Defenses to a Section 17200 Unfair Competition Law Claim in California
May 15, 2018
California’s Unfair Competition Law (UCL) applies to a wide range of business activities. It can result in liability to consumers and businesses, although the statute limits the types of damages that courts may award. A business that is facing a UCL lawsuit has many options when it comes to defending against the plaintiff’s allegations. If you are facing this type of claim, you should make sure to understand all of the potentially available defenses.
What is Unfair Competition?
Section 17200 of the California Business & Professions Code (BPC) defines “unfair competition” in three categories:
- “Unlawful, unfair or fraudulent business act[s] or practice[s]”;
- “Unfair, deceptive, untrue or misleading advertising”; and
- Violations of the provisions of California law starting at § 17500 of the BPC.
Nearly any “person,” defined to include most business entities, may be sued under the UCL by the government or by private individuals or entities. Courts have interpreted the term “business act or practice” to cover most business-related activities, including ongoing conduct and isolated actions.
The term “unlawful” means that the alleged conduct violates another statute. The terms “unfair” and “fraudulent” have more subjective meanings. “Deceptive,” “untrue,” and “misleading” generally have their plain-language meanings, which can also be quite subjective.
Defense Based on Lack of Standing to Sue
A lack of standing to sue could be the first line of defense in a lawsuit. Any “person,” using the same definition as above, may sue under the UCL. But a plaintiff must be able to demonstrate that they have “suffered an injury in fact” and that they have “lost money or property” because of the defendant’s alleged actions.
Statute of Limitations Defense
A plaintiff must file a lawsuit within a defined period of time after the alleged unlawful act or injury occurred. In the case of UCL claims, the statute of limitations is four years. If a plaintiff fails to file within four years, the defendant usually can get the case dismissed.
Defenses Based on the Underlying Allegations
If an unfair competition claim is based on an alleged unlawful business act or practice, a defendant can raise an affirmative defense that the underlying violation did not occur, or that the alleged act or practice did not violate the law. Compliance with the law at issue is also a defense.
If a UCL claim involves alleged trademark infringement in violation of the federal Lanham Act, a defendant could, for example, challenge the underlying trademark claim. In a UCL claim involving alleged violations of state financial disclosure law, a defendant could show that the conduct in question was not covered by that law, or that they made the required disclosures.
California has recognized a “safe harbor” rule for UCL claims. In a 1999 decision, Cel-Tech Comms. v. L.A. Cellular Tel. Co., the California Supreme Court held that the UCL may not support a claim for “[a]cts that the Legislature has determined to be lawful.”
Defenses Based on the Definition of “Unfair” or “Fraudulent”
Courts around the state may have different standards for determining whether an alleged act or practice was “unfair” within the meaning of the UCL. The California Supreme Court attempted to establish a definition of “unfair” in Cel-Tech that includes “conduct that threatens an incipient violation of an antitrust law” and conduct that “violates the policy or spirit of one of those laws.”
An effective defense should be tailored to the particular court’s interpretation of “unfair,” and it should demonstrate how the defendant did not act in a way that fits that interpretation. A defendant can also attempt to show that the alleged conduct was a standard industry practice.
For claims involving allegedly “fraudulent” or “misleading” conduct, a common defense involves establishing that the defendant’s conduct was not “likely to mislead” members of the public. A notable decision from a California federal district court in 2009, Sugawara v. PepsiCo, involved a popular breakfast cereal product. The court dismissed the UCL claims, finding that the public was not likely to believe “that a ‘Crunchberry’ is some form of produce.”
In some situations, statements that are alleged to violate the UCL may be non-commercial speech that falls under the free speech protections of the First Amendment. Defendants could make other constitutional challenges to UCL claims, such as a claim that an underlying statute is unconstitutionally vague.
Preemption by federal law could serve as a defense for some UCL claims alleging unlawful conduct. Federal laws addressing banking, the environment, food safety, transportation, and other areas could preempt state laws. But courts also have held that federal law does not preempt state law in some areas.