competition," not "lawful competition," not "legitimate and lawful competitive methods" are frequently employed by the courts to describe competitive acts or practices which are regarded as unlawful. The inherently unfair or fraudulent character of some of the practices considered in this chapter is unquestionably an element in determining their illegality.

Except where made criminal by statute, probably few single acts of unfair competition could be made the subject of a proceeding in the name of the State. The cases considered in this chapter are, therefore, almost wholly such as have arisen between private parties, and consequently little attention has been paid by the courts to the public consequences of the use of the practices or methods involved. Only where the cases involved a restraint of trade, or some form of fraud on the public, has the policy of preventing unfair competitive methods because of their effect on the public been considered. That the use of competitive acts or practices considered in this chapter, and held to be unlawful at the common law as between private parties, may, however, tend to restrain trade or create a monopoly appears from the fact that many of them have been employed by corporations occupying monopolistic positions in particular lines of business, or by associations of traders, and their use has been enjoined in suits instituted by the Government under the Sherman Antitrust Act.1

Common-law decisions respecting the legality of certain competitive methods are considered in the following order: (a) Inducing breach of competitors' contracts; (b) enticing employees from the service of competitors; (c) betrayal of trade secrets; (d) betrayal of confidential information; (e) appropriation of values created by competitors' expenditures; (f) defamation of competitors and disparagement of competitors' goods; (g) misrepresentation by means other than words; (h) false claims to testimonials; (i) intimidation of competitors' customers by threats of infringement suits; (j) combinations to cut off competitors' supplies or to destroy their market; (k) intimidation, obstruction, and molestation of competitors or their customers; (7) preventing the sale of competing goods by demanding contracts for exclusive dealing; (m) bribery of employees; (n) competing with purchaser after the sale of business and good will; (0) passing off the goods of one manufacturer or dealer as those of another.

There are some ingenious competitive devices or practices that have been apparently little used and have been before the courts only in isolated cases. Cases of this character are collected at the end of the chapter under the title "Miscellaneous."

1 See Ch. VIII.

Decisions not only by the courts in the United States but in England and in other countries which have the English common law have been included in this chapter. It has appeared desirable, however, to present the American and foreign decisions separately.

Section 2. Inducing breach of competitors' contracts.

It has been a common practice for manufacturers or dealers, publicservice corporations and others, to induce persons under contract to purchase supplies, goods, or service from their competitors, to break such contracts and purchase from them instead. As a result of this practice a number of cases have arisen both in the Federal and State courts where the injured party has sought to recover damages from the competitor procuring the violation of its contractual rights, or to prevent such competitor from continuing this method of competition. In the course of opinions in this class of cases the courts have referred to the practice of procuring the breach of competitors' contracts as "unfair competition," have stated that it was not within the domain of "fair competition," or have characterized it in similar terms. Thus, a Federal district court has stated that the "right to compete in business does not justify 'unfair' competition in business or trade, or misrepresentations which tend to induce one party to a legal contract to refuse to perform it to the damage of the other party";1 and in another case where damages were sought for fraudulently preventing a competitor from securing a contract the Federal circuit court of appeals said that "it will hardly be contended that the means charged to accomplish the wrong, prompted by the motive charged, brings the conduct of the defendants within the domain. of fair competition for trade." In an earlier case the Federal circuit court, referring to an offer to indemnify a competitor's customers who violated their contracts, stated that such conduct "transcends the rights of the law of competition." The Supreme Court of New York referred to inducing a breach of competitors' contracts as a step "in the same scheme of unfair competition," 4 and the Supreme Court of Oklahoma, in the course of an opinion. which involved inducing a violation of another's contracts, said that "unfair competition is, and always has been, frowned upon by the law, and the trend of decisions from Lumley v. Gye to the present time seems to sustain the proposition that it is a violation of legal right to interfere with contractual relations recognized by law if

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1 Sperry & Hutchinson Co. v. Pommer, 199 Fed., 309, 314 (D. C., 1912).

* Lewis v. Bloede et al., 202 Fed., 7, 24 (C. C. A., 1912).

a Citizens' Light, Heat & Power Co. v. Montgomery Light & Water Power Co., 171 Fed., 553 (C. C., 1909).

American Law Book Co. v. Edward Thompson Co., 84 N. Y. Supp., 225 (1903).

2 El. & Bl., 216 (1853).

there be no sufficient justification for the interference." The Supreme Judicial Court of Massachusetts, in a recent case, said: "It is manifest that to knowingly and maliciously induce another to break a contract is not justified by fair trade competition; "2 and the Supreme Court of Michigan in 1914 expressed the opinion that "there are many ways, other than by interference with contract, of harassing, interfering with, and obstructing a competitor in such a manner as to amount to unfair competition, in the broadest sense of the term." 3

AMERICAN DECISIONS.

The cases in this country involving the lawfulness of inducing or procuring a breach of contract may be divided into two broad classes, namely:

1. Those in which the breach is procured by the use of fraud, by false statements respecting the other party to the contract or his goods, by coercing or intimidating one of the parties to abandon the contract, or by the employment of other unlawful means.

2. Those in which no unlawful means are employed but where the violation of contractual rights is induced by mere persuasion or argument, or by the offer of lower prices, superior goods, or other similar means.

INDUCING BREACH BY FRAUD, COERCION, INTIMIDATION, OR OTHER UNLAWFUL MEANS.-It is very generally held by Federal and State courts that it is unlawful and gives rise to a cause of action for damages, to induce one of the parties to a contract not to perform it, if fraud, coercion, intimidation, molestation, or other unlawful means be employed to procure this action on the part of the contracting party. Thus it was held by the Supreme Court of the United States that one who had a contract to construct a railroad could recover damages from a competing line which, by bribing officials of the road under construction and by false representations, induced the State legislature to revoke a grant of land to the road, thus making it impossible to continue the construction of the line and depriving the contractor of the benefit of his contract. And where merchants purchased trading stamps from a company and agreed not to use the stamps of any other company, the Federal district court held it unlawful for a competing company to procure the merchants by false representations to break their contracts; and enjoined the rival company from further soliciting or inducing merchants, "by any illegal

1 Schonwald et al. v. Ragains, 122 Pac., 203 (Okla. Sup. Ct., 1912).

* Wheeler-Stenzel Co. v. American Window Glass Co. et al., 202 Mass., 471 (1909). Attorney General r. National Cash Register Co., 148 N. W., 420, 428 (Mich, Sup. Ct,

Angle v. Chicago, St. Paul, etc., Ry., 151 U. S., 1 (1894).

means or methods," to violate their agreements.' The same principle was applied in another case where a Federal court held it to be unlawful for the unsuccessful bidder for a contract to prevent by fraud and collusion the consummation of a contract with another whose bid had been accepted.2

Similarly, the Supreme Court of New York held that it was unlawful and ground for an injunction for a publishing house intentionally to make false statements regarding the relative merits of its own and a rival publisher's works for the purpose of inducing the latter's subscribers to break their contracts and purchase the books of the former; and to agree to indemnify the subscribers so violating their contracts in the event of suit. In an earlier case it was held that a party who had contracted to sell hogs to another at a future date could recover damages from a third party, who, learning of the contract, falsely represented to the intending purchaser that the hogs would not be delivered as agreed and thus induced him to buy his own hogs instead. Similarly, where the plaintiff had contracted to purchase cheese from another, and the defendant, a competitor, with knowledge of the contract, induced the owner to sell the cheese to him, it was held that the plaintiff could recover damages.

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A similar ruling was recently made by the Maryland Court of Appeals. It appears that an ice-making company threatened to discontinue selling a wholesale company whom it was under contract to supply, unless the latter would break its contract to deliver large quantities of ice to a local dairy company, the manufacturer being desirous of securing the patronage of the dairy company. Fearing that it would be unable to purchase ice elsewhere, the wholesaler yielded, but later sued the manufacturer for compelling it to give up its contract with the dairy company, and it was held that damages could be recovered." In Schonwald et al. v. Ragains' the Oklahoma Supreme Court held it unlawful for the members of an association of ice

1 Sperry & Hutchinson Co. v. Pommer, 199 Fed., 309 (D. C., 1912). Lewis v. Bloede, 202 Fed., 7 (C. C. A., 1912).

3 American Law Book Co. v. Edward Thompson Co., 84 N. Y. Supp., 225 (1903). 4 Benton v. Pratt, 2 Wend., 385 (N. Y., 1829).

Rice v. Manley, 66 N. Y., 82 (1876).

Sumwalt Ice Co. v. Knickerbocker Ice Co., 80 Atl., 48 (Md. Ct. of App., 1911). Per Burke, J.: "The plaintiff had the right to carry on its business under the contract with the Gardiner Dairy Company and it was the legal duty of the defendant to refrain from the use of intimidation, force, coercion, threats, or any other illegal means with a view of preventing it from doing so, and, if with the purpose and by the means stated in the declaration defendant prevented the plaintiff from fulfilling its contract with the Dairy Company and thereby the plaintiff was damaged as alleged, the defendant's liability for such damage or loss can not be seriously doubted. The gist of the action is the wrongful and unlawful interference with the business relations of the plaintiff by the means and for the object alleged."

122 Pac., 203, 210 (Okla. Sup. Ct., 1912). See also Standard Oil Co. v. State, post p. 160; Standard Oil Co. v. Doyle, 622, p. 459.

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dealers to procure the patrons of a competing outside dealer to break their contracts for ice, by refusing to sell them unless they disregarded these contracts, and by threatening that when the competing dealer's supply of ice was exhausted the members of the association would not sell to anyone who had purchased from him.' And where an association of laundrymen, for the purpose of compelling a competing laundry agent to maintain their scale of prices, procured other laundries, by offers of money or by threats to ruin their business, to refuse to perform their contracts to do work for the said laundry agent, it was held that the latter was entitled to damages and that the right of competition in trade was not a justification for such acts.2 In a number of other cases, both Federal and State, it has been held unlawful to induce a breach of contractual obligations by fraudulent or other unlawful means. In a majority of these cases, however, the parties to the controversy were not competitors and the question whether competition was a justification for the acts was not therefore passed upon.3

INDUCING BREACH OF CONTRACT BY LAWFUL MEANS.-As stated above, it is generally regarded as unlawful to induce or procure one of the parties to a contract to refuse to perform it if any unlawful means be employed to effect this end. A more difficult question, and one

1 In this case the court, per Robertson, Commissioner, said in part: In the instant case had the conduct of Schonwald and the ice company been directed and gov erned solely by the desire to legitimately eliminate Ragains' retail ice business by fair competition no action could have been maintained against them, but it is plainly evident that they were not so limited, directed, or actuated. The threats, coercions, and intimidating statements made by them to the customers of Ragains had for their sole and primary object, not the building up of their own legitimate business, but the destruction of Ragains' business, and that, too, by the most unreasonable, unfair, coercive, and unjustifiable methods. The only legitimate result of their conduct, as is plainly shown by the testimony, from the commencement of the troubles between them was to injure unfairly, and without sufficient excuse or justification, the business of Ragains. They did not sell their ice cheaper. They did not claim to have a better grade or quality of ice. They did not offer better delivery facilities. They did not offer any inducement by way of credits or time in payment of accounts. They did not show by any legitimate or reasonable or justifiable method that the customers by patronizing them would obtain better results or better service than Ragains could furnish, and their sole and only excuse was that they enjoyed a monopoly of the ice business in Blackwell and vicinity, and thereby controlled the ice market, and that unless the customers who had contracts with Ragains ⚫ would forthwith break and violate those contracts they could not have or purchase any ice from said defendants in case Ragains' ice supply for any reason should become exhausted; and they further informed said customers that Ragains could not, in the event of his supply becoming exhausted, purchase ice from any other person who supplied said city with ice on account of combinations and understandings had by said defendants with other ice companies, the benefits of which said combinations were denied Ragains, and that, therefore, the said customers would be unable to procure any ice at all. There was no possible excuse or justification for such conduct. The actions of defendants without doubt were malicious and unwarranted."

* Doremus r. Hennessy, 176 Ill., 608 (1898).

a Bitterman r. Louisville & Nashville R. R. Co., 207 U. S., 205 (1907); Delaware, Lackawanna & Western Ry. Co. r. Frank et al., 110 Fed., 689 (C. C., 1901); Kinner et al. v. Lake Shore & Mich. So. Ry., 13–23 Ohio C. C. Dec., 294 (1902); American Malting Co. v. Keitel, 209 Fed., 351 (C. C. A., 1913); Krigbaum v. Sbarbaro et al., 138 Pac.. 364 (Cal. Dist. Ct. of App., 1913); Perkins v. Pendleton et al., 90 Me.. 166 (1897); Morgan Andrews, 64 N. W., 869 (Mich. Sup. Ct., 1895); London Guarantee Co. v. Horn, 206 III., 493 (1904).