There are many ways for one business to unfairly compete with another. Sometimes the people running a business intentionally disparage another company in the same industry. They post false reviews online or tell exaggerated stories about poor service or faulty products to consumers. Other times, one organization might go to extreme lengths to try to gain access to the trade secrets of another business to duplicate the products that they offer or reduce their operating expenses.
Occasionally, a business competing unfairly with an organization actually belongs to a former leader of the other company. Those who have run a successful business with a partner might decide to strike out on their own. They might dream of expanding the company or running it somewhat differently.
In some cases, they may engage in unfair competition, especially if they made a promise not to compete with their former partner as part of their exit from the company. If a former business partner signed a noncompete agreement and has since started a similar business, litigation might be the most effective solution available.
The former partner may have breached the contract
Those frustrated by a former partner’s new business cutting in on a company’s market share may be able to take action and hold them accountable. That process usually begins with a review of the initial partnership agreement and any contracts signed at the time of the buyout where the partner exited the organization.
Frequently, buyouts include requirements to sign restrictive covenants to protect the original business. The business partner leaving the organization may have to sign a noncompete agreement that prevents them from starting a similar business or going to work for a direct competitor.
They may also have signed a nondisclosure agreement to prevent them from sharing trade secrets with others and a nonsolicitation agreement to prevent them from trying to hire the company’s employees or lure away its clients. If a former business partner signed an agreement that included restrictive covenants and then went on to start a competing business before that agreement technically ended, their behavior may constitute an actionable breach of contract.
The company affected by their questionable competition could potentially ask the courts for help. The forms of relief available range from the courts awarding damages or enforcing a high-value penalty clause in the restrictive covenant to a judge issuing an injunction to prevent the former partner from continuing their unfair competitive practices.
Gathering documentation and then discussing a concerning situation with an attorney familiar with California’s business and contract laws could help frustrated business partners push back against unfair competition. When a former business partner tries to compete against an organization they previously helped run, they may be responsible for any damage they cause and liable for any penalties that they agreed to in their initial contract or when exiting their role at the company.