Unfair competition from a former business partner
One of our most established clients in the Firm asks us the following question: his ex-partner, with whom he set up the company 10 years ago, has set up a new company, in the same sector, with the same activity and several of the clients they had have “gone” with it. Is there unfair competition and could you take legal action against it?
When is there unfair competition from a former business partner?
In order to answer correctly, it is necessary to determine the personal and professional circumstances of this specific case. Thus, in the first place we must know if his ex-partner’s departure from the company was “agreed” or not .
On many occasions there is an agreement that determines the way of sharing the know-how, contacts with clients, goodwill, contracts with service providers and all other details that can make up the activity of the company.
If that agreement exists in this case, what should be studied is whether the actions carried out by the former partner have violated its content and, therefore, , you can be sued for breach of contract.
Now, in the case of our client, there has been no exit agreement. In this case, what is essential is to analyze whether the conduct of the ex-partner has been carried out in good faith or it has not existed. Under this prism, we will analyze those acts:
Unfair competition from a former business partner
Use of customer list.
The Supreme Court has already considered in numerous jurisprudence that customer lists do not constitute a violation of the company’s business or industrial secrets. However, this use can be considered in bad faith when the acquisition of these customers has not been carried out by a mere price reduction (which is accepted) but through a denigrating and defamatory activity of the initial company, inciting to break the contractual relations with it.
Creating a conflict of interest.
It is very important to determine when the former partner performed this customer contact activity because if it was during their tenure at the initial company, It would be a clear case of bad faith since his actions should have been aimed at favoring what was his company and not benefiting at its expense by creating the most convenient environment for his departure and subsequent competition in the same sector and with the same activity.< /p>
Recruitment of key personnel from the start-up company.
This point is related to the previous one. If the departure of the ex-partner coincides with the departure of a series of key people from the initial company’s staff that jeopardize the maintenance of the normal activity of the company, it is presumable that it has been planned in advance (especially if that staff starts working with the ex-partner). This loss of assets of human capital prior to leaving the company can be understood as an act of bad faith against it.
Use of know-how and any other professional or industrial secret of the company.
At this point the bad faith is evident. These acts are expressly included in art. 13 of the Unfair Competition Law as an illegal activity reportable before the Courts. In this case, if there is no prior registration of intellectual or industrial property, the burden falls on the company to prove that this information was originally yours and that its nature is sensitive and detrimental to your interests if used by a competitor. This would be the case, for example, of the use of similar names and procedures in the new company.
Conclusion
In conclusion, a break between two partners and the continuation of two business projects in the same market can cause damage to the original company as long as the ex-partner’s actions are objectively considered in bad faith not accepted by the special legislation of unfair competition.
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Unfair competition from a former business partner
Luis Ester Casas
Lawyer expert in Civil and Commercial Law
05/07/2018
