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Unfair & Deceptive Trade Practices

by Jim Slaughter

Originally published as "Sherman Antitrust Act Became Model for Similar Laws by States" in The Business Weekly of the Greensboro News & Record

 

During the nineteenth century in the United States, tremendous economic power became concentrated in the hands of a few individuals.  By the latter part of the century, some of these individuals were combining their resources in "trusts" to completely dominate various industries.  For example, Standard Oil Company controlled 90% of the lamp-oil refining in the United States; E.C. Knight Company controlled 98% of the nation's sugar refining.

Monopolies meant that a few people had the power to dictate to everybody else; the government saw this action as unfair and took action.  In July 1890 Congress passed the Sherman Antitrust Act (named after its author, Senator John Sherman of Ohio) in an attempt to preserve competition and to prevent further concentration of economic power.  The Sherman Act prohibits practices which create monopolies or restrain trade by obstructing trade and competition.

As the Sherman Act applied only to interstate and international trade and commerce, many states quickly passed Sherman-like legislation to regulate state practices.  Like the federal law, these state statutes were designed to protect the public by suppressing trusts, securing competition, and preventing monopolies.

State Regulation

Using the Sherman Act as a guide, the North Carolina General Assembly passed laws in 1913 to limit monopolies and trusts.  General Statute 75-1 states that "every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal."  Violation of the statute is a criminal felony.

If North Carolina's statute only prohibited monopolies, it wouldn't be of much use ("trust busting" on a state level isn't very common).  These days very few legal actions are filed under the state statute to regulate monopolies and trusts.  In addition to regulating monopolies, though, our state law also declares as unlawful "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce."  Although this portion of the statute is not a criminal offense, the statute provides specific relief to injured parties.

The real muscle behind the unfair or deceptive trade practices statute is the civil remedy.  Any person or business injured or destroyed by unfair or deceptive trade practices can sue the perpetrator.  To prevail on such a claim, a party must show the following:

  1. an unfair or deceptive act or practice, or an unfair method of competition,
  2. in or affecting commerce,
  3. which proximately caused actual injury to the party or to his business.

If the injured party is awarded damages, the statute automatically trebles, or triples, the damages.  The statute even allows a judge to require the unsuccessful side to pay the attorney's fees of the prevailing party.

Because "unfair methods of competition" and "unfair or deceptive trade practices" take so many forms, the statute makes no attempt to list all instances.  Instead, courts have held that the existence of unfair acts and practices must be determined from the circumstances of each particular case.  As a matter of practice, acts are usually found to be unfair and deceptive when they offend established public policy or are immoral, unethical, oppressive, unscrupulous, or injurious to consumers.  Questions as to whether or not the perpetrator intended certain consequences or acted in good or bad faith are irrelevant.  The relevant question is what effect the conduct has on the consuming public.

As described above, no precise list of unfair and deceptive acts can be created because each case must be judged on its own facts.  However, certain categories of behavior have been found to violate the statute in past cases:

arrow Fraud or misrepresentation in a commercial setting.
arrow Situations in which competitors divide up a territory in order to minimize competition.
arrow Unfair and deceptive acts and practices in the insurance industry.
arrow Deceiving creditors to extend credit to an individual who is not creditworthy.
arrow Libeling or slandering someone else's product or business activities.
arrow The "passing off" of one's goods as those of a competitor.
arrow Wrongful interference with another's contracts.
arrow Systematic overcharging of customers.

In an ordinary unfair or deceptive trade practices case, the jury is responsible for determining whether or not the alleged acts were committed.  Following this determination, the court must decide as a question of law whether or not the proven facts constitute an unfair or deceptive trade practice.

 

Articles are intended to provide general information and are not legal advice or a legal opinion. Specific questions should be directed to an attorney at Black, Slaughter & Black, PA., or to another lawyer.