Abstract
The ethics of competition is a much neglected topic. In a highly aggressive marketplace, temptations to exceed the bounds of fair competition are great. Indeed, there is a temptation to relax, or even abandon, the very notions of fair play and ethical limits on competition and to adopt the position that “anything goes” in the struggle for competitive advantage. The object of this chapter is to describe an ideal of competition that I believe is reflected in traditional law governing business competition and in our common consciousness about fair competition in many competitive enterprises. Thoughts about the principles constituting this ideal are based on my own reflections on competitive activities and on my readings in the law of unfair competition.2
In the race for wealth, honors, and preferments, [a man] may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should jostle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of.1
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Notes
Adam Smith, The Theory of Moral Sentiments, Oxford University Press edition, 1976, p. 83.
Rudolf Callmann, Unfair Competition, Trademarks & Monopolies, §§1,2 (4th ed., 1981).
For example, the Business Roundtable omits competitors from its list of constituencies in its Statement on Corporate Social Responsibility (October 1981). Many company standards of conduct do the same: General Dynamics Standards of Business Ethics and Conduct (2nd ed.); Johnson & Johnson, Our Credo; Wells Fargo Code of Corporate Responsibility and Ethics. Hewlett-Packard, by contrast, devotes an entire section of its Standards of Business Conduct to “Obligations to Competitors.” The section includes guidance on antitrust, gathering competitor information, comparative advertising, and commenting on a competitor.
Judge Goldberg in E. I. duPont deNemours & Co. v. Christopher, 431 F.2nd 1012, 1016 (5th Cir. 1970), cert. denied, 400 US. 1024 (1971).
Readers will be familiar with Albert Z. Carr’s view that business is like poker, and his conclusion that business bluffing is therefore ethical. See “Is Business Bluffing Ethical?” Harvard Business Review (January–February 1968), p. 143.
In elaborating the nature of the rules of business competition, one would want to make use of John Rawls’s distinction between summary rules and constitutive rules. See “Two Concepts of Rules,” Philosophical Review, Vol. 64 (1955), pp. 3-32.
Here, I ignore the difficulties in determining who is a competitor, a question on which a great many court cases turn. The variety of roles played by market participants and uncertainties about the substitutability of products complicate the determination of who is competing with whom for what.
Levings v. Forbes & Wallace, Inc., 8 Mass. App. 498 (1979), later app., 12 Mass. App. 990. For a comprehensive collection of the intuitive standards of unfairness judges have sought to apply, see J. Thomas McCarthy, Trademarks and Unfair Competition, §1:4 (1973).
International News Service v. Associated Press, 248 U.S. 215, 240 (1918).
This point has been noted by many courts. See, e.g., People ex rel. Mosk v. Nat’l Research Co., 201 Cal App. 2d 765 (1962): “Unfair or fraudulent business practices may run the gamut of human ingenuity and chicanery.”.
Jeremiah Smith, “The Use of Maxims in Jurisprudence,” Harvard Law Review Vol. 9 (1895), p. 13, at 26, quoted in Callmann, §2.28, n. 2, p. 105.
Discrimination law and criminal law are two cases in point.
This breakthrough in tap dancing was reported on National Public Radio in August 1988.
The author of a recent Wall Street Journal article took issue with a politician’s presenting as her own a humorous turn of phrase she had heard from someone else.
Callmann, §2.02.
Croft v. Day, 7 Beav. 84, 88, 49 Eng. Rep. 994, 996 (Ch. 1843), quoted in “Competitive Torts,” Harvard Law Review, Vol. 77 (1964), p. 888, at 908.
E.g., Synercom Technology Inc. v. University Computing Co., 474 F. Supp. 37, 44 (N.D. Texas 1979).
Among the countermeasures firms can take against industrial espionage, the trade secret expert Roger Milgrim recommends avoiding the use of phones. See 12 Business Organizations, Milgrim on Trade Secrets, §5.05 (1988), p. 5-170.
International News Service, 248 U.S. 215, 237-238 (1918).
Ibid.
DuPont v. Christopher, at 1015.
See George Melloan, “An American Views Japan’s Copycat Culture,” Asian Wall Street Journal (July 15, 1988), p. 6. It is interesting to note the traditional emphasis on copying in the development of Japanese culture, as well as the reputed thoroughness with which the Japanese study their competitors. See comment of George H. Kuper, executive director of the National Research Council’s Manufacturing Studies Board, cited in “Making Deals That Won’t Give Technology Away,” Business Week (April 20, 1987), p. 63.
I owe this terminology to Callmann. In his discussion of the maxims of fair competition, Callmann emphasizes the fundamental principle of constructive competition and stresses the centrality of constructive effort. Callmann, §2.2.
In Callmann’s words, business competition should not be seen as a struggle of one competitor against the other but of all with the others for a common prize. Callmann, §2.19.
Mr. Justice Brandeis, “Competition,” American Legal News, Vol. 44 (Jan. 1913), quoted in Mason, The Brandeis Way, A Case Study in the Working of Democracy (Princeton: Princeton University Press, 1938).
See “Competitive Torts,” Harvard Law Review, Vol. 77 (1964), p. 888, at 923-932.
107 Minn. 145, 119 N.W. 946 (1909), cited in “Competitive Torts,” Ibid., at 924.
Recommendations of the Department of Justice, Final Report and Recommendations of the Temporary National Economic Committee, S35 77th Cong. 1st sess., Exhibit No. 2794, p. 249, quoted in Callmann, §2.32, p. 108, n. 1. See also T N. Dickinson Co. v. LL Corp., 227 USPQ 145 (D. Conn. 1985) (filing of false petitions for cancellation in the Trademark Trial and Appeal Board violates state common law of unfair competition).
See cases cited in “Competitive Torts” at 924.
Antitrust law, it is commonly said, protects competition, not competitors. E.g., Redwing Carriers, Inc. v. McKenzie Tank Lines Inc., 443 F. Supp. 639 (N.D. Fla. 1977), aff’d per curiam, 594 F.2d 114 (5th Cir. 1979). Thus, certain practices that are morally objectionable and that harm a competitor may not be actionable as antitrust violations but may be actionable under other principles of unfair competition.
“Competitive Torts” at 924.
Most competitive activities do not include among their primary rules the rule: “These rules shall be followed.” That the rules are to be followed is, however, understood by those who participate.
Continental Data Systems, Inc. v. Exxon Corporation, 638 F. Supp. 432 (E.D. Pa. 1986).
Tennant Co. v. Advance Machine Co., 355 N.W.2d 720 (Ct. App. Minn. 1984). See also Robert Johnson, “The Case of Marc Feith Shows Corporate Spies Aren’t Just High-Tech,” Wall Street Journal (January 9, 1987), p. 1; “Businesses Struggle to Keep Their Secrets,” U. S. News and World Report (September 23, 1985), p. 59 (Mentor Corporation of Minneapolis reports trash surveillance).
Tim Carrington and Edward T. Pound, “Pushing Defense Firms to Compete, Pentagon Harms Buying System,” Wall Street Journal (June 27, 1988), p. 1. “[W]ith information suddenly so crucial, what makes the new Pentagon scandals differ from past ones are the allegations of bribery.”.
“Pepsi to Sue Coke over Wendy’s,” The Washington Post (November 13, 1986), p. El.
Johns-Manville Corp. v. Guardian Industries Corp., 586 F. Supp. 1034, 1075 (E.D. Mich. 1983), affd, 770 F.2d 178 (Fed. Cir. 1985).
Tamar Lewin, “Putting a Lid on Corporate Secrets,” The New York Times (April 1, 1984), sec. 3 (front page).
“Information Thieves Are Now Corporate Enemy No. 1,” Business Week (May 5, 1986), pp. 120 and 122-23.
Quoted in Gary Putka, “Lotus Gets Order Barring Ad Agency from Telling Secrets,” Wall Street Journal (December 14, 1987), p. 16. See also Cleveland Horton, “Ethics at Issue in Lotus Case,” Advertising Age (December 21, 1987), p. 6.
Callmann, §9.03, pp. 31-32.
See generally, “Post-Employment Restraint Agreements: A Reassessment,” University of Chicago Law Review, Vol. 52 (1985), p. 703.
Even the offering of better terms may be taken as evidence of improper motivation or inducing a breach of contractual relations. See Texaco, Inc. v. Pennzoil Co., 729 S. W.2d 768, 803 (Ct. App. Tex. 1987) (“It is necessary that there be some act of interference or of persuading a party to breach, for example by offering better terms or other incentives, for tort liability to arise.”) Callmann cites an 1819 case in which the plaintiff was ruined because the defendant enticed away his workers by entertaining them lavishly and offering them higher wages. Gunter v. Astor, 4 J B Moore, 12 (1819). Cited in Callmann, §9.03, p. 32.
Callmann makes this point at §9.13, p. 74.
Continental Data Systems Inc. v. Exxon Corp., 638 F. Supp. at 437.
Tennant Co. v. Advance Machine Co., 355 N.W.2d at 722.
Robert Johnson, “The Case of Marc Feith,” Wall Street Journal (January 9, 1987) at 12.
Jerry L. Wall, “What the Competition Is Doing: Your Need to Know,” Harvard Business Review (Nov.–Dec. 1974), pp. 22, 34, 164.
Ibid, at 38.
Steven N. Brenner and Earl A. Molander, “Is the Ethics of Business Changing?” Harvard Business Review (January-February 1977), p. 57. This survey, an update of a similar survey done in 1961 by Raymond C. Baumhart, showed a slight increase in the percentage of executives approving of the practice between 1961 and 1976.
The survey is described in “Industry Ethics Are Alive,” Advertising Age (April 18, 1988), p. 88. However, the results noted here are those reported by the Center for Communications, a New York-based nonprofit group, from whom I received tabulations of the results.
Survey results received from the Center for Communication, New York, New York.
Ibid., Question no. 9.
Ibid., Question no. 5.
“Uniform Trade Secrets Act with 1985 Amendments,” §l(2)(ii)(c), in Uniform Laws Annotated, Vol. 14 (1980 with 1988 Pocket Part).
C. Roland Christensen, Kenneth R. Andrews et al., Business Policy Text and Cases, 6th ed. (Homewood, IL: Irwin, 1987), p. 239.
C. Roland Christensen, Kenneth R. Andrews et al., Business Policy Text and Cases, 6th ed. (Homewood, IL: Irwin, 1987), at 243.
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Paine, L.S. (1990). Ideals of Competition and Today’s Marketplace. In: Walton, C.C. (eds) Enriching Business Ethics. Springer Studies in Work and Industry. Springer, Boston, MA. https://doi.org/10.1007/978-1-4899-2224-3_4
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