No Injury Requirement Any person can sue irrespective of actual harm No Standing Requirement Any person may bring action on behalf of general public Settlement or judgment of non-class/representative action does not bar later suits 5

6 Abuses Benson v. Kwikset - manufacturers and retailers sued for claiming products were Made in the U.S.A., when in fact six of the screws used in the products were manufactured in Taiwan. Bergman v. Optima Financial - lending institutions sued for failing to explicitly spell out the meaning of the acronym "A.P.R. Brown, Lamore, and Yeung v. Albertson's, et al. - several retailers sued for asking about drug convictions on employment applications. Abuses Baoer v. Miramax foreign language film producers sued for using English language titles, on theory that consumers misled into thinking movies were in English Peralta v. Hilton hotel chain sued for imposing service charge on room service, on theory that mandatory tipping unfair Rice v. Fox Broadcasting Co. - producer of a videotape which demystified various magic tricks sued Fox for the claim of one of its television hosts that the secrets behind certain magic tricks would be revealed "tonight, for the first time on television." 6

7 Milberg Weiss Sues to Combat Lip-Syncing Judicial Constraints No fluid recovery or disgorgement in representative (nonclass) actions. Kraus v. Trinity Management Services, Inc., 23 Cal. 4th 116 (2000) Court has discretion to deny relief in a representative action to a plaintiff seeking relief primarily for personal benefit or who is not otherwise competent to bring suit. Id. Restitution only available where money/property taken directly from plaintiff(s) and received by the defendant. Korea Supply Co. v. Lockheed Martin Co., 29 Cal. 4th 1134 (2003) 7

8 Judicial Constraints UCL not applicable to securities transactions. Bowen v. Ziasun Technologies, Inc., 116 Cal. App. 4th 777 (2004) Proving UCL liability for unlawful conduct does not confer right to attorneys fees While the broad sweep and relaxed standing requirements of the UCL often serve a valuable purpose... they are not a license to bounty hunt for niggling statutory violations that neither harm nor threaten to harm anyone, especially when there is no showing that the offending party refused to correct the violations after they have been brought to its attention. Baxter v. Salutary Sportsclubs, Inc., (Sept. 28, 2004) Legislative Reform Proposition 64 8

9 Proposition 64 Salvation? Section 1 Findings that UCL and are being misused by some private attorneys who: File frivolous lawsuits for fees only, with no public benefit File lawsuits where no client has been injured in fact File lawsuits for clients who have not done business with defendant File lawsuits on behalf of general public with no accountability to the public or adequate court supervision Proposition 64 Imposes standing requirement on private plaintiffs Requires injury in fact Limits prosecution on behalf of general public to California Attorney General and local public officials 9

10 Proposition 64 Against Consumer Attorneys of California Attorney General Bill Lockyer Some of my colleagues For California Chamber of Commerce Civil Justice Ass n. of California Every large company Prop For 10

11 San Diego Union-Tribune Oct. 6,